2015 (3) TMI 55 - AT - Income Tax

Tribunal affirms capital nature of grant, upholds exemptions under sections 10(23C)(vi) and 11.

The Tribunal allowed the appeal filed by the assessee, affirming the capital nature of the grant and the correctness of the AO's decision in granting ... Revision u/s 263 - unaccounted corpus funds/building fund - Non eligiblilty for claiming exemption u/s 11 and u/s 10(23C(vi)) - Held that:- Going through the record it is find that the assessee has given all the details of additions to corpus funds/building fund and the utilization of the amount of the grant is evident from the accounts statement filed with the return of income and given the assessment proceedings. Also the ITAT in assessee’s own case [2015 (2) TMI 571 - ITAT HYDERABAD] has held that the assessee is eligible to exemption of income as the charitable organization enjoying the benefit of section 11 of the Act. Further the grant is a capital receipt and not a revenue receipt and hence a non taxable receipt. The Hon'ble Andhra Pradesh High Court in the case of CIT vs. Chitrakalpa, [1988 (8) TMI 34 - ANDHRA PRADESH High Court] held that the subsidy given by the govt. to the assessee was not a revenue receipt. We also see from the notes and accounts that the capital grant received are adjusted from the cost of fixed assets. Hence we are of the opinion that the grant received is of capital in nature and does not have the income character and the assessee has treated it rightly as a corpus donation. Non eligiblilty for claiming exemption u/s 11 and u/s 10(23C(vi)) by assessee is incorrect. Further the CIT has also held that the AO ought to have verified the receipts/grants from the World Bank, so as to bring the same to the tax net which is also incorrect in as much as the grant received is a capital receipt and towards corpus of the Institution/Trust. Hence the order passed by the AO is neither erroneous nor prejudicial to the interests of the Revenue for assumption u/s 263. - Decided in favour of assessee Issues:1. Denial of exemption under sections 10(23C)(vi) and 11.2. Treatment of grant received as a capital receipt.3. Validity of order passed by the Assessing Officer (AO) and Central Board of Direct Taxes (CBDT).Denial of Exemption under Sections 10(23C)(vi) and 11:The case involved an appeal by the assessee against the order of the CIT (Central) Hyderabad for the assessment year 2010-11. The dispute centered around the denial of exemption under sections 10(23C)(vi) and 11 by the AO. The CIT observed that the AO had disallowed the claim of exemption under section 10(23C)(vi) and treated the assessee as an Association of Persons (AOP), leading to the need for verification of grants from the World Bank for tax implications. The CIT held that the non-exemption of these issues rendered the AO's order erroneous and prejudicial to the revenue's interest. Consequently, the CIT set aside the AO's order and directed a detailed re-examination of the issues and taxability of the grants.Treatment of Grant Received as a Capital Receipt:The assessee contended that the grant received was a capital receipt utilized for acquiring assets and infrastructure under an agreement with the Government of Andhra Pradesh. The nature of the grant was argued to be non-taxable as it lacked income character and was used for the society's objectives. The Tribunal noted that the grant was treated as a corpus donation and adjusted against fixed assets, affirming its capital nature. Referring to past judgments and the agreement details, the Tribunal concluded that the grant was rightfully considered a capital receipt, not subject to taxation, and the AO's order was in line with this treatment.Validity of Order Passed by the AO and CBDT:The Tribunal analyzed the contentions of both parties regarding the order passed by the AO and the CBDT. The assessee's counsel highlighted previous favorable judgments in the assessee's case, emphasizing the charitable nature of the organization and the capital treatment of the grant. On the other hand, the Departmental Representative (DR) raised concerns about the lack of discussion on grants in the assessment order. The Tribunal reviewed the records, noting the detailed submissions by the assessee regarding the grant's utilization and its capital nature. Citing precedents and the Tribunal's previous order granting exemption under section 11, the Tribunal found the AO's order appropriate, rejecting the CIT's assertion of ineligibility for exemptions under sections 11 and 10(23C)(vi). The Tribunal concluded that the grant was rightly treated as a capital receipt, affirming the AO's decision and allowing the assessee's appeal.In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the capital nature of the grant, its utilization for the society's objectives, and the correctness of the AO's order in granting exemptions under section 11. The Tribunal's decision, based on detailed examination and legal precedents, upheld the treatment of the grant as a non-taxable capital receipt, ensuring the organization's eligibility for exemptions.