2018 (9) TMI 1625 - AT - Income Tax

Addition on account of corpus fund received front Director Sports, Govt, of Uttarakhand - assessee is not registered under section 12 A/12 AA - Held that - It is observed from communication between assessee and Government of Uttarakhand Department of Culture, Tourism and Games, Dehradun, dated 01/12/14, that funds were released, as corpus fund for operation of Civil Services Institute construction at Dehradun. It is also observed that only reason for disallowance of claim of assessee is because, phrase Corpus Fund has not been mentioned in letter dated 23/03/11, issued by Principal Secretary, Government of Uttarakhand to Director of Sports, Uttarakhand Culture, Tourism and Games. However it is observed that in Minutes of meeting by Government of Uttarakhand Department of Culture, Tourism and Games, dated 31/05/13 presided over by Chief Secretary, there is a specific reference regarding budget allocation of ₹ 5 crore as corpus fund from Sports Department to assessee, for its daily functioning in clause (vii). No doubt on nature of funds to be towards corpus . Further assessee has been able to prove that corpus fund was received for meeting out capital expenditure which according to explanation of assessee have been used actually to meet the capital expenditure. Thus, in our considered opinion, corpus fund which is meant for specific purpose to meet out capital expenditure could not be part of annual receipts of the Society, even if no registration u/s 12AA has been granted. Disallowance of depreciation claimed - Held that - As observed that Principal Secretary, Uttarakhand on 29/03/11 directed Sports Department, Uttarakhand to bring assessee into existence. He nominated budget fund to meet planned cost for construction of building for assessee. It is observed that Ld. A.O. relied upon the view that the building owned by assessee has been constructed by the grant sanctioned by Government of Uttarakhand and, therefore, in view of Explanation 10 to Section 43(1), depreciation could not be allowed on such construction. As we have already held in preceding paragraphs that the money received by assessee from Government of Uttarakhand was in the nature of corpus which was to be utilised for capital expenditure of assessee, we differ to follow the view taken by Ld.CIT(A). Further it is observed that objects of society works on principle of mutuality and has been created for benefit of its members. We therefore direct Ld. AO to allow the depreciation on such building as claimed by assessee. Treatment of interest earned by assessee as Income from Other Sources - Held that - Amount on which interest has been earned by assessee, itself is exempt from tax under doctrine of mutuality . Further it has been observed from objects of the society that treatment of excess funds must be in furtherance of objects of society. In the instant case, surplus funds were to be used for any specific service, infrastructure, maintenance or for any other direct benefit for members. Further from submissions of assessee before Ld. CIT (A) it is observed that bank with whom fixed deposits are maintained are not its members and assessee did not claim for any exemption of interest income on the basis of doctrine of mutuality , instead has considered for taxability under head Income from Business . We therefore do not find any reason to change the head of interest income to income from other sources . - Assessee appeal allowed.

Issues Involved:
1. Addition of ?5 crores as corpus fund received from Director Sports, Govt. of Uttarakhand.
2. Disallowance of ?94,66,932/- on account of depreciation.
3. Addition of ?55,21,641/- on account of interest income.
4. Computation of profit & gains from business.
5. Jurisdiction of the assessing officer.
6. Charging of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of ?5 crores as Corpus Fund:
The assessee argued that the ?5 crores received from the Government of Uttarakhand was a corpus fund and should be treated as a capital receipt, not taxable under section 2(24) of the Income Tax Act. The assessee cited a letter from the Secretary, Uttarakhand, which referred to the fund as a "corpus fund" and relied on the decision of the Mumbai Tribunal in Chandraprabhu Jain Swetamber Mandir vs ACIT. The Revenue countered that the assessee was not registered under section 12A/12AA and thus the fund should be treated as income. The Tribunal observed that the funds were indeed intended as a corpus fund for capital expenditure and ruled in favor of the assessee, allowing the grounds related to this issue.

2. Disallowance of Depreciation:
The assessee claimed depreciation on assets acquired using the corpus fund. The Assessing Officer disallowed the claim, citing Explanation 10 to section 43(1), arguing that the assets were acquired through government grants. The Tribunal noted that the funds received were in the nature of a corpus intended for capital expenditure and directed the Assessing Officer to allow the depreciation claim. Thus, the grounds related to this issue were allowed.

3. Addition of Interest Income:
The assessee treated the interest earned on the corpus fund as business income, while the Assessing Officer categorized it as "Income from Other Sources." The Tribunal held that since the corpus fund itself was exempt under the doctrine of mutuality and the interest earned was used for the society's objectives, it should not be taxed as income from other sources. The grounds related to this issue were allowed.

4. Computation of Profit & Gains from Business:
The Tribunal did not specifically address this issue as it was not separately argued. However, given the rulings on the corpus fund and interest income, it can be inferred that the computation of profit and gains from business would be adjusted accordingly.

5. Jurisdiction of the Assessing Officer:
The assessee contended that the assessment order was passed by an officer without jurisdiction. The Tribunal did not find it necessary to adjudicate on this issue separately, considering the other grounds were allowed.

6. Charging of Interest under Sections 234A, 234B, and 234C:
The Tribunal noted that the issue of interest under sections 234A, 234B, and 234C is consequential and would depend on the final computation of income based on their rulings. Thus, this ground was allowed in a consequential manner.

Conclusion:
The appeal filed by the assessee was allowed in full, with the Tribunal ruling in favor of the assessee on all contested issues. The corpus fund was recognized as a capital receipt, depreciation was allowed, and the interest income was not treated as income from other sources. The issues of jurisdiction and interest under sections 234A, 234B, and 234C were resolved in favor of the assessee based on the primary rulings.

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