2010 (7) TMI 1007 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of interest income as income from property held under trust and its exemption under section 11.
2. Treatment of amounts allocated but not disbursed due to the imposition of the model code of conduct.
3. Whether the gross amounts received from Central and State Governments for disbursement should be considered income of the society.
4. Whether interest on surplus amounts kept in the bank should be considered part of the society's income.
5. Acceptance of the revised Form No.10 submitted during the assessment proceedings.

Issue-wise Detailed Analysis:

1. Treatment of Interest Income:
The Revenue contended that the interest income earned on funds under the SJSRY and NSDP schemes should be taxable. The CIT(A) upheld this view, treating the interest income as part of the society's income. However, the Tribunal held that the interest income earned by the society is exempt under section 11, as it is part of the grants received from the government and must be utilized according to the scheme guidelines. This decision aligns with precedents set by the Karnataka High Court in CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation and the Punjab & Haryana High Court in CIT Vs. Haryana C.M. Relief Fund.

2. Treatment of Amounts Allocated but Not Disbursed:
The Revenue argued that the amounts allocated but not disbursed due to the model code of conduct should not be treated as applied towards charitable objects. The Tribunal found this issue to be academic, given their ruling that the grants received are not income chargeable to tax under sections 11 and 12. They supported their decision with the Andhra Pradesh High Court's ruling in CIT Trustees of H.E.H. The Nizam's Charitable Trust, stating that actual spending is not necessary if amounts are debited to the accounts.

3. Gross Amounts Received from Governments:
The assessee argued that the gross amounts received from the Central and State Governments for disbursement should not be considered income. The Tribunal agreed, noting that these grants do not form part of the society's corpus or income under section 11. They are not voluntary contributions under section 12, and the society acts merely as a trustee for these funds, which are to be used strictly according to government guidelines.

4. Interest on Surplus Amounts:
The Tribunal held that the interest earned on surplus amounts kept in the bank is part of the grant and must be utilized according to the scheme guidelines. This interest does not qualify as the society's income and is exempt under section 11, consistent with the Karnataka High Court's and Punjab & Haryana High Court's rulings.

5. Revised Form No.10:
The Revenue rejected the revised Form No.10 submitted by the assessee, as it was filed after the due date. The Tribunal found that the grants received by the society are not income chargeable to tax, and thus, there was no need for the society to file Form No.10 for these grants. However, for the amounts under AOE and IEC, which are considered income, the assessee is required to file Form No.10 for any unspent amounts to be accumulated for future use.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection. They ruled that the grants received from the government are not taxable income under sections 11 and 12, and the interest earned on these grants is also exempt. The amounts allocated but not disbursed due to the model code of conduct are considered applied towards charitable objects. The revised Form No.10 was deemed unnecessary for the grants, but required for unspent amounts under AOE and IEC.