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Facts
The assessee, registered under section 12A, received a grant of Rs. 2,90,56,214/- from the Ministry of Textiles, Government of India, for setting up its institute. The assessee credited this grant to the balance sheet instead of the income and expenditure account. The AO treated this as part of gross receipts and made an addition.
Held
The Tribunal held that the grants received for setting up the institute were capital receipts and formed part of the corpus, not income. Therefore, they could not be added back to the assessee's income. The Tribunal upheld the CIT(A)'s order deleting the addition.
Key Issues
Whether grants received for setting up an institute, with a specific direction for utilization, are to be treated as capital receipts or income for tax purposes.
Sections Cited
11, 11(1), 11(2), 11(6), 2(24)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW
A.Y. 2016-17 Asstt. Commissioner of vs. M/s Indian Institute of Carpet Income-tax (Exemption), Technology, Chauri Road, SRN, Lucknow Bhadohi PAN: AAAJI0124M (Appellant) (Respondent) Assessee by: Sh. Akash Agrawal, C.A. Revenue by: Sh. Amit Kumar, DR Date of hearing: 10.09.2025 Date of pronouncement: 28.11.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the Department against the orders of the ld. CIT(A), wherein the ld. CIT(A) has deleted the addition of Rs.1,70,77,516/- that was made by the ld. Assessing Officer on account of surplus above 15% of gross receipts. The grounds of appeal are as under: -
1. Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition made of Rs. 1,70,77,516/- on account of amount surplus above 15% without appreciating the facts that the assessee instead of utilizing this amount or crediting this amount to income & Expenditure account, this sum was directly credited to Balance Sheet.
2. Appellant craves leave to modify/amend or add any one or more grounds of appeal.”
2. The facts of the case are that the Society is registered under section 12A of the Income Tax Act, 1961 vide order dated 11.12.2006 of the ld. CIT, Varanasi. From a perusal of the papers submitted by the assessee as well as the data available online, the ld. Assessing Officer found that there was a receipt of a grant M/s Indian Institute of Carpet Technology A.Y. 2016-17 of Rs. 2,90,56,214/- in this year with a direction to utilize the same by 31.03.2016. But instead of spending this amount or crediting this amount to the income and expenditure account, this sum was directly credited to the balance-sheet. Therefore, the ld. AO issued a show cause notice to the assessee as to why this sum should not be taken into gross receipts and the relevant portion not be brought to tax. The assessee submitted a reply, which has not been discussed in the assessment order but the Assessing Officer was apparently not satisfied with the same and therefore, he added the same back to gross receipts after allowing 15% statutory deduction under section 11(1) of the Act. He also disallowed depreciation of Rs. 65,45,834/- in accordance with the provisions of section 11(6) of the I.T. Act, 1961. Accordingly, after these disallowances, the total income of the assessee was computed at Rs. 1,70,77,516/-.
3. The assessee went in appeal to the ld. CIT(A), Varanasi. Before the ld. CIT(A), it was submitted that the assessee institute had received grants (capital and revenue) during the year under consideration from the Ministry of Textiles, Government of India. The capital grant had been received in the following manner; i. Vide letter dated 26.06.2015 – Rs. 2,65,65,214/- ii. Vide letter dated 28.02.2016 – Rs. 25,00,000/- Total- Rs. 2,90,56,214/- It was submitted that the AO had ignored the facts and circumstances of the case because the capital grant received from the Ministry of Textiles, Government of India was in the nature of voluntary contribution made with specific direction to form part corpus of the trust and the same was to be utilized for specific purposes within the financial year itself. It was submitted that the grants so given, were utilized as required and the utilization certificate for the said grants, as certified by the Chartered Accountant, was furnished before the CIT(A). The ld. CIT(A), ongoing through the facts of the case, as well as the submissions made by the assessee noted that the grants had been received from the Ministry of Textiles, Government of India for meeting expenditure towards setting up of the M/s Indian Institute of Carpet Technology A.Y. 2016-17 institute during the period 2015-16. The utilization certificate dated 18.01.2016 clearly mentioned that the grants had been utilized. Thus, since the grants had been received for the specific purpose of the institution, these amounts were in the nature of corpus donation. Furthermore, even otherwise, since the entire amount had been utilized by the assessee during the prescribed time limits, the amount could not be treated as income of the assessee as held by the AO. Accordingly, the additions were deleted.
