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Facts
The assessee, a Sugar Cane Development Council, filed a return declaring Nil income. The AO added unutilized grant of Rs. 32,92,524/- to the assessee's income, treating it as taxable income. The assessee argued that the funds were grant-in-aid for specific purposes and not income.
Held
The Tribunal held that grant-in-aid received for specific purposes by a body not engaged in business activities is not income. The unutilized portion of the grant, carried forward for the same purpose, does not constitute taxable income.
Key Issues
Whether unutilized grant-in-aid received by a statutory council for specific development purposes constitutes income under the Income Tax Act.
Sections Cited
143(3), 2(24), 80P
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Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2018-19 CDC Gola Comitte Phardan v. The Income Tax Officer Ayyubi Chamber Range 3(4) Raniganj Lakhimpur Kheri-1 Lakhimpur Kheri (U.P) TAN/PAN:AAALC0542R (Appellant) (Respondent) Appellant by: Shri Shubham Rastogi, C.A. Respondent by: Shri Sunil Kumar Rajwanshi, D.R. O R D E R
This appeal has been preferred by the Assessee against the order dated 06.12.2023, passed by the National Faceless appeal Centre, Delhi (NFAC) for Assessment Year 2018-19.
2.0 The brief facts of the case are that the assessee is Sugar Cane Development Council constituted by Cane Commissioner under section 5 of U.P. Sugar Cane (Regulation of Supply and Purchase) Act, 1953 and carries out various functions as contained in section 6 of the said Act. The assessee filed its return of income for the year under consideration on 28.10.2018, declaring income at Nil. The case of the assessee was selected for complete scrutiny under CASS for the reason that ‘The assessee has disclosed substantial commission receipt whereas the total income in the ITR is comparably low’. The Assessing Officer (AO)
Page 2 of 12 issued statutory notices to the assessee. The assessee furnished replies and produced the Income and Expenditure Account for the captioned assessment year. From the Income and Expenditure Account furnished by the assessee, the AO noticed that the assessee had shown total income of Rs.76,69,439/- for the year under consideration, however, in column No.39 under the head ‘Other Expenses’ of the ITR, the assessee had shown expenses of Rs.79,18,742/-. It was further noticed by the AO that the assessee had only spent Rs.46,26,218/- out of the total receipts and had declared a total saving of Rs.32,92,524/-. The AO, thereafter, issued a show cause notice dated 18.02.2021, requiring the assessee to show cause as to why the amount of Rs.32,92,524/- being the saving declared by the assessee, be not added to the income of the assessee. The assessee vide reply dated 24.02.2021 submitted that the savings was actually the unspent amount which would be carried forward to the next year for spending on the development works. Not being satisfied with the submissions made on behalf of the assessee, the AO added Rs.32,92,524/- to the income of the assessee. The AO also treated the assessee as an AOP instead of a Co-operative Society for the reason that the assessee had not claimed any deduction under section 80P of the Act. The AO completed the assessment under section 143(3) of the Act read with sections 143(3A) and 2.1 Aggrieved, the Assessee preferred an appeal before the NFAC. The submission of the assessee before the NFAC was that the assessee was a Corporate Body and was part of U.P. State Cane Department. It was further submitted before the NFAC that the AO had ignored the facts of the case and also the past history. It was also submitted before the NFAC that the assessee was a fund management body functioning on behalf of the State Government of U.P. and had no independent rights on the funds and that the unutilized funds at the end of the year were either surrendered to the Government or carried forward to the next year. The assessee had also placed reliance on the assessment order of another assessee, i.e., Cane Development Council and the order of the Ld. CIT(A) in the assessee’s own case for assessment year 2016-17 and also several other case laws. However, the NFAC held that the facts of the instant case were distinguishable from the facts of the case laws relied upon by the assessee including the Ld. CIT(A)’s order in the assessee’s own case for assessment year 2016-17 and, accordingly, it dismissed the appeal of the assessee and confirmed the order of the AO.
That the Ld. C.I.T. (A), NFAC erred on facts and in law in confirming the addition of Rs. 32,92,524/- being Unutilized Grant without considering that the same is not Income u/s 2(24) of I. T. Act.
That Authorities below erred on facts and in law in not considering that the Grants Contribution from State / Centre Government are for specific purpose and same cannot be assessed as Income of the Council as per Law.
The Ld. C. I. T. (Appeals), NFAC erred on facts and in law in upholding the order of the Ld. A. O. without appreciating the facts, circumstances, Rules, Regulations and material on record.
