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2015 (8) TMI 1081 - AT - Income TaxRegistration under Section 12A - diversion of income by overriding title - CIT(A) dis-allowed claim - Held that - There were no restrictions whatsoever on the use of the grant by the assessee. It cannot therefore be said that there was diversion of income by overriding title. Whatever the assessee does out of the grant and the interest accrued on the grant can only be said to be application of income and it cannot be said that there was diversion of income by overriding title. Taking note of the above factual position for the A.Y. 2009-10, the plea of the assessee that there was diversion of income by overriding title cannot be accepted. Accordingly, the order of the CIT(Appeals) is confirmed. Wwhatever the assessee does out of the grant and interest accrued can only be said to be application of income for the stated objects and activity of the assessee society and therefore reject the assessee s plea that there was diversion of income by overriding title. - Decided against assessee.
Issues Involved:
1. Taxability of Government Grants. 2. Taxability of Interest Income on Fixed Deposits. 3. Application of the Principle of Mutuality. 4. Principle of Diversion of Income by Overriding Title. Detailed Analysis: 1. Taxability of Government Grants: The assessee, a registered society, received grants from the Government of Karnataka (GOK) amounting to Rs. 1,97,00,000 for Assessment Year 2008-09 and Rs. 25,00,000 for Assessment Year 2010-11. The grants were intended for assisting its members in developing self-governance activities. The Assessing Officer treated these grants as taxable income, which was confirmed by the Commissioner of Income Tax (Appeals) based on a previous Tribunal decision in the assessee's own case. The Tribunal upheld this decision, stating that the grants were not exempt from tax as the society did not qualify for registration under Section 12A of the Income Tax Act, 1961. 2. Taxability of Interest Income on Fixed Deposits: The interest income accrued on the Fixed Deposits (FDs) created from the grants was also brought into question. The interest income for Assessment Year 2010-11 amounted to Rs. 29,25,518. The assessee claimed this income as exempt based on the principle of mutuality. However, the Assessing Officer and the CIT (Appeals) rejected this claim. The Tribunal, following the decision in the assessee's case for Assessment Year 2009-10, held that the interest income could not be considered exempt and was taxable. 3. Application of the Principle of Mutuality: The assessee argued that its income was exempt on the principle of mutuality, as it was generated through its members. However, the Tribunal found that the principle of mutuality did not apply in this case. The income generated, including the interest on FDs, was not solely from the members but included grants from the government, which did not qualify for exemption under the mutuality principle. 4. Principle of Diversion of Income by Overriding Title: The assessee contended that the grants and the interest income were not taxable as they were subject to an overriding title by the GOK, which directed that the funds be used only for specific purposes and any unspent amount be returned to the government. The Tribunal, however, found that this argument did not hold for the periods in question. The addendum issued by the GOK specifying the conditions for the use of the grants and interest income was dated 2.2.2010 and applied only prospectively. For the relevant assessment years, there were no such restrictions, and thus, the income could not be considered as diverted by overriding title but was an application of income. Conclusion: The Tribunal dismissed the appeals for both Assessment Years 2008-09 and 2010-11, upholding the decisions of the Assessing Officer and the CIT (Appeals). The grants and the interest income were deemed taxable, and the principle of mutuality and diversion of income by overriding title were not applicable in this case. The Stay Petitions filed by the assessee were also dismissed as infructuous. Order Pronouncement: The order was pronounced in the open court on 14th August 2015, concluding that the assessee's appeals and Stay Petitions for Assessment Years 2008-09 and 2010-11 were dismissed.
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