Interest income collected for Government and remitted to Consolidated Fund not taxable in assessee's hands under Section 56

ITAT Delhi dismissed Revenue's appeals regarding taxability of interest income on GoI funds. AO added interest as income from other sources u/s 56, but assessee collected interest on behalf of Government and remitted entire amount to Consolidated Fund of India. CIT(A) held interest belonged to GoI, not assessee, following Delhi HC precedent. ITAT agreed, noting when assessee collects income for Government with TDS in assessee's name, practical effect is income belongs to assessee but remittance to Government constitutes expense, resulting in no taxable income. Since entire interest was deposited in CFI, no addition warranted in assessee's hands.

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Issues involved:
The issues involved in the judgment are related to the treatment of interest income generated on funds received from the Government of India (GOI) by a company engaged in developing national highways and infrastructure projects. The key issues include whether the interest income should be considered as income of the company for tax purposes, the justification of deleting the addition made by the Assessing Officer, and the treatment of TDS claimed by the company.

Details of the Judgment:

Issue 1: Addition of Interest Income
The Appellate Tribunal considered the appeal filed by the Revenue against the order of the CIT(A) regarding the deletion of the addition of interest income of Rs. 191,34,88,102 made by the Assessing Officer. The Tribunal examined the nature of the funds received by the company from GOI and the purpose for which they were utilized. The company, NHIDCL, held the funds provided by GOI in a fiduciary capacity and the interest generated on these funds was credited to the government fund, not to the company. The Tribunal noted that the ownership of the interest earned clearly belonged to GOI, as evidenced by the company depositing the interest in the Consolidated Fund of India. The Tribunal relied on various judicial pronouncements and held that the interest income was not the income of the company but of GOI. Therefore, the Tribunal dismissed the appeal of the Revenue, concluding that no addition was warranted in the hands of the assessee.

Issue 2: Treatment of TDS
Regarding the treatment of TDS claimed by the company on the interest income, the Tribunal directed the company to furnish details of the interest income earned, TDS deducted, and amounts deposited in the Consolidated Fund of India to the Assessing Officer for verification and reconciliation. The Tribunal emphasized that since the entire interest earned had been deposited in the Consolidated Fund of India, no addition was required in the hands of the company. The Tribunal upheld the decision of the CIT(A) that the interest income was not taxable in the hands of the company, as it belonged to GOI.

In conclusion, the Appellate Tribunal, after considering the submissions and evidence presented by the company and the Revenue, held that the interest income generated on funds received from GOI was not taxable in the hands of the company, as the ownership of the interest income belonged to GOI. The Tribunal dismissed the appeals of the Revenue and directed the company to provide details for reconciliation of the interest income earned and deposited in the Consolidated Fund of India.

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