2021 (11) TMI 315 - AT - Income Tax

Tribunal rules grants as eligible income under Income Tax Act

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal by setting aside the CIT(A)'s order on treating grants received as ... Assessment of trust - grants to be considered as eligible income for section 11 - Whether grants received from various organisations are in the nature of voluntary contributions? - HELD THAT:- The issue involved has rightly been claimed to be covered by case of CIT v Gem & Jewellery Export Promotion Council [1982 (6) TMI 28 - BOMBAY HIGH COURT] - Despite the same being before Ld.CIT(A), he has not followed the same. Not only not follow, he has not bothered to refer or distinguish the same. Despite that he has referred to non jurisdictional High Court decision and rejected assessee’s plea. This is absolute violation of judicial discipline. It is settled law that decision of Hon’ble jurisdictional High Court is binding upon subordinate Tribunal and courts. Hence, in our considered opinion, this decision of Hon’ble High Court is applicable fully in the facts of this case. Nothing has been provided before us to show that this decision is not applicable. Hence decide the issue in favour of assessee. Issues Involved:1. Deletion of disallowance of claim of deficit.2. Treatment of grants received from agencies as eligible income under Section 11 of the Income Tax Act, 1961.3. Exclusion of interest income earned on earmarked funds.4. Exclusion of depreciation while computing disallowance of expenses relating to earmarked grants.Issue-wise Detailed Analysis:1. Deletion of Disallowance of Claim of Deficit:The Revenue's appeal raised several grounds regarding the deletion of the disallowance of the claim of deficit by the Commissioner of Income Tax (Appeals) (CIT(A)). The primary contention was whether the CIT(A) was justified in deleting the disallowance of the deficit claim of Rs. 3,92,62,164/- (including Rs. 1,43,40,656/- of the previous year and Rs. 2,49,21,508/- brought forward from earlier years). The CIT(A) relied on the decision of the Hon'ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection (IBPS) (264 ITR 110), which allowed the carry forward of the deficit for setting off against income of subsequent assessment years. The Tribunal upheld the CIT(A)'s decision, agreeing that the issue was covered in favor of the assessee by the cited Bombay High Court decision. Consequently, the Tribunal dismissed the Revenue's appeal.2. Treatment of Grants Received from Agencies as Eligible Income under Section 11 of the Income Tax Act, 1961:The assessee's appeal contested the CIT(A)'s confirmation of the Assessing Officer's (AO) action of treating the grants received from different organizations as specific grants and thus, as capital receipts. The AO had argued that the grants received for specific purposes did not constitute income under Section 11 of the Act, as they were to be used solely for the specified purposes and not for the general charitable activities of the trust. The CIT(A) upheld this view, relying on various judicial precedents, including CIT v. State Urban Development Society and CIT v. Gujarat State Disaster Management Authority. However, the Tribunal noted that the issue was covered by the jurisdictional Bombay High Court's decision in CIT v. Gem & Jewellery Export Promotion Council (143 ITR 579), which held that earmarked grants are voluntary contributions and should be treated as income under Section 12 of the Act. The Tribunal criticized the CIT(A) for not following the jurisdictional High Court's decision and set aside the order, deciding the issue in favor of the assessee.3. Exclusion of Interest Income Earned on Earmarked Funds:The assessee argued that if the earmarked funds were excluded from income, then the interest earned on these funds should also be excluded. The CIT(A) had confirmed the AO's action of including the interest income of Rs. 3,98,007/- in the income of the assessee. The Tribunal noted that this issue was consequential to the main issue of the treatment of grants. Since the Tribunal decided in favor of the assessee regarding the treatment of grants, this issue became academic and was treated as such.4. Exclusion of Depreciation While Computing Disallowance of Expenses Relating to Earmarked Grants:The assessee contended that if the expenditure corresponding to the earmarked funds was to be excluded, then the amount of depreciation should also be excluded from the said expenditure. The CIT(A) had confirmed the AO's action of not excluding the amount of depreciation. Similar to the interest income issue, the Tribunal considered this issue as consequential and academic, given its decision on the treatment of grants.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, primarily by setting aside the CIT(A)'s order regarding the treatment of grants received from agencies as eligible income under Section 11 of the Income Tax Act, 1961. The Tribunal emphasized the binding nature of the jurisdictional High Court's decision and criticized the CIT(A) for not adhering to judicial discipline. The other issues raised were treated as academic following the main decision.