Income Tax Appellate Tribunal - Ahmedabad
Water And Sanitation Management ... vs Department Of Income Tax on 2 December, 2011
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before S/Shri D.K.Tyagi, JM and A. K. Garodia, AM.
ITA No. Asst. Year
2804/Ahd/2009 2006-07
2957/Ahd/2010 2007-08
2355/Ahd/2011 2008-09
Asstt. CIT./Dy.CIT, Vs. Water and Sanitation Management
Gandhinagar Circle. Organisation, 3 r d floor,
Gandhinagar. Jal Sewa Bhavan, Sector No.10A,
Gandhinagar.
(Appellant) (Respondent)
..
Appellant by :- Shri Krishna Murari, CIT, DR
Respondent by:- Shri Gyan C. Pipara, AR
Date of hearing :2/12/2011
Date of pronouncement : 21.12.11.
ORDER
Per D. K. Tyagi, Judicial Member.
All these three appeals have been filed by the Revenue against the separate orders of ld. CIT(A) dated 31/07/2009, 20/08/2010 and 13/06/2011 for Asst. Years 2006-07, 2007-08 & 2008-09 respectively. Since the issue involved in all these appeals are identical and the appeals pertain to the same assessee, these were heard together and are being disposed of by this common order for the sake of convenience. ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09 ITA No.2804/Ahd/2009 Asst. Year 2006-07
2. The ground raised in this appeal is as follows :-
(1) The ld. CIT(A) was not justified in deleting the addition of Rs.17,77,12,125/- on account of grants-in-aid of Rs.111,65,45,652/- received from Government not to be income of the Trust.ITA No.2957/Ahd/2010 Asst. Year 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 2 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09 water and sanitation sector and to involve the civic societies, NGO's and community based organization enabling them to actively participate in Government efforts for development of water supply and sanitation sector. The assessee filed the return of income on 23/08/2006 showing Nil income and the same was processed on 15/02/2007 u/s 143(1) of the Income-tax Act, 1961. The case was selected for scrutiny and a notice dated 23/06/2007 u/s 143(2) of the Act was issued and duly served upon the assessee on 24/08/2007.
6. The AO during the course of assessment proceedings raised the issue of treatment to the various grants-in-aid amounting to Rs.223,71,14,127/- received during the year. The assessee had shown these amounts as its liabilities and not taken it to its income and expenditure account. These grants are detailed in para 4 of the assessment order. On the other hand the total receipts shown in its income and expenditure account by the assessee was to the tune of Rs.1,54,78,000/- which included a sum of Rs.1,29,99,000/- as grants-in-aid of Government of Gujarat. Rejecting the various explanations of the assessee, the AO felt that these grants-in-aid are voluntary in nature and without any specific direction that they should go to form the corpus of the organization and therefore, as per the provisions of section 11(1)(d) they would form the assessee's income within the provisions of sections 11,12, & 13. 3 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09 Realising that out of Rs.223,71,14,127/- referred to earlier, only Rs.111,65,41,652/- had been received during the year, he took the later figure as the income of the assessee which needed to be applied for charitable purposes. However, as per the accounts only Rs.77,13,48,279/- had been applied towards the objectives of the trust. Keeping in view the standard margin of 15% allowed by section 11(1)(a) i.e. Rs.16,74,81,247/-, the unspent amount came to Rs.17,77,12,130/- which the AO felt was the assessable income of the assessee and added the same to the total income of the assessee.
