2022 (6) TMI 1065 - AT - Income Tax

Exemption u/s 11 - grants were received by the assessee-trust from the Government of Gujarat - Claim denied as assessee is clearly falling under the first proviso of section 2(15) - as argued activities of the assessee are charitable in nature and therefore the benefit of corpus fund will be eligible - HELD THAT - As decided in own case 2022 (3) TMI 1192 - ITAT AHMEDABAD in the case of CIT Vs. Gujarat Safai Kamdar Vikas Nigam ( 2011 (5) TMI 815 - GUJARAT HIGH COURT ), citied by the learned Counsel for the assessee, the grants were received by the assessee-trust from the Government of Gujarat under a similar scheme envisaged for implementation of certain Government programs and although it was not expressly made clear that the grants were being made available to form the corpus of the Trust and to be applied for such purpose, it was held by the Hon'ble jurisdictional High Court after considering the entire purport of the scheme that the grants made available to the assessee-trust for implementing the scheme in a particular manner cannot be treated as income of the assessee-trust. In our opinion, the ratio of this decision of Hon'ble Gujarat High Court is squarely applicable to the facts of the present case and respectfully following the same, we uphold the impugned order of the learned CIT(A) a lowing the claim of the assessee that the government grant of Rs. 6,18,22,000/- received by the assessee-trust towards specific projects to achieve objects of the Trust constituted its Corpus Fund which was not chargeable to tax. - Appeal of revenue dismissed. Treating the capital expenditure as application of income - HELD THAT - As decided in own case 2022 (3) TMI 1192 - ITAT AHMEDABAD assessee is entitled to depreciation under Section 32 of the Act on assets whose cost has been allowed as application of income for charitable purpose under Section 11(1)(a) of the Act - Since the Assessment Year involved in the present year is AY 2014-15, we respectfully follow the decision of the Hon ble Supreme Court in the case of CIT Vs. Rajasthan Gujarati Charitable Foundation Poona. 2017 (12) TMI 1067 - SUPREME COURT and direct the Assessing Officer to allow the claim of the assessee for deduction on depreciation. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of proviso to section 2(15) of the IT Act, 1961 regarding eligibility for exemptions under sections 11 & 12.
2. Treatment of Government grants as corpus fund received for specific projects.
3. Allowance of capital expenditure as application of income under section 2(15) of the Act.

Issue 1 - Interpretation of Proviso to Section 2(15) of the IT Act:
The Revenue contended that the activities of the assessee were not charitable in nature, thus making them ineligible for exemptions under sections 11 & 12 due to the provisions of section 13(8) of the Act. The AO treated the Government Grant as income, but the CIT(A) reversed this decision, stating that the corpus fund received should not be treated as income. The Tribunal noted that the assessee was a charitable trust registered under Section 12AA of the Act, engaged in providing facilities for testing and calibration. The Tribunal referred to previous decisions supporting the charitable nature of the trust's activities and upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2 - Treatment of Government Grants as Corpus Fund:
The AO treated the Government Grant received by the trust as income, arguing that there was no specific direction from the donor to treat it as corpus donation. However, the CIT(A) disagreed, stating that the grants were for specific projects to achieve the trust's objectives and should be considered corpus funds. The Tribunal, following precedent, upheld the CIT(A)'s decision, emphasizing that the grants were not taxable income as they were meant for specific purposes outlined by the Government.

Issue 3 - Allowance of Capital Expenditure as Application of Income:
The AO disallowed the capital expenditure incurred by the assessee, adding it to the total income due to the activities falling under the proviso to section 2(15) of the Act. The CIT(A) confirmed this decision. However, the Tribunal referred to a Supreme Court decision allowing deduction on depreciation for assets used for charitable purposes. As the relevant assessment year was before the amendment prohibiting such allowance, the Tribunal directed the AO to allow the claim for deduction on depreciation. The Tribunal dismissed the Revenue's appeal, following the Supreme Court decision and previous Tribunal rulings.

In conclusion, the Tribunal upheld the CIT(A)'s decisions in favor of the assessee regarding the interpretation of the proviso to section 2(15) of the IT Act and the treatment of Government grants as corpus funds. Additionally, the Tribunal directed the allowance of the capital expenditure as application of income based on relevant legal precedents. The Revenue's appeal was dismissed in all aspects.