Punjab-Haryana High Court
Commissioner Of Income-Tax -Ii vs The Punjab State E-Governance Society on 21 April, 2011
Bench: Adarsh Kumar Goel, Ajay Kumar Mittal
Income Tax Appeal No.75 of 2011 -1-
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IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
Income Tax Appeal No.75 of 2011
Date of decision: 21.4.2011
Commissioner of Income-tax -II, Chandigarh
...Appellant
Versus
The Punjab State E-Governance Society ...Respondent
CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL
HON'BLE MR.JUSTICE AJAY KUMAR MITTAL
Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant.
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ADARSH KUMAR GOEL, J (Oral).
1. This Appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (for short "the Act") against order dated 4.8.2010 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B',Chandigarh in ITA No.681/Chandi/2009, for the assessment year 2006-07, raising following substantial questions of law:-
"i) Whether in the facts and circumstances of the case and in law the ITAT was justified in upholding the decision of ld. CIT(A) and deleting the addition of Rs.10,80,40,212/-
made by the A.O. on account of unutilized portion of grant received from the State Government?
ii) Whether in the facts and circumstances of the case and in law the ITAT was justified in upholding the decision of ld. CIT(A) and deleting the addition of Rs.65,89,678/- made by the A.O. on account of interest earned on Income Tax Appeal No.75 of 2011 -2- *** FDRs?"
2. The assessee is a society registered under the Societies Registration Act, 1860 and is also registered under Section 12AA of the Act with the Income Tax Department. Its object is to promote the implementation of E-Governance using Information Technology in the State of Punjab. The assessee received grants through State Government and interest from the banks on the deposits. The assessing officer held that assessee failed to spend 85% of its income as required for exemption under Section 11 of the Act. It was further held that tied-up grants were at par with voluntary contributions and were liable to be treated as income of the assessee. The assessing officer also held that interest income was to be treated as taxable income being separate from the grants-in-aid. The CIT(A) set aside the additions holding that tied-up grants will not constitute income of the assessee. It was further held that interest received by the assessee was to be treated as part of the grant. This view has been upheld by the Tribunal as follows:-
"......The assessee received certain grants from the Government with a stipulation that such grants are to be utilized/applied only towards the stated purposes, which are pre-decided by the disbursing agency. The Commissioner of Income-tax (A) has also noted that unspent amount of such grants is required to be refunded to the disbursing agency. Such type of grants have not been considered by the assessee as income in its Income & Expenditure Account but has been shown in the Balance sheet. The other type of grants which are received by the assessee as general grants do not carry any such restrictions and the same have been credited by the Income Tax Appeal No.75 of 2011 -3- *** assessee as income in the Income & Expenditure Account. The issue presently is as to whether the grants received by the assessee for specific purposes constituted "income" within the meaning of sections 11 and 12 of the Act. It is also noticed that un-disbursed/unspent amount of tied-up grants are shown as a liability in the balance sheet, whereas the unspent amount of the general grants remain as income with the assessee. The specific tied-up grants are not credited in the Income & Expenditure Account and are taken directly into the liability side of the balance sheet of the assessee under the head "project Fund Account" whereby the assessee is maintaining separate account for each project for which the grant is received."
xxx xxx xxx "12. We have considered the rival submissions carefully. The factual matrix on this issue lies in a narrow compass. The assessee has earned interest income on fixed deposits placed in the banks. The FDRs were placed out of the unspent balance of grants received from the Government for a specific purpose. The interest income so earned has been taxed by the Assessing Officer assessable in the hands of the assessee as "income from other sources". In this connection, the Commissioner of Income-tax (A) in para 10 of his order, has reproduced clause (xii) of the Terms & Conditions governing the grant-in-aid, which reads as under:-
"The grantee institution should maintain separate audited account for the project. If it is found expedient to Income Tax Appeal No.75 of 2011 -4- *** keep a part or whole of the grant in a bank account earning interest, the interest, thus earned should be reported to this Department. The interest so earned will be treated as a credit to the grantee to be adjusted towards future installment of the grant."
13. From a perusal of the above, it is evident that the interest earned by the assessee on unspent grants does not accrue in the hands of the assessee as a beneficial owner. The same is to be adjusted against the future installments of the grant payable to the assessee. This factual matrix is not negated and therefore we find no error in the approach of the Commissioner of Income-Tax (A) in holding that the stated interest income is not assessable in the hands of the assessee. The Hon'ble Karnataka High Court, in somewhat similar circumstances, in the case of CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation, 284 ITR 582 (Kar) held as under:-
"Held, that there was no profit motive as the entire fund entrusted and the interest accrued on the deposits in the bank, though in the name of the assessee, had to be applied only for the purpose of welfare of the nation as provided in the guidelines. The whole of the funds belonged to the State Exchequer and the assessee had to channelise them to the objects of the centrally sponsored scheme of infrastructural development for the mega city of Bangalore. The entire money was received for a public purpose and the end scheme was Income Tax Appeal No.75 of 2011 -5- *** implemented in accordance with the guidelines of the Central Government. Therefore, in computing the total income of the assessee the interest accrued on the bank deposits could not be treated as income."
3. We have heard learned counsel for the appellant.
4. It is not disputed that identical issues have already been dealt with by this Court vide order dated 12.12.2008 in ITA No.190 of 2008 Commissioner of Income Tax, Chandigarh-II Vs. M/s Punjab State Sports Council, Chandigarh and order dated 31.7.2009 in ITA No.666 of 2008 Commissioner of Income Tax, Chandigarh-II Vs. M/s Punjab Energy Development Agency. In M/s Punjab State Sports Council, Chandigarh it was held that grants-in-aid received from the Government for specific purpose cannot be treated as voluntary contribution or as taxable income of the society. In M/s Punjab Energy Development Agency it was held that interest received by the assessee on the amount of grant deposited in the bank was also in the nature of grant itself.
5. In view of the above, the view taken by the Tribunal is consistent with the view already taken by this Court. No substantial question of law arises. The appeal is dismissed.
(Adarsh Kumar Goel)
Judge
April 21,2011 (Ajay Kumar Mittal)
Pka Judge