TaxTMI 
TaxTMI 
2023 (4) TMI 388
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....ther assessee is a state within the meaning of Article 12 of the Constitution and consequently exempt from Union tax as per Article 289 of the Constitution. 2.1 The ld. A.R. for the assessee made following submissions in respect of the issue that is common among all the above appeals viz., whether the assessee is a State within the meaning of Article 12 of the constitution and consequently exempt from union taxation as per Article 289 of the constitution. 2.2 The assessee in these appeals is Bangalore Metro Rail Corporation Limited. The assessee is a joint venture of Government of India and Government of Karnataka is a Special Purpose Vehicle entrusted with the responsibility of implementation of Bangalore Metro Rail Project. 2.3 The ld. A.R. submitted that the creation of Metro Rail Corporations across the country is contemplated by The Metro Railways (Operation and Maintenance) Act, 2002 [for short, the 'Metro Railways Act']. The said Act was promulgated by the Parliament as an Act to provide for the operation and maintenance and to regulate the working of the metro railway in the National Capital Region, metropolitan city and metropolitan area and for matters connected ....
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.... for fare fixation to be as per the recommendations of the Fare Fixation Committee that would consist of a Chairperson who would be a serving or retired judge of a High Court and two other members of the qualification specified in Section 34. It is also provided under section 37 that the recommendations of the Fare Fixation Committee shall be binding on the metro railways administration. 2.9 It is the contention of the assessee that it is an agent/instrumentality of the state and hence in view of the Article 289 of the Constitution of India, the Income Tax Act, 1961 is not applicable to the assessee. Article 12 and 289 of the constitution are reproduced below - Article 12. In this Part, unless the context otherwise requires, "the State" includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. *** Article 289. (1) The property and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of,....
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....ion under it must proceed on the foundation that the exemption is claimed in respect of property and income of a State. Once it is held that the property and income is that of the State, a question may well arise whether it is still taxable in view of the provision of Clause (2) of Article 289 which dominantly is in the nature of a proviso. Clause (2) empowers the Union to impose any tax to such extent as Parliament may by law provide, in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operation connected therewith. Thus, even the income of the State within the meaning of Clause (1) of Article 289 may be taxed by law made by the Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. Clause (1) of Article 289, therefore, empowers Parliament to frame law imposing a tax on income of a State which is earned by means of trade or business of any kind carried by or on behalf of the State Government. That is to submit, that Clause (2) empowers the Parliament to make a law imposing a tax on income earned only from tra....
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....e has never established a corporate office in Bengaluru as the existence of assessee in present form is temporary. 2.19 Further, the ld. A.R. submitted that it is pertinent to appreciate the organizational structure of the assessee, duties & responsibilities assigned to various managerial personnel and the relationship of the assessee vis-à-vis the State Government & the Central Government, and towards the public at large. The same is explained as follows: 2.20 The assessee Company was incorporated in the year 1994 and the Government of Karnataka held the entire 100% share capital of the company. Given the enormous financial requirement for the project and the Central Government's commitment to assist the State Government in this project for the sake of public welfare, in the year 2006 the Central Government decided to contribute capital to the Company and the sole venture of the Government of Karnataka was thus transformed into a Joint Venture of Government. The shareholding pattern of the assessee Company since then is - 50% held by the Government of India and 50% held by the Government of Karnataka. The assessee is thus a Government Company under section 617 of the ....
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....taka and the assessee, dated 24/12/2010 (for short, MOU) in order to set-out the broad principles of cooperation and modalities that will guide and govern the role of the Government of India and Government of Karnataka in the effective implementation of the Metro project through the assessee company. 2.25 The MOU describes the assessee as a Joint Venture Company of Government of India and Government of Karnataka within the meaning of section 617 of the Companies Act, 1956. 2.26 Clause 6.1 of the MOU provides for Institutional Arrangement as follows: The Project will be implemented by joint venture Company with Government of India and Government of Karnataka as partners. The Executing Agency i.e., the BMRCL, which is a company, established under the Companies Act, will work as a Special Purpose Vehicle for the implementation of the Project. 2.27 Clause 10.1 provides that the financing for the project will be done by way of Equity (equally by both GOI and GOK), Sub-ordinate debt (by both GOI and GOK) and Senior-term debt (from domestic/international financial institutions). Clause 10.3 provides that Government of Karnataka will exempt the assessee from its State/Loc....
