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2015 (8) TMI 1081 - ITAT BANGALORE

2015 (8) TMI 1081 - ITAT BANGALORE - TMI - Registration under Section 12A - diversion of income by overriding title - CIT(A) dis-allowed claim - Held that:- There were no restrictions whatsoever on the use of the grant by the assessee. It cannot therefore be said that there was diversion of income by overriding title. Whatever the assessee does out of the grant and the interest accrued on the grant can only be said to be application of income and it cannot be said that there was diversion of inc .....

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riding title. - Decided against assessee. - I.T.A. Nos.1430 & 1431/Bang/2014 - Dated:- 14-8-2015 - SHRI VIJAYPAL RAO AND SHRI JASON P. BOAZ, JJ. For The Appellant : Shri H. V. Gouthama, C.A. For The Respondent : Dr. P. K. Srihari, Addl. CIT (D.R.) O R D E R Per Shri Jason P. Boaz, A.M. : These appeals by the assessee are directed against the orders of the Commissioner of Income Tax (Appeals) - V, Bangalore dt.22.8.2014 for Assessment Year 2008-09 and dt.20.8.2014 for Assessment Year 2010-11. Sin .....

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rban local government through e-governance. Members are enrolled as per the rules and bye-laws of the society. The assessee made an application for grant of registration under Section 12A of the Income Tax Act, 1961 (in short 'the Act') to the Director of Income Tax (Exemption), Bangalore. On perusal of the objects of the society, as contained in the Memorandum of Association dt.13.2.2008, the DIT (Exemption) concluded that the assessee did not exist for charitable purposes and according .....

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in respect of the amount generated by the society through its members. 2.2 The assessee received grants from the Govt. of Karnataka ( GOK in short) amounting to ₹ 1,97,00,000 and ₹ 25,00,000 in the period relevant to Assessment Years 2008-09 and 2010-11 respectively, with the specific direction that the assessee, as a custodian of the grants, the grants so given are to be spent only for the purpose of assisting its members in developing self-governance activities till the amount has .....

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relevant to Assessment Years 2008-09 and 2010-11 respectively. The grants received in the period Assessment Years 2008-09 and thereafter were all invested in Fixed Deposits ( FD ) and this yielded interest income of ₹ 29,25,518 in the period relevant to Assessment Year 2010-11. The question for consideration before the Assessing Officer was regarding the taxability of the Govt. grants received from GOK and the interest income accrued on FDs, which was also claimed as exempt on the princip .....

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discussed above - Govt. Grants treated as income : Rs.1,97,00,000. Total assessed income : Rs.1,97,00,000. For Assessment Year 2010-11. Income as per return of income : Rs.50,090. Add : Additions are considered as income as discussed above. Government Grant received : Rs.25,,00,000. Interest Income : Rs.29,25,518. Total : Rs.54,75,608. Less : Expenses Claimed. Man Power Expenses : ₹ 23,35,776. Advertisement expenses : ₹ 2,22,932 Rs.25,58,708. Total Assessed Income : Rs.29,16,900. 3. .....

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ng/2013 dt.9.5.2014. 4.1 Aggrieved by the orders of the CIT (Appeals) - V, Bangalore dt.22.8.2014 for Assessment Years 2008-09 and 20.8.2014 for Assessment Year 2010-11, the assessee has preferred these appeals before this Tribunal raising the following identical grounds for both the assessment years involved. 1. The learned CIT (Appeals), erred in confirming the order passed by ld. Assessing Officer in bringing the amount of specific grant given by Government of Karnataka to the appellant socie .....

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. of Karnataka has given specific grant to the appellant society s various project with the direction that, amount of grant shall be kept in escrow by the appellant society and shall be used ony for the purpose for which the grant has been released by Govt. of Karnataka and in case, there is any amount left over under each grant, the same shall be returned back to the Government and therefore, the appellant only holds the fund as a Trustee and when the diversion of income is determined before it .....

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ed. 4.2 Before us, the learned Authorised Representative reiterated the contentions put forth before the learned CIT (Appeals). It was contended that the Govt. of Karnataka by an Addendum dt.2.2.2010 had specifically directed that the grant money and any accrued interest on FDs out of the grant money was to be utilized only for the purpose of assisting the member bodies in implementation of e-governance and that the interest on grant would stand on the same footing as the grant itself. The asses .....

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the assessee's appeals on these issues are liable to be dismissed in view of the decision of the co-ordinate bench of this Tribunal in the assessee's own case in ITA No.1843/Bang/2013 dt.9.5.2014 for Assessment Year 2009-10, wherein on identical issues, the Tribunal has decided the matter in favour of Revenue and against the assessee. 4.4.1 We have heard the rival submissions of both the learned Authorised Representative for the assessee and the learned Departmental Representative for re .....

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aras 12 to 14 :- 12. We have given a careful consideration to the rival submissions. At pages 58 & 59 of the assessee s paperbook are copies of the English translation of the Government Order dated 17.1.2009 releasing grants to the assessee society for the year 2008-09. The order in vernacular is placed at pages 60 to 61 of the assessee s paperbook. The operative portion of the Government Order reads thus:- Government order No.UDD 15 SFC 2008 Bangalore, dated 17/01/2009 As explained in the P .....

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to draw from State Huzur Treasury and to recover a sum of ₹ 197.00 lakhs, which was released to Karnataka Municipal Data Society for the year 2007-08, and the remaining amount of ₹ 77.00 lakh to Karnataka Municipal Data Society for the Operational Cost and pay through cheque. 13. It is seen from the above Government Order that the purpose for which the grant is to be utilized and the utilization of interest income out of the grant have not been specifically spelt out. However, in the .....

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SFC 2008 dated 17/01/2009 ₹ 77 lakhs 3) Government order No. 15 SFC 2008 dated 27/08/2009 ₹ 25 lakhs However, the Government has not specified the purposes for which the grant is to be utilized nor quantified the amounts to be utilized against such purposes. It is felt necessary to issue an addendum to the above Government orders specifying the conditions of the grants released. After careful consideration the following addendum. Addendum to GO No. UDD/ 15/SFC/2008 Bangalore, Dated: .....

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e member bodies in implementation of e-Governance. If any asset is created out of this fund shall belong to the Government. Utilization certificate shall be submitted to Government after spending the funds. Further in case the amount is unspent the same shall vest in such an institution or body which Government prescribes together with any accretion thereto. 14. It can thus be seen from the above that the addendum, if at all, would operate only for the previous year relevant to A.Y. 2010-11 and .....

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