4. The Department is aggrieved at this order of the ld. CIT(A) and has accordingly come in appeal. Sh. Amit Kumar, Sr. DR (hereinafter referred to as the ld. DR) submitted that the ld. CIT(A) was not justified in deleting the additions because as per the scheme of assessment for trusts laid down in section 11 of the Act, all receipts had to be taken into the receipts side of the income and expenditure account and 85% of the same had to be utilized for the purpose of claiming the exemption. In case the assessee was not able to utilize 85% of the funds, it was required to seek the permission of the Commissioner for the accumulation of the funds under section 11(2) of the Income Tax Act. Since, in this case, the assessee has not sought the permission of the ld. Commissioner for accumulation of funds over and above the 15% statutory deduction allowable to it in the current year, the ld. AO was justified in making the addition and there was no reason for the ld. CIT(A) to delete the same.
5. On the other hand, Sh. Akash Agarwal, C.A. (hereinafter referred to as the ld. AR) representing the assessee supported the orders of the ld. CIT(A) and submitted that voluntary contributions made with a specific direction to form part of the corpus of the trust or institution, should not be included in the total income of the assessee. Furthermore, it was submitted that the Assessing Officer had failed to consider the fact that the basic accounting principle was that funds received with specific direction of usage / utilization needed to be parked in the capital fund and was part of shareholders / promoters’ funds and in this case was the funds of the Ministry of Textiles, Government of India. As an alternative argument, it was M/s Indian Institute of Carpet Technology A.Y. 2016-17 submitted that even if the Assessing Officer’s observation was correct then also the amount chargeable to tax was nil since the amounts had been invested in specified modes of investment before the specified date. The ld. AO had disallowed the said application on the issue of non-filing of Form 10, which was of a purely technical nature and the need for which only arose because the new stand taken by the Assessing Officer. The ld. AR placed reliance on the decision of the ITAT Agra in the case of Sewa Education Trust, Aligarh (ITA No. 157/AGRA/2013). The ld. AR also took us through the paper book that he had filed which contained the letter issuing the grant on pages 6 and 7 of the paper book and the utilization certificate submitted by the assessee duly verified by the C.A. on pages 8, 9, 10 & 11 of the paper book which showed that the entire amount of fund under the non-recurring head had been utilized during the assessment year in question. On the basis of these, the ld. AR held that the ld. CIT(A) was fully justified in deleting the additions made by the AO and he prayed that the ld. CIT(A) may kindly be upheld.
We have duly considered the facts and circumstances of the case. We note the fact that the grants in aid amounting to Rs. 2,65,97,119/- were received from the Ministry of Textiles, Government of India, office of the Development Commissioner of Handicrafts for meeting the expenditure towards setting up of the institute. Since the funds have been received for setting up of the institute that would make them capital receipts, which are not income as per section 2(24) of the Income Tax Act and therefore, the sums would form part of the corpus, whether specifically mentioned or not. In the case of CIT vs. Gujarat Safai Kamdar Vikas Nigam in of 2009, the grant were received by the assessee trust from the Government of Gujarat for the scheme envisaged for implementation of certain Government programs and although it was not specially made clear that the grants were being available to form the corpus of the trust and to be applied for such a purpose, it was held by the Hon’ble Gujarat High Court, after considering the entire purport of the scheme, that the grants made available to the assessee trust for implementing the scheme in a particular manner, cannot be treated as income of the assessee trust. In our opinion, the ratio of this decision of the Hon’ble 4