The Ld. C. I. T. (A) NFAC erred on facts and in law in not considering that the expenditure incurred are for statutory specified development activities as per Section 6 of U. P. Sugar Cane (Regulation of Supply and Purchase) Act, 1953 and Rule 49A of U. P. Sugar Cane (Regulation of Supply and Purchase) Rules 1954 and neither the expenditure nor the income are part of the Total Income of the Assessee. 5. That the Ld. C.I.T.(A) erred on facts and in law in not considering that the Assessee is Fund Management Body of the State Government established by an Order passed by the Cane Commissioner, U.P., without any right of absolute ownership over the funds placed at its disposal.
For the road construction and development work also belongs to the State Government as absolute owner.
The Ld. C.I.T. (A) did not appreciated that as per the Sugar Cane (Regulation of Supply and Purchase) Act, 1953 and the Rules made there under, the Assessee receives "contribution in the form of commission" from Sugar Mills and co-operative cane growers society and "Grants" from State Government and Central Sugar Cane Committees for specified purposes being "construction of road and culverts" and "other development works" in the "assigned area" which is utilized either during the year of receipt or in subsequent year /s and the unutilized amount is carry forward for use for specified purpose in subsequent year. Accordingly, neither the receipts nor expenditure incurred is part of the Income of the Assessee.
The Ld. C. I. T. (Appeals), did not appreciated that appellant has received "contribution in the form of commission" and "Grants" in accordance with the Act and Rules made by State Government to be utilized only for "specific projects" or "work" and there is no provision under the said Act/Rule authorizing the assessee to do any business activity with profit motive.
That the Authorities below erred in not considering that the Assessee Society has no control / ownership over the funds of the body and thus Interest Income accruing on unutilized funds also does not form of the Income of the Society.
The Additions upheld are highly excessive, contrary to the facts, law, Rules, Regulations and principle of natural
justice without providing sufficient opportunity to have its say on the reasons relied upon by him. 3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the AO had made an addition of Rs.32,92,524/- being unspent amount of grant-in-aid. It was submitted that the correct figure was Rs.30,43,220/- of unspent grant but somehow the addition had been made of Rs.32,92,524/-. It was submitted that the unspent grant cannot be considered as income of the assessee, as these amounts of grants are invariably carried forward to the succeeding years for the purpose of development work relating to the Aims and Objects of the assessee. It was argued that till the unspent amount has actually been spent, it is held in fiduciary capacity for and on behalf of the State Government and the same reverts back to the State Government, if any part of it remains unutilized. It was submitted that in view of this factual position, the net savings shown by the assessee in the Audited Financial Statements cannot be treated as income of the assessee.
3.1 The Ld. A.R. further submitted that in the cases of similar assessees, who are operating in other areas of Uttar Pradesh, the Department has allowed the claim of these assessees by accepting that the contributions and grants received were not part of total income of the assessee and by allowing the surplus (being unspent amount of grant) to be carried forward for Page 7 of 12 utilization in succeeding assessment years. In this regard, my attention was drawn to the copies of assessment orders in the cases of Cane Development Council, Golghar, Gorakhpur for assessment years 2016-17, 2017-18 and 2018-19 and also copy of assessment order for Cane Development Council, Khambarkhera for assessment year 2018-19 as well as copy of assessment order for Cane Development Council, Kumbhi for assessment year 2018-19, to demonstrate that no addition was made in respect of unspent amount of grant remaining. The Ld. A.R. submitted that these orders were also filed before the lower authorities but were not considered by them.
3.2 The Ld. A.R. also submitted that in subsequent assessment years right after assessment year 2023-24, no addition had been made by the Department on this account.
3.3 Reliance was also placed on the order of ITAT Delhi Bench in the case of ACIT vs. N.S. Committee, Muzaffarnagar in wherein, vide order dated 04.04.2012, the Tribunal had held that as per definition provided in section 2(24) of the Income Tax Act, 1961 grant-in-aid is not be included in income and that further grant-in-aid is not a product of normal business activities of the assessee-Committee and that the same could not be termed as a revenue receipt so as to be a part of total income. It was further submitted that this order of Page 8 of 12 the Delhi Bench of the Tribunal was affirmed by the Hon'ble High Court of Allahabad in Income Tax Appeal No.759 of 2012 in the case of CIT vs. M/s N.S. Committee, wherein, vide order dated 16.01.2018, the appeal of the Department was dismissed.
3.4 The Ld. A.R. also drew my attention to various documents relating to the grant, the Bye-laws of the assessee- Council and copy of ledger accounts along with copy of budget and relevant Circulars, etc. with respect to the grant. The Ld. A.R. prayed that the appeal of the assessee be allowed.
4.0 Per contra, the Ld. Sr. D.R. argued that principle of res- judicata would not be applicable in this case, as each assessment year has to be decided on its own peculiar set of facts. The Ld. Sr. D.R. placed strong reliance on the orders of both the lower authorities and prayed that the appeal of the assessee be dismissed.
