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Income Tax Appellate Tribunal, ‘’C’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI SIDDHARTHA NAUTIYAL
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-7, Ahmedabad, dated 30/09/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
The Revenue has raised the following grounds of appeal:
1. Whether the Id. CIT(Appeals) has erred in law and facts by holding that proviso to section 2(15) of the IT Act, 1961 is not applicable to the assessee, when the Assessing Officer has clearly brought out that the assessee is covered under first proviso to section 2(15) of the I.T. Act and therefore not eligible for claim of exemptions under section 11 & 12 in view of the provision of section 13(8) of the Act.
2. Whether the CIT(A) has erred in the law and on facts in allowing the Government grants of Rs.4,63,13,0007- holding that it is corpus fund received towards specific projects to achieve objects of the trust without appreciating the fact that the case of the assessee is clearly falling under the first proviso of section 2(15) of the I. T. Act therefore not eligible for claim of exemptions under section 11 & 12 in view of the provision of section 13(8) of the Act.
3. Whether the CIT(A) has erred in the law and on facts in directing the AO to allow the capital expenditure of Rs.8,06,71,8447- as application of income after due verification, without appreciating that the case of the assessee is clearly falling under the first proviso of section 2(15) of the I. T. Act therefore not eligible for claim of exemptions under section 11 & 12 in view of the provision of section 13(8) of the Act.
4. The Revenue craves to add, alter, amend, modify, substitute, delete and/or rescind all or any Grounds of Appeal on or before the final hearing, in necessity so arises.
3. The first interconnected issue raised by the Revenue in ground Nos.1 and 2 is that the Ld. CIT(A), erred in holding that the activities of the assessee are charitable in nature and therefore the benefit of corpus fund will be eligible.
The facts in brief are that the assessee in the present case is a trust established with the main objective to provide facilities for testing, calibration and consultancy for achieving quality of electronic products and equipment including computers, communication equipment, instrumentation, process, control instruments and electrical equipment. The assessee-trust is duly registered u/s 12AA of the Act.
The AO during the assessment proceedings found that the activities of the assessee are covered under 1 and 2 proviso of section 2(15) of the Act and therefore benefit of exemption u/s 11 of the Act to the assessee is not available. Thus the AO treated the amount of Government Grant of Rs. 4,63,13,000/- as income and accordingly added to the total income of the assessee.
The aggrieved assessee preferred an appeal to the Ld.CIT(A), who held that the activities of the assessee are not covered under 1 and 2 proviso of section 2(15) of the Act. Therefore, the corpus fund received from the Government as a grant cannot be treated as income of the assessee. Thus, the Ld. CIT(A) reversed the order of the AO.
Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before.
The Ld. AR before us submitted that this tribunal in the own case of assessee bearing & 857/Ahd/2018 for the Assessment year 2014-15 involving identical facts and circumstances vide order dated 25/03/2022 has decided the issue in favour of the assessee and against the revenue.
Both the Ld. AR and Ld. DR vehemently supported the order of the authorities below as favourable to them.
10. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that this tribunal in its own case (supra) involving the identical facts and circumstances has decided the issue in favour of the assessee. The relevant extract of the order is reproduced as under:
We have heard the rival submissions and also perused the relevant material available on record. It is observed that the assessee in the present case is a charitable trust established with the following main objects as explained by the assessee before the Assessing Officer during the course of assessment proceedings by written submission dated 24.10.2016:- "The main objects of our client EQDC are as per 'Clause IV Objects' of its Memorandum of Association. Accordingly, EQDC has been established by the Industries and Mining Department, Government of Gujarat for the purpose of providing facilities for testing, calibration and consultancy for the purpose of achieving belter and standard quality of electronic and electrical products and equipments, including computers, communication equipment, instrumentation, process contra! instruments and electrical equipments, for benefit of users of such equipments and products and for general public and for that purpose to carry out calibration of testing and measuring equipments for parameters sucli as temperature, pressure, electronic including electrical -parameters and dimensions, environmental testing, type testing and evaluation of electronics, components and products and burn in and screening test of components and it has also to provide training in quality awareness, testing and calibration with a view to develop use of electronics, process control instrumentation, automation computers, communications and similar equipments. EQDC has for this purpose established laboratory facilities at GJDC Electronic Estate, Gandhinagar and at Makarpura Industrial Estate, Vadodara."
It is noted that the assessee-trust is duly registered under Section 12AA of the Act and the nature of its objects being charitable is not disputed even by the Assessing Officer. He however held, by relying on the fact that the assessee-trust was charging fees for various services rendered, that it is engaged in the business activity and its case is covered by the provisions of Section 2(15) of the Act read with (i) and (ii) proviso thereto. In this regard, the learned CIT(A) has relied on the decision of Hon'ble Delhi High Court in the case of Bureau of Indian Standards (supra) wherein it was held that even if the appellant was taking license fee for granting certification, it could not be said to be for the profit and if any profit or revenue is generated, the same was only incidental to the charitable activity mainly carried on by the assessee. It was held that the assessee, therefore, could not be said to have involved in carrying out any activity in the nature of trade, commerce or business. To the similar effect is the decision of Hon'ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra), cited by the learned Counsel for the assessee, wherein it was held that merely because there was incidental surplus generated out of the activities of the trust carried out for the objects of the trust, it could not mean that the trust was engaged in the business activity and hit by provision of Section 2(15) of the Act.