7. The assessee went in appeal before first appellate authority, wherein detailed submissions were made which have been narrated by ld. CIT(A) at pages 2 to 18 of his order. For the sake of brevity the same is not reproduced here. The ld. CIT(A) considered the facts of the case and the submissions of the assessee and he observed that in a number of appeals of the bodies and Boards which came to be assessed as Trusts, post amendment to section 10(20) by Finance Act 2002, the undersigned had been confirming 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 4 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09 (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 State Disaster Management Authority vs. ACIT in ITA No.949/Ahd/2009 for Asst. Year 2006-07. Therefore, keeping the elaborate decision of the ITAT in view, he thought it would be a redundant exercise to analyze the assessee's arguments all over again and therefore following the decision, he held that in the appellant's case also the Assessing Officer had not been justified in considering the amount of Rs.111,65,41,652/- as the income of the Trust and thereupon working the unspent amount of Rs.17,77,12,125/- as income subject to taxation. Against this order of the ld. CIT(A) the Revenue is in appeal before the Tribunal.
5 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09
8. The ld. DR supported the order of AO and submitted that ld. CIT(A) has not properly appreciated the facts and wrongly deleted the impugned addition of Rs.17,77,12,125/- on account of grants-in-aid of Rs.111,65,45,652/- received from the Government. He therefore, prayed that the order of ld. CIT(A) be set aside and that of the AO be restored.
9. On the other hand, the ld. counsel of the assessee relying on the order of ld. CIT(A) submitted that ld. CIT(A) by following the decisions of the Tribunal, Ahmedabad Bench on identical issue in the above referred cases, has rightly deleted the addition. Therefore, there is no infirmity in his order. The same may kindly be upheld.
10. After considering the rival submissions and perusing the record we find that on identical facts the Tribunal in the case of Gujarat State Disaster Management Authority vs. ACIT, Gandhinagar in ITA No.949/Ahd/2009 for Asst. Year 2006-07 has decided the issue by observing as under :-
"7. We have carefully considered the rival contentions. It is difficult to agree with the departmental authorities that the grants constitute the assessee's income under Section 12 of the Act as voluntary contribution. The grants are made by the State Government out of funds received from the World Bank, Asian Development Bank, Government of India, UNDP as also from other central and state government agencies. It is not in dispute that these grants were provided to the assessee with a specific direction for utilizing them towards the assigned projects duly approved and sanctioned by the central and state governments for implementing the Gujarat earthquake rehabilitation and reconstruction projects. It has been so stated in the certificate dated 24-2-2009 issued by the Principal Secretary (Economic 6 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09 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 discussed even earlier during which the assessee was given a similar direction. It is also pointed out in the letter that the amount required for the office expenses of the assessee was separately sanctioned by the State Government. This is an indication that the grants given by the State Government cannot be utilized for incurring expenses of the assessee. If such conditions have been imposed while making the grants and the grants are to be spent only for assigned projects under the rehabilitation programme, it follows that the grants cannot be treated as the assessee's income. We may refer to order of the Ahmedabad Bench of Tribunal passed on 17-4-2009 in the case of Gujarat Safai Kamdhar Vikas Nigam, in ITA No.3232/Ahd/2008 (A.Y.2005-2006) to which one of us (the AM) was party. In this case, it was held that grants given by the State Government to another entity which was to spend the grants only for stated purpose, cannot be considered as voluntary contribution and assessed under Section 12 of the Act as income of the recipient. In this order reference has been made to the judgment of the Karnataka High Court in CIT Vs. Karnataka Urban Infrastructure Development and Finance Corporation, 284 ITR 582 and that of the Allahabad High Court in CIT Vs. Upbhokata Sahakari Sangh Ltd., 288 ITR 106. The Tribunal has also referred to the judgment of the Hon'ble Gujarat High Court in the case of Gujarat Municipal Board (supra) and the Delhi High Court in CIT Vs. Delhi State Industrial Development Corporation, 162 Taxman 275. This order of the Tribunal also supports the assessee in full in its contention that the grants received from the State Government cannot be considered and assessed as its income. The assessee might have erroneously treated them as its income in the accounts but if such entries are inconsistent with the factual and legal position, they cannot be given effect to or considered to be conclusive for all purposes. In any case an assessment cannot be made on the basis of such entries which do not reflect the proper