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TMI Blog2011 (12) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 3. The grounds raised in the appeal are as under :- (1) The ld. CIT(A) has erred in law and on facts in holding that the grants received by the assessee during the year cannot be treated as taxable income of the trust. (2) The ld. CIT(A) has further erred in law and on facts in deleting the addition of Rs. 72,18,54,392/- made on account of treating the amount of grant as income of the trust. ITA No.2355/Ahd/2011 Asst. Year 2008-09 4. The ground raised in this appeal is as under :- (1) The ld. CIT(A) has erred in law and on facts in deleting the addition on account of receipt of grant and interest accrued thereon of Rs. 32,10,07,720/-. 5. We proceed to decide these appeals by taking the facts of Asst. Year 2006-07 into consideration. The facts of the case are that the assessee 'Water & Sanitation Management Organization' (hereinafter referred to as "WASMO') is registered under the Societies Registraton Act, 1860 and also under Bombay Public Charitable Trust Act, 1950 for development and implementation of decentralized management system in water and sanitation sector and to involve the civic societies, NGO's and community based organization enabling them to actively p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirming the action of the Assessing Officer wherein the Government grants had been treated as the income of the assessee and consequently the provisions of sections 11, 12, & 13 had been applied. However, as rightly stated by the Authonsed Representative, ITAT Ahmedabad Bench in the case of Gujarat Safai Kamdar Vikas Nigam (supra) as well as in the case of Gujarat Council of Science City (supra) has reversed that finding. In fact, the Tribunal has further elaborated on the issues involved in ITA No.949/Ahd/2009 in the case of Gujarat State Disaster Management Authority Vs. AC1T dated 05/06/2009. Whereas the facts involved in context of Gujaiat Safai Kamdar Vikas Nigam (supra) as well as in the case of Gujarat Council of Science City (supra) were quite specific to the cases, the facts as in case of Gujarat State Disaster Management Authority (supra) were general and quite similar to the facts in the appellant's case. After considering the submissions of assessee he observed that an identical issue has been decided by the Tribunal, Ahmedabad Bench in the case Gujarat Safair Kamdar Vikas Nigam vs. ACIT in ITA No.3232/Ahd/2008 for Asst. Year 2005-06 and in the case of Gujarat St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secretary (Economic Affairs). The averment made in the certificate has not been accepted by the CIT(A) on the ground that it was prompted by the decision of the Ahmedabad Bench of the Tribunal in the case of Gujarat Council of Science City "and has been given to provide a legal twist". The CIT(A) has also stated that the certificate is not a contemporaneous document and does not have the authority of the resolution or order of the government. However, the statement in the certificate is only a re-affirmation of what has been stated by the finance department of the Government of Gujarat in the letter dated 31-12- 2004 which have already referred to. This letter says that the grants given by the State Government are for implementing the earthquake reconstruction and rehabilitation and the assessee was directed to keep them in a separate bank account. Further, it was clearly stated in this letter that the amount of interest earned by the assessee has to be deposited with the State Government in the consolidated fund account since the State Government has to pay interest at 12% to the World Bank, ADB etc. The letter goes on to say that the subject of paying back the interest was discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee crediting the account of the State Government with the amount of interest is consistent with the claim made by the State Government and the conditions subject to which the grants were given. The assessee has therefore rightly credited the State Government with the amount of the interest. Since the condition that the interest should be refunded to the assessee formed part of the grant itself, there was an inbuilt restriction on the assessee's right to enjoy the interest income. The assessee could not have treated the interest income as its own. Right from the inception such income belonged to the State Government. We therefore uphold the assessee's contention and hold that the interest income was not assessable in the assessee's hands. 8. We may refer to the judgment of Hon'ble Gujarat High Court in Gujarat Municipal Finance Board Vs. DCIT (Assessment), (1996) 221 ITR 317. In this case the Board received grants from the State Government for disbursement for the purpose of laying roads, drainage system etc. The excess money not immediately required for the above purposes was invested for interest. The Board received a letter from the State Government saying that the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt temporarily for interest. This is another dimension given to the present case. The CIT(A) has held that the assessee treated the grants given by the State Government as its income and therefore the interest earned by temporary investment of the grants cannot be exempted. In the light of the judgment, this view of the CIT(A) seems to us to be erroneous because, as we have noted, the ratio of the judgment is firstly that any grant-in-aid cannot be considered as income. If that is so, merely because the grant is treated as income by the assessee in its books, the interest does not become taxable. 9. The aforesaid judgment of the Hon'ble jurisdictional high court supports the assessee also in its contention that the interest was diverted at source by an overriding title in favour of the State Government. Because of the directive from the State Government, in the cited case the interest was held not to amount as income of the Gujarat Municipal Finance Board and it was held that the interest was diverted to the State Government by an overriding title. The State Government could treat the interest also as part of the grant only because it had full control and dominion over the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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