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....nistrative control of the BMRCL Board of Directors; 2.29 Clause 13 provides for the obligations of the Government of India. Obligations apart from the ones which are mutual between Government of Karnataka and Government of India and already listed supra are follows: • To subscribe towards equity share capital and provide subordinate debt for utilization by the assessee before taking recourse to the Senior-term debt in order to minimize the cost of borrowing to the assessee; • To make available Senior-term debt from Japanese International Co-operation Agency (JICA) directly to the assessee through gross budgetary resources in the form of Pass Through Assistance (PTA) on back-to-back basis; • Not to give any assignment to the assessee unilaterally; • To place the annual report of the assessee before the Parliament; • To reply to the CAG's audit observations; • To place the Government of India officers, if required, on deputation to the assessee under the administrative control of the assessee's board of directors. 2.30 The clause 14 of the MOU provides for the obligations of the assessee as follows: ....
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....he Government of Karnataka and Government of India primarily with an objective of providing rapid mass transit system in Bangalore. The fare policy has been structured to be affordable by the commuters and as such the fares have been kept to the bare-minimum. 2.34 The ld. A.R. submitted that unlike any private corporation, the assessee is governed by Public Policy of providing services to the masses at affordable costs and hence there is every possibility that the assessee may not be able to service its debts from its earnings. Therefore, as a contingency to this eventuality of the assessee not being able to repay the debts, the MOU provides, under clause 12(15) that the Government of Karnataka shall support the assessee Company, for cash losses in the event of default in repayments of its debts on due dates. This itself proves that the assessee is not created with a profit motive, inasmuch as its object is purely for public purpose and essentially a government prerogative.. 2.35 The ld. A.R. submitted that the project essentially belongs to the Government of Karnataka as apart from the Equity contribution, along with Government of India, Government of Karnataka has the respo....
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....ing the project. Because except for the assessee being a company, key-officials are essentially serving Government officers on deputation and is being headed by serving IAS officer who and thus it is essentially the Government of Karnataka under joint venture with Government of India that is actually running the project in the form of Company-form of organization. 2.41 It is important to note that the Clause 15 of the MOU provides very clearly that the assessee is neither a Central Public Sector Undertaking nor a State Public Sector Undertaking, but a Board governed Company. Since the Board consists of the nominees of the State Government and the Central Government, with the general management vested with the nominee of the state government, this in itself creates a distinct identity for itself and hence cannot be compared with any government undertaking that are subject to the provisions of the Income Tax Act, 1961. 2.42 The ld. A.R. submitted that the functions and powers of the assessee indicate that it is acting as an extended arm of the State Government in establishing rail based rapid transport system and it being an instrumentality and agency of the state Government is....
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....e government has undertaken to facilitate the project in every manner possible; - that the State Government has undertaken to repay the loan to the Central Government in the event of the assessee being unable to repay itself; - that the State government has undertaken to provide help to the assessee in the event of losses/shortage of funds further add emphasis to this submission that it is instrumentality/agent of the State and the Article 289(1) is applicable to the assessee and the provisions of Act are not applicable to the assessee. 2.47 The ld. A.R. submitted that in Biharilalllobray v. Roshan Lal Dohray reported in (1984) 1 SCC 551 (SC), the Supreme Court held that, even though the incorporation of a body corporate may suggest that the statute intended it to be a statutory corporation independent of the Government it is not conclusive on the question whether it is really so independent. Sometimes the form may be that of a body corporate independent of the Government but in substance it may be just the alter ego of the Government itself. The true test of determination of the said question depends upon the degree of control the Government has over ....
