Karnataka Municipal Data Society, Bangalore V. ITO, Bangalore

ITA 1485/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0424 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 21-12-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: GOWTHAMA H V
• Keywords: Diversion of income
• Section: 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I.T . A. NO. 1485 /BANG/20 15 (ASSESSMENT YEAR : 20 12 - 13 ) M/S. KARNATAKA MUNICIPAL DATA SOCIETY (R) , MRC, 6 TH FLOOR, 1 - 4, IT PARK, RAJAJINAGAR INDL. ESTATE, BANGALORE - 560 010 . APPELLANT. PAN AABTK 3624P VS. THE INCOME TAX OFFICER, WARD 2(2)(2), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI GOWTHAMA H.V. C.A. R E SPONDENT BY : SHRI SUNIL KUMAR AGARWALA, JCIT (D.R) DATE OF H EARING : 26.04.2016. DATE OF P RONOUNCEMENT : 29.04 .201 6 . O R D E R PER SHRI VIJAY P AL RAO, J .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT.21.09.2015 OF COMMISSIONER OF INCOME TAX (APPEALS) FOR T HE ASSESSMENT YEAR 2012 - 13. 2 IT A NO. 1485 /BANG/201 5 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE ORDER PASSED BY LD. ASSESSING OFFICER IN BRINGING THE AMOUNT OF SPECIFIC GRANT GIVEN BY GOVT. OF KARNATAKA TO THE APPE LLANT SOCIETY AS TAXABLE. 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. O F 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 APPEL LANT 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 N OT 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. 3. THE ONLY I SSUE ARISES IN THIS APPEAL IS UNSPENT AMOUNT OF GOVERNMENT GRANT BROUGHT TO TAX BY THE ASSESSING OFFICER. 4. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT 3 IT A NO. 1485 /BANG/201 5 MATERIAL ON RE CORD. 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 ITA NOS.1430 & 1431/BA NG/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 REC ORD 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 YEA R 2009 - 10. IN ITS ORDER IN ITA NO.1843/BANG/2013 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 T HE 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 MUNICI PAL 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 KARNATAK A MUNICIPAL DATA SOCIETY FOR THE YEAR 2007 - 08, AND THE REMAINING AMOUNT OF RS.77.00 LAKH TO 4 IT A NO. 1485 /BANG/201 5 KARNATAKA MUNICIPAL DATA SOCIETY FOR THE OPERATIONAL COST AND PAY THROUGH CHEQUE. 13. IT IS SEEN FROM THE ABOVE GOVERNMENT ORDER THAT THE PURPOSE FOR WHICH THE GRANT IS TO BE UTILIZED AND THE UTILIZATION OF INTEREST INCOME OUT OF THE GRANT HAVE NOT BEEN SPECIFICALLY SPELT OUT. HOWEVER, IN THE ADDENDUM DATED 2.2.2010, THIS LACUNAE HAS BEEN FILLED UP. THIS WAS DONE APPARENTLY AFTER THE REJECTION OF THE ASSESSEE S APPLI CATION FOR GRANT OF REGISTRATION U/S. 12A OF THE ACT, PURSUANT TO ORDER OF THE DIT(E) DATED 22.1.2010. THIS ADDENDUM READS THUS: - PREAMBLE: GOVERNMENT HAS RELEASED A TOTAL SUM OF RS. 299 LAKHS AS UNDER, FOR MEETING THE EXPENDITURE OF THE KARNATAKA MUNI CIPAL DATA SOCIETY; 1) GOVERNMENT ORDER NO. 15 SFC 2008 DATED 07/03/2008 RS.197 LAKHS 2) GOVERNMENT ORDER NO. 15 SFC 2008 DATED 17/01/2009 RS. 77 LAKHS 3) GOVERNMENT ORDER NO. 15 SFC 2008 DATED 27/08/2009 RS. 25 LAKHS HOWEVER, THE GOVERNMENT HAS NOT S PECIFIED THE PURPOSES FOR WHICH THE GRANT IS TO BE UTILIZED NOR QUANTIFIED THE AMOUNTS TO BE UTILIZED AGAINST SUCH PURPOSES. IT IS FELT NECESSARY TO ISSUE AN ADDENDUM TO THE ABOVE GOVERNMENT ORDERS SPECIFYING THE CONDITIONS OF THE GRANTS RELEASED. AFTER CA REFUL CONSIDERATION THE FOLLOWING ADDENDUM. ADDENDUM TO GO NO. UDD/ 15/SFC/2008 BANGALORE, DATED: 02 - 02 - 2010 AS EXPLAINED IN THE PREAMBLE IT IS HERE BY DIRECTED THAT THE AMOUNTS AGGREGATING RS. 299/ - LAKHS GRANTED TO SOCIETY BE UTILIZED BY THE SOCIETY AFT ER PRIOR APPROVAL OF THE GOVERNMENT FOR SPECIFIC PURPOSE. THE GOVERNMENT ALSO RESERVES THE RIGHT TO DIRECT SOCIETY TO USE THE FUNDS IN A MANNER IT MAY DEEM FIT. THE SOCIETY SHALL HOLD THE MONEY AS A CUSTODIAN FOR THE GOVERNMENT. IT SHALL CREATE A FUND OUT OF THE GRANT MONEY AND ANY ACCRUED INTEREST AND UTILIZE THE FUNDS FOR ASSISTING THE MEMBER BODIES IN IMPLEMENTATION OF E - GOVERNANCE. IF ANY ASSET IS CREATED OUT OF THIS FUND SHALL BELONG TO THE GOVERNMENT. UTILIZATION CERTIFICATE SHALL BE SUBMITTED TO GO VERNMENT AFTER SPENDING THE FUNDS. FURTHER IN CASE THE AMOUNT IS UNSPENT THE SAME SHALL VEST IN SUCH AN INSTITUTION OR BODY WHICH GOVERNMENT PRESCRIBES TOGETHER WITH ANY ACCRETION THERETO. 14. IT CAN THUS BE SEEN FROM THE ABOVE THAT THE ADDENDUM, IF AT ALL, W OULD OPERATE ONLY FOR THE PREVIOUS YEAR RELEVANT TO A.Y. 2010 - 11 AND NOT TO AN EARLIER PERIOD VIZ., A.Y. 2009 - 10. IN OTHER WORDS, DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2009 - 10, THERE WERE NO RESTRICTIONS 5 IT A NO. 1485 /BANG/201 5 WHATSOEVER ON THE USE OF THE GRANT BY THE ASSES SEE. 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 D IVERSION 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 CONF IRMED. .. . 4.4.2 FOLLOWING THE AFORESAID DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.1843/BANG/2013 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. 5. IN THE RES ULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29TH DAY OF APRIL, 201 6 . SD/ - ( INTURI RAMA RAO ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER *REDDY GP