THE DCIT (EXEMPTIONS), CIRCLE-1,, AHMEDABAD vs. ELECTRONICS & QUALITY DEVELOPMENT CENTRE,, GANDHINAGAR

ITA No. 857/Ahd/2018 Assessment Years : 2014-15 Electronics & Quality The Dy. Commissioner of Development Centre, Vs Income-tax (Exemptions), B/177/178, GIDC Electronics Estate, Circle-1, Ahmedabad Sector-25, Gandhinagar – 382024 PAN : AAATE 0718 R अपीलाथ�/ (Appellant) �� यथ�/ (Respondent) Assessee by : Shri Sanjay R. Shah, CA Revenue by : Shri Ajay Pratap Singh, CIT-DR सुनवाई क� तार�ख/Date of Hearing : 28/02/2022 घोषणा क� तार�ख /Date of Pronouncement: 25/03/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : These two appeals, one filed by the Revenue being are cross appeals which are directed against the order of learned Commissioner of Income-Tax (Appeals)-7, Ahmedabad (“CIT(A)” in short) dated 16.01.2018, for the Assessment Year 2014-15.

2. First we shall take up the Revenue’s appeal; ground No.1 of which reads as under:- & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 2 The CIT(A) has erred in the law and on facts in allowing the Government grants of Rs.6,18,22,000/- 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 proviso (1) & (2) of section 2(15) of the Act.

3. The assessee, in the present case, is a trust which is established with the main object to provide facilities for testing, calibration and consultancy for achieving quality of electronic products and equipments including computers, communication equipment instrumentation, process, control instruments and electrical equipments. It is duly registered under Section 12AA of the Income-tax Act, 1961 (“the Act” in short). The return of income for the year under consideration was filed by it on 30.11.2014 declaring Nil income. During the year under consideration, the assessee- trust had received grant of Rs.6,18,22,000/- from the Government of Gujarat and the same was directly taken by the assessee-trust to Corpus Fund. During the course of assessment proceedings, it was noted by the Assessing Officer from the perusal of the relevant sanction letter that the said grants were received by the assessee-trust for various on-going projects and the same were not to be utilized for creation of any assets but were for administrative expenses related to the implementation of various projects. He, therefore, required the assessee to explain as to why the said grants should not be treated as revenue receipts. In reply, the following explanation was offered by the assessee in writing:-

"1. We are enclosing herewith copy of Government Grant Account for grants received during the year from the Government of Gujarat, Industries Commissioner. Accordingly, total grants amount to Rs.6,18,22,000/- received during the year has been shown as Corpus Fund in the Balance Sheet of our client EQDC. As shown in the Grant Account, grants have been received for different projects as under: (i) Critical Infrastructure Project Rs.98,50,000/- (ii) Antenna Testing Laboratory Rs.2,17,26,000/- & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 3 (iii) Upgrading Climatic Test Facilities for SME's Rs. 80,13,000/- (iv) Strengthening EQDC Calibration & Test Facilities Rs. 87,82,000/- (v) Facility for Dynamometer for EMI/EMC Testing lab Rs.1,34,51,000/- Rs.6,18,22,000/-

3. As stated above during the year under consideration, EQDC has received Gout. grants towards corpus fund amounting to Rs.6,18,22,000/- and the same has been treated as forming part of Corpus Fund and credited as corpus as shown in the Balance Sheet. As such the said grants have been considered as voluntary contributions made with a specific direction, and therefore, eligible for exemptions u/s 11(1)(d) of the IT Act. 1961.

4. It is submitted that as explained above, grants received from Govt. of Gujarat during the year by EQDC are treated as forming part of corpus and these grants are required to be utilized for specific purposes or objects for implementation of specific projects/schemes. Therefore, the same cannot be considered as income of EQDC as being covered by provisions of section 11(1)(d) of the IT Act, 1961. Further, in this regard, reliance is also placed on the following judgements: i) Order dated 02.01.2012 of the Hon’ble Supreme Court dismissing SLP filed by the Department in case of CIT vs Gujarat Safai Kamdar Vikas Nigam. ii) Order dated 02.0.5.2011 of the Hon'ble High Court of Gujarat in case of CIT vs Gujarat Safai Kamdar Vikas Nigam (Tax Appeal No. 1934 of 2009) iii)Order of the Hon'ble ITAT, Ahmedabad in case of our client Gujarat Safai Kamdar Vikas Nigam [ITA No. 3232/Ahd/20081 for AY 2005-06]0. iv)Sukhdeo Charity Estate v ITO [192 1TR 615 (Raj)] v) Sukhdeo Charity Estate v ITO [149 ITR 470 (Raj)] vi)CIT v Karnataka Urban Infrastructure Development & Finance Corporation [284 ITR 582 (Karn)] vii)CIT v. UPUpbhokta Sahakar Sangh Ltd [288 ITR 106 (All)] viii)Gujarat Municipal Finance Board v DCIT [221 ITR 317 (Guj)] & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 4 We hope that the above will fully meet with the requirements for finalizing the assessment of our client EQDC.”

