Case Law Details
Howrah Improvement Trust Vs DCIT (ITAT Kolkata)
The appellant, Howrah Improvement Trust, received grants from the Government of West Bengal for infrastructure projects within the district of Howrah. The trust maintained separate accounts for general-purpose funds and specific-purpose funds. While the general-purpose fund was treated as income and subjected to income tax, the specific-purpose fund was considered corpus and not offered as income under Section 11(1)(d) of the Income Tax Act.
During the assessment proceedings, the Assessing Officer disallowed a portion of the grants that were directly credited to the balance sheet, arguing that they did not qualify as corpus donations. The Assessing Officer maintained that without an express direction from the government specifying the funds as corpus, they should be treated as income and subjected to taxation. Additionally, the Assessing Officer noted that the trust did not apply the income in the year received and failed to follow the provisions of Section 11(1) and Section 11(2) regarding income utilization.
However, the ITAT Kolkata disagreed with the Assessing Officer’s stance. The trust had utilized the grants for their designated infrastructure projects and refunded any unutilized funds back to the government. The ITAT emphasized that the grants did not form part of the trust’s corpus, were not donations, and did not qualify as income under Section 11. The nature and purpose of the grants justified their direct crediting to the balance sheet without routing them through the profit and loss account.
Conclusion: The ITAT Kolkata’s decision in the case of Howrah Improvement Trust vs. DCIT resulted in the deletion of the addition of government grants as corpus or income. The trust’s utilization of the grants for specific infrastructure projects, the absence of an express direction to treat the funds as corpus, and the refund of unutilized funds were crucial factors in determining that the grants did not constitute income. This ruling provides clarity on the tax treatment of government grants in similar cases.
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