Government scheme grants to a nodal authority are not taxable income when earmarked funds lack discretion for own use.

Grants received by a government-created nodal authority for implementing specified rural development schemes were not taxable as income where the funds had to be applied only for the earmarked public purpose and any unspent balance was carried forward for the same object. The authority had no discretion to use the money as its own, so the receipt was neither a voluntary contribution nor a donation, and its appearance in the receipts and expenditure account did not alter its character. The grant-in-aid was therefore not assessable as income in the relevant year.

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Issues: Whether the grant of Rs. 25.10 crores received by the assessee from the State Government was taxable as income for the relevant assessment year.

Analysis: The assessee authority was constituted by the State Government to implement rural development schemes and to act in accordance with government directions. The grant was released for a specific scheme and was to be used for providing infrastructural facilities. The amount remained unspent at the close of the year and was carried forward for use in the succeeding year for the same objects. On these facts, the receipt was not a voluntary contribution or a donation, nor did it form part of the assessee's income merely because it was reflected in the receipts and expenditure account. The authority acted only as a nodal agency for disbursement and had no discretion to treat the grant as its own income.

Conclusion: The grant-in-aid was not taxable income in the hands of the assessee for the assessment year in question.

Ratio Decidendi: Grants received by a government-created nodal authority for implementation of specified schemes, without discretion to use them for its own purposes, are not income of the authority and do not become taxable merely because they are shown in the books of account.

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