4. The Assessing Officer did not find the explanation offered by the assessee to be acceptable mainly for the following reasons given in the assessment order:-

“4.6 As per provisions of section 12(1) and section 11(1)(d), a corpus donation is that which comes with a specific direction of the donor that the said donation would be corpus donation. Any other donation/grant is not a corpus donation. A decision has been given by Hon'ble Bombay High court in the case of Trustee of Kilaohand Devchand Foundation reported in 172 ITR 382 wherein it has been stated that donation of capital nature (corpus donation) is not to be applied to charitable or religious purpose. It is the income thereof that must be applied. Any amount given by any donor/ payer with a direction that it shall be used for building fund or any other revenue or capital expenses for relief to poor, or for providing medical relief, or for applying it through some other agency etc. are all earmarked donations/ grants to be used for that particular purpose and hence for a particular expenditure. Corpus donation is to be invested and it cannot be used for any expenditure. Income from such investment is required to be applied. Hence earmarked donations/grants or specific expenditure donations/grants are not corpus donations. Such earmarked donations/grants are income of the trust and have to be routed through Income & Expenditure Account and not through Balance Sheet. When such earmarked donations/grants arc directly taken to the Balance Sheet then such treatment is wrong. Such donations/ grants are given for a particular specified expenditure and hence they have to be routed through Income & Expenditure Account. If it is not routed through income & expenditure account then such donations/grants must be added back to the income in the computation of income. If expenditure out of such donation/grant is to be spread over more than one year duration, the same has to be accumulated as per the rules provided in section 11. Therefore, it is evident that any such donation given for specific expenditure (whether capital expenditure or revenue expenditure) are income to be specifically used as per the direction of donor but they do not constitute corpus donation.

4.7 Moreover, as the assessee’s case is hit by first proviso to section 2(15) and by virtue of provisions of section 13(8), the assessee is not entitled to claim benefit of section 11, 12 and 13. In view of this, the deduction claimed by the assessee under 11(1)(d) in respect of corpus fund donation of Rs.6,18,22,00/- is rejected, Further, the same amount is brought to tax by invoking the provisions of section 2(24)(iia) as per which any voluntary & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 5 contribution received by a trust created wholly or partly charitable or religious purposes, inter alia, shall form part of the income of such trust. …… …… 4.8 In the instant case, there is no dispute that the assessee trust has been created wholly for charitable purposes and, therefore, any voluntary contributions including corpus fund donations will form part of the income of the assessee. Further, by virtue of the provisions of section 13(8), the assessee cannot enjoy the benefit of tax exemption in respect of corpus fund donations u/s 11(1)(d). However, a question would arise whether the voluntary donations/corpus fund donations received from governments as grants-in-aid can be considered as voluntary contribution within the meaning of section 2(24)(iia). In this regard, the Hon'ble Bombay High Court in the case of CIT Vs Gem and Jwellery Export Promotion Council [143 ITR 579] has observed that grants made to institutions are at the discretion of the donors who do not expect anything in return, therefore, grants have to be considered as voluntarily contribution. It is further observed that there is no consideration which flows back to the donor in the case of grants-in-aid received from the government…..”

