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Facts
The assessee, a charitable trust, filed a return declaring 'Nil' income after claiming exemption u/s 11. The AO disallowed accumulation of government grants, treating them as non-voluntary contributions, and made an addition. The CIT(A) upheld the AO's order.
Held
The Tribunal held that government grants received for specific purposes, like salary and NCC activities, which were not utilized for those purposes and not refunded, cannot be accumulated. The non-utilization leads to stockpiling rather than using funds for the designated purpose.
Key Issues
Whether government grants received for specific purposes, if not utilized for those purposes, are eligible for accumulation under Section 11(1)(a) of the Income Tax Act.
Sections Cited
250, 143(3), 28, 11(1)(a), 12A, 80G, 143(2), 263
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT :- This appeal has been filed by the Assessee against the order dated 03.12.2024 passed by the Ld. ADDL/JCIT(A)-1, Chandigarh (‘Ld. CIT(A)” in short), under Section 250 of the Income-tax Act, 1961 (‘the Act’), relating to the Assessment Year 2017-18.
The assessee has raised the following grounds of appeals: “1. The assessment order u/s.143(3) of the Act is bad in law.
2. The learned Assessing Officer has erred in law as well as on facts in assessing the total income of the appellant at Rs.28,00,479/- as against the returned income of Rs. Nil declared by the appellant. The Ld. CIT(A) has erred in law as well as in facts in confirming the same.
3. The learned Assessing Officer has erred in law as well as on facts in not considering the government grant as voluntary contribution and thereby, withdrawing the exemption u/s.11(1)(a) of the Act to this extent. The Ld. CIT(A) has erred in law as well as in facts in confirming the same.
4. The learned Assessing Officer has erred in law as well as on facts in making the addition of Rs.28,00,479/- by denying the benefit of exemption u/s.11(1)(a) of the Act on the government grants. The Ld. CIT(A) has erred in law as well as in facts in confirming the same.” 3. The assessee is a charitable trust registered u/s 12A of the Act and approved u/s 80G of the Act. The trust is engaged in imparting education and running various educational institutions. The assessee filed its return of income for the year under consideration on 13.11.2018, declaring total income at Rs. Nil after claiming exemption u/s 11 of the Act. The case was selected for scrutiny and notice under section 143(2) of the Act was issued on 11.08.2018. During the course of assessment proceedings, the Assessing Officer issued a show cause notice proposing to disallow the accumulation of 15% u/s 11(1)(a) of the Act on the amount of Government grants of Rs.1,88,41,271/- received by the assessee for specific purposes. The Assessing Officer held that such Government grants were not in the nature of voluntary contributions and therefore, not eligible for the benefit of accumulation u/s 11(1)(a) of the Act. Accordingly, the Assessing Officer reworked the allowable accumulation and made an addition of Rs.28,00,479/- to the total income of the assessee.
Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A). However, the Ld. CIT(A) upheld the findings of the Assessing Officer and dismissed assessee’s appeal.
Aggrieved, the assessee is now in appeal before the Tribunal.
Before us, the Ld. AR submitted that the Assessing Officer has erred in denying the benefit of accumulation u/s. 11(1)(a) on Government grants which were received for furtherance of the educational objectives of the trust. The Ld. AR contended that such grants are to be treated as income derived from property held under trust, and therefore, eligible for the 15% accumulation u/s 11(1)(a) of the Act. The Ld. AR placed reliance on the decision of the ITAT Rajkot Bench in the case of Gujarat State Lion Conservation Society [(2023) 141 taxmann.com 269 (Rajkot - Trib.)], which held that Government grants form part of income for purposes of section 11(1)(a), which was upheld by the Hon’ble Gujarat High Court. The Ld. AR also submitted that the benefit of accumulation on Government grants has been allowed consistently by the Department in preceding and succeeding assessment years.
The Ld. DR, on the other hand, supported the orders of the authorities below.
We find that the decision of ITAT Rajkot bench in the case of Gujarat State Lion Conservation Society (supra) pertained to revision u/s 263 of the Act. In this case, the Govt. granted amounts specifically for salary, and if not paid, the grants allotted have to be refunded to the Govt. Similarly, the grant on account of maintenance and NCC activities are specific in nature and has to be disbursed as directed, and if not disbursed or utilized, the same has to be returned. In this case, the amount received by the assessee has not been utilized for payment of salary and also not utilized for conducting NCC activities. The assessee-trust has to utilize the monies for payment of salaries and NCC activities. The assessee if not used the monies for the intended purpose, should have returned the same to the Government, so that Government could utilize the same for the purpose intended. The assessee has not returned the monies to Government in spite of not utilizing it for the purpose intended viz. NCC activities and salary. Doctrine of cy-pres sets in. Non-using these funds for the purpose designated would only lead to stockpiling of funds to the trust rather than using them for intended purpose.
Under these circumstances, the assessee shall not be allowed to keep the monies with them without utilizing and cannot be allowed to accumulate the monies that were to be spent on the activities for which it was meant for. Hence, the appeal of the assessee is dismissed.
The order is pronounced in the open Court on 25.08.2025.