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TMI Blog2014 (5) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... received and shown as payable to the Government of Gujarat." 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) dated 07.12.2009 were that the assessee is a trust (AOP) and engaged in the activity of implementation of program for construction and rehabilitation. As per the return a deficit/loss of Rs.1,40,32,47,731/- was declared. It was noted by the AO that the assessee had earned interest income of Rs.9,79,70,032/- from the funds provided by the Government of Gujarat. The said amount was disclosed under the head "current liabilities" claimed to be payable to the Government of Gujarat. The objection of the AO was that the assessee had prepared and applied the income for the purpose other than its objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the grant itself and there was bar on the assessee's right to enjoy the interest income; right from the inception, such interest does not belong to the assessee. Alternatively, the Hon'ble ITAT has also held that the amount of interest credited to the account of the State Government should be treated as application of the income for the purpose of section 11(1)(a) of the Act, on commercial consideration. Therefore, the interest in question is held to be not income of the assessee and therefore not taxable in its hands. The question of, its application becomes redundant." 4. Heard both the sides. Before us an order of ITAT Ahmedabad 'C' Bench for A.Y.2006-07 titled as "Gujarat State Disaster Management Authority Vs. ACIT, Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is in favour of the assessee. 10. Respectfully following the judgment of the Hon'ble Gujarat High Court (supra) we decide this issue in favour of the assessee and hold that the interest of Rs.9,82,70,573/- cannot be assessed as the assessee's income. In the view we have taken it is not necessary to examine the alternative contention to the effect that the amount of interest credited to the account of the State Government should be treated as application of the income for the purpose of section 11(l)(a) of the Act, on commercial consideration. Thus ground no.1 is allowed." 5. In view of the above, we hereby hold that learned CIT(A) has rightly followed the order of the Tribunal and thereupon decided the issue in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry dated 9/12/2010 by the undersigned that they should show cause as why return of original grant be treated as application of money. Once the original grant has been declared as income by the assessee, refund should be reduced from income and 85% of application of income as required should be from the net amount. The assessee has replied to this issue vide letter dated 16/12/2010, as under: "During the discussions, it was observed that whether the refund of unspent grants to DRDA amounting to Rs.2,36,17,000 can be considered as reduction of income or whether it can be considered as application of income. In this context, we would like to point out that in the return of income, refund of grants have been considered as reduction or reversal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciple that the grants cannot be assessed as income as they were made for specific or assigned projects, as we have held in respect of the first ground, then the position would be a fortiori. In the case of C1T Vs. Ganga Charity Trust Fund, (1986) 162 ITR 612, it was held by the Hon'ble Gujarat High Court that for the purpose of applying the income of the trust for charitable purposes, income derived from the trust property must be determined on commercial principles and in doing so, all outgoings including income-tax must be deducted and it is only from the surplus income in the hands of the trustees that the question of application of income can arise. In C1T Vs. Sheth Manilal Ranchhoddas Visram Bhavan Trust, (1992), 198 ITR 598 it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal concluded that the grants are sanctioned the assessee only for the project under Rehabilitation Programme and same cannot be treated as assessee's income. It also referred to the order of the Tribunal in case of Gujarat Safai Kamdar Vikas Nigam (ITA No.3232/Ahd/2008 (Assessment Year 2005-06)] wherein it was held that the grant given by the State Government to another entity which was to spend grants nly for the stated purpose cannot be considered as voluntary contribution nor can the same be assessed under Section 12 of the Act as income of recipient........ 9. As far as Issue No.2 is concerned, the Tribunal has largely depended on judgment of Gujarat High Court in case of Gujarat Municipal Finance Board (supra). As in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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