Interest on scheme funds parked in bank deposits is not taxable where the agency merely implements the public project.

Interest earned on temporary bank deposits of government funds entrusted to a nodal agency for implementing a public infrastructure scheme was not taxable as the agency's income. The court treated the agency as a trustee or implementing conduit, because the funds had to be applied only to the scheme's objects under guidelines, and the interest was also used for that same purpose. As there was no independent profit-making activity and the money remained tied to the public scheme, the interest could not be brought to tax in computing the assessee's total income.

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Issues: Whether interest earned on bank deposits made out of government funds received for implementation of a public infrastructure scheme by a nodal agency constituted taxable income of the assessee.

Analysis: The funds were received by the assessee only for implementation of the mega city scheme and were required to be applied for the objects of the scheme in accordance with governmental guidelines. The assessee functioned merely as a nodal agency or trustee of the funds, with no independent profit-making activity of its own. The unutilised amounts were parked in bank deposits and the interest earned thereon was also utilised for the same scheme. On these facts, the interest could not be treated as income of the assessee for computation of total income.

Conclusion: The interest income was not taxable in the hands of the assessee.

Ratio Decidendi: Where money is entrusted to a government nodal agency exclusively for implementing a public scheme and any interest earned on temporary bank deposits of those funds is required to be applied to the same scheme, such interest is not assessable as the agency's income.

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