2018 (9) TMI 1031 - HC - Income Tax

High Court rules un-utilized funds not income, emphasizes factual analysis in tax assessments

The High Court dismissed the Revenue's appeal, upholding the decision that un-utilized funds received by the respondent were not income but a financial ... Addition on account of un-utilized funds for overseeing the project on behalf of the Ministry of Road Transport and Highways - Held that:- We would therefore not upset the finding that the money in the separate bank account in the name of the respondent-assessee was not a grant, but an amount that belonged to the Ministry. This being the position we do not find any merit in the submission made by the Revenue that the amount received from the Ministry belonged to the respondent-assessee and was their income. The amount received in view of the factual findings cannot be treated as revenue receipt or income of the assessee. There is case law that money or payment received in trust and in fiduciary capacity, should not be treated as income earned as has been held in Commissioner of Income-tax Vs. Sandersons and Morgans (1968 (4) TMI 17 - CALCUTTA HIGH COURT). In this case it was observed that solicitor’s lien over the advance money received was no different than a person having charge over someone else money. Money received to be income should have profit making quality in it. Every receipt is not income earned. Reference can be also made to Commissioner of Income-tax, Kerala Vs. Mrs.Doris S. Luiz (1973 (12) TMI 11 - KERALA HIGH COURT). Interest earned during the period relevant to the assessment year but not accounted for in the income of this year - addition was deleted by the Commissioner of Income Tax (Appeals), who has observed that the assessee had received contributions in foreign exchange for two projects, i.e. 'SIMBA' and 'STADIUM' - Held that:- The contributions had required permission from the Ministry of Home Affairs, Foreign Contribution Division. Further, this Ministry had imposed restriction on use of the contributions till the permission/registration was accorded by them. Registration under Foreign Contribution Regulation Act was granted to the respondent/assessee on 6.11.2013. Therefore, the interest accrued till 31.03.2012 to the tune of ₹ 2,83,477/- was included as income for the Assessment Year 2014-2015, i.e. after the respondent/assessee had secured registration under the Foreign Contribution Regulation Act. Interest amount has been taxed, albeit in the said year. Issues:1. Addition of un-utilized funds by the Assessing Officer.2. Treatment of interest earned but not accounted for in the income.Issue 1: Addition of Un-utilized FundsThe first issue in this case pertains to the addition of un-utilized funds by the Assessing Officer. The respondent, a society registered under Section 12A and enjoying exemption under Section 80G of the Income Tax Act, received funds from the Ministry for a specific project. The Assessing Officer considered the funds as income/revenue receipt and added a specific amount to the respondent's income. However, the Commissioner of Income Tax (Appeals) disagreed, stating that the funds received were not revenue but a financial sanction for a project to be executed on behalf of the Ministry. The funds were kept in a separate bank account and were to be returned to the Ministry upon project completion. The Tribunal upheld the decision of the Commissioner, emphasizing that the funds did not belong to the respondent and could not be treated as revenue receipt or income.Issue 2: Treatment of Interest EarnedThe second issue raised in the appeal concerns the interest of a specific amount earned during the relevant period but not accounted for in the income. The Commissioner of Income Tax (Appeals) noted that the interest accrued was related to contributions received in foreign exchange for two projects, subject to permission from the Ministry of Home Affairs. The Ministry imposed restrictions on the use of contributions until registration was granted. The respondent obtained registration under the Foreign Contribution Regulation Act after the relevant period. The interest amount was included as income for a subsequent assessment year when the registration was secured. The Tribunal declined to frame a substantial question of law on this aspect, considering the factual circumstances and reasoning provided.In conclusion, the High Court dismissed the appeal by the Revenue, finding no merit in the arguments presented. The judgment highlighted the importance of examining factual details in assessments and reiterated the principle that funds held in trust or fiduciary capacity should not be treated as income. The decision underscored the significance of specific legal precedents in determining what constitutes income for tax purposes.