Tribunal rules on tax treatment of 'Other income' adjusted against grants

The Tribunal ruled that 'Other income' adjusted against grants should not be taxed separately, while 'Other income' not adjusted should be taxed. The Tribunal set aside the order for certain assessment years, directing the tax only on excess 'Other income'. For other years, the matter was remitted to verify internal resource adjustments against grants. The appeals were allowed for statistical purposes.

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Issues Involved:
1. Chargeability of 'Other income' to tax.
2. Reopening of assessment.
3. Retrospective amendment to section 12AA.

Detailed Analysis:

1. Chargeability of 'Other income' to tax:

The primary issue addressed was whether the 'Other income' earned by the assessee should be included in the total income and taxed. The Department argued that 'Other income' is distinct from Grants and hence chargeable to tax. The assessee contended that such income is part of the Grant, which has been held by the Tribunal as not chargeable to tax. The Tribunal noted that the Government gives grants to the assessee, a Government of India Undertaking, for meeting its expenses, reduced by the amount of 'Other income'. The Tribunal concluded that 'Other income' partakes of the character of the Grant and should not be taxed separately. However, it distinguished between 'Other income' adjusted against the grant and 'Other income' not adjusted. The former should not be taxed, while the latter should be charged to tax.

2. Reopening of assessment:

The assessee raised grounds regarding the reopening of assessment but did not press these grounds during the hearing. Consequently, these grounds were dismissed by the Tribunal.

3. Retrospective amendment to section 12AA:

The assessee also raised an additional ground concerning the retrospective amendment to section 12AA but did not press this ground either. Therefore, this ground was also dismissed by the Tribunal.

Conclusion:

The Tribunal set aside the impugned order for the assessment years 1988-89, 1989-90, 1991-92, and 1992-93, directing the AO to charge tax only on the excess 'Other income' not adjusted against the grant. For the assessment years 1993-94 to 1996-97, the Tribunal remitted the matter to the AO to verify the adjustment of internal resources against the grant. The appeals were allowed for statistical purposes. The order was pronounced in the open court on 21.11.2014.

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