KARNATAKA MUNICIPAL DATA SOCIETY,BANGALORE vs. ITO, BANGALORE

Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.21.09.2015 of Commissioner of Income Tax (Appeals) for the Assessment Year 2012-13.

2. The learned CIT (Appeals) erred in ignoring the direction of Govt. of Karnataka, whereby it is stated that, even the interest earned on the deposit made out of specific grant was required to be added on to the original grant and therefore, cannot be taxed as income.

3. The learned CIT (Appeals) ought to have considered that, the appellant society was formed by Govt. of Karnataka for implementing e- Governance initiatives to various member Municipal Authorities and said Govt. of Karnataka has given specific grant to the appellant society’s various projects with the direction that, amount of grant shall be kept in escrow by the appellant society and shall be used only for the purpose for which the grant has been released by Govt. of Karnataka and in case, there is any amount left over under each grant, the same shall be returned back to the Govt. and therefore, the appellant only holds the fund as a Trustee and when the diversion of income is determined before it reaches the appellant the “Principle of Diversion of Income by over- riding title” is applicable and as such, the same cannot be considered as taxable income of the appellant society.

4. The learned CIT (Appeals) was wrong in holding that, since the appellant society has not spent the amount even after 3 years, therefore, the amount is required to be included as taxable income. For the above and any other grounds that may be advanced at the time of hearing, the appellant prays that, appeal be allowed.”

material on record. At the outset, we note that an identical issue has been considered and decided by the co-ordinate bench of this Tribunal in assessee's own case for the Assessment Year 2008-09 and 2010-11 vide order dt.14.8.2015 in & 1431/Bang/2014 in paras 4.4.1 & 4.4.2 as under :

4.4.1 We have heard the rival submissions of both the learned Authorised Representative for the assessee and the learned Departmental Representative for revenue and perused and carefully considered the material on record including the decision of the co-ordinate bench in the assessee's case for Assessment Year 2009-10 (supra). We find that identical issues were before the co-ordinate bench of this Tribunal or consideration in the assessee's own case for Assessment Year 2009-10. In its order in dt.9.5.2014 the co-ordinate bench adjudicated these issues in favour of Revenue and against the assessee holding as under at paras 12 to 14 :- “ 12. We have given a careful consideration to the rival submissions. At pages 58 & 59 of the assessee’s paperbook are copies of the English translation of the Government Order dated 17.1.2009 releasing grants to the assessee society for the year 2008-09. The order in vernacular is placed at pages 60 to 61 of the assessee’s paperbook. The operative portion of the Government Order reads thus:- “Government order No.UDD 15 SFC 2008 Bangalore, dated 17/01/2009 As explained in the Preamble, Government has released a sum of Rs.274.00 lakhs to Directorate of Municipal Administration for the Operational Cost of Rs.77.O0 lakhs for the year 2008-09 to Karnataka Municipal Data Society and to reimburse a sum of Rs.197.00 lakhs, which was released for the year 2007-08. This grant should be incurred for the year 2008-09 under the Account Head “3604-00-193-0-01 (l00)(Plan). In the Government Order, Director, Directorate of Municipal Administration has been authorised to draw from State Huzur Treasury and to recover a sum of Rs.197.00 lakhs, which was released to Karnataka Municipal Data Society for the year 2007-08, and the remaining amount of Rs.77.00 lakh to Karnataka Municipal Data Society for the Operational Cost and pay through cheque.”

whatsoever on the use of the grant by the assessee. It cannot therefore be said that there was diversion of income by overriding title. Whatever the assessee does out of the grant and the interest accrued on the grant can only be said to be application of income and it cannot be said that there was diversion of income by overriding title. Taking note of the above factual position for the A.Y. 2009-10, the plea of the assessee that there was diversion of income by overriding title cannot be accepted. Accordingly, the order of the CIT(Appeals) is confirmed. ……...” 4.4.2 Following the aforesaid decision of the co-ordinate bench of this Tribunal in dt.9.5.2014 in the assessee's own case for Assessment Year 2009-10, we hold that in the factual matrix of the case, it is clear that even after the Addendum of GOK dt.20.2.20210, whatever the assessee does out of the grant and interest accrued can only be said to be application of income for the stated objects and activity of the assessee society and therefore reject the assessee's plea that there was diversion of income by overriding title. Consequently, the grounds at S. Nos. 1 to 4 raised by the assessee are dismissed.”

Following the earlier order of this Tribunal, we decide this issue against the assessee.