INCOME TAX ACT, 1961

Income- Diversion by overriding title -Interest income

Assessee was a State Government-owned company. It was appointed as a nodal agency for implementation of Mega-city Scheme and requisite finances for implementation of it was provided by both Central and State Governments. Assessee parked money so received in various bank deposits during unutilized period and interest earned on those deposits was directly transferred to Mega-city Scheme account. AO viewed that interest so earned and received by assessee was income of assessee and brought amount liable to tax. Held: Interest accrued on bank deposits could not be treated as income of assessee as interest was earned out of money given by Government of India for purpose of implementation of Mega-city Scheme and interest earned was also utilised for implementation of Mega-city Scheme. Thus, addition made by AO was deleted.

Income-tax Act, 1961, Section 4

A.Y. :1998-99
Decision: In favour of assessee.

CIT & Anr. v. Karnataka Urban Infrastructure Development & Finance Corporation