1987 (5) TMI 46 - AT - Income Tax

Summary

Issues Involved:
1. Whether the grants received by the assessee from the State Government constitute the income of the assessee.
2. Whether the unspent amounts of the grants should be included in the computation of the total income of the assessee.

Issue-wise Detailed Analysis:

1. Whether the grants received by the assessee from the State Government constitute the income of the assessee:

The assessee, a U.P. State Government undertaking, received various grants totaling Rs. 66,14,544 from the State Government for specific schemes, such as the Carpet Weaving Training Scheme, Chikan Training Scheme, and others. The CIT(A) included the unspent amount of Rs. 63,84,529 in the computation of the assessee's income, which the assessee contested. The assessee argued that these grants did not constitute its income as they were meant for specific purposes and any unspent amount was to be returned to the Government. The Tribunal had previously ruled in favor of the assessee for the assessment year 1978-79, stating that the grants did not constitute the income of the assessee as it acted merely as an agent or trustee for these amounts.

2. Whether the unspent amounts of the grants should be included in the computation of the total income of the assessee:

The CIT(A) enhanced the income of the assessee by including the unspent grants, arguing that these amounts should be considered while computing the total income. The Department supported this view, stating that the principle of res judicata or estoppel does not apply to income-tax proceedings. However, the Tribunal found that the amounts received by the assessee were not of income character. The unspent amounts remained the property of the State Government, and the assessee was liable to return them. The Tribunal noted that the CIT(A) had not considered this aspect and relied on irrelevant case law. The Tribunal concluded that the unspent grants could not be considered the gain of the assessee, as the ownership of the money still vested in the State Government. The Tribunal vacated the enhancement of Rs. 63,84,529 made by the CIT(A), stating that these receipts were not of income nature and should not be included in the assessee's income.

Conclusion:

The Tribunal ruled in favor of the assessee, setting aside the CIT(A)'s order and vacating the enhancement of Rs. 63,84,529. The Tribunal held that the grants received by the assessee from the State Government did not constitute the income of the assessee, as the unspent amounts were to be returned to the Government and did not become the property of the assessee.