Unutilized government grants for infrastructure development taxable as income under Section 2(24)(iia) without proper exemption compliance

ITAT Chandigarh upheld the addition of unutilized grant-in-aid received from Government of India for infrastructure development. The assessee failed to establish exemption under Section 10(23C)(iiiab) or demonstrate compliance with Section 12AA registration requirements. The tribunal found that voluntary contributions received constitute income under Section 2(24)(iia), and the assessee could not specify applicable exemption provisions. Claims for exemption under Sections 11/12AA and 10(23C) were rejected as inapplicable to the case circumstances. The assessee's mixed accounting method was deemed impermissible under Section 145(1).

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The appeal before the Appellate Tribunal concerned the addition of Rs. 1,40,17,320 in the assessment of the appellant for the year 2010-11. The issue revolved around the unutilized grant-in-aid of Rs. 1.00 Crores received by the council from the Government of India for the development of infrastructure, specifically for the maintenance and development of buildings and other facilities. The appellant contended that the addition made by the Assessing Officer was not sustainable in the eyes of the law.The facts revealed that the appellant, H.P. Nursing Registration Council, is a regulatory body established by the State Government of Himachal Pradesh under the H.P.N.R.C. Act, 1977. The council's main function is to regulate and conduct various categories of nursing personnel working in the government or private sector, as well as nursing institutions in the state.The Assessing Officer disallowed the appellant's claim based on the mixed method of accounting adopted, the absence of registration under section 12AA for the relevant year, and the failure to meet the expenditure requirements under section 11 of the Income Tax Act. The AO treated the unutilized surplus as taxable income, leading to the appellant's appeal.During the appeal hearing, the appellant argued that it fell within the ambit of section 10(23C) of the Act and was covered under section 10(23A) as an association or institution established in India to regulate the profession of Medicine. The appellant also emphasized that the grants received were activity-wise, not year-wise, and any unspent amounts had to be refunded to the government.The ld. CIT(Appeals) dismissed the appeal, stating that the appellant's lack of registration under section 12AA for the relevant year and its failure to meet the expenditure requirements under section 11 rendered the AO's action justified. The CIT(A) held that the provisions of section 10(23C)(iiiab) were not applicable to the appellant, as it was neither a university nor an educational institution solely for educational purposes.The Tribunal upheld the orders of the lower authorities, noting that the appellant's claim for exemption under section 10(23C)(iiiab) was untenable due to its failure to satisfy the required conditions. The Tribunal emphasized that the appellant's voluntary contributions fell under section 2(24)(iia) of the Act, making the amount received from the Government of India taxable income.The Tribunal found no justification to interfere with the lower authorities' orders, as the appellant failed to demonstrate any legal basis for income exemption. The Tribunal confirmed the findings of the CIT(A) and dismissed the appellant's appeal.In conclusion, the Tribunal upheld the decision to treat the unutilized grant-in-aid as taxable income due to the appellant's lack of registration under section 12AA and failure to meet the expenditure requirements under the Income Tax Act. The appeal was dismissed, affirming the lower authorities' rulings.

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