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09 /A.III dated 30.10.2009 respectively based on the decision of Hon'ble Karnataka High Court in the case of CIT & Another Vs. Karnataka Urban Infrastructure Development and Finance Corporation in (284 ITR 582 (Kar). The SLP filed by the Department against this order was dismissed by the Hon'ble Supreme Court. For the same reason, the interest on IDSMT fund will also have to be treated as non-taxable. Hence, I direct the Assessing Officer to delete the addition of interest on IDSMT. The appellant succeeds in this ground." Aggrieved against the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal impugning the deletion of the additions made on account of interest from IDSMT to the tune of `1,52,71,188/-.

ITA Nos.700, 701 & 603/Mds/2011 Therefore, the assessee has no control over the use of funds. In order to support his contentions, the counsel for the assessee referred to the letter dated 10th November, 1997 which is at page 42 to 44 of the paper book. The said letter has been issued by the Ministry of Urban Affairs & Employment, Department of Urban Development for the release of Central Govt. share of funds for the scheme (Infrastructural Development in Mega Cities) during the year 1997-98. The counsel for the assessee further submitted that the accounts of the assessee are audited by the Office of the Comptroller & Auditor General of India. All funds received are distinguishable and are maintained in separate accounts. The counsel further contended that the decision of the Tribunal in 05 was on different issue and the controversy in the present case is not identical to the one already decided by the Tribunal in the aforementioned appeal. The counsel for the assessee strongly supported the order passed by the CIT(A) and submitted that the case of the assessee is squarely covered by the Division Bench of the Hon'ble Karnataka High ITA Nos.700, 701 & 603/Mds/2011 Court in the case of CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation(supra).

8. We have heard the submissions made by both the parties and have examined the orders passed by the lower authorities. It is an admitted fact that the assessee is a State Government Undertaking and is only acting as nodal agency for receiving funds from Central as well as State Governments and the disbursement of the funds for the development and the infrastructure projects is as per the directions of the Government from time to time. The controversy involved in the present appeal is with regard to accrued interest on the funds advanced to the local bodies /IDSMT funds programme. The Hon'ble Karnataka High Court in CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation (supra) has held as under:-

"4. The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of mega-city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialised institutions/nodal agencies as ITA Nos.700, 701 & 603/Mds/2011 grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/created by the Government of Karnataka as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the nation/States as provided in the guidelines; the whole Of the fund belongs to the State Exchequer and the assessee has to channelise them to the objects of centrally sponsored scheme of infrastructural development for mega-city of Bangalore. Funds of one wing of the Government is distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till it is utilised, is parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received for implementation of the scheme which is for a public purpose and the said scheme is implemented as per the guidelines of the Central Government and, therefore, the assessee is only acting as a nodal agency of Central Government for implementation of these projects. It is not the case of the Revenue that the assessee was carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the project could not be fully implemented, is deposited in a bank to earn interest. That interest earned is also again utilised for the implementation of the mega-city scheme which is also permitted under the scheme. Therefore, in computing the total income of the assessee for any previous year the interest accrued ITA Nos.700, 701 & 603/Mds/2011 on bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of mega-city scheme.