Interest Earned Deposited In The Consolidated Fund Of India By Way Of Challans: ITAT Deletes Income Tax Addition Against NHIDCL

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the assessee, National Highways & Infrastructure Development Corp. India (NHIDCL), received funds in fiduciary capacity from the government and deposited with the Consolidated Fund of India the interest received on deposits kept in bank accounts out of funds received for infrastructure development projects.

The bench of Yogesh Kumar US (Judicial Member) and B.R.R. Kumar (Accountant Member) has observed that the assessee, being a fully owned company of the Ministry of Road Transport and Highways, is not liable to tax on interest income received from money deposited in bank accounts out of funds received from the Ministry for the development of national highways and road infrastructure projects.

The assessee/respondent is a fully owned company of the Ministry of Road Transport and Highways, Government of India, set up under the Companies Act, 2013. The company, which started on July 18, 2014, is engaged in the business of developing national highways and other infrastructure in the Northeast.

During the year, the assessee earns interest on account of the surplus funds kept in the bank. The AO made the 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.

Before the CIT(A), the assessee submitted that it is a nodal agency of the Govt. of India and earning agency charges on the basis of a circular issued by MoRTH for the services rendered to the Govt. of India. The funds for the execution of the road and infrastructure projects are financed by the Government of India. The appellant has to incur the establishment expenditure towards payments of salary, rent, and other establishment expenses; these operating expenses are met from agency charges receivable in lieu of supervision and management of assigned highway stretches.

The appellant company held the funds provided by the Government of India in a fiduciary capacity. The NHIDCL gets the funds sanctioned from the GOI for doing specific government projects, and that money has to be invested for the said projects only; it cannot be used for any other business purpose. To fulfill the purpose, those funds are deposited into a separate bank account and considered government funds through which expenses related to the project assigned are undertaken.

The CIT(A) held that on perusal of each sanction letter obtained from the MoRTH, it is clearly 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 funds received from Gol for the project execution, regularly distributes the amount to various contractors and generates assets as defined by MoRTH. The funds are kept in the bank during the period when there is a time lag between the receipt of funds and the disbursement of the same for the projects. This is in accordance with the SOP as mentioned in the Office Memorandum dated July 24, 2015, issued by MoRTH.

The amount of interest generated on the deposited amount is credited to the government fund only, as it is part of the government fund and not the income of NHIDCL. Some agency charges are provided to NHIDCL, which is clearly stated as the income of the NHIDCL. The interest received on the amount deposited in the government fund is received after the deduction of TDS. The NHIDCL credits the amount of interest income, including the amount of TDS deducted from the government fund.

The tribunal held that when an assessee collects certain income on behalf of the government and remits the income back to the government and TDS is deducted in the name of the assessee, then, for all practical purposes, the income collected by the assessee is its income in the hands of the assessee, and the rent paid back to the government is its expense, and the TDS credit or refund will be provided to the assessee in whose name TDS has been deducted. Hence, in this situation, there would also be no income chargeable to tax.

Counsel For Appellant: Piyush Kaushik

Counsel For Respondent: Jyoti Chakraborty

Case Title: DCIT Versus M/s. National Highways & Infrastructure Development Corp India

Case No.: ITA Nos.49, 50 & 132/Del/2023

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