6. Against the order passed by the Assessing Officer under Section 143(3) of the Act, an appeal was preferred by the assessee before the learned CIT(A) and the following submissions were made on behalf of the assessee before the learned CIT(A) in support of its case that the grants received from the Government of Gujarat and credited to Corpus Fund were not chargeable to tax:-

"1. The Appellant, Electronics & Quality Development Centre (EQDC) has filed its original return of income on 30.11.2014. The Appellant has also filed its Revised Return of Income on 31.03.2016 vide acknowledgment & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 6 No.147459951310316, declaring deficit of (-) Rs.4,19,20,528/-. The Appellant has, with letter dated 24.10.2016 to the learned Assessing Officer, submitted copies of Acknowledgement of Revised Return of Income, Statement giving Computation of Income along with audited accounts, audit report in Form No. 10B as required u/s. 12A(b) of the IT Act, 1961 as well as copy of Revised Return of Income (PI. see Page Nos. 1 to 23 and 24 to 54 of Paper Book).

2. It is submitted that the Appellant EQDC has duly explained to the learned Assessing Officer that EQDC was established on 19.01.1998 by the Industries and Mining Deportment, Government of Gujarat as an Government organization. The Appellant has been registered as a public charitable trust with the Dy. Charity Commissioner, Ahmedabad at Registration No. F-537/Gandhinagar and is also registered as a society with the Asst. Registrar of Societies, Ahmedabad at Registration No.Guj/580/Gandhinagar on 19.01.1998. The Appellant, EQDC has also been granted registration u/s.12AA of the IT Act, 1961, with effect from 01.04.2006 by order No. CIT/GNR/12AA/GNR-15/2006-07 dated 31.10.2006 passed by the Commissioner of Income Tax, Gandhinagar. The Appellant has submitted above stated certificates and copy of its Memorandum of Association and Rules during the course of assessment proceedings (PI. see Page Nos.59 to 70 of Paper Book), It may kindly be noted that there is no any change in the Memorandum of Association and Rules of EQDC since it was granted registration U/S.12AA of the I.T. Act, 1961. Since then, the Appellant has filed its Returns of income claiming benefits of deductions u/s. 11 and 12 of the IT Act, 1961 which have been duly accepted. Assessments of the Appellant for A.Ys.2010-11 and 2012-13 have been finalized accordingly by orders passed u/s. 143(3) of the I.T. Act, 1961 (PI. see Page Nos. 167 to 173 of Paper Book).

5. It is further submitted that the Appellant, EQDC has been recognized as Scientific and Industrial Research Organization by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India and such recognition is valid since 01.04.2010 and is valid up to 31.03.2016. The Appellant, vide letter dated 24.10.2016, has submitted copies of the letter bearing No 11/43S/04-TU-V dated 23.08.2010 along with Certificate of Registration as a Research Institution and letter F.No.11/435/2004/TU/V dated 01.04.2013 along with Certificate of Registration as a Research Institution (PI. see Page Nos.78 to 85 of Paper Book).. As can also be seen from the booklet submitted to the Assessing Officer, that EQDC is a State Govt. agency for this purpose (Pl see Page Nos.72 to 77 of Paper Book).. Moreover, the Appellant has also obtained accreditation/recognition from National Accreditation Board for Laboratories (NABL) of Government of India as well as from the Bureau of Indian Standards established by Government of India.

(i) Bureau of Indian Standards vs. DGIT (Exemption) [(2013) 358 ITR 78 (Delhi)] (ii) GS 1 India vs. DGIT (Exemption) [(2014) 360 ITR 138 (Delhi) (iii) India Trade Promotion Organization vs. DGIT (Exemption) [(2015) 371 ITR 333 (Delhi)]

10. It is submitted that the learned Assessing Officer has, however, rejected the claim of the Appellant and held that proviso to section 2(15) is applicable to the case of the Appellant, and therefore, benefits of deductions allowable u/s. 11 and 12 are not allowable to the Appellant.

(i) Critical Infrastructure Project (Establishment) Rs. 98,50,000/- (ii) Antenna Testing Laboratory (setting up) Rs.2,17,26,000/- (iii) Upgrading Climatic Test Facilities for SME's Rs. 80,13,000/- (iv) Strengthening EQDC Calibration & Test facilities Rs. 87,82,000/- (v) Facility for Dynamometer for EMI/EMC Testing Lab Rs.1,34,51,000/- Rs.6,18,22,000/-

