Revenue appeal dismissed: interest on grant-funded bank deposits not taxable income for nodal agency; issue factual, no substantial question

HC dismissed the Revenue's appeal, upholding the Tribunal's factual finding that interest accrued on bank deposits funded by government grants for project implementation did not constitute taxable income of the assessee acting as a nodal agency. The court found no error in the Tribunal's conclusion and held the issue to be one of fact, not raising any substantial question of law, warranting dismissal at the admission stage.

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Issues: Appeal against order treating income earned by the respondent as taxable under the Income-tax Act.

Analysis:
The judgment pertains to an appeal filed by the Revenue against a decision of the Income-tax Appellate Tribunal setting aside orders treating the income earned by the respondent as taxable. The respondent, a Karnataka State Government-owned company, acted as a nodal agency for implementing a mega city scheme funded by the Central Government. The funds received were parked in bank deposits, and the interest earned was utilized for the scheme. The Tribunal held that the respondent acted as a trustee of funds for the government and was not liable to pay tax on the interest earned. The Revenue contended that all incomes not exempted under Section 10 of the Income-tax Act are taxable under Section 4. However, the court found that the respondent, as a nodal agency, had no profit motive and the funds were to be utilized for public welfare as per guidelines. The interest accrued on bank deposits, derived from government funds, was not considered as income of the respondent for tax purposes. The court upheld the Tribunal's decision, stating it was a factual finding with no substantial question of law involved, leading to the dismissal of the appeal at the admission stage.

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