Earmarked grant receipts for overseas events were not taxable income and related foreign disallowance failed.

Grants received for specified overseas fairs and buyer-seller meets, subject to strict conditions on separate accounting, use only for the sanctioned purpose, audit, and refund of unspent amounts, were treated as tied-up grants rather than voluntary contributions. Because the funds were not freely available for general application, they did not constitute the assessee's income or corpus for sections 11 and 12. The related foreign expenditure was also not disallowed merely for lack of prior approval under section 11(1)(c) on these facts. The grant receipts were therefore held non-taxable as income, and the Assessing Officer's disallowance was deleted.

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Issues: Whether grants received for specified overseas events and spent strictly in accordance with the grant conditions could be treated as taxable income or as voluntary contributions for the purpose of sections 11 and 12, and whether expenditure outside India required disallowance for want of prior approval under section 11(1)(c).

Analysis: The grant-in-aid was sanctioned for identified international fairs and buyer-seller meets, with conditions requiring separate accounts, utilisation only for the sanctioned purpose, maintenance of supporting records, audit, and refund of any unspent amount with interest. On these facts, the grants were not freely deployable by the assessee at its own discretion. They were tied-up grants received for a specific purpose and did not assume the character of voluntary contributions available for general application. The Tribunal followed the principle that such earmarked grants do not form the assessee's normal income or corpus and cannot be treated as voluntary contributions merely because they pass through the assessee's accounts.

Conclusion: The grants were not taxable as the assessee's income and the disallowance made by the Assessing Officer was rightly deleted. The Revenue's challenge to the treatment of the grant receipts and the related foreign expenditure failed.

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