Insofar as the grant of Rs.6,18,22,000/- received by the assessee-trust from the Government of Gujarat is concerned, it is observed that the said grants were directly taken by the assessee-trust to the corpus funds in the balance-sheet. The Assessing Officer, however, did not accept this treatment given by the assessee-trust and treated the same as income of the assessee mainly on the ground that there was no specific direction of the donor that the said grants constituted corpus donation and the same were available to the assessee-trust to meet certain expenditures. In this regard, the learned Counsel for the assessee has relied on the decision of Hon'ble Gujarat High Court in the case of Gujarat Safai Kamdar Vikas Nigam (supra), wherein it was held that the grant received from the Government of Gujarat could not be treated as income of the trust merely because the same was received by the trust without any direction that it should form corpus fund. Insofar as the purpose for which the grants in question were received by the assessee-trust from the Government of Gujarat, the learned Counsel for the assessee has placed on record the relevant orders at page No.118 to 125 of the paper-book which clearly shows that the said grants were received by the assessee- trust specifically for the following purposes and objectives. i) For setting up of Antenna Testing Laboratory at EQDC, Gandhinagar under Research & Development Scheme; ii) For upgrading Climatic Test Facilities for SME's under Research & Development Scheme; iii)For strengthening EQDC Calibration and Test Facilities under Research & Development Scheme.
15. In the case of CIT Vs. Gujarat Safai Kamdar Vikas Nigam (supra), citied by the learned Counsel for the assessee, the grants were received by the assessee-trust from the Government of Gujarat under a similar scheme envisaged for implementation of certain Government programs and although it was not expressly made clear that the grants were being made available to form the corpus of the Trust and to be applied for such purpose, it was held by the Hon'ble jurisdictional 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 Hon'ble Gujarat High Court is squarely applicable to the facts of the present case and respectfully following the same, we uphold the impugned order of the learned CIT(A) allowing the claim of the assessee that the government grant of Rs.6,18,22,000/- received by the assessee-trust towards specific projects to achieve objects of the Trust constituted its Corpus Fund which was not chargeable to tax. Ground No.l of the Revenue's appeal is accordingly dismissed.
10.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of case referred above nor has placed any contrary binding decision in its support. Thus, respectfully following the above decision of the Co-ordinate Bench, we dismiss the ground of appeal of the Revenue.
10.2 In the result, the ground of appeal of the Revenue is dismissed.
11. The next issue raised by the Revenue is that the Ld. CIT(A) erred in treating the capital expenditure incurred by the assessee for Rs. 8,06,71,844/- as application of income. Though the activities of the assessee are not charitable in nature by virtue of 1 proviso to section 2(15) of the Act.
12. As the activities of the assessee were falling under 1 and 2 proviso of section 2(15) of the Act, the AO did not treat the capital expenditure as application of income. Thus the AO disallowed the same and added to the total income of assessee
13. The aggrieved assessee preferred an appeal before the Ld. CIT(A), who confirmed the order of the AO.
14. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.
Both the Ld. AR and Ld. DR vehemently supported the order of the authorities below as favourable to them.
We have heard the rival contention of both the parties and perused the materials available on record. At the outset we note that this tribunal in its own case bearing & 857/Ahd/2018 for A.Y. 2014-15 involving the identical facts and circumstances have decided the issue in favour of the assessee and against revenue. The relevant extract of the order is reproduced as under: 21. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As agreed by the learned representatives of both the sides, this issue is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of CIT Vs. Rajasthan & Gujarati Charitable Foundation Poona, reported in [2018] 402 ITR 441 (SC), wherein it is held that the assesses ie under Section 32 of the Act on assets whose cost has been allowed as application of income for charitable purpose under Section ll(l)(a) of the Act. As further held by the Hon'ble Supreme Court, the amendment in Section 11(6) of the Act brought by Finance (No.2) Act, 2014, which became effective from the Assessment Year 2015-16, prohibiting the allowance of depreciation in such case is prospective in nature. Since the Assessment year involved in the present year is AY 2014-15, we respectfully follow the decision of the Hon’ble Supreme Court in the case of CIT vs. Rajasthan & Gujarati Charitable Foundation Poona(supra) and direct the Assessing Officer to allow the claim of the assessee for deduction on depreciation amounting to Rs.5,58,37,346/- 16.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decisions of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of case referred above nor has placed any contrary binding decision in its support. Thus, respectfully following the above decision of the Co-ordinate Bench, we dismiss the ground of appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the Court on 15/06/2022 at Ahmedabad.