2020 (11) TMI 141 - HC - Income Tax

Grants received from the Government of Tamil Nadu - Tribunal treating the receipt in question as interest free loans and allowing depreciation claimed against the assets acquired from the said receipts - HELD THAT - The wordings of the Government Order clearly show that the amount which was transferred to the assessee was the financial assistance given by the ADB which would obviously show that it was a loan. Since it is an interest component it appears that the assessee addressed to the Government and the Government in turn accepted the same and treated it as an interest free loan from the Government. Therefore in all probabilities the assessee s liability will be only to the Government and not to the ADB. The Assessing Officer was of the opinion that at best the Government Order could be given prospective effect and doubted the bona fides of G.O.Ms.No.22 dated 03.2.2016 by observing that it is of recent origin to get over the issue regarding the claim for depreciation. We find from G.O.Ms.No.22 dated 03.2.2016 that the assessee has been addressing the Government from 30.1.2014 much prior to the assessments being taken up for consideration. Admittedly funds were sanctioned by a bank namely the ADB and there was no record to show that the same was a grant to the assessee. In the Government Order in G.O.Ms.No.581 dated 19.10.2005 it has been clearly stated that it is a loan from the ADB. Therefore we are convinced to hold that all along the financial assistance rendered to the assessee was treated as a loan at the instance of the bank and subsequently pursuant to G.O.Ms.No.22 dated 03.2.2016 the amount expended was treated as an interest free loan to the assessee. Thus we find that the CIT(A) and the Tribunal rightly granted relief to the assessee and the Revenue has not made out a case to interfere with the common impugned order. - Decided against the Revenue.

Summary

Issues:
1. Determination of whether the financial assistance provided by the Government of Tamil Nadu to the assessee was in the form of a grant or a loan.
2. Interpretation of various Government Orders and their impact on the nature of the financial assistance received.
3. Assessment of the validity of the Government Order dated 03.2.2016 treating the assistance as an interest-free loan.

Analysis:
1. The appeals filed by the Revenue challenge the order of the Income Tax Appellate Tribunal regarding the treatment of grants received from the Government of Tamil Nadu as interest-free loans. The primary issue is whether the financial assistance provided should be considered a grant or a loan.

2. The Government Orders, specifically G.O. Ms.No.581 dated 19.10.2005, indicate that the assistance was sanctioned as a loan for rehabilitation projects. The Tribunal considered various Government Orders, including G.O.Ms.No.668 dated 10.10.2006 and G.O.Ms.No.817 dated 14.12.2006, supporting the view that the assistance was in the form of a loan, not a grant. The Advocate General's opinion further validated this stance.

3. The Government Order dated 03.2.2016, where the financial assistance was treated as an interest-free loan, was found to be valid. The order clarified that the amount transferred was assistance from the Asian Development Bank, indicating a loan. The Tribunal concluded that the liability of the assessee was towards the Government, not the ADB, and upheld the treatment of the assistance as a loan.

4. The Assessing Officer's argument, based on the original Government Order using the term 'grant,' was countered by the clear indication in G.O. Ms.No.581 that the assistance was a loan from the ADB. The absence of records showing the funds as a grant and the language used in the Government Orders supported the conclusion that the financial assistance was consistently treated as a loan.

5. Ultimately, the Court dismissed the tax case appeals, confirming the Tribunal's decision to treat the financial assistance as an interest-free loan. The Revenue failed to establish grounds for interference, and the substantial questions of law were resolved against them. No costs were awarded in the judgment.