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....ing within the territory of India. There is no characterisation of the nature of the "authority" in this residuary clause and consequently it must include every type of authority set up under a statute for the purpose of administering laws enacted by the Parliament or by the State including those vested with the duty to make decisions in order to implement those laws. 2.50 Reliance is also placed by the ld. A.R. on the decision of the seven judges bench of the Apex Court in the case of Sukhdev Singh & Ors. v. Bhagatram Sardar Singh Raghuvanshi reported in (1975) 1 SCC 421: 39. A public authority is a body which has public or statutory duties to perform and which performs those duties and carries out its transactions for the benefit of the public and not for private profit. Such an authority is not precluded from making a profit for the public benefit. 82. Part IV of the Constitution gives a picture of the services which the state is expected to undertake and render for the welfare of the people. Article 298 provides that the executive power of the Union and State extends to the carrying on of any business or trade. As I said, the question for consideration is w....
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....rity" in Article 12. 2.52 Similar reliance is also placed on the decision of the seven judge bench of the Hon'ble Apex Court in the case of Pradeep Kumar Biswas v. Indian Institute of Chemical Technology reported in (2002) 5 SCC 111: 23. From this perspective, the logical sequitur is that it really does not matter what guise the State adopts for this purpose, whether by a Corporation established by statute or incorporated under a law such as the Companies Act or formed under the Societies Registration Act, 1860. Neither the form of the Corporation, nor its ostensible autonomy would take away from its character as 'State' and its constitutional accountability under Part III vis-a-vis the individual if it were in fact acting as an instrumentality or agency of Government. 2.53 The ld. A.R. relied on the decision in the case of Som Prakash v. Union of India AIR [1981] SC 212 wherein the Hon'ble Supreme court has laid down four tests to check if an organization is instrument or agent of the Government. Justice Krishna Iyer speaking for the majority summarized the tests that may be applied to determine whether a particular authority is an instrumentality of the Sta....
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....tral Government and not by the board of directors in their own discretion. Clause 13.11 of the MOU presented in paragraph 6.1... supra provides that the Government of India shall be responsible to reply to the audit objections raised by the Comptroller and Auditor General and further present the Annual Report of the assessee Company before the Parliament. The MOU also provides at several places that assessee cannot take any other assignment other than what is decided mutually by its shareholders viz., State Government and the Central Government. The degree of control exercised by the Government is thus all pervasive. (c) Since it is only the Government that has the prerogative to build rail-based transportation system for the public use, hence there is hence monopoly created. There is the authority vested in the Government to create such a monopoly consistent with the provisions of Article 19 of the Constitution and the State Government, which owns the company, may discharge these functions through the instrumentality of this corporation for which sufficient provision is made in the Memorandum and Articles of Association. This also gives an indication that it is an instrum....
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....uisition of land for housing facilities of a Cooperative Society was for public purpose. It is submitted that the activity undertaken by the assessee at the behest of the State Government is a Governmental function carried on for public purpose. The observations of the Supreme Court in above rulings are supportive of the assessee's plea that the rail based public transport system implemented by it is for public purposes and that the same is being provided as a fundamental duty towards the Public. 2.59 The ld. A.R. relied on the observation of the Supreme Court in Baburao Shantaram More v. Bombay Housing Board, reported in AIR 1954 SC 153, wherein it was held that Bombay Housing Board as a corporate body was brought into existence for the purpose of framing housing schemes to solve the problem of acute shortage of accommodation in Bombay and in effect, it is a Government sponsored body not having any profit making motive. The same principle applies to the assessee. The assessee has been created for the sole purpose of addressing the transportation and pollution problem of the Bangalore City as provided in the preamble of the MOU. 2.60 He submitted that it is clear from the....
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....ch certainly is not the intention of the legislature as Government carries on most of the public utility-based business activities. The assessee has also separately argued that its income is not taxable on the basis of taxation principle 'diversion of income by overriding title' on the ground that income it receives is only on behalf-of the state and therefore the same does not constitute income for the purpose of taxation. However, the ld. D.R. submitted that since the earlier ground has not been allowed, question of adjudication of this ground does arise. 4. Further the ld. D.R. relied on the order of the Tribunal in the case of M/s. Udupi Nirmithi Kendra in ITA No.1962/Bang/2018 for the assessment year 2013-14 dated 16.6.2022. 5. We have heard the rival submissions and perused the materials available on record. The argument of the Ld. A.R. is totally misconceived. We have also gone through the Article 289 of the Constitution, which provides for exemption of property of income of a state from Union taxation. For clarity, we will mention the Article 289 of the Constitution, which reads as under:- (1) "The property and income of a State shall be exempt from U....
