The ACIT.GNR Circle, Gandhinagar V. Water and Sanitation Management Organisation, Gandhinagar

ITA 2804/AHD/2009

• Counselvise Citation: 280420514 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 13-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA MURARI
• Assessee Lawyers: GYAN C PIPARA
• Keywords: Charitable institution
• Section: 12

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. K. GARODIA, AM. ITA NO. ASST. YEAR 2804/AHD/2009 2006-07 2957/AHD/2010 2007-08 2355/AHD/2011 2008-09 ASSTT. CIT./DY.CIT, GANDHINAGAR CIRCLE. GANDHINAGAR. VS. WATER AND SANITATION MANAGEMENT ORGANISATION, 3 RD FLOOR, JAL SEWA BHAVAN, SECTOR NO.10A, GANDHINAGAR. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI KRISHNA MURARI, CIT, DR RESPONDENT BY:- SHRI GYAN C. PIPARA, AR DATE OF HEARING :2/12/2011 DATE OF PRONOUNCEMENT : 21.12.11. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . ALL THESE THREE APPEALS HAVE BEEN FILED BY THE REV ENUE AGAINST THE SEPARATE ORDERS OF LD. CIT(A) DATED 31/07/2009, 20/ 08/2010 AND 13/06/2011 FOR ASST. YEARS 2006-07, 2007-08 & 2008- 09 RESPECTIVELY. SINCE THE ISSUE INVOLVED IN ALL THESE APPEALS ARE I DENTICAL AND THE APPEALS PERTAIN TO THE SAME ASSESSEE, THESE WERE HEARD TOGE THER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 2 ITA NO.2804/AHD/2009 ASST. YEAR 2006-07 2. THE GROUND RAISED IN THIS APPEAL IS AS FOLLOWS : - (1) THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE AD DITION OF RS.17,77,12,125/- ON ACCOUNT OF GRANTS-IN-AID OF RS.111,65,45,652/- RECEIVED FROM GOVERNMENT NOT TO BE INCOME OF THE TRUST. ITA NO.2957/AHD/2010 ASST. YEAR 2007-08 3. THE GROUNDS RAISED IN THE APPEAL ARE AS UNDER :- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT THE GRANTS RECEIVED BY THE ASSESSEE DURING THE YEAR CAN NOT BE TREATED AS TAXABLE INCOME OF THE TRUST. (2) THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.72,18,54,392/- MADE ON ACCOUNT O F TREATING THE AMOUNT OF GRANT AS INCOME OF THE TRUST. ITA NO.2355/AHD/2011 ASST. YEAR 2008-09 4. THE GROUND RAISED IN THIS APPEAL IS AS UNDER :- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION ON ACCOUNT OF RECEIPT OF GRANT AND INTERES T ACCRUED THEREON OF RS.32,10,07,720/-. 5. WE PROCEED TO DECIDE THESE APPEALS BY TAKING THE FACTS OF ASST. YEAR 2006-07 INTO CONSIDERATION. THE FACTS OF THE C ASE ARE THAT THE ASSESSEE WATER & SANITATION MANAGEMENT ORGANIZATIO N (HEREINAFTER REFERRED TO AS WASMO) IS REGISTERED UNDER THE SOC IETIES REGISTRATON ACT, 1860 AND ALSO UNDER BOMBAY PUBLIC CHARITABLE T RUST ACT, 1950 FOR DEVELOPMENT AND IMPLEMENTATION OF DECENTRALIZED MAN AGEMENT SYSTEM IN ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 3 WATER AND SANITATION SECTOR AND TO INVOLVE THE CIVI C SOCIETIES, NGOS AND COMMUNITY BASED ORGANIZATION ENABLING THEM TO ACTIV ELY PARTICIPATE IN GOVERNMENT EFFORTS FOR DEVELOPMENT OF WATER SUPPLY AND SANITATION SECTOR. THE ASSESSEE FILED THE RETURN OF INCOME ON 23/08/2006 SHOWING NIL INCOME AND THE SAME WAS PROCESSED ON 15/02/2007 U/S 143(1) OF THE INCOME-TAX ACT, 1961. THE CASE WAS SELECTED FOR SCR UTINY AND A NOTICE DATED 23/06/2007 U/S 143(2) OF THE ACT WAS ISSUED A ND DULY SERVED UPON THE ASSESSEE ON 24/08/2007. 6. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDIN GS RAISED THE ISSUE OF TREATMENT TO THE VARIOUS GRANTS-IN-AID AMO UNTING TO RS.223,71,14,127/- RECEIVED DURING THE YEAR. THE AS SESSEE HAD SHOWN THESE AMOUNTS AS ITS LIABILITIES AND NOT TAKEN IT T O ITS INCOME AND EXPENDITURE ACCOUNT. THESE GRANTS ARE DETAILED IN P ARA 4 OF THE ASSESSMENT ORDER. ON THE OTHER HAND THE TOTAL RECEIPTS SHOWN I N ITS INCOME AND EXPENDITURE ACCOUNT BY THE ASSESSEE WAS TO THE TUNE OF RS.1,54,78,000/- WHICH INCLUDED A SUM OF RS.1,29,99,000/- AS GRANTS- IN-AID OF GOVERNMENT OF GUJARAT. REJECTING THE VARIOUS EXPLANATIONS OF T HE ASSESSEE, THE AO FELT THAT THESE GRANTS-IN-AID ARE VOLUNTARY IN NATURE AN D WITHOUT ANY SPECIFIC DIRECTION THAT THEY SHOULD GO TO FORM THE CORPUS OF THE ORGANIZATION AND THEREFORE, AS PER THE PROVISIONS OF SECTION 11(1)(D ) THEY WOULD FORM THE ASSESSEES INCOME WITHIN THE PROVISIONS OF SECTIONS 11,12, & 13. ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 4 REALISING THAT OUT OF RS.223,71,14,127/- REFERRED T O EARLIER, ONLY RS.111,65,41,652/- HAD BEEN RECEIVED DURING THE YEA R, HE TOOK THE LATER FIGURE AS THE INCOME OF THE ASSESSEE WHICH NEEDED T O BE APPLIED FOR CHARITABLE PURPOSES. HOWEVER, AS PER THE ACCOUNTS O NLY RS.77,13,48,279/- HAD BEEN APPLIED TOWARDS THE OBJECTIVES OF THE TRUS T. KEEPING IN VIEW THE STANDARD MARGIN OF 15% ALLOWED BY SECTION 11(1)(A) I.E. RS.16,74,81,247/-, THE UNSPENT AMOUNT CAME TO RS.17 ,77,12,130/- WHICH THE AO FELT WAS THE ASSESSABLE INCOME OF THE ASSESS EE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 7. THE ASSESSEE WENT IN APPEAL BEFORE FIRST APPELLA TE AUTHORITY, WHEREIN DETAILED SUBMISSIONS WERE MADE WHICH HAVE B EEN NARRATED BY LD. CIT(A) AT PAGES 2 TO 18 OF HIS ORDER. FOR THE SAKE OF BREVITY THE SAME IS NOT REPRODUCED HERE. THE LD. CIT(A) CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE AND HE OBSERVED THA T IN A NUMBER OF APPEALS OF THE BODIES AND BOARDS WHICH CAME TO BE A SSESSED AS TRUSTS, POST AMENDMENT TO SECTION 10(20) BY FINANCE ACT 200 2, THE UNDERSIGNED HAD BEEN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER WHEREIN THE GOVERNMENT GRANTS HAD BEEN TREATED AS THE INCOME OF THE ASSESSEE AND CONSEQUENTLY THE PROVISIONS OF SECTIONS 11, 12, & 1 3 HAD BEEN APPLIED. HOWEVER, AS RIGHTLY STATED BY THE AUTHONSED REPRESE NTATIVE, ITAT AHMEDABAD BENCH IN THE CASE OF GUJARAT SAFAI KAMDAR VIKAS NIGAM ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 5 (SUPRA) AS WELL AS IN THE CASE OF GUJARAT COUNCIL O F SCIENCE CITY (SUPRA) HAS REVERSED THAT FINDING. IN FACT, THE TRIBUNAL HA S FURTHER ELABORATED ON THE ISSUES INVOLVED IN ITA NO.949/AHD/2009 IN THE C ASE OF GUJARAT STATE DISASTER MANAGEMENT AUTHORITY VS. AC1T DATED 05/06/ 2009. WHEREAS THE FACTS INVOLVED IN CONTEXT OF GUJAIAT SAFAI KAMD AR VIKAS NIGAM (SUPRA) AS WELL AS IN THE CASE OF GUJARAT COUNCIL O F SCIENCE CITY (SUPRA) WERE QUITE SPECIFIC TO THE CASES, THE FACTS AS IN C ASE OF GUJARAT STATE DISASTER MANAGEMENT AUTHORITY (SUPRA) WERE GENERAL AND QUITE SIMILAR TO THE FACTS IN THE APPELLANT'S CASE. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE HE OBSERVED THAT AN IDENTICAL ISSUE HAS BE EN DECIDED BY THE TRIBUNAL, AHMEDABAD BENCH IN THE CASE GUJARAT SAFAI R KAMDAR VIKAS NIGAM VS. ACIT IN ITA NO.3232/AHD/2008 FOR ASST. YE AR 2005-06 AND IN THE CASE OF GUJARAT STATE DISASTER MANAGEMENT A UTHORITY VS. ACIT IN ITA NO.949/AHD/2009 FOR ASST. YEAR 2006-07. THEREFO RE, KEEPING THE ELABORATE DECISION OF THE ITAT IN VIEW, HE THOUGHT IT WOULD BE A REDUNDANT EXERCISE TO ANALYZE THE ASSESSEES ARGUME NTS ALL OVER AGAIN AND THEREFORE FOLLOWING THE DECISION, HE HELD THAT IN T HE APPELLANT'S CASE ALSO THE ASSESSING OFFICER HAD NOT BEEN JUSTIFIED IN CON SIDERING THE AMOUNT OF RS.111,65,41,652/- AS THE INCOME OF THE TRUST AND T HEREUPON WORKING THE UNSPENT AMOUNT OF RS.17,77,12,125/- AS INCOME SUBJE CT TO TAXATION. AGAINST THIS ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 6 8. THE LD. DR SUPPORTED THE ORDER OF AO AND SUBMITT ED THAT LD. CIT(A) HAS NOT PROPERLY APPRECIATED THE FACTS AND W RONGLY DELETED THE IMPUGNED ADDITION OF RS.17,77,12,125/- ON ACCOUNT O F GRANTS-IN-AID OF RS.111,65,45,652/- RECEIVED FROM THE GOVERNMENT. HE THEREFORE, PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 9. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE RELYING ON THE ORDER OF LD. CIT(A) SUBMITTED THAT LD. CIT(A) BY FO LLOWING THE DECISIONS OF THE TRIBUNAL, AHMEDABAD BENCH ON IDENTICAL ISSUE IN THE ABOVE REFERRED CASES, HAS RIGHTLY DELETED THE ADDITION. T HEREFORE, THERE IS NO INFIRMITY IN HIS ORDER. THE SAME MAY KINDLY BE UPHE LD. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RECORD WE FIND THAT ON IDENTICAL FACTS THE TRIBUNAL IN THE CA SE OF GUJARAT STATE DISASTER MANAGEMENT AUTHORITY VS. ACIT, GANDHINAGAR IN ITA NO.949/AHD/2009 FOR ASST. YEAR 2006-07 HAS DECIDED THE ISSUE BY OBSERVING AS UNDER :- 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. IT IS DIFFICULT TO AGREE WITH THE DEPARTMENTAL AUTHORITIES THAT THE GR ANTS CONSTITUTE THE ASSESSEES INCOME UNDER SECTION 12 OF THE ACT AS VO LUNTARY CONTRIBUTION. THE GRANTS ARE MADE BY THE STATE GOVERNMENT OUT OF FUND S RECEIVED FROM THE WORLD BANK, ASIAN DEVELOPMENT BANK, GOVERNMENT OF I NDIA, UNDP AS ALSO FROM OTHER CENTRAL AND STATE GOVERNMENT AGENCIES. IT IS NOT IN DISPUTE THAT THESE GRANTS WERE PROVIDED TO THE ASSESSEE WITH A S PECIFIC DIRECTION FOR UTILIZING THEM TOWARDS THE ASSIGNED PROJECTS DULY A PPROVED AND SANCTIONED BY THE CENTRAL AND STATE GOVERNMENTS FOR IMPLEMENTING THE GUJARAT EARTHQUAKE REHABILITATION AND RECONSTRUCTION PROJECTS. IT H AS BEEN SO STATED IN THE CERTIFICATE DATED 24-2-2009 ISSUED BY THE PRINCIPAL SECRETARY (ECONOMIC ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 7 AFFAIRS). THE AVERMENT MADE IN THE CERTIFICATE HA S NOT