2023 (6) TMI 259 - AT - Income Tax

Exemption u/s 11 denied - grants received by the assessee - HELD THAT - Grants were given to the assessee for implementation of various infrastructure schemes. That the grants received by the assessee/state agency did not belong to the assessee. The grants did not form corpus of the assessee nor it was income of the assessee u/s 11 of the Act. Such grants were not the donations or voluntary contribution u/s 12 of the Act. It has also been held time and again that the entries in the books of accounts do not decide the nature of the receipts. The assessee was not authorized to utilize the said grants for any other purposes other than for which such grants were received by the assessee. The unutilized grants have been refunded back by the assessee to the Government. The assessee has also furnished the details of the funds received by the assessee for specific infrastructure projects, the details of utilization of such funds for those specific infrastructure projects. The grants received by the assessee for specific infrastructure projects which has also been utilized for those specific purposes only and since the assessee was not authorized to use the said grants for any other purpose and further that the unused funds have been returned to the Government, therefore, the aforesaid grants, in our view, do not constitute the income of the assessee. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the assessment of whether specific grants received by the assessee for infrastructure projects constitute income, and the application of provisions under sections 11(1)(d) and 12(1) of the Income Tax Act.

Summary:

Assessment of Grants:
The appellant, a State Level Nodal Agency, received general-purpose and specific-purpose funds from the Government of West Bengal for infrastructure projects. The general-purpose fund was used for administrative expenses and offered for income tax. Specific-purpose funds were directly taken to the Balance Sheet as capital and not offered for tax under section 11(1)(d) of the Act. However, the Assessing Officer observed a sum directly credited to the balance sheet without routing through profit and loss account, leading to a dispute.

Observations and Rulings:
The Assessing Officer contended that without an express direction, funds received were not corpus donations and should be treated as income. The appellant's failure to apply income within the year or exercise options under the Act led to the addition of the grant as income. The CIT(A) upheld this decision, prompting the appeal.

Appellant's Argument and Decision:
The appellant argued that grants were for specific projects, used accordingly, and any unused funds were refunded to the Government. Citing precedent, the appellant contended that the grants did not constitute income as they were solely for infrastructure projects. The Tribunal agreed, emphasizing that the grants were not part of the appellant's corpus, were not income under section 11, and were not voluntary contributions under section 12. The Tribunal ordered the deletion of the additions made by the lower authorities.

Conclusion:
The Tribunal allowed the appeal, ruling in favor of the appellant and determining that the grants for specific infrastructure projects did not constitute income, thereby overturning the additions made by the Assessing Officer and CIT(A).

Date of Judgment:
Kolkata, the 12th May, 2023.