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2022 (11) TMI 573 - AT - Income TaxDiversion of income by overriding Title - Taxability of Money received for distribution as per Govt. Scheme - The excess amount over and above 0.50% of the amount transferred to TDF/WDF. - RIDF/STCRC are schemes framed by the Government of India and it has appointed the assessee as implementing agency. - assessee is allowed to retain a margin of 0.50% - HELD THAT:- the Government of India has devised schemes for promotion of investments in agriculture and rural development. As per the scheme the banks were directed to deposit “shortfall amounts in giving priority sector lending by banks” with the assessee herein, which in turn, would lend the said money to State Governments to carry out various schemes of agriculture and rural development. The net surplus between the interest income and interest expenditure under this scheme was directed to be appropriated as per the scheme - i.e. the assessee herein should take 0.50% as its income. and the excess amount of surplus over and above 0.50% referred above shall be transferred to TDF/WDF. The AO has taken the view that, since the assessee did not keep the funds pertaining to TDF/WDF in separate bank accounts and used it for its own business purposes, the amount so transferred to these funds would constitute income of the assessee. The assessee has acted as nodal or implementing agency for the schemes framed by GOI. Hence the amounts transferred to TDF/WDF are diverted at source itself and hence, the same does not belong to the assessee. Accordingly, the amounts so diverted to TDF/WDF cannot be brought to tax in the hands of the assessee. Disallowance of expenditure incurred on promotional activities - capital expenditure - 36(1)(xii) - Since the notification was not available for the year under consideration, the Ld CIT(A) confirmed the disallowance on the ground that the assessee is not a notified u/s 36(1)(xii) of the Act during the year. - HELD THAT:- When the notifying authority itself has mentioned that the assessee is being notified from AY 2013-14 onwards, we are of the view that the assessee cannot be deemed to have been notified in the year under consideration, being AY 2010-11. Accordingly, we confirm the disallowance made by the AO. Further, in the preceding paragraphs, we have held that the amounts transferred to Watershed Development Fund (WDF) is a case of diversion of income by overriding title. We have also held that the assessee is not the owner of funds so transferred WDF. If the above said amount of Rs.44.70 crores have been spent out of the funds so transferred to WDF as per the directions issued by GOI/RBI, the assessee could not claim such expenditure incurred out of WDF, held as not belonging to assessee, as deduction. Assessment of service charges on accrual basis - HELD THAT:- There is no dispute with regard to the fact that the assessee has been following consistent accounting policy to recognize income by way of Service charges on receipt basis. The assessee submitted that there was uncertainty in recovering service charges. There should not be any dispute that an income can be recognized under mercantile system of accounting also, only if there is certainty of its recovery. Considering the past consistent practice followed by the assessee, we are of the view that this addition is not justified. Accordingly, we set aside the order passed by CIT(A) on this issue and direct the AO to delete this addition. Claim for deduction of Education cess as allowable expenditure - HELD THAT:- In view of the retrospective amendment brought in by Finance Act, 2022 in the Income tax Act, the claim of the assessee is not allowable. Accordingly, we reject the same.
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