2014 (12) TMI 219 - AT - Income Tax

Nature of receipt of grant - Chargeability of other income to tax - assessee s contention that the income from internal sources was nothing, but a reduced portion of the Grant given by the Government of India for the purposes of meeting its expenses, was jettisoned. - Revenue was of the view that the Other income is distinct from Grants and hence is chargeable to tax - Held that - the unspent balance of previous grants has been taken into account while sanctioning this grant. If we see Other income is isolation, it is undoubtedly income chargeable tax in view of the Tribunal holding in its first order dated 31.7.2006 that the grant of registration by the CIT is prospective and does not extend to the year under consideration and the consequential assessment of the assessee as AOP. But when we view Other income in the setting and the context of the Scheme of the Government allowing Grants for meeting all of the assessee s expenses as reduced by the amount of such Other income , in conjunction with the fact that the tribunal has held the amount of Grant to be not chargeable to tax, the irresistible conclusion which follows is that such Other income partakes of the character of Grant only. There is a need to draw a line of distinction between the amount of Other income adjusted by the Government against grant and the amount not so adjusted. Whereas, the first amount is to be considered as part and parcel of the amount of grant and hence not chargeable to tax, the second amount cannot be so considered. The reason is simple that the amount of such second part of Other income does not bear the character of grant so as to avail any immunity from taxation. Decided in favour of assessee. - Such second part, which is not considered by the Government as part of the grant, in our considered opinion is rightly chargeable to tax in view of the tribunal treating the status of the assessee as AOP. - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Chargeability of 'Other income' to tax.
2. Reopening of assessment.
3. Retrospective amendment to section 12AA.

Detailed Analysis:

1. Chargeability of 'Other income' to tax:

The primary issue addressed was whether the 'Other income' earned by the assessee should be included in the total income and taxed. The Department argued that 'Other income' is distinct from Grants and hence chargeable to tax. The assessee contended that such income is part of the Grant, which has been held by the Tribunal as not chargeable to tax. The Tribunal noted that the Government gives grants to the assessee, a Government of India Undertaking, for meeting its expenses, reduced by the amount of 'Other income'. The Tribunal concluded that 'Other income' partakes of the character of the Grant and should not be taxed separately. However, it distinguished between 'Other income' adjusted against the grant and 'Other income' not adjusted. The former should not be taxed, while the latter should be charged to tax.

2. Reopening of assessment:

The assessee raised grounds regarding the reopening of assessment but did not press these grounds during the hearing. Consequently, these grounds were dismissed by the Tribunal.

3. Retrospective amendment to section 12AA:

The assessee also raised an additional ground concerning the retrospective amendment to section 12AA but did not press this ground either. Therefore, this ground was also dismissed by the Tribunal.

Conclusion:

The Tribunal set aside the impugned order for the assessment years 1988-89, 1989-90, 1991-92, and 1992-93, directing the AO to charge tax only on the excess 'Other income' not adjusted against the grant. For the assessment years 1993-94 to 1996-97, the Tribunal remitted the matter to the AO to verify the adjustment of internal resources against the grant. The appeals were allowed for statistical purposes. The order was pronounced in the open court on 21.11.2014.