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2016 (11) TMI 119 - KARNATAKA HIGH COURT

2016 (11) TMI 119 - KARNATAKA HIGH COURT - TMI - Treatment to grant and the interest earned thereon as income of the Appellant-society - Appellant guided by the directions of the Government of Karnataka - Held that:- When the assessee is to act as a custodian of the Government money released to the assessee by way of a grant and the interest thereon is also to be utilised as per the terms and conditions of the grant, the view taken by the Tribunal cannot be sustained for two reasons. One is that .....

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r utilization of the money including interest earned thereon remains with the Government, same cannot be termed as income of the assessee. - The impugned order passed by the Tribunal is set aside and the questions are answered in favour of the assessee - ITA NOS.103-104/2016 & 387-388/2016 C/W ITA NO.306/2014 - Dated:- 5-10-2016 - Jayant Patel And Aravind Kumar, JJ. For the Petitioner : Sri. S Parthasarathi, Advocate For the Respondent : Sri K. V. Aravind, Advocate ORDER As common questions .....

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t money kept with banks? (b) Whether in law, the authorities below are justified in rejecting the plea of the Appellant and treating the grant and the interest earned thereon as income of the Appellant when admittedly the funds were held by the Appellant in the capacity of custodian only and the funds and interest were to be utilized as per the directions of the Government of Karnataka alone? (c) Whether in law, the authorities below are justified in interpreting the order of the Government of K .....

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r the purposes specified by the Government. Until the amount of grant is utilised, money is to remain in the respective Bank account of the assessee - Society and interest may accrue thereon. In the assessment proceedings, assessing officer found that interest earned on the aforesaid deposits lying in the Bank account can be termed as income of the assessee and therefore, exemption from income was unavailable. Matters were carried in the appeal before the CIT (Appeals) and CIT (Appeals) dismisse .....

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ch of this Tribunal or consideration in the assessee s own case for Assessment Year 2009-10. In its order in ITA No.1843/Bang/2013 dated 9.5.2014 the co-ordinate bench adjudicated these issues in favour of Revenue and against the assessee holding as under at paras 12 to 14:- 12. We have given a careful consideration to the rival submissions. At pages 58 & 59 of the assessee s paper book are copies of the English translation of the Government Order dated 17.1.2009 releasing grants to the asse .....

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8377; 197.00 lakhs, which was released for the year 2007-08. This grant should be incurred for the year 2008-09 under the Account Head 3604-00-193-0-01 (100) (plan). In the Government Order, Director, Directorate of Municipal Administration has been authorized 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 Lakhs to Karnataka Municipal Data Societ .....

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dendum reads thus:- Preamble: Government has released a total sum of ₹ 299 lakhs as under, for meeting the expenditure of the Karnataka Municipal Data Society; 1) Government Order No.15 SFC 2008 dated 07/03/2008 ₹ 197 lakhs 2) Government Order No.15 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 .....

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erves the right to direct Society to use the funds in a manner it may deem fit. The Society shall hold the money as a custodian for the Government. It shall create a fund out of the grant money and any accrued interest and utilize the funds for assisting the 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 unspe .....

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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 income by overriding title. Taking note of the above factual position for the A.Y.2009- 10, the plea of the assessee that there was diversion of income by overriding title cannot be accepted. Accordingly, the order of the CIT (Appeals) is confirmed. …….. 4.4.2. Following the af .....

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rsion of income by overriding title. Consequently, the grounds at S. Nos. 1 to 4 raised by the assessee are dismissed. Similar is the view taken by the Tribunal in the other matters. Under these circumstances, appeals before this Court. 4. We have heard Mr.Parthasarathy, learned counsel appearing for appellant and Mr.Aravind, learned counsel appearing for respondent. 5. As such, when the assessee is to act as a custodian of the money and the utilization thereof is fully controlled by the Governm .....

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NCE CORPORATION in its decision reported at (2006)284 ITR 0582 wherein of course, Tribunal had held that it is not an income of the assessee but the revenue was in appeal before this Court. In the said decision, this Court at para 4 observed thus: 4. The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of mega-city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to .....

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on a continuing basis and, therefore, the assessee is a nodal agency formed/created by the Government of Karnataka as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the nation/States as provided in the guidelines; the whole Of the fund belongs to the State Exchequer and the assessee has to channelise them to the objects of cent .....

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of the Central Government and, therefore, the assessee is only acting as a nodal agency of Central Government for implementation of these projects. It is not the case of the Revenue that the assessee was carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the project could not be fully implemented, is deposited in a bank to earn interest. That interest earned is also again utilised for the implementation of the mega-cit .....

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