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.... of the State. The doctrine of separate identity or personality of the corporation is always subject to the exceptions which statutes may create, and if there is a statutory provision which clearly indicates that despite the concept of separate personality of the corporation, the trade carried on by it belongs to the share holders who brought the corporation into existence and the income received from the said trade likewise belongs to them, that would be another matter. It would then be possible to hold that as a result of the specific statutory provisions the income received from the trade carried on by the corporation belongs to the shareholders who have constituted the said corporation, and so, we must look to the Act to determine whether the income in the present can be said to be income of the State of Andhra Pradesh. 5.2 In this connection, we may refer to the observations made by Lord Denning in Tamlin Vs. Hannaford (1950) 1 KB 18: 18. "In the eye of the law" said Lord Denning, "the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servan....
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....on (151 ITD 447). The Hon'ble Supreme Court in the case of Andhra Pradesh State Civil Supplies Corporation Ltd (1984)(148 ITR 497) has, in clear terms, held that "What is exempt from taxation is the income of a State and not the income of the instrumentality or agency of a State." Hence, we are of the view that the assessee cannot considered to be a part of the Government department immune from Union Taxation. 5.6. The next contention urged before us was that the assessee is performing sovereign function of the Government. Since we have held that the assessee cannot be considered to be a part of State Government and since the private parties could also carry on the activity of Rail transport, in our view, the said contention is bound to fail. 5.7 In this case, the assessee has been incorporated under Companies Act for the purpose of operation and maintenance and to regulate the working of Metro Railway in and around Bangalore so as to meet the Urban Transport requirement in Bangalore, thereby assessee carrying on the activity of railway transport of passengers and this is an independent corporation managed by a Board of Directors. The assessee corporation was enjoying monopol....
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....ce reliance on the judgement in the case of Andhra Pradesh State Road Transport Corporation Vs. ITO (52 ITR 524), wherein held as under: "The Andhra Pradesh State Road Transport Corporation constituted under the Road Transport Corporations Act, 1950, by a notification issued by the Andhra Pradesh Government, is not immune from liability to income-tax on income derived from its trading activities, under article 289 of the Constitution of India, on the ground that its trading activities were carried on by or on behalf of the Government of the State. Though the majority of its shares are owned by the Andhra Pradesh Government and its activities are controlled by the State, the Corporation has a separate personality of its own, the trading activities are the trading activities of the Corporation and the profit and loss arising therefrom are the profit and loss of the Corporation. The income derived by the Corporation from its trading activities cannot be said to be the income of the Andhra Pradesh State under article 289. There is no repugnancy whatever between the provisions of the Indian Income-tax Act, 1922, and the Road Transport Corporations Act, 1950, so as to m....
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....e or business of any kind carried on by, or on behalf of, the Government of a State, or any operation connected therewith. Thus, even the income of the State within the meaning of Clause (1) of Article 289 may be taxed by law made by the Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. Clause (1) of Article 289, therefore empowers Parliament to frame law imposing a tax on income of a State which is earned by means of trade or business of any kind carried by or on behalf of the State Government. 9. It is true, as submitted by Sri Venugopal, that Clause (2) of Article 289 empowers the Parliament to make a law imposing a tax on income earned only from trade or business of any kind carried by or on behalf of the State. It does not authorize the Parliament to impose a tax on the income of a State if such income is not earned in the manner contemplated by Clause (2) of Article 289. This, to our mind, does not answer the question which arises for our consideration in this appeal. Clause (2) of Article 289 pre- supposes that the income sought to be taxed by the ....