BEEN ACCEPTED BY THE CIT(A) ON THE GROUND THAT IT WAS PROMPTED BY THE DE CISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF GUJARAT COUNCI L OF SCIENCE CITY AND HAS BEEN GIVEN TO PROVIDE A LEGAL TWIST. THE CIT(A) H AS ALSO STATED THAT THE CERTIFICATE IS NOT A CONTEMPORANEOUS DOCUMENT AND D OES NOT HAVE THE AUTHORITY OF THE RESOLUTION OR ORDER OF THE GOVERNM ENT. HOWEVER, THE STATEMENT IN THE CERTIFICATE IS ONLY A RE-AFFIRMATI ON OF WHAT HAS BEEN STATED BY THE FINANCE DEPARTMENT OF THE GOVERNMENT OF GUJARAT IN THE LETTER DATED 31-12- 2004 WHICH HAVE ALREADY REFERRED TO. THIS LETTER SAYS THAT THE GRANTS GIVEN BY THE STATE GOVERNMENT ARE FOR IMPLEMENTING THE EARTH QUAKE RECONSTRUCTION AND REHABILITATION AND THE ASSESSEE WAS DIRECTED TO KEE P THEM IN A SEPARATE BANK ACCOUNT. FURTHER, IT WAS CLEARLY STATED IN THIS LE TTER THAT THE AMOUNT OF INTEREST EARNED BY THE ASSESSEE HAS TO BE DEPOSITED WITH THE STATE GOVERNMENT IN THE CONSOLIDATED FUND ACCOUNT SINCE THE STATE GOVERNMEN T HAS TO PAY INTEREST AT 12% TO THE WORLD BANK, ADB ETC. THE LETTER GOES O N TO SAY THAT THE SUBJECT OF PAYING BACK THE INTEREST WAS DISCUSSED EVEN EARLIER DURING WHICH THE ASSESSEE WAS GIVEN A SIMILAR DIRECTION. IT IS ALSO POINTED OUT IN THE LETTER THAT THE AMOUNT REQUIRED FOR THE OFFICE EXPENSES OF THE ASSE SSEE WAS SEPARATELY SANCTIONED BY THE STATE GOVERNMENT. THIS IS AN IND ICATION THAT THE GRANTS GIVEN BY THE STATE GOVERNMENT CANNOT BE UTILIZED FO R INCURRING EXPENSES OF THE ASSESSEE. IF SUCH CONDITIONS HAVE BEEN IMPOSED WHI LE MAKING THE GRANTS AND THE GRANTS ARE TO BE SPENT ONLY FOR ASSIGNED PROJEC TS UNDER THE REHABILITATION PROGRAMME, IT FOLLOWS THAT THE GRANTS CANNOT BE TRE ATED AS THE ASSESSEES INCOME. WE MAY REFER TO ORDER OF THE AHMEDABAD B ENCH OF TRIBUNAL PASSED ON 17-4-2009 IN THE CASE OF GUJARAT SAFAI KAMDHAR V IKAS NIGAM, IN ITA NO.3232/AHD/2008 (A.Y.2005-2006) TO WHICH ONE OF US (THE AM) WAS PARTY. IN THIS CASE, IT WAS HELD THAT GRANTS GIVEN BY THE STA TE GOVERNMENT TO ANOTHER ENTITY WHICH WAS TO SPEND THE GRANTS ONLY FOR STATE D PURPOSE, CANNOT BE CONSIDERED AS VOLUNTARY CONTRIBUTION AND ASSESSED U NDER SECTION 12 OF THE ACT AS INCOME OF THE RECIPIENT. IN THIS ORDER REFERENC E HAS BEEN MADE TO THE JUDGMENT OF THE KARNATAKA HIGH COURT IN CIT VS. KAR NATAKA URBAN INFRASTRUCTURE DEVELOPMENT AND FINANCE CORPORATION, 284 ITR 582 AND THAT OF THE ALLAHABAD HIGH COURT IN CIT VS. UPBHOKATA SA HAKARI SANGH LTD., 288 ITR 106. THE TRIBUNAL HAS ALSO REFERRED TO THE JU DGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT MUNICIPAL BOARD (SUPRA) AND THE DELHI HIGH COURT IN CIT VS. DELHI STATE INDUSTRIAL DEVELOPMENT CORPORATION, 162 TAXMAN 275. THIS ORDER OF THE TRIBUNAL ALSO SU PPORTS THE ASSESSEE IN FULL IN ITS CONTENTION THAT THE GRANTS RECEIVED FROM THE STATE GOVERNMENT CANNOT BE CONSIDERED AND ASSESSED AS ITS INCOME. THE ASSESSE E MIGHT HAVE ERRONEOUSLY TREATED THEM AS ITS INCOME IN THE ACCOUNTS BUT IF S UCH ENTRIES ARE INCONSISTENT WITH THE FACTUAL AND LEGAL POSITION, THEY