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Facts
The assessee, a society registered under the Himachal Pradesh Societies Registration Act, received funds from the Central Government as grant-in-aid. They claimed exemption under Section 10(46) for both the grant-in-aid and interest accrued on CCTNS fund. The CIT, however, found the assessment order erroneous and prejudicial to the revenue, initiating proceedings under Section 263.
Held
The Tribunal held that the CIT erred in revising the assessment order under Section 263. A perusal of the notification indicated that exemption was granted for both grant-in-aid and interest accrued on CCTNS fund, which was considered a consolidated fund for a government project. The assessment order was neither erroneous nor prejudicial to the revenue.
Key Issues
Whether the interest income accrued on the CCTNS fund, received as grant-in-aid, is also eligible for exemption under Section 10(46) of the Income Tax Act.
Sections Cited
263, 143(3), 10(46), 143(2), 139
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
The assessee is in appeal against the order of Commissioner of Income Tax [in short ‘the CIT’] dated 22.03.2022 passed under Section 263 of the Income Tax Act for assessment year 2017-18.
2. The grievance of the assessee is that CIT has erred in taking cognizance under Section 263 and setting aside the A.Y.2017-18 2 assessment order passed under Section 143(3) of the Income Tax Act.
The brief facts of the case are that assessee has filed its return of income on 30.10.2017 declaring total income at Rs.54,36,894/-. However, this return was revised and ‘nil’ income was declared which was accepted under Section 143(3) of the Act. The case of the assessee was subsequently selected for scrutiny assessment and an assessment was passed on 02.12.2019 under Section 143(2) of the Income Tax Act. The ld. AO has accepted the revised return submitted by the assessee.
4. The assessee is a society registered under Himachal Pradesh Societies Registration Act, 2006. The primary object of the Society is to promote efficiency, reduce delays, enhance accountability, transparency and objectivity in the functions of the Police Station and facilitate accommodation of Citizen Charters for the benefit of the general public. It enjoys the benefit of Section 10(46). The Society received funds from the Central Government as a grant-in-aid. Initially, it has shown grant- A.Y.2017-18 3 in-aid of Rs.5,66,06,677/- which was received from the Ministry of Home Affairs. The assessee has claimed exemption under Section 10(46) of the Act. The assessee has earned income interest on FDRs totaling to Rs.54,36,894/- but later on in the revised return, this was not offered for taxation. The ld. Commissioner was of the view that alleged interest income cannot be characterized akin to the grant-in-aid and it will not enjoy exemption under Section 10(46). According to him, the AO has erred in granting exemption under Section 10(46) on this interest income also. Therefore, CIT was of the view that the assessment order is erroneous and it has caused prejudice to the interests of Revenue. He took action under Section 263 and set aside the impugned assessment order for framing a fresh assessment.
The ld. Counsel for the assessee while impugning the order of the CIT submitted that a perusal of Section 10(46) would reveal that not only grant-in-aid but any item which was notified by the Central Government is to be granted exemption. He drew our attention towards Notification A.Y.2017-18 4 issued by the Government of India, Ministry of Finance (CBDT) dated 22.12.2017. Copy of this Notification is available at page No.15 of the Paper Book which read as under :
Government of India Ministry of Finance (Department of Revenue) (Central Board of Direct Taxes) NOTIFICATION
New Delhi, the 22nd December, 2017 S.O. …….(E).—In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the ‘Himachal Pradesh Computerization of Police Society’, a body established by the Government of Himachal Pradesh, in respect of the following specified income arising to that body, namely:- (a) amount received in the form of Grant-in-aid; and (b) interest accrued on CCTNS fund.
This notification shall be effective subject to the conditions that Himachal Pradesh Computerization of Police Society,- (a) shall not engage in any commercial activity; (b) activities and the nature of the specified income shall remain unchanged throughout the financial years; and (c) shall file return of income in accordance with the provision of clause (g) of sub-section (4C) of section 139 of the Income-tax Act, 1961.
3. This notification shall be deemed to have been applied for the financial Years 2013-2014, 2014- 2015, 2015-2016, 2016-2017 and shall apply with respect to the financial year 2017-2018. [Notification No. 100 /2017, F.No.196/7/2015-ITA-I]
Sd/- VINAY SHEEL GAUTAM, Under Secretary to Government of India.
