2018 (6) TMI 1809 - AT - Income Tax

Exemption u/s 11 - Admission of additional grounds as well as additional evidence - addition on account of interest income treated the same as revenue receipts - Assessee submitted that the assessee company is non-profit organization established with substantial government grant of establishing Auto cluster to promote competitive capabilities of Auto sector related small medium large enterprises in Marathwada region of Maharashtra State and the company is now enjoying the benefit of registration u/s.12AA(1)(b)(i) of the Act and therefore assessee raised additional grounds stating that the computation of income of the assessee should be done u/s. 11 and 12 HELD THAT - We find that registration u/s. 12AA (1)(b)(i) of the Act was granted to the assessee company in the month of February 2017 whereas order of CIT(A) was passed on 29.07.2016. Considering the effect of the said registration order as well as considering the facts that the provision to proviso of sub section (2) of section 12A of the Act we find the same constitutes an important paper relating to assessment year i.e. A.Y. 2012-13 which is under consideration. Considering the connectivity of issue to the additional evidences we are of the opinion that admission of additional grounds as well as additional evidence is justified considering the set principles of natural justice. We accordingly admit the said additional grounds as well as additional evidences. We find relevant to remit the issue back to the file of Assessing Officer for fresh adjudication after granting reasonable opportunity of being heard to the assessee. The Assessing Officer shall pass a speaking order after considering additional evidence. Assessing Officer shall consider all the judgments cited by the assessee before us on the issue of nature of the interest receipts .Grounds raised by assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Taxability of interest income of Rs. 62,10,752/-
2. Classification of interest income as capital receipt or revenue receipt
3. Impact of registration under Section 12A/12AA of the Income Tax Act, 1961
4. Admission of additional grounds and evidence
5. Applicability of Section 11 and 12 of the Income Tax Act, 1961
6. Overriding title of government grants and interest income
7. Liability of interest under Sections 234A, 234B, and 234C

Detailed Analysis:

1. Taxability of Interest Income of Rs. 62,10,752/-:
The primary issue revolves around whether the interest income of Rs. 62,10,752/- earned on fixed deposits should be treated as taxable revenue receipts. The Assessing Officer (AO) treated this interest income as revenue receipts taxable under the head "income from other sources" by invoking the ratio laid down by the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT, 227 ITR 172.

2. Classification of Interest Income as Capital Receipt or Revenue Receipt:
The assessee argued that the interest income should be classified as a capital receipt, not chargeable to tax. The fixed deposits were kept out of the capital contribution received from the Central Government and other stakeholders, and the interest earned was to be reduced from subsequent capital contributions/grants. The CIT(A) confirmed the AO's view, stating that the interest income did not accrue in the escrow account but from separate FDRs, thus taxable as revenue receipts.

3. Impact of Registration under Section 12A/12AA of the Income Tax Act, 1961:
The assessee received registration under Section 12AA of the Income Tax Act, 1961, post the CIT(A)'s order. The registration implies that the assessee's income should be computed under Sections 11 and 12 of the Act. The Tribunal admitted the additional grounds and evidence regarding this registration, noting its relevance to the assessment year in question.

4. Admission of Additional Grounds and Evidence:
The Tribunal admitted the additional grounds and evidence submitted by the assessee, emphasizing the principles of natural justice. The registration under Section 12AA was granted after the CIT(A)'s order, making it a significant document affecting the income computation for the assessment year 2012-13.

5. Applicability of Section 11 and 12 of the Income Tax Act, 1961:
The assessee argued that with the benefit of registration under Section 12AA, the computation of its income should be done under Sections 11 and 12 of the Act. The Tribunal found it justified to remit the issue back to the AO for fresh adjudication, considering the new evidence and the provisions of Section 12A(2).

6. Overriding Title of Government Grants and Interest Income:
The assessee contended that the interest income should not be considered part of the company's income due to the overriding title of the government grants. The interest earned on the unspent grants invested in fixed deposits should be part of the grant and not taxable as revenue receipts. The Tribunal directed the AO to consider all judgments cited by the assessee on this issue during the fresh adjudication.

7. Liability of Interest under Sections 234A, 234B, and 234C:
The assessee challenged the liability of interest charged under Sections 234A, 234B, and 234C. The Tribunal did not specifically address this issue but remitted the entire matter back to the AO for fresh adjudication, implying that these aspects should also be reconsidered.

Conclusion:
The Tribunal admitted the additional grounds and evidence regarding the assessee's registration under Section 12AA and remitted the issue back to the AO for fresh adjudication. The AO is directed to pass a speaking order after considering the additional evidence and relevant judgments. The appeal is partly allowed for statistical purposes.