CANNOT BE GIVEN EFFECT TO OR CONSIDERED TO BE CONCLUSIVE FOR ALL PURPOSES. IN A NY CASE AN ASSESSMENT CANNOT BE MADE ON THE BASIS OF SUCH ENTRIES WHICH D O NOT REFLECT THE PROPER FACTUAL OR LEGAL POSITION. SO FAR AS INTEREST IS CONCERNED BOTH THE LETTER DATED 31-12-2004 WRITTEN BY THE FINANCE DEPARTMENT OF THE STATE GOVERNMENT AND THE CERTIFICATE DATED 24-2-2009 ISSUED BY THE PRINC IPAL SECRETARY (ECONOMIC AFFAIRS) OF THE STATE GOVERNMENT CLEARLY SHOW THAT IT HAS TO BE REFUNDED TO THE STATE GOVERNMENT. THE ENTRIES MADE BY THE ASSESSEE CREDITING THE ACCOUNT OF THE STATE GOVERNMENT WITH THE AMOUNT OF INTEREST IS CONSISTENT WITH THE CLAIM MADE BY THE STATE GOVERNMENT AND THE CONDITIONS SUB JECT TO WHICH THE GRANTS ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 8 WERE GIVEN. THE ASSESSEE HAS THEREFORE RIGHTLY CRE DITED THE STATE GOVERNMENT WITH THE AMOUNT OF THE INTEREST. SINCE THE CONDITI ON THAT THE INTEREST SHOULD BE REFUNDED TO THE ASSESSEE FORMED PART OF THE GRANT I TSELF, THERE WAS AN INBUILT RESTRICTION ON THE ASSESSEES RIGHT TO ENJOY THE IN TEREST INCOME. THE ASSESSEE COULD NOT HAVE TREATED THE INTEREST INCOME AS ITS O WN. RIGHT FROM THE INCEPTION SUCH INCOME BELONGED TO THE STATE GOVERNMENT. WE T HEREFORE UPHOLD THE ASSESSEES CONTENTION AND HOLD THAT THE INTEREST IN COME WAS NOT ASSESSABLE IN THE ASSESSEES HANDS. 8. WE MAY REFER TO THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN GUJARAT MUNICIPAL FINANCE BOARD VS. DCIT (ASSESSMEN T), (1996) 221 ITR 317. IN THIS CASE THE BOARD RECEIVED GRANTS FROM T HE STATE GOVERNMENT FOR DISBURSEMENT FOR THE PURPOSE OF LAYING ROADS, DRAIN AGE SYSTEM ETC. THE EXCESS MONEY NOT IMMEDIATELY REQUIRED FOR THE ABOVE PURPOS ES WAS INVESTED FOR INTEREST. THE BOARD RECEIVED A LETTER FROM THE STA TE GOVERNMENT SAYING THAT THE INTEREST MAY BE RETAINED BY THE BOARD AS PART O F THE GRANT-IN-AID. THE BOARD WAS NOT CONSTITUTED FOR THE PURPOSE OF CARRYI NG ON ANY BUSINESS OR ACTIVITY FOR PROFIT AND IT WAS FOUND TO HAVE ACTED ONLY ON BEHALF OF THE STATE GOVERNMENT. ON THESE FACTS THE QUESTION AROSE AS TO WHETHER THE INTEREST SHALL BE TAXED AS THE INCOME OF THE ASSESSEE. REJECTING THE CONTENTION OF THE DEPARTMENT THAT IT SHOULD BE SO ASSESSED, THE HONB LE HIGH COURT HELD AS UNDER: FROM THE BOARDS ACT, IT IS ALSO CLEAR THAT THE BOA RD IS CONTROLLED BY THE STATE AND THE BOARD HAS TO DISCHARGE THE FUNCTI ONS ON BEHALF OF THE GOVERNMENT. IT IS ALSO CLEAR THAT ALL THE MATERIAL STAGES AND IN ALL MATERIAL PARTICULARS, THE ACTIVITY OF THE BOARD IS CONTROLLED BY THE STATE. THERE IS NO CAPITAL CONTRIBUTION BY THE C ENTRAL GOVERNMENT OR THERE IS NOTHING TO INDICATE THAT CITIZENS CAN BE A DMITTED AS SHAREHOLDERS. AS POINTED OUT EARLIER, THERE IS NO TRADING ACTIVITY OF THE BOARD. THERE IS NO QUESTION OF PROFIT AND LOSS THA T WOULD BE MADE AS A RESULT OF THIS ACTIVITY AND AS POINTED OUT, IT HAS NO TRADING ACTIVITY. THERE IS NO QUESTION OF BRINGING OUT DUALITY BETWEE N THE BOARD, ON THE ONE HAND, AND THE STATE OR THE CENTRAL GOVERNMