2024 (6) TMI 1055 - AT - Income Tax

Interest income from unutilised government grants not taxable as part of grant-in-aid; sponsorship expenditure allowed as revenue expenditure

ITAT Bangalore held that interest income from unutilised government grants is part of the grant-in-aid and not taxable income under the Act, following its ... Interest on unutilised government grants treated as part of grant in aid and not taxable income - revenue expenditure versus capital expenditure in respect of sponsorship/contribution - business purpose and ancillary objects determining allowability of expenditure - application of coordinate bench precedent in same assessee's earlier yearsInterest on unutilised government grants treated as part of grant in aid and not taxable income - application of coordinate bench precedent in same assessee's earlier years - Interest earned on fixed deposits made out of unutilised government grants is not the assessee's income but forms part of the grant in aid and is not taxable under the Act. - HELD THAT: - The CIT(A) concluded, following earlier orders of the Tribunal in the assessee's own case for AYs 2014 15, 2015 16, 2017 18 and 2018 19, that the facts and nature of the interest earned in AY 2020 21 are unchanged and that interest credited to the grant account on parking unutilised grant in aid in bank fixed deposits forms part of the grant in aid rather than income of the assessee. The Tribunal found no material or higher court order before it which would warrant taking a different view and therefore accepted and confirmed the CIT(A)'s deletion of the addition made by the AO on this ground. [Paras 7, 8]Addition of interest deleted; interest on unutilised grants treated as part of grant and not taxable.Revenue expenditure versus capital expenditure in respect of sponsorship/contribution - business purpose and ancillary objects determining allowability of expenditure - The contribution of Rs. 5,00,00,000 to the International Solar Alliance for instituting the Karnataka Visveswaraya Solar Award is revenue expenditure deductible as incurred for the assessee's business purposes and not capital expenditure. - HELD THAT: - The CIT(A) examined the memorandum and articles showing that giving awards and prizes is an ancillary object and that the assessee, as the Government's nodal agency to promote solar energy, incurred the expenditure pursuant to its statutory/objective obligations. The CIT(A) further found the sponsorship did not create any directly attributable enduring asset or measurable advantage of an enduring nature; accordingly the disallowance treating the amount as capital expenditure was reversed. The Tribunal agreed with this reasoning and with coordinated bench decisions in the assessee's earlier years, and held that the expenditure is in the revenue field and allowable. [Paras 9, 10, 11, 12]Sponsorship/contribution treated as revenue expenditure; disallowance by AO deleted.Final Conclusion: The Revenue's appeal is dismissed; the CIT(A)'s order deleting the addition of interest on unutilised grants and allowing the sponsorship expenditure as revenue expenditure is affirmed. Issues Involved:- Appeal challenging order by National Faceless Appeal Centre under Income Tax Act for AY 2020-21.- Treatment of interest income on fixed deposits.- Classification of expenditure for setting up Karnataka Visveswaraya Solar Award.Analysis:1. Interest Income on Fixed Deposits:The appeal contested the treatment of interest income on fixed deposits received by the assessee. The Revenue argued that the interest should be considered income under the Act, citing a pending case before the Supreme Court. However, the CIT(A) ruled in favor of the assessee, following precedent decisions by the Tribunal. The Tribunal upheld the CIT(A)'s decision, stating that the interest earned from unutilized grants is part of the grant and not taxable income. The Tribunal found no reason to deviate from previous judgments, affirming the CIT(A)'s order on this issue.2. Expenditure for Karnataka Visveswaraya Solar Award:The second issue revolved around the classification of expenditure incurred for setting up the Karnataka Visveswaraya Solar Award. The AO treated the expenditure as capital, disallowing it, while the CIT(A) reversed this decision, considering it as revenue expenditure. The CIT(A) justified this by highlighting the business purpose behind the expenditure and statutory obligations of the assessee to promote solar energy. The Tribunal supported the CIT(A)'s reasoning, citing relevant case laws and previous decisions. It emphasized that the expenditure was in line with the core activities of the assessee and eligible for deduction as revenue expenditure. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on this issue as well.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s orders on both issues related to the treatment of interest income on fixed deposits and the classification of expenditure for setting up the Karnataka Visveswaraya Solar Award. The Tribunal found the CIT(A)'s decisions to be in accordance with the provisions of the Income Tax Act and consistent with previous Tribunal rulings, ultimately ruling in favor of the assessee.