2018 (12) TMI 320 - AT - Income Tax

Exemption u/s 11(1)(d) - grant received - proof of charitable activities - Held that - Grants were received by the appellant from Government of India for specific purpose. As per the notifications issued by Government of India it has been specifically laid down that these Grants are for specific purposes and only the interest earned on the same it to be used/applied for the purposes of the objects of appellant institute. The amounts received in Grants have to be held as deposits and only interest earned therein is to be applied towards objects of institute. The Grants as such cannot be applied or utilized. The appellant has accounted the interest earned on the Grants as its income. Once a grant is received from Government Agency with certain conditions and stipulations provided therein and it is also specified for which purposes such grant has to be utilized, then that grant cannot be the income of the assessee. If such grant is not utilized for specific purpose, then automatically it has to be refunded back again to the Government Agency. The grants so received by the appellant from the Government to tie utilized for specific purpose cannot be held to be income of the appellant. - decided in favour of assessee.

Summary

Issues Involved:
1. Whether the capital grants received by the assessee are taxable as income.
2. Whether the assessee's income for accumulation under Section 11(2) of the Income Tax Act, 1961, can be allowed without filing Form No. 10 in time.

Detailed Analysis:

Issue 1: Taxability of Capital Grants
The primary issue revolves around whether the capital grants received by the assessee should be treated as taxable income. The Revenue contended that the capital grants amounting to ?23,85,00,000 should be included in the computation of income as capital expenditure. The Assessing Officer (AO) argued that the capital grants should be set off against capital expenditure and cannot be claimed as income applied against the income of the current year.

The assessee, an institute created by the Rajiv Gandhi Institute of Petroleum Technology Act, 2007, received grants from the Government of India for specific purposes. The grants were credited under the head "Capital Funds" and were to be used only for the specified purposes, with the interest earned on these grants being utilized for the institute's objects. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed relief to the assessee, holding that the capital grants are not taxable as income. This decision was based on the fact that the grants were for specific purposes and could not be utilized for any other purpose.

The Tribunal upheld the CIT(A)'s decision, citing various judicial precedents, including:
- CIT vs. State Urban Development Society: The grants received by the society were not considered income as they were for specific purposes and had to be refunded if not utilized.
- Bihar Agricultural Produce vs. CIT: The court held that funds received for specific statutory purposes could not be treated as revenue receipts or income.

The Tribunal concluded that the grants received by the assessee from the Government of India for specific purposes could not be held as income, especially when the interest earned on these grants was accounted for as income. Consequently, the appeal by the Revenue on this ground was dismissed.

Issue 2: Accumulation of Income under Section 11(2) without Filing Form No. 10 in Time
The second issue concerned whether the assessee could accumulate income under Section 11(2) of the Income Tax Act, 1961, without filing Form No. 10 within the prescribed time. The Revenue argued that the assessee's income for accumulation should not be allowed as Form No. 10 was not filed in time.

The CIT(A) allowed the assessee's claim, noting that the surplus would be exempt as the assessee had passed a resolution to accumulate the surplus to be applied towards the institute's objects. Form No. 10 was filed during the appellate proceedings, and the CIT(A) held that it could be filed at any time, even during appellate proceedings. This decision was supported by judicial precedents, including:
- CIT vs. Mayur Foundation: The court allowed the filing of Form No. 10 during appellate proceedings.
- Sewa Education Trust vs. Deptt. of Income Tax: The ITAT Agra held that Form No. 10 could be filed during the appellate process.

The Tribunal agreed with the CIT(A)'s findings and dismissed the Revenue's appeal on this ground as well.

Conclusion
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the capital grants received by the assessee are not taxable as income and that the assessee could accumulate income under Section 11(2) without filing Form No. 10 in time. The Tribunal's decision was based on established judicial precedents and the specific conditions under which the grants were received. The appeal of the Revenue was dismissed in its entirety.