2011 (12) TMI 549 - AT - Income Tax

Addition on account of grants-in-aid received from Government - not to be treated as income of assessee trust

Summary

Issues Involved:
1. Deletion of addition on account of grants-in-aid received from the Government.
2. Treatment of grants as taxable income of the trust.
3. Deletion of addition on account of receipt of grant and interest accrued thereon.

Detailed Analysis:

1. Deletion of Addition on Account of Grants-in-Aid Received from the Government:
The Revenue filed appeals against the orders of the CIT(A) for the assessment years 2006-07, 2007-08, and 2008-09, challenging the deletion of additions made by the AO on account of grants-in-aid received by the assessee. The AO had treated the grants-in-aid as the income of the trust under the provisions of sections 11, 12, and 13 of the Income-tax Act, 1961, arguing that these grants were voluntary in nature and lacked specific directions to form the corpus of the organization. Consequently, the AO added the unspent amount of the grants as assessable income. However, the CIT(A) deleted these additions, relying on the decisions of the ITAT Ahmedabad Bench in similar cases, such as Gujarat Safai Kamdar Vikas Nigam and Gujarat State Disaster Management Authority, where it was held that grants received with specific directions for utilization towards assigned projects cannot be treated as the income of the trust. The Tribunal upheld the CIT(A)'s decision, emphasizing that the grants were provided with specific directions and conditions, and thus, could not be considered as the assessee's income.

2. Treatment of Grants as Taxable Income of the Trust:
The AO argued that the grants received by the assessee should be treated as taxable income, as they were voluntary contributions without specific directions to form the corpus. However, the CIT(A) and the Tribunal disagreed, citing precedents where grants given for specific purposes were not considered as income. The Tribunal noted that the grants were provided by the State Government with explicit instructions for their use in specific projects, and any interest earned on these grants was also directed to be deposited back with the State Government. This established that the grants and the interest thereon were not the income of the assessee but were to be used solely for the designated projects, thus not taxable under section 12 of the Act.

3. Deletion of Addition on Account of Receipt of Grant and Interest Accrued Thereon:
For the assessment year 2008-09, the AO had added the amount of grants received and the interest accrued thereon as the income of the trust. The CIT(A) deleted this addition, following the Tribunal's decisions in similar cases. The Tribunal reiterated that the grants and the interest earned thereon were provided with specific directions for their use in assigned projects and had to be deposited back with the State Government. Therefore, these amounts could not be treated as the income of the trust. The Tribunal upheld the CIT(A)'s decision, emphasizing that the grants and the interest were not the assessee's income but were to be used for the specific purposes as directed by the State Government.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue, affirming the CIT(A)'s orders that the grants-in-aid and the interest accrued thereon, received by the assessee from the Government, could not be treated as the income of the trust. The Tribunal's decision was based on the specific directions and conditions attached to the grants, which mandated their use for designated projects, thus excluding them from being considered as taxable income under the provisions of the Income-tax Act, 1961.