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....ultural income. Under the Constitution, power to tax "income" is vested only in the Union. Therefore, while any property of the Union is immune from State taxation under Article 285(1), income derived by the State from business, as distinguished from governmental purposes, shall not have exemption from Union taxation unless the Parliament declares such trade or business as incidental to the ordinary functions of Government of the State [See Article 289(3)] (emphasis supplied). 11. Applying the above test to the facts of the present case it is clear that the benefit, conferred by Section 10(20A) of the Income Tax Act, 1961 on the assessee herein, has been expressly taken away. Moreover, the explanation added to Section 10(20) enumerates the "local authorities" which do not cover the assessee herein. Therefore, we do not find any merit in the submission advanced on behalf of the assessee. ................................................. 20. Having considered all aspects of the matter we hold that the High Court is right in concluding that the appellant/ Authority could not claim exemption from Union taxation under Article 289 (1) of the Constitution of Ind....
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....ord and the said addition of Rs.50 crores may be deleted for the advancement of substantial cause of justice. 6.5. On disallowance by the AO, assessee went in appeal before ld. CIT(A) and pleaded for allowability of the same as the same was capital receipt. However, ld. CIT(A) observed that the assessee cannot claim exemption from income tax as the assessee is nothing but a company that intends to make profits. Merely because there are no private individuals in the management or because the government nominees are appointed, does not give the Appellant a ground to claim exemption from income tax. That the Central Govt or the State Govt have participation in management of company and therefore no income tax should be charged would mean all the government owned companies must be exempted from income tax, which certainly is not the intention of the legislature as Government carries on most of the public utility-based business activities. Accordingly, for the above reasons and also considering the detailed reasoning given by the AO in the assessment order, this ground of appeal was not allowed by the ld. CIT(A). 6.6 The assessee has also separately argued before the ld. CIT(A) th....
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.... in the future, the same is capital in nature and not exigible to tax under any circumstances. The said amount does not come under the purview of income under the provisions of the Act. 7.4 The ld. A.R. submitted that even in cases where subsidy is received from Governments to Government managed corporations/bodies with a specific direction as to the purpose of such subsidy, the said subsidies are held to be out of realms of taxation (Ref: Sahney Steel & Press Works Ltd v. CIT 228 ITR 253 (SC), CIT v. Ponni Sugar and Chemical Limited 306 ITR 392 (SC) & Bihar Agricultural Produce Marketing Board v. CIT 205 Taxman 378 (Patna)). Therefore since the impugned amount of Rs.50 crores is a loan which is repayable in the future, the question of treating the same as income does not arise at all. 7.5 The ld. A.R. submitted that the learned CIT(A) ought to have appreciated the submissions above and deleted the appeal and he prayed that the above submission may be taken on record and the said addition of Rs.50 crores may be deleted for the advancement of substantial cause of justice. 8. The ld. D.R. relied on the order of the lower authorities. 9. We have heard the rival submissions....
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.... learned AO noted that the assessee had claimed as expenditure under the head donations and gifts but the same was not added back in the computation. The AO further stated that no supporting was given to substantiate the claim. The assessee contended that no details were called in this regard by the AO. The assessee further contended that the sum debited consists of donation made to Red Cross Society, Japan Relief Fund after Tsunami hit Japan. The assessee contended that Japan's corporation 'Japan International Corporation Agency' has funded nearly l/3rd of the assessee's project and therefore in order to maintain better relationship and to promote the business with Japanese corporation, the assessee contributed to Japan Relief Fund in the need of the hour and argued that it needs to be allowed under section 37 of the Act. The assessee further contended that gifts were given to dignitaries on special occasions and therefore the same constitute business promotion expenses and therefore cannot be disallowed on the facts of the case. The assessee also contended that donation was made to one M/s A K Gopalan Trust, an education trust of Rs.50,000/- and therefore it is eligib....
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....ief Fund on account of Tsunami in Japan 1,00,00,000 Gifts 3,33,156 Donation to Educational Trust 50,000 Total 1,03,83,156 12.3 The ld. A.R. submitted that the above expenditure having been incurred in relation to the business of the assessee corporation, the same is allowable under section 37 of the Act. 12.4 The ld. A.R. submitted that the assessee has contributed Rs.1 crore to Japan Relief Fund when Tsunami hit Japan, because Japan's corporation Japan International Corporation Agency has funded nearly 1/3rd of the assessee's project and therefore in order to maintain better relationship and to promote the business with Japanese corporation, the assessee contributed to Japan Relief Fund in the need of the hour. 12.5 This expenditure is truly and completely in the course of business and therefore requires to be allowed under section 37 of the Act on the facts and circumstances of the case. 12.6 It is further submitted by the ld. A.R. that the expenditure on Gifts of Rs.3,33,156/- is business promotion expenses, viz., the expenditure on gifts given to foreign dignitaries, high ranking government officials, etc., which is in line with corporate practi....
