2013 (10) TMI 1496 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of interest on bank deposits as income from other sources.
2. Disallowance of depreciation claimed by the assessee.
3. Direction to assess 3% of the grant allotted towards administrative expenses as income of the assessee.

Summary:

1. Treatment of Interest on Bank Deposits:
The assessee contested the CIT(A)'s decision to treat interest on bank deposits as income from other sources. The assessee argued that the interest earned on funds earmarked for business should be treated as business income. The CIT(A) relied on the decision of the Hon'ble Bombay High Court in Colaba Central Co-Operative Consumer Wholesale & Retail Stores Ltd. v. CIT, concluding that there is no overriding title over the interest income earned by the assessee. The Tribunal remitted the issue back to the Assessing Officer for verification of whether the interest earned on short-term deposits was refunded to the Government or adjusted against future grants, directing that the assessed income should not be below the returned income.

2. Disallowance of Depreciation:
The Assessing Officer disallowed the depreciation claimed by the assessee, stating that the assessee did not own the business assets and had no dominion or control over them. The CIT(A) upheld this view. The Tribunal agreed, noting that the assets were funded by the Central and State Governments and beneficiaries, and the assessee did not exercise absolute dominion or right over the assets. Consequently, the assessee's grounds on this issue were rejected.

3. Assessment of 3% Grant for Administrative Expenses:
The CIT(A) directed the Assessing Officer to assess 3% of the grant allotted for administrative expenses as the income of the assessee, without allowing any deduction for expenditure. The assessee argued that only 2% of the grant was available for administrative expenses, and the final sanction was still awaited. The Tribunal found that the CIT(A)'s observation that 3% of the grant was released to the assessee was without basis. The issue was remitted back to the Assessing Officer for verification of whether the 2% grant was sanctioned and received by the assessee, and to allow corresponding expenditure incurred by the assessee.

Conclusion:
Both appeals of the assessee were partly allowed for statistical purposes, with specific issues remitted back to the Assessing Officer for further verification and fresh decision.