The Delhi bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition made under Section 56 of the Income Tax Act, 1961 and held that the interest income generated on funds owned by the Government of India (GOI) is not an income in hands of the appellate company.
The assessee company, National Highways Infrastructure Development Corporation (NHIDCL), is a fully owned company of the Ministry of Road Transport & Highways, Government of India set up under the Companies Act, 2013. The company was engaged in the business of developing National Highways and other Infrastructure in the Northeast.
The Assessing Officer (AO) made an addition of the interest in the hands of the assessee treating it as income from other sources under Section 56 of the Income Tax Act.
The assessee submitted that it is a Nodal Agency of GOI and earning agency charges based on a circular issued by MoRTH for the services rendered to the GOI. The funds for the execution of the road and infrastructure projects are financed by the GOI. The appellant has to incur the establishment expenditure towards payments of salary, rents, and other establishment expenses, these operating expenses, are met from agency charges receivable instead of supervision and management of assigned highway stretches.
The Commissioner of Income Tax (Appeal) [CIT(A)] held that on perusal of each sanction letter obtained from the MoRTH, it is mentioned that it shall be ensured that the expenditure against each sanction is incurred only on the work sanctioned by the ministry for the specific project for which specifically the fund has been sanctioned.
However, the funds received from GOl for project execution are kept in a separate bank account linked with the Flexi account. The appellant Company, out of the fund received from Gol for the project execution regularly distribute the amount to various contractors and generates asset as defined by MoRTH. Further, the said funds are kept in the bank during the period when there is a time lag between the receipt of funds and disbursing the same for the projects.
The Two-member bench comprising of B.R.R. Kumar (Accountant member) and Yogesh Kumar US (Judicial member) held that when an assessee collects certain income on behalf of the Government and remits the income back to the government and TDS was deducted in the name of the assessee then in all practical purposes income collected by the assessee was its income in hands of the assessee and the rent paid back to the Government was its expenses and the TDS credit/refund will be provided to the assessee in whose name TDS has been deducted. Hence, in this situation also there would be no income chargeable to tax. Therefore, the order of the CIT(A) was upheld and the appeal of the revenue was dismissed.
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