2020 (2) TMI 1146 - HC - Income Tax

Accrual of income - Interest accrual as liable to tax - exemption u/s 10 (23BBA) - Instead of saying that the interest income has been utilized by the Assessee on its own free will, the Assessing Officer has inverted the law and has held that merely because the Assessee has never refunded any amount of interest to the Government it means it is its income - HELD THAT - The argument that there is no such stipulation in the letter releasing the grant does not lead to the automatic conclusion that the interest is income of the Assessee. It is not the case of the appellant that the books of the Assessee ever revealed the diversion of any interest income. Had that been so something could have been said. The other argument raised by the counsel for the appellant is that the Tribunal wrongly invoked Section 10 (23BBA) of the Act and the invocation of that Section completely blind-sided the Tribunal into taking a wrong decision. Assessee never claimed any exemption u/s 10 (23BBA) and in the circumstances, the only thing which can be held is that reference to Section 10 (23BBA) by the Tribunal was surplusage and was not required in view of the basic finding of fact that the income which accrued to the Assessee from the funds of the Government which were released to it were not diverted by it and could not be diverted by to any other purpose and had to be used only for the purposes which the Government directed and in case the funds were not used the Government had the right to recall them.

Summary

Issues:
1. Tax liability on interest accrued to the Assessee from grants.
2. Interpretation of funds utilization and interest accrual.
3. Applicability of Section 10 (23BBA) of the Act.
4. Dispute regarding findings recorded by the Tribunal.

Analysis:
1. The appeal challenged the order of the Commissioner Income Tax and the Income Tax Appellate Tribunal regarding the tax liability of interest accrued to the Assessee from grants. The Assessing Officer held the interest as taxable, while the Commissioner and Tribunal disagreed. The Tribunal deemed the interest as a further grant for a specific purpose, refundable if unused, based on the notification releasing the funds.

2. The Assessing Officer's grounds for tax liability included the Assessee's failure to return interest, absence of stipulations, and the nature of the Assessee's registration. However, the High Court found the Assessing Officer's findings conjectural, emphasizing that the interest was not utilized at the Assessee's discretion but for specific government-directed purposes, as confirmed by the Commissioner and Tribunal.

3. The appellant argued against the Tribunal's invocation of Section 10 (23BBA) of the Act, claiming it influenced the decision wrongly. The High Court clarified that the Assessee did not claim exemption under this section, making the reference to it by the Tribunal unnecessary, as the primary fact remained that the income from government funds could not be diverted.

4. A dispute arose regarding the Tribunal's findings on the utilization of interest income, as per a notification by the Central Government. The High Court noted the respondent's stance that the Assessee did not divert the income and had to use it as directed by the government. The appellant's arguments and reliance on a Supreme Court judgment were deemed inapplicable to the present case.

5. Ultimately, the High Court dismissed the appeal, stating that the questions of law raised did not arise, and the main case being dismissed, any pending applications were also disposed of accordingly. The judgment upheld the Tribunal's decision regarding the tax liability on interest accrued from grants, emphasizing the specific purpose and utilization of such funds as directed by the government.