2016 (11) TMI 526 - AT - Income Tax

Tribunal: Grant under SGSY scheme not taxable income

ACIT, Anand Circle, Anand Versus Kaira Dist. Co-op. Milk Producers’Union Ltd.

ACIT, Anand Circle, Anand Versus Kaira Dist. Co-op. Milk Producers’Union Ltd. - TMI Issues Involved1. Whether the grant of Rs. 7,28,12,000 received under the Sampoorna Gramin Swarojgar Yojana (SGSY) should be treated as a capital receipt or a revenue receipt.Issue-wise Detailed Analysis1. Treatment of Rs. 7,28,12,000 Grant under SGSYThe primary issue in this appeal is whether the grant of Rs. 7,28,12,000 received by the assessee under the SGSY scheme should be classified as a capital receipt or a revenue receipt.Facts of the Case:The assessee, a cooperative society engaged in processing milk and manufacturing milk products and cattle feed, received a government grant under the SGSY scheme. The original assessment was completed with a total income of NIL after setting off unabsorbed depreciation. However, the assessment was reopened, and the Assessing Officer (AO) treated the grant as a revenue receipt, adding Rs. 7,28,12,000 to the total income of the assessee.Arguments by the Assessee:The assessee argued that the grant was a capital receipt, not to be utilized for creating assets for the appellant or for its business purposes. Additionally, the assessee did not claim any depreciation on assets created out of the grant. The grant was intended for a specific project aimed at improving the socio-economic status of BPL families in Kheda District through dairy and animal husbandry activities. The assessee's role was merely that of a facilitator, and the funds were used exclusively for the project's objectives as per the Memorandum of Understanding (MOU) with the District Rural Development Agency (DRDA) and the Government of Gujarat.CIT(A) Decision:The CIT(A) deleted the addition, relying on the decision of the Hon. Punjab & Haryana High Court in the case of CIT vs. The Punjab State E-Governance Society. The CIT(A) observed that the grant was received for specific purposes and maintained in a special bank account, with any interest accrued belonging to the project. The assets procured under the project belonged to the DRDA until the project's completion, and the assessee did not claim expenses or depreciation related to the project in its income computation.Tribunal's Observations:The Tribunal noted that the assessee entered into an MOU for a special project to improve the socio-economic conditions of BPL families in Kheda District. The project involved various components such as induction of high-quality milch animals, vaccination, healthcare services, and establishment of bulk chilling facilities. The Ministry of Rural Development, Government of India, agreed to financially support this project.The Tribunal further observed that the work under the project was being carried out regularly, and the assessee maintained a separate bank account for the grant, ensuring that funds were used exclusively for the project's objectives. The Tribunal referenced the decision of the Punjab & Haryana High Court in the case of CIT vs. The Punjab State E-Governance Society, where it was held that grants received for specific purposes could not be treated as taxable income.Tribunal's Conclusion:The Tribunal upheld the CIT(A)'s decision, concluding that the grant of Rs. 7,28,12,000 received under the SGSY scheme could not be treated as revenue receipt. The grant was specifically for attaining the objectives outlined in the MOU, and the assessee had no authority to use the funds for its normal business activities. Therefore, the Tribunal found no reason to interfere with the CIT(A)'s order.Final Judgment:The appeal of the Revenue was dismissed, and the order of the CIT(A) was upheld, confirming that the grant received under the SGSY scheme was not a revenue receipt.Order Pronounced:The order was pronounced in the open Court on 19th September 2016.