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....may be examined and exemption u/s 80G of the Act may be granted after verifying the relevant details from the receipt issued by the respective party. This ground in AY 2012-13 & 2013-14 are allowed for statistical purposes. Ordered accordingly. 15. Next common ground No.4 in assessment years 2013-14 & 2014-15 is with regard to disallowance of Forward Contract from time to time. 15.1 Facts of the case are that the learned AO noted that the assessee claimed expenditure towards forward contract premium and held that the same constitutes capital expenditure and not revenue expenditure. The assessee contended that the said amount basically reflected the difference in exchange rate between the forward rate and the rate prevailing on entering into forward contract and only the sum crystallized during the year has been claimed as expenditure. The assessee also relied on several decisions to support its case. 15.2 The ld. CIT(A) observed that the assessee has not been able to controvert the finding of the AO that the forward contract premium relate to contracts in relation to capital goods and therefore need to be capitalized and the case laws relied upon by the assessee are on dif....
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.... This issue has been considered by following judgements:- * Sutlej Cotton Mills Ltd. vs. CIT - 116 ITR 1 (SC) (1979) * CIT vs. Tata Locomotive and Engineering Company Ltd. - 60 ITR 405 (1966)(SC) * CIT vs. V.S.Dempo & Co Pvt. Ltd (206 ITR 291) (1994) (HC-Bombay) * CIT vs Woodward Governor India P. Ltd (312 ITR 254) (2009) (SC). * CIT vs. Tata Iron & Steel Co Ltd 99 Taxmann 459 (SC) 18.1 In case of Sutlej Cotton Mills Ltd. vs. CIT - 116 ITR 1, it was observed by the Apex court that: "Whether the loss suffered by the assessee was a trading loss or not would depend on the answer to the question, whether the loss was in respect of a trading asset or a capital asset. In the former case, it would be a trading loss but not so in the latter. The test may also be formulated in another way by asking the question whether the loss was in respect of circulating capital or in respect of fixed capital" 18.2 Further observation made in above case that if the amount in foreign currency is utilised or intended to be utilised in the course of business or for a trading purpose or for effecting a transaction on revenue account, loss arising fr....
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....ned during the F.Y.2011-12 on temporary fixed deposits for taxation. 21.1 The ld. A.R. submitted before the CIT(A) that similarly for the A.Ys.2007-08 & 2008-09 also identical addition was made and the assessee challenged the same in statutory appeal. The said matter was decided by the Tribunal in assessee's favour in ITA No. 1070 & 1071/Bang/2011 dated 31/10/2014 [upheld by the Hon'ble high court of Karnataka in ITA No. 117 & 118/2015 dated 23/11/2021] wherein it has been held that the interest income of the impugned nature in the assessee's case constitutes capital income in its hands. A copy of the decision of the Tribunal was submitted before the CIT(A). 21.2 In view of the decision of the Tribunal, the assessee requested the learned CIT(A) to exercise his jurisdiction and allow the relief that the assessee is eligible for in respect of the interest income earned on temporary fixed deposits, which was the subject matter of the dispute before the jurisdictional Tribunal in the assessee's own matter. The assessee prayed that the interest income of Rs.38,52,10,180/- which constitutes capital receipt in the hands of the assessee may be reduced from the income offered for taxa....
