2024 (6) TMI 1358 - AT - Income Tax

Revenue fails to challenge statutory body's section 11 exemption for grant accounting under GFR 230(5)

Deputy Commissioner of Income Tax, Exemptions Circle, Hyderabad Versus National Fisheries Development Board, Hyderabad

Deputy Commissioner of Income Tax, Exemptions Circle, Hyderabad Versus National Fisheries Development Board, Hyderabad - TMI Issues Involved:1. Whether the assessee complied with the conditions under section 11 of the Income Tax Act to avail the benefit thereunder.2. Whether the grants received by the assessee constitute its income.3. Whether the investment in equity shares contravenes the provisions of section 13(1)(d) read with section 11(5) of the Act.Issue-wise Detailed Analysis:1. Compliance with Section 11 Conditions:The Revenue challenged the assessee's compliance with section 11 of the Income Tax Act, arguing that the assessee did not utilize 85% of the total grants-in-aid received during the year. The assessee contended that it applied more than 85% of its income towards its objectives, based on its accounting principles. The CIT(A) found that the assessee maintained its accounts on sound commercial principles and followed statutory guidelines, rejecting the Assessing Officer's view. The Tribunal upheld CIT(A)'s decision, noting that the assessee's method of accounting, which treated grants utilized by implementing agencies as income and those covered by utilization certificates as expenditure, was consistent and compliant with government regulations.2. Nature of Grants Received:The Revenue argued that the grants received by the assessee should be treated as income, while the assessee maintained that these were specific-purpose grants and not its income. The CIT(A) supported the assessee's view, noting that the grants were received, kept, and disbursed according to government instructions without the assessee holding any right to utilize them otherwise. The Tribunal agreed, emphasizing that treating all grants as receipts and allocations as expenditure was not scientific, as there was no income element in the grants received from the Central Government. The Tribunal concluded that the assessee's method of accounting was correct and consistent with government directives.3. Investment in Equity Shares:The Assessing Officer contended that the assessee's investment in equity shares of Sasoon Dock Matsya Shakari Samstha Ltd. contravened section 13(1)(d) read with section 11(5) of the Act. The assessee argued that the investment was made in the assessment year 2009-10 for implementing its objectives and that no objection had been raised in previous years. The CIT(A) found that the investment did not affect the assessee's exemption under section 11, as the registration under section 12AA was still valid. The Tribunal upheld this view, noting that the investment was not made in the current year and that the exemption claim was consistent with past assessments.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order. The Tribunal found that the assessee complied with section 11 conditions, correctly accounted for grants, and did not violate section 13(1)(d) provisions. The appeal was dismissed, and the CIT(A)'s decision to allow the exemption under section 11 was upheld.