HOWRAH INPROVEMENT TRUST,HOWRAH vs. D.C.I.T.,CIRCLE-1(1), KOLKATA

The brief facts of the case are that the assessee, Howrah Improvement Trust, is the State Level Nodal Agency of Government of West Bengal constituted under Howrah Improvement Trust Act for construction of Roads, Bridges, Sewerage Systems, Buildings, Playgrounds, Auditoriums, Construction of Buildings for Educational Institutions etc on behalf of Government of West Bengal within the district of Howrah. The Trust functions under Urban Development Assessment year: 2015-16 Howrah Improvement Trust Department of Government of West Bengal. The Trust receives specific earmarked grants from Government of West Bengal through Urban Development Department for implementation of various infrastructural projects within the district of Howrah. The accounts of the Trust are to be maintained as per Government Rules and audit is done by CAG. The assessee-Trust is also registered u/s 12AA of the Act vide order issued by the ld. Commissioner of Income Tax (Exemption) dated 21.05.2016. During the previous year relevant to the assessment year under consideration, the assessee received general-purpose fund and specific purpose fund from the Government of West Bengal. The general-purpose fund, which was granted to the assessee primarily for funding the administrative expense such as payment of salary, bonus etc., was duly credited to the Income & Expenditure Account of the assessee-appellant and the same was offered to income tax for the relevant assessment year in the statement showing computation of total income of the appellant. The specific purpose fund such as fund granted to the assessee- appellant for construction of fly over or flood shelter or school building etc. was directly taken to the Balance Sheet as it constituted capital/corpus of the Trust and hence, the same was not offered to tax as income of the Trust as per the provisions of section 11(1)(d) of the Act.

During the assessment proceedings, the Assessing Officer observed that an amount of Rs.25,01,5352/- was directly credited to balance sheet without routing the same through profit and loss account. The Assessing Officer observed that as per of section 12(1) and section 11(1)(d) of the Act, the voluntary contributions made with a specific direction that the contribution shall form part of the corpus of the trust can be treated as corpus donation and the same will not be treated as income of the trust/institution. However, any other donation/grant is Assessment year: 2015-16 Howrah Improvement Trust not a corpus donation. He further observed that in the instant case, there was no express direction either from the Government of West Bengal or Government of India that the funds received by the assessee would form part of the corpus of the assessee-institution. He further observed that the basic nature of the grant, was that it was meant for application and not for keeping with the assessee’s corpus. He further observed that the assessee did not apply the income in the year in which the same was received. If the assessee wished to apply any income of this year in the next year then it must take recourse to explanation 2 to section 11(1) of the Act by exercising option. If it wanted to defer the application of receipts beyond one year then it must set apart such income for specific purpose u/s 11(2) of the Act by furnishing Form 10. In absence of such option, the assessee has to apply 85% of its entire income received during the year within the year itself, to avail exemption u/s 11 of the Act. Any shortfall in applying 85% of income, was squarely taxable in absence of option vide Explanation 2 to section 11(1) or claim of set apart vide section 11(2) of the Act. In this instant case, no such option was exercised or Form 10 was submitted. The Assessing Officer therefore, added back the Government grant received by the assessee of Rs.25,01,54,352/- as income for the year under consideration.

The ld. CIT(A) also confirmed the additions so made by the Assessing Officer.

Being aggrieved, the assessee has come in appeal before us. The ld. counsel for the assessee has submitted that the aforesaid grants were given to the assessee by the State Government/Central Government for specific infrastructure projects. That the assessee has used the aforesaid grants for those specific purposes only and further that the unused grants have been paid back/refunded to the Government. The ld.