INCOME TAX OFFICER WARD-1, GANDHINAGAR, GANDHINAGAR vs. GUJARAT FIBRE GRID NETWORK LIMITED, GANDHINAGAR

ITA 595/AHD/2026Status: DisposedITAT Ahmedabad19 June 2026AY 2018-194 pages

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the interest earned on surplus project funds did not belong to the assessee but formed part of the grant corpus as per the MOU. Therefore, it was not liable to be taxed as the assessee's income.

What were the facts?

The assessee received funds from the Central Government for a project and placed surplus funds in fixed deposits with a public sector bank. The interest earned on these deposits was added to the project's corpus as per the Memorandum of Understanding (MOU). The Assessing Officer (AO) treated this interest as taxable income.

What were the issues?

Whether interest earned on funds provided by the Central Government for a project, which is required to be added to the project corpus, is taxable as income of the assessee.

Which sections of the Income-tax Act were involved?

Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD

Before: SHRI SANJAY GARG & SHRI NARENDRA PRASAD SINHA

For Appellant: Ms. Hetal Shah, A.R, Shri Abhijit, Sr. DR

Pronounced: 19/06/2026

Per Sanjay Garg, Judicial Member:

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

ITA Nos.595 to 597/Ahd/2026[ITO vs. Gujarat Fibre Grid Network Limited] A.Ys. 2018-19, 2020-21 & 2021-22 - 2 –

Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Years (A.Y.) 2018-19, 2020-21 & 2021-22.

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?

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:

ITA Nos.595 to 597/Ahd/2026[ITO vs. Gujarat Fibre Grid Network Limited] A.Ys. 2018-19, 2020-21 & 2021-22 - 3 –

“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.”

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

ITA Nos.595 to 597/Ahd/2026[ITO vs. Gujarat Fibre Grid Network Limited] A.Ys. 2018-19, 2020-21 & 2021-22 - 4 –

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.

In the result, all the appeals of the Revenue stand dismissed.

This Order pronounced on 19/06/2026

Sd/- Sd/- (NARENDRA PRASAD SINHA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 19/06/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��यथ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad

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