14. It is submitted that the grants received from Govt. of Gujarat during the year by EQDC are treated as forming part of corpus and these grants are required to be utilized for specific purposes or objects for implementation of specific projects/schemes. Therefore, the same cannot be considered as income of the Appellant EQDC as being covered by provisions of section 11(1)(d) of the IT Act, 1961. Further, in this regard, the Appellant placed reliance on the following judgments: i) Order dated 02.01.2012 of the Hon'ble Supreme Court dismissing SIP filed by the Department in case of CIT vs. Gujarat Safai Kamdar Vikas Nigam ii) Order dated 02.05.2011 of the Hon'ble High Court of Gujarat in case of CIT vs. Gujarat Safai Kamdar Vikas Nigam (Tax Appeal No.1934 of 2009) iii) Order of the Hon'ble ITAT, Ahmedabad in case of our client Gujarat Safai Kamdar Vikas Nigam [ITA No.3232/Ahd/2009] for AY 2005-06 iv) Sukhdeo Charity Estate v. ITO [192 ITR 615 (Raj)] v) Sukhdeo Charity Estate v. ITO [149 ITR 470 [Raj]] vi) CIT v. Karnataka Urban Infrastructure Development & Finance Corporation [284 ITR 582 (Karn)] vii) CIT v. U.P. Upbhokta Sahakar Sangh ltd. [288ITR 106[All)] viii) Gujarat Municipal Finance Board v. DCIT [221 ITR 317 (Guj)]

7. The learned CIT(A) found merit in the submissions made on behalf of the assessee before him and proceeded to delete the addition of Rs.6,18,22,000/- made by the Assessing Officer on account of grant received from the Government of Gujarat for the following reasons given in his impugned order:- & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 11 “3.2 I have carefully considered the assessment order, facts of the case and the submissions made by the appellant. After a detailed discussion in his order which has been reproduced above, the AO held that the grant received by the appellant from the Government of Gujarat was utilized for incurring establishment expenses and other expenditure for other objects of the trust. The appellant however has contended that the grant was sanctioned to it for a very specific purpose and the same had been utilized for the same.

3.2.1 I find from a perusal of the assessment order that the AO has himself discussed in para 4.1 of his order that the sanctioning letter for the grant states that the same was received for various on-going projects. It is also seen from the sanction letter that the grants have been given by Government of Gujarat towards creation of infrastructure project, set up of antenna testing laboratory, upgrading Climatic Test Facilities for SME's, strengthening of EQDC Calibration & Test facilities and providing facilities for Dynamometer for testing labs. Thus, the Government grants have been received towards specific projects and thus they would be treated as forming part of the corpus fund. It also seen from the MOU filed by the appellant that the objects of the trust are clearly laid down and include among others provision of facilities for testing collaboration and consultancy for achieving quality of various products and equipments to provide training in various areas of quality awareness and testing, to carry out third party testing and inspection, to provide development support to entrepreneurs, to provide quality certification and testing reports with respect to various specifications to other agencies, bureaus laboratories and institution, etc. Therefore, after a perusal of the objects of the appellant trust and the nature of the grants received by the appellant towards specified projects it is evident that the grants have been received to fulfil the objects of the trust.

3.2.2 Looking at the facts of the case, I am also of the view that the appellant's case is covered by the decision of the Hon'ble Delhi High Court in the case of Bureau of Indian Standards Vs. DCIT (Exemption) 358 ITR 78 wherein it has been held that even if the appellant takes license fees for granting certification, it cannot be said to be for the profit of providing and that if any profit or revenue is concerned, the same is incidental. It has been held that it could not be said that the appellant was involved carrying out any activity in the nature of trade, commerce or business.

3.2.3 In view of the detailed discussion above, the addition of Rs.6,18,22,000/- as income of the appellant is deleted.”

8. Learned DR invited our attention to the specific findings and observations recorded by the Assessing Officer while treating the grants in question received from the Government of Gujarat as revenue receipts & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 12 chargeable to tax in the hands of the assessee. He strongly relied on the findings and observations recorded by the Assessing Officer in support of the Revenue’s case on the issue under consideration and contended that the learned CIT(A) has completely overlooked the specific findings and observations recorded by the Assessing Officer while allowing the relief to the assessee by relying merely on the decision of the Hon’ble Delhi High Court in the case of Bureau of Indian Standards Vs. DCIT (E) (supra).

9. The learned Counsel for the assessee, on the other hand, invited our attention to the copy of the written submissions filed before the Assessing Officer placed at page No.55 of the paper-book to point out that the objects for which the assessee-trust is established were duly explained by the assessee and the nature of the said objects being charitable was never disputed by the Assessing Officer. He also invited our attention to page Nos. 114 to 125 of the paper-book to point out that the entire amount of grants in question was received by the assessee-trust from the Government of Gujarat for specific objectives which were inconsonance with the objects for which the assessee-trust was established. He then invited our attention to the balance-sheet of the assessee-trust as on 31.03.2014 (copy placed at page No.29 of the paper-book) to show that the grants received by the assessee-trust from the Government of Gujarat representing the voluntary contribution received for the specific purpose/object was duly credited by the assessee to the Corpus Fund. Relying on the decision of the Hon’ble Delhi High Court in the case of Bureau of Indian Standards (supra), which is also relied upon by the learned CIT(A) in his impugned order, the learned Counsel for the assessee contended that the activities of the assessee cannot be considered as trade or commercial activities and the Assessing Officer was patently wrong to consider the same as such. He also relied on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Gujarat Safai & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 13 Kamdar Vikas Nigam (Tax Appeal No.1934 of 2009 dated 02.05.2011) wherein it was held that the grant received from the Government of Gujarat cannot be treated as income of the trust merely because the same was received by the Trust without any direction that it should form corpus Trust. He also relied upon the decision of the Hon’ble Gujarat High Court in the case of DIT(E) vs. Sabarmati Ashram Gaushala Trust, reported in [2014] 362 ITR 539 (Guj.), for the proposition that merely because there was certain incidental surplus generated out of the activities of the Trust carried out for the object of the Trust, it cannot mean that Trust is engaged in business activity and hit by provisions of Section 2(15) of the Act. The learned Counsel for the assessee also pointed out that similar grants received by the assessee during the earlier years relevant to AYs 2010-11 and 12-13 were credited to the corpus fund and this treatment was accepted by the Assessing Officer even in the assessment completed under Section 143(3) of the Act. In this regard, he also relied upon the decision of the Hon’ble Supreme Court in the case of CIT Vs. Excel Industries Ltd, [2013] 358 ITR 295 (SC), for the proposition that the rule of consistency has to be followed by the Assessing Officer and he cannot be allowed to flip-flop on the issue when the material facts involved are similar.

“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, & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 14 instrumentation, process control 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 such 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 GIDC Electronic Estate, Gandhinagar and at Makarpura Industrial Estate, Vadodara.”

11. 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. & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 15

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 & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 16 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.1 of the Revenue’s appeal is accordingly dismissed.

“16. It is submitted that during the year the Appellant has incurred capital expenditure towards addition in assets amounting to Rs.1,10,04,394/- comprising of Rs.12,64,260/- in Building Account and of Rs.95,27,662/- in & 857Ahd/2018 Electronics & Quality Development Centre AY : 2014-15 17 Movable Assets as shown in Schedule-A forming part of the Balance Sheet and in work-in-progress as shown in the balance sheet itself (pl. see Page Nos. 25, 29 and 30 of paper-book). The Appellant has claimed deduction in respect of this capital expenditure from the income as being application of income u/s 11(1) of the IT Act, 1961. The learned Assessing Officer has, however, not allowed the deduction and has made addition in the income of the Appellant of Rs.1,10,04,394/- on the ground that Appellant is not entitled to deductions u/s 11 and 12 of the IT Act, 1961.”

4.2 I have carefully considered the assessment order, facts of the case and the submissions made by the appellant. It has been held by me in the preceding para that the amount of Rs.6,18,22,000/- would be held as corpus donation and not the income of the appellant. Accordingly, the AO is directed to verify whether the expenditure incurred by the appellant for acquisition of the capital assets has been from the corpus or from its income. Only that part of the expenditure will be allowed which has been incurred from the appellant’s income and not from the corpus fund. The AO is directed to calculate the expenditure incurred or amount applied towards the objects of the appellant. The amount applied would also include the capital expenditure as per the direction given above. Reliance is placed on the judgment of Gujarat High Court in the case of Satyavijay Patel Hindu Dharmashala Trust vs. CIT 86 ITR 683, Hon’ble Supreme Court in the case of SRM CTMK Tirupanni Trust, 230 ITR 636 and the Hon’ble Allahabad High Court in the case of CIT vs. Moolchand Sharbati Devi Hospital Trust, 190 Taxman 338. Accordingly, this ground of appeal is allowed.

Order pronounced in the Court on 25th March, 2022 at Ahmedabad.