2014 (1) TMI 1764 - AT - Income Tax

Eligibility of exemption u/s 12A - grants and advances or loans receipts - Held that - As where the authority had been constituted by the Government for the specific purposes of carrying on the activities of the Government and where the grants and advances or loans are disbursed by the Government to the assessee, the said grants, advances cannot not be held to the income of the assessee as the said grants/advances are released to the assessee for the specific purposes for carrying on the development work. In the facts of the present case the Government of Haryana had given a grant of ₹ 25.10 crores during the financial year 2007-08 for the specific purposes of utilizing the same in providing infrastructural facilities to the allottees of residential plots under Mahatma Gandhi Gramin Basti Yojana. The assessee during the year under consideration had received ₹ 25.10 crores on 28.3.2008, which could not be utilized for the specific purposes before the end of the year, which in turn was utilized in the succeeding years for the said specific purposes. In the totality of the facts and circumstances, where the assessee was acting on the directives of the Government of Haryana in implementing the scheme of the Government of Haryana, the grants so received by the assessee were not the income of the assessee and do not form the corpus of the assessee. Such grants are not donations or voluntary contribution under section 12 of the Act and thus the same should not be considered as income of the assessee for the relevant assessment year. The assessee had shown the said amounts as receipts in the receipts and expenditure account but the same in no manner can be held to be the income of the assessee and were not assessable in the hands of the assessee for the relevant assessment year, as no part of the said grants had been utilized for the specific purposes for which it was granted, before the close of the year. Thus the grant of ₹ 25.10 crores received by the assessee during the year under consideration is not the income of the assessee for the relevant assessment year. In view thereof, the said grant was received by the assessee for the purpose of disbursement for the promotion of the schemes of Government of Haryana and was not its income as the assessee was acting as a nodal agency for the disbursement of the grants only. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 25.10 crores in the hands of the assessee. - Decided in favour of assessee.

Issues Involved:
1. Validity of the order passed by the CIT (Appeals) Panchkula.
2. Treatment of grant received from the Haryana Government as income.
3. Nature of the grant provided by the State Government.
4. Role of the appellant as a nodal agency.
5. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed by the CIT (Appeals) Panchkula:
The appellant challenged the order passed by the CIT (Appeals) Panchkula dated 14.05.2012, asserting that it was "bad in law and contrary to the facts of the case." The appellant argued that the CIT did not appreciate the facts and law correctly and in accordance with the statute.

2. Treatment of Grant Received from the Haryana Government as Income:
The primary issue was whether the grant of Rs. 25,10,00,000 received from the Haryana Government should be treated as income. The CIT (Appeals) treated the grant as income because the amount was shown as Grants-in-Aid in the receipt and expenditure account, there was no condition for refund of unspent funds, and the unutilized amount was not refunded, thus becoming the income of the appellant. The CIT (Appeals) also noted that no approval was taken to carry forward or accumulate the amount, and the appellant failed to comply with section 11(2) conditions.

3. Nature of the Grant Provided by the State Government:
The appellant contended that the grant was not a voluntary contribution but a financial assistance provided under the Plan Budget of the State Government, for which the appellant acted as a nodal agency. The funds were meant for specific purposes such as promoting regulated development and providing basic amenities in rural areas. The appellant argued that the funds should not be considered income as they were to be used for specific governmental schemes and not for the appellant's own purposes.

4. Role of the Appellant as a Nodal Agency:
The appellant functioned as a nodal agency for disbursing funds to District Collectors for rural development projects. The appellant argued that the grant was for specific schemes and not for its own use. The Tribunal noted that the appellant was established by the State Government under the Haryana Panchayati Raj Act, 1961, and received funds to carry out specific governmental activities, which were not to be treated as its income. The Tribunal referenced the Punjab & Haryana High Court's decision in CIT Panchkula Vs. State Urban Development Society, which held that grants received for specific purposes do not constitute income.

5. Initiation of Penalty Proceedings Under Section 271(1)(c) of the Income Tax Act:
The appellant also contested the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. However, the Tribunal's analysis primarily focused on the treatment of the grant as income and did not provide a detailed discussion on the penalty proceedings.

Conclusion:
The Tribunal concluded that the grant received by the appellant was not income as it was provided for specific governmental schemes and the appellant acted merely as a nodal agency. The Tribunal directed the Assessing Officer to delete the addition of Rs. 25.10 crores from the appellant's income. The appeal of the appellant was allowed, and the order pronounced in the open court on 22nd January 2014.

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