DCIT, CIRCLE - 8(1), KOLKATA, KOLKATA vs. M/S. GREAT EASTERN HOTEL AUTHORITY, KOLKATA

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ITA 1317/KOL/2018Status: DisposedITAT Kolkata19 February 2020AY 2004-052 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision that Section 43B is not applicable to government loans. However, it disagreed with the CIT(A) regarding the grant-in-aid, holding that it was received on revenue account and thus taxable.

What were the facts?

The Revenue appealed against the deletion of additions made by the Assessing Officer (AO) regarding expenditure on interest for a government loan and a grant-in-aid received by the assessee. The CIT(A) had deleted both additions.

What were the issues?

Whether interest on a government loan is disallowable under Section 43B and whether a grant-in-aid received from the State Government for working capital is taxable income.

Which sections of the Income-tax Act were involved?

Section 43B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA

Before: Shri J. Sudhakar Reddy & Shri Aby. T. Varkey]

order : February 19th, 2020 ORDER Per J. Sudhakar Reddy, AM :- This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-8, Kolkata [‘CIT(A)’ for short] dated 20.04.2018 u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short) for AY 2004-05 on the following grounds: “

1.

1 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by AO amounting to Rs.1,48,58,612/- on account of 'Expenditure on Interest for Government Loan' which was not paid within the scheduled time as provided u/s 43B of the Income Tax Act, 1961. 2 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by AO amounting to Rs.3,45,00,000/- regarding Grant in aid received by the assessee from the State Government against salary as 'Working Capital Contribution' which should be treated as revenue income as per note no. 17 of the Notes on Accounts (Schedule No. 23) of Audited accounts. 3 That appellant reserves the right to amend, alter or add to any ground(s) of appeal before or at the time of hearing of the appeal.”

2. After hearing rival contentions we find that the ld. CIT(A) has held that Section 43B of the Act is not applicable to Government loans. On a plain reading of the Section we uphold this finding of the ld. CIT(A) and dismiss ground no. 1 of the Revenue.

3. On ground no. 2, we find that the ld. CIT(A) has stated that, a grant-in-aid, made from the Government is towards working capital and hence cannot be considered income and brought to tax. We find that the Government of West Bengal has given 2 Assessment Year: 2004-05 M/s. Great Eastern Hotel Authority. grant-in-aid to the assessee company, as working capital contribution, for salary payments. We are of the view that this amount has been received on revenue account and hence rightly brought to tax by the ld. AO. The decision of the ld. CIT(A) on this issue at paragraphs 11.2.1 and 11.2.2 at page 7 of his order which is extracted for ready reference: “11.2.1 First and foremost, grant in aid from the State government – cannot be in the nature of ‘income’. It may be treated as a revenue receipt in the accounts, for accountancy sake – but, it is simply not income. 11.2.2 Grant-in-aid is aid from the State government following due process and voting by the Legislature for allocation of funds for specific purposes as per budgetary provisions and procedures of the Constitution of India.”

4. The nature, character and purpose of the grant-in-aid has to be examined. When the amount is received from the Government either State or Centre on revenue account, it has to be considered as the income. Simply because due process was followed, a receipt cannot be characterized as revenue or capital. Hence this ground of the Revenue is allowed.

5.

In the result, the appeal of the Revenue is allowed in part. Kolkata, the 19th February, 2020.

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