The Income Tax Appellate Tribunal’s Delhi Bench ruled that the National Highways & Infrastructure Development Corp. India (NHIDCL) received funds in a fiduciary capacity from the government.
The interest earned on deposits in bank accounts, derived from the funds for infrastructure projects, was deposited into the Consolidated Fund of India.
Yogesh Kumar US (Judicial Member) and B.R.R. Kumar (Accountant Member) highlighted that as NHIDCL is a fully owned company of the Ministry of Road Transport and Highways, it isn’t subject to taxation on the interest income gained from the money kept in bank accounts sourced from the Ministry for national highway and road infrastructure development.
NHIDCL, a wholly government-owned entity formed under the Companies Act, 2013, began its operations on July 18, 2014.
Its primary focus is developing national highways and other infrastructure in the Northeast.
Throughout the year, NHIDCL earns interest on surplus funds held in banks. The Assessing Officer (AO) added this interest to the assessee’s income, categorizing it as other sources of income under Section 56 of the Income Tax Act.
In response, the assessee presented to the Commissioner of Income Tax (Appeals) that it functions as a key agency for the Government of India. It levies agency charges based on a circular from the Ministry of Road Transport and Highways for services provided to the government.
The government finances the funds for executing road and infrastructure projects. The appellant covers establishment expenses like salary, rent, and other operating costs from agency charges received for supervising and managing assigned highway sections.
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The company appealing the case maintained the funds given by the Government of India in a fiduciary role. NHIDCL obtains sanctioned funds from the Government of India for specific government projects and is obligated to invest this money exclusively for these designated projects, prohibited from utilizing it for any other commercial purposes.
To fulfil this obligation, these funds are placed into a distinct bank account, recognized as government funds, to cover expenses linked directly to the assigned project.
The Commissioner of Income Tax Updates (Appeals) observed that in each sanction letter acquired from the Ministry of Road Transport and Highways (MoRTH), there’s explicit mention that the expenditure should strictly align with the work authorized by the ministry for the specific project for which the fund was granted.
Nonetheless, the funds obtained from the Government of India for project execution are stored in a separate bank account associated with the Flexi account.
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The company, utilizing the funds received from the government for project execution, consistently disburses amounts to various contractors, creating assets as defined by MoRTH.
Funds are retained in the bank during periods when there’s a time gap between fund receipt and disbursement for the projects, adhering to the Standard Operating Procedure (SOP) laid out in the Office Memorandum dated July 24, 2015, issued by MoRTH.
The interest accrued on the deposited sum is exclusively credited to the government fund, as it constitutes a segment of the government fund and not NHIDCL’s earnings. NHIDCL receives specific agency charges explicitly recognized as the company’s income.
The interest gained from the sum placed in the government fund is acquired after the deduction of TDS (Tax Deducted at Source). NHIDCL then credits the interest income, including the TDS-deducted online amount, back to the government fund.
The tribunal established that when an assessee accumulates particular income on behalf of the government, remits the income to the government, and TDS is subtracted under the assessee’s name, practically, the income gathered by the assessee becomes its own income.
Subsequently, the remittance to the government stands as its expense. The TDS credit or refund is extended to the assessee in whose name the TDS deduction occurred. Thus, in this scenario, no taxable income is ascertainable.
| Case Title | M/s. National Highways & Infrastructure Development Corp India |
| Citation | ITA Nos.49, 50 & 132/Del/2023 |
| Date | 06.11.2023 |
| Counsel For Appellant | Piyush Kaushik |
| Counsel For Respondent | Jyoti Chakraborty |
| Delhi ITAT | Read Order |