5.0 I have heard the rival submissions and have also perused the material on record. It is seen that the assessee is a Sugar Cane Development Council constituted by the Cane Commissioner of U.P. under section 5 of the U.P. Sugar Cane (Regulation of Supply and Purchase) Act, 1953 and the funds of the Council consist of grants received from Central and State Government and contribution in the form of commission being cess from sugar factories and cane growers’ societies. It is also to Page 9 of 12 be noted that as per U.P. Sugar Cane (Regulation of Supply and Purchase) Act, 1953, the Cane Council does not have any power to levy any contribution from sugar factories and cane growers’ co-operative societies. Further, the U.P. Sugar Cane (Regulation of Supply and Purchase) Rule, 1954 provides the manner and percentage at which commission is to be charged from sugar cane factories and Rule 49A provides that commission so charged shall be utilized for the construction of roads and other development works. Further, section 6 of the U.P. Sugar Cane (Regulation of Supply and Purchase) Act, 1953 provides that the Council is to carry out only development activities consisting of the construction of the road, culverts, etc. and other development activities in the area assigned to it by the Cane Commissioner. A perusal of the said Act also shows that there is no provision under the said Act or Rules authorizing the Council to carry out any business activity with profit motive. Thus, apparently, the Council is only a fund management body of the Government.
5.1 My attention has also been drawn to Circular dated 22.05.2006 issued by the Cane Commissioner, U.P., Lucknow which clearly states that the bodies established under the said statutory provisions are to work on no profit no loss basis and further, surplus, if any, is to be carried forward to the next year and is to be utilized for the same purpose. Therefore, in view of these provisions, it is very much clear that the assessee Council does not have any income of its own and whatever funds are being received can be utilized only for the specific purposes as directed by the State Government and surplus, if any, in any year, is to be carried forward for similar utilization in succeeding years.
5.2 In my considered view, the case of the assessee is squarely covered by the order of ITAT, Delhi Bench in the case of ACIT vs. N.S. Committee, Muzaffarnagar (supra) which has been relied upon by the Ld. A.R. during the course of his arguments. The relevant part of the said order is being reproduced hereunder for ready reference:
“6. We have heard the ld. DR and gone through the facts of the case. Indisputably, the Ansh Dan and fund for Nirman Yojna, were given to the assessee by the State Government & Sugar factories for specific projects of road construction and as pointed out by the ld.CIT(A), these funds have been spent also for those specific projects. There is nothing to suggest that the assessee is carrying on any business activities, generating income. Accordingly, the ld. CIT(A) concluded that there was no surplus with the assessee and therefore, there was no question of any taxable income. Admittedly, the grant-in-aid in question is a financial aid or subsidy given by the State Government of UP & Sugar factories for the specific purpose of construction of roads. In section 2(24) of the Act, it is declared that " 'income' includes" various items which are enumerated therein in clauses (i) to (xv). In the said section 2(24), such a grant in-aid has not been specifically included as an income or a revenue receipt. Therefore, considering the use of the word "include" in section 2(24), the word "income" shall be construed as comprehending not only those items which said section declares that these shall include but also such items as it signifies according to its natural import. Since section 2(24) has not declared that such a grant-in-aid shall be included in the income, the word "revenue" shall be construed as comprehending what it signifies according to its natural import. In relation to a business undertaking, the word "revenue" connotes incomings of the undertaking which are products of the normal working of the undertaking. The giving of financial aid or subsidy to the aforesaid committee, which admittedly is not carrying on any business, is at the discretion of the Government or Sugar factories. Thus, the grant-in-aid in question was not a product of the normal business activities of the assessee committee, assessed by the AO as a local authority. Therefore, such a grant-in-aid could not be termed as a revenue receipt so as to form part of the total income. As already pointed out, the ld. CIT(A) concluded that the aforesaid funds received by the assessee from State Government and sugar factories have been spent only for those specific projects and there was no surplus with the assessee. Since the Revenue have not placed before us any material, controverting these findings of facts recorded by the ld. CIT(A) so as to enable us to take a different view in the matter, there is no basis to interfere with his findings .Consequently, ground nos.1 to 3 in the appeal are dismissed.”
Page 12 of 12 5.3 It is also to be noted that the above order of the Delhi Bench of the Tribunal has been affirmed by the Hon'ble Jurisdictional High Court being the High Court of Allahabad, wherein the appeal of the Department was dismissed in Income Tax Appeal No.759 of 2012, by holding that a grant-in-aid, which is extended for specified purposes, cannot be termed as a revenue receipt so as to form part of the total income. Accordingly, respectfully following the above said order of the ITAT Delhi Bench, as affirmed by the Hon'ble Jurisdictional High Court, I set aside the order of the Ld. First Appellate Authority and direct the AO to delete the impugned addition.
6.0 In the final result, the appeal of the assessee stands allowed.
Order pronounced in the open Court on 25/09/2025.