Income Tax Appellate Tribunal - Ahmedabad
Gujarat State Disaster Managment ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before Shri P.K.BANSAL, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
ITA No.3214/ Ahd/2008
Assessment Year:2005-06
Date of hearing:16.7.09 Drafted:17.7.09
Gujarat State Disaster V/s. The Asst. Commissioner
Management Authorit y, of Income Tax,
6 t h Floor, Block No.11, Gandhinagar Circle,
Udyog Bhavan, Sector Gandhinagar
11, Gandhinagar-
382017
PAN No. AAALG0094J
(Appellant) .. (Respondent)
Appellant by :- Shri M.G.Patel
Respondent by:- Smt. Neeta Shah, Sr.DR
ORDER
PER Mahavir Singh Judicial Member:-
This appeal by the assessee is arising out of the order of Commissioner of Income-tax (Appeals)-Gandhinagar in appeal No. CIT(A)/GNR/298/2007-08 dated 30-06-2008. The assessment was framed by the Asst. Commissioner of Income-tax, Gandhinagar Circle, Gandhinagar u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 17-12-2007 for the assessment year 2005-06.
2. The first issue in this appeal of the assessee is as regards to the order of CIT(A) in confirming the disallowance of interest on the funds provided by the Government of Gujarat and holding the same as assessable as income of the assessee. For this, the assessee has raised the following two grounds:-
"1. The Learned Assessing Officer has erred in law and on the facts by holding that interest of Rs.6,82,92,887/- on the funds provided by the Government of Gujarat, which has been shown by the Appellant as payable to the Government, is assessable as income of the Appellant.
ITA No.3214 /Ahd/2008 A.Y. 2005-06 GSDMA v. ACIT, GNR Cir,GNR Page 2
2. The Learned Assessing Officer has also erred in law and on the facts in rejecting the claim by the Appellant GSDMA that it is functioning for and on behalf of the Government of Gujarat and, therefore, only the funds made available to the Appellant GSDMA for assigned project are to be utilized by the Appellant GSDMA and as such any interest on investment of surplus funds till their utilization, is not in nature pf income in the hands of the Appellant GSDMA and cannot be considered or treated as income of the Appellant GSDMA."
3. At the outset, the Ld. Counsel for the assessee stated that the issue is squarely covered in favour of the assessee and against the Revenue in assessee's own case in ITA No.949/Ahd/2009 dated 05-06-2009 for the assessment year 2006- 07, wherein exactly on similar facts, the Tribunal has deleted the addition by giving following finding:-
"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 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 ITA No.3214 /Ahd/2008 A.Y. 2005-06 GSDMA v. ACIT, GNR Cir,GNR Page 3 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 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."
Respectfully following the Tribunal's decision and taking a consistent view we allow the claim of the assessee and this issue of the assessee's appeal is allowed.
4. The second issue in this appeal of the assessee is as regards to the accumulation amount not allowed as deduction u/s.11(1) of the Act. For this, the assessee has raised the following ground No.3:-
"3. The Learned Assessing Officer has also erred in law as well as on the facts by disallowing the claim by the Appellant GSDMA in respect of accumulation of Rs.86,52,97,060/- for deduction u/s.11(1) of the I.T. Act, 1961 ITA No.3214 /Ahd/2008 A.Y. 2005-06 GSDMA v. ACIT, GNR Cir,GNR Page 4 at 15% of the gross total income on the ground that the expenditure towards objects during the year being in excess of gross income shown in the return, no such deduction is allowabable."
5. At the outset Ld. Counsel for the assessee has not pressed this issue, and hence the same is dismissed as not pressed.
6. In the result, assessee's appeal is partly allowed.
Order pronounced in Open Court on 31/08/2009
Sd/- Sd/-
(P.K.Bansal) (Mahavir Singh)
Accountant Member Judicial Member
Ahmedabad,
Dated :31/ 08/2009
*Dkp
Copy of the Order forwarded to :
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-GNR
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad