Interest on project funds kept in fixed deposits was not taxable when receipts were separately accounted and restricted to the project.

Interest earned on fixed deposits or temporary investments of unutilised funds received for a specified governmental project was treated as part of the project-related receipts, not as income from the assessee's independent commercial operations. Where the funds were kept separately for the designated project and the assessee had no unfettered dominion over them, the interest retained the same character as the underlying project funds. Applying its earlier view in the assessee's own matter and finding no contrary material, the Tribunal held that the interest addition was not sustainable and deleted it.

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Issues: Whether interest earned on fixed deposits/investments made from unutilised funds received for execution of a specified project was taxable in the hands of the assessee.

Analysis: The funds were received for a specific governmental project and were kept separately for that purpose. The interest earned from their temporary parking was also treated as part of those project-related funds and not as income arising from the assessee's independent commercial operations. The Tribunal followed its earlier decision in the assessee's own case and found no material distinction or contrary authority warranting a different view.

Conclusion: The addition of interest income was rightly deleted and the issue was decided in favour of the assessee.

Ratio Decidendi: Interest earned on funds received and held for a specific project, where the assessee has no unfettered dominion over the funds and the receipts are separately accounted for, does not assume the character of taxable income in the assessee's hands.

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