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....at he failed to do. Reliance is placed by the ld. A.R. on the following decisions in this regard - (i) Jute Corpn. of India Limited v. CIT reported in 187 ITR 688 (SC) (ii) CIT v. Nirbheram Deluram reported in 224 ITR 610 (SC) (iii) NTPC v. CIT reported in 229 ITR 383 (SC) (iv) CIT v. K S Dattatreya reported in 344 ITR 127 (Kar) (v) CIT v. Raghuraji Agro Ind.(P) Ltd reported in 349 ITR 260 (All) (vi) CIT v. Pruthvi Brokers & Shareholders reported in 349 ITR 336 (Bom) 21.7 The ld. A.R. submitted that the learned CIT(A) however failed to appreciate the submissions of the assessee and upheld the decision of the AO. The ld. A.R. submitted that the order of the CIT(A) is perverse and contrary to the position in law. 21.8 Wherefore the ld. A.R. prayed that to direct the learned AO to consider the submission of the assessee and allow the exemption in respect of the interest on temporary fixed deposits in the interest of justice. 22. The ld. D.R. relied on the order of the ld. CIT(A). 23. We have heard the rival submissions and perused the materials available on record. In this case, the claim of the assessee is that interes....
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.... was deleted. 25. We have heard the rival submissions and perused the materials available on record. The ld. CIT(A) allowed the claim of the assessee that interest income is not taxable by placing reliance on the earlier order of the Tribunal in ITA Nos.1070 & 1071/Bang/2011 dated 31.10.2014 and same has been confirmed by Karnataka High Court in ITA No.117/2015 & 118/2015 dated 23.11.2021, wherein held as under: 12. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record. 13. In TaticorZn Alkali Chemicals and Fertilizers Ltd., supra, the facts were that M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd., which was incorporated on 03.12.1971 for the purpose of, inter alia, manufacturing heavy chemicals such as ammonium chloride and soda ash, begun its production during June.. 1982. The term loans taken from various banks and financial institutions for the purpose of setting up the factories, which was not immediately required by the company, were kept invested in short-term deposits with banks, which was specifically permitted by the Memorandum and Articles of Association of the Com....
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....ban Infrastructure Development and Finance Corporation [2006] 284 ITR 582), I.T.A. No. 2418 of 2005 between the same parties, decided on February 21, 2006 The said judgment has been placed for consideration before us and we have gone through it. Essentially, the Tribunal has also placed reliance on the said judgment and accordingly held in favour of tine assessee. We have no doubt in our mind that the said judgment squarely covers the issue involved in this appeal, It has been held by the Division Bench of this Court in the aforesaid judgment in the relevant paragraph as under (page 584): "The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of the mega city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialised institutions/nodal agencies as grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to var....
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....stion of law involved in this appeal and, therefore, this appeal is liable to be di3rnissed at the stage of admission itself. " In the light of the aforesaid findings recorded by the Division Bench of this Court, we are of the considered opinion that there is no merit or, substance in this appeal. No substantial question of law arises to be answered by this Court. Thus, the appeal is hereby dismissed." 15. in the case of Karnataka State Agricultural Produce Processing and Export Corporation Ltd., supra, the co-ordinate bench of this Court (where one of us the Hon'ble SSJ was a member) following the judgments in the case of KUIDFC 1(2006) 284 ITR 582], Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, as well as Bongaigeort Refinery and Petrochemicals Ltd., vs. Commissioner of Income-tax reported in (2ool) 251 JTR 329 pc) and Commissioner of Income-tax vs, 1okaro Steel Ltd., reported in (1999) 235 ITR 315 (SC), has held thus:- "In the light of the judgments referred to above, we have examined the case on hand. It is dear that the assessee has received the grant of Rs.10 crcres from the Government of Karnataka for a particular project i.e., for im....
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.... facilities in various parts of State in a phased manner and efforts will also be made to rope in funds from Government of India under the relevant scheme from different agencies". The object of the scheme is to facilitate the farmers and to promote export of horticultural produce. Hence, the very purpose of granting Rs.10 crores to the assessee was to act as a nodal agency for implementation of the scheme. There is no profit motive as the entire fund entrusted and the interest accrued therefrom from deposits has to be utilised only for the purpose of the scheme originally granted. The whole of the fund belongs to the State exchequer and the assessee has to channelise them to achieve the objects of centrally sponsored scheme of infrastructural development as specified in the Government Order. Hence, interest on all these fixed deposits are considered to be ccpitalized and not revenue receipts to treat it as an income. The Tribunal considering these aspects and more particularly, following the judgment of this Court in KUIDC case has held that the interest earned on these grants is not an income, which we do not find fault with." 16. As could be seen from the Gover....