Case Law Details
ITO Vs Gujarat Fibre Grid Network Limited (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad dismissed the Revenue’s appeals for Assessment Years 2018-19, 2020-21 and 2021-22, upholding the orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC). The sole issue before the Tribunal was whether interest earned on surplus funds received from the Central Government for execution of the Bharat Net Project, and placed in fixed deposits with a Public Sector Bank, was taxable as the assessee’s income.
The assessee, Gujarat Fibre Grid Network Limited, was entrusted with implementation of the Bharat Net Project under a Memorandum of Understanding (MOU) with Bharat Broadband Network Limited (BBNL). Under the MOU, all project funds were required to be maintained in a separate project bank account. The MOU further stipulated that any surplus funds were to be kept in fixed deposits with a Public Sector Bank and that the interest accrued on such deposits would be added to the corpus of the project account.
The CIT(A) held that the interest earned on the grant-in-aid funds could not be treated as the assessee’s income because the MOU specifically required the interest to become part of the project corpus. It also observed that the assessee had no ownership over the project funds or the assets created, and that the interest could be used only for the purposes of the project. Relying on decisions of the Gujarat High Court involving similar facts, the CIT(A) deleted the addition made by the Assessing Officer under the head “Income from Other Sources.”
After examining the records and hearing both sides, the Tribunal found no infirmity in the CIT(A)’s order. It agreed that the interest earned on surplus project funds did not belong to the assessee and, under the terms of the MOU, formed part of the project corpus maintained in a separate account for execution of the project. Holding that the Revenue’s appeals lacked merit, the Tribunal dismissed all the appeals.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeals have been filed by the Revenue against the separate orders of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), all dated 01.12.2025, passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Years (A.Y.) 2018-19, 2020-21 & 2021-22.
2. The sole issue involved in all these appeals is as to whether the interest earned on the funds given by the Central Government to the assessee for the execution of the project, surplus of which was placed in a Public Sector Bank, as fixed deposits, is liable to be taxed as income of the assessee?
3. The brief facts of the case are that the assessee, M/s. Gujarat Fibre Grid Network Limited, is assigned a task of a project, namely, Bharat Net Project, which is owned by the Government of India through a Memorandum of Understanding (‘MOU’) between the assessee and the Bharat Broadband Network Limited (‘BBNL). As per the relevant clause of the MOU, all releases of funds to the state were required to be in a separate project bank account to be specially opened for the said project. The spare funds in these accounts were to be in fixed deposits with the Public Sector Bank and the interest accrued thereupon would be added to the corpus of that account. Therefore, the interest accrued on the surplus funds did not belong to the assessee, rather the same as per the MOU, would form part of the grant corpus itself. The Ld.CIT(A) considering the aforesaid clause in the MOU and the facts and circumstances of the case, has deleted the impugned additions made by the AO, observing as under:
“6.2 Ground No. 1, 2 & 4: These grounds relate to addition of Rs.2,22,58,892/-on account of interest income under the head income from other sources made by the AO. The assessee M/s Gujarat Fibre Grid Network Ltd. is assigned the task of a project which is owned by Government of India through a memorandum of understanding between the assessee and BBNL. As per the MOU it is clearly outlined that the interest income eamed on the grant-in-aid funds is not to be considered the income of GFGNL. According to Note-1 on Page 8 of the MoU:
“All releases of funds to the state shall be in a separate Project bank account to be specifically opened for the project. The utilization of this account will be made only for AE & EC of the State/SIA for this project and payment to PIA and for no other purpose(s). The spare funds in this account shall be kept in fixed deposit with a public sector bank and the interest accrued there upon will be added to the corpus of this account.”
The GFGNL does not have any ownership over funds of the project or the assets created. The interest earned on grant-in-a funds is required to be used only for purposes of the project.
6.3 The assesse has cited the order of jurisdictional High Court i.e. the High Court of Gujarat at Ahmedabad in Tax Appeal No. 855 of 2013, wherein the Hon’ble High Court placing reliance on its own decision in the case of Gujarat Municipal Finance Board v. Deputy Commissioner of Income Tax [Assessment) and in the case of Gujarat Power Corporation Limited v. Income Tax Officer has decided that interest earned on Central Government grants received is not treated as income of the assessee when the grant is accompanied by a condition that interest earned on bank deposits will form part of the grant corpus itself. Since, the facts are identical in assessee’s case, respectfully following the decision of jurisdictional High Court, the addition of Rs.2,22,58,892/- on account of interest income made by the AO is deleted and appeal of the assessee is allowed on these grounds.”
4. After hearing the learned representatives of the parties and going through the records, we do not find any infirmity in the order of the Ld.CIT(A). The Ld.CIT(A) rightly held that the interest earned on surplus funds, since, did not belong to the assessee, rather, the same as per the MOU between the assessee and the BBNL, would form the corpus of the funds placed in a separate account for the execution of the project. There is no merit in all these appeals of the Revenue and the same are, accordingly, dismissed.
5. In the result, all the appeals of the Revenue stand dismissed.
This Order pronounced on 19/06/2026
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