factual or legal position. So far as interest is concerned both the letter dated 31-12-2004 written by the Finance Department of the State Government and the certificate dated 24-2-2009 issued by the Principal Secretary (Economic Affairs) of the State Government clearly show that it has to be refunded to the State Government. The entries made by 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 7 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09 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 interest may be retained by the Board as part of the grant-in-aid. The Board was not constituted for the purpose of carrying on any business or activity for profit and it was found to have acted only on behalf of the State Government. On these facts the question arose as to whether the interest shall be taxed as the income of the assessee. Rejecting the contention of the department that it should be so assessed, the Hon'ble High Court held as under:
"From the Boards Act, it is also clear that the Board is controlled by the State and the Board has to discharge the functions on behalf of the Government. It is also clear that all the material stages and in all material particulars, the activity of the Board is controlled by the State. There is no capital contribution by the Central Government or there is nothing to indicate that citizens can be admitted as shareholders. As pointed out earlier, there is no trading activity of the Board. There is no question of profit and loss that would be made as a result of this activity and as pointed out, it has no trading activity. There is no question of bringing out duality between the Board, on the one hand, and the State or the Central Government or the shareholder, on the other hand, because the property of the Board is owned by the State itself. In the instant case, there is no question of trade or business but the amount which was lying with the Board was invested for which interest is received, which the State Government is treating as a part of the grant-in-aid, and, therefore, the question of taxing that amount does not arise. In our view, the Board has received the interest, but as the same is treated as grant-in-aid by the State as per letter at annexure "A", the same cannot be taxed because the amount of interest is purported to be earned by the State and is grant-in-aid and not an income of the Board."
The above observations of the Hon'ble High Court reiterate the proposition that any grant-in-aid cannot be considered as income of the assessee especially when the grant is to be used for specific purposes. The observations also establish the proposition that if the interest is part of the grant, the same is also not taxable. This case applies to the present appeal in 8 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09 the sense that any grant made for specific purposes is not taxable as income as also the interest which the recipient derives by investing the grant 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 interest by reason of the overriding title created in its favour by its directive to the Gujarat Municipal Finance Board. Similarly in the present case, as we have already seen, there was a letter dated 31-12-2004 written by the Finance Department of the State Government to the assessee directing the assessee to deposit the interest to the credit of the consolidated fund of the State. This directive was reiterated in the certificate issued by the Principal Secretary. These directives created an overriding title in favour of the State Government so far as the interest element was concerned. Thus, on this point also, namely, the creation of overriding title, the judgment is in favour of the assessee.
10. Respectfully following the judgment of the Hon'ble Gujarat High Court (supra) we decide this issue in favour of the assessee and hold that the interest of Rs.9,82,70,573/- cannot be assessed as the assessee's income. In the view we have taken it is not necessary to examine the alternative contention to the effect that the amount of interest credited to the account of the State Government should be treated as application of the income for the purpose of section 11(1)(a) of the Act, on commercial consideration. Thus ground no.1 is allowed."
Since the ld. CIT(A) has given relief to the assessee by following the above order of the Tribunal, we feel no need to interfere with his orders and the same are upheld.
9 ITA Nos. 2804,2957 & 23557 Asst. Year 2006-07 to 2008-09
12. In the result, all the appeals filed by the Revenue are dismissed. Order was pronounced in open Court on 21.12.11.
Sd/- Sd/-
(A. K. Garodia) (D.K. Tyagi)
Accountant Member Judicial Member
Ahmedabad,
Mahata/-
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
1.Date of dictation 7/12/2011.
2.Date on which the typed draft is placed before the Dictating Member................Other Member 16/12/2011
3.Date on which the approved draft comes to the Sr.P.S./P.S.............
4.Date on which the fair order is placed before the Dictating Member for pronouncement..............
5.Date on which the fair order comes back to the Sr.P.S./P.S...............
6.Date on which the file goes to the Bench Clerk...........
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................
10