ITA No.443/CHD/2022 A.Y.2017-18 5 Explanatory Memorandum:- It is certified that no person is being adversely affected by giving retrospective effect to this notification. To The Manager, Government of India Press, Mayapuri Press, New Delhi.
6. On the strength of this Notification, ld. Counsel for the assessee submitted that this Notification exempt two amounts; a) Amount received in the form of grant-in-aid, and b) Interest accrued on CCTNS This CCTNS represent Crime, Criminal, Tracking and Networking System. This Notification has been explained in the reply of the Dy. Inspector General of Police (Crime)
Shri Arul Kumar, IPS vide his letter dated 17.03.2022 written to Pr. Commissioner of Income Tax. The relevant part of this letter read as under :
“.....................
In that background in mind, as the assessee is a wing of the government, though registered as Society under the Societies Act, the assessee applied for exemption under section 10(46) of the Income Tax Act, 1961. The Government of India through the Central Board of Direct Taxes issued a notification dated 27.12.2017deemed to be applicable from the assessment year 2013-14 till assessment year 2017-18, whereby following income was notified to be exempted:- a) Amount received in the form of grant-in-aid; and (b) Interest accrued on CCTN5 fund A.Y.2017-18 6 The copy of notification is once again being placed on record for your kind perusal and ready reference.
5. The perusal of the assessment order would go to reveal that the learned Assessing Officer has allowed deductions/exemptions as granted under section 10(46) only by following notification in letter and spirit.
That it has already been explained that the entire funds of the society have been received from the Ministry of Home affairs. The unspent grant is lying in saving and deposit account. The interest has been earned only on these deposits. It is pertinent to mention here that the society has no other funds other than the amount received from Ministry of Home affairs of India. Further, from the perusal of the Income and Expenditure account and Balance Sheet of the Assessee-Society would go to reveal that entire receipts had been on account of items for which exemption under section 10(46) had been claimed.
That the society has no real income. All the interest earned on unspent grant is also part of Grant-in-Aid. The copy of letter received in this respect is also being placed on record for your kind perusal and ready reference. As no real income accrues in favour of the assessee, the receipts qua the grants payable are otherwise not taxable in the eyes of law. Moreover, enclosed charge would go to reveal that no receipt was otherwise received by the assessee as grants in the assessment year under consideration. ………………………………. ……………………………….”
7. On the strength of the Notification coupled with the explanation of CCTNS Fund, it was submitted that the grant-in-aid and alleged interest income accrued on that grant-in-aid will be characterized as single item and both are exempt under the notification issued by the CBDT.
The CIT-DR, on the other hand relied upon order of the CIT. He submitted that assessee itself first recognized the interest income separate to the grant-in-aid and offer it for taxation. The interest income is a second degree of A.Y.2017-18 7 income. Exemption was granted on the grant-in-aid but one unutilized amount of that aid is deposited in the bank account as FDR, then interest income earned on such FDR will partake a different character which is assessable to tax.
We have duly considered the rival contentions and gone through the record carefully. A perusal of the Notification would reveal that it provide exemptions to two amounts; amounts received in the form of grant-in-aid and interest accrued on CCTNS Fund. This CCTNS Fund is nothing than alleged grant-in-aid. The CCTNS Fund is a consolidated fund which is to be applied on a Project vide which Crime, Criminal, Tracking and Networking System is to be developed and implemented in the Police Stations.
Thus, the CBDT Notification itself grants exemption on the interest accrued on this fund whose source is grant-in-aid from the Ministry of Home Affairs. It has been further alleged by the assessee that it is a no profit organization.
It does not indulge in any commercial undertaking. Its sole objective is to implement the project conceived by the A.Y.2017-18 8 Central Government. Therefore, we are of the view that ld. Commissioner has erred in finding an error in the order of the AO. The assessment order is neither erroneous nor it caused any prejudice to the Revenue. Therefore, impugned order of the CIT passed under Section 263 is quashed and appeal of the assessee is allowed.
In the result, appeal is allowed.
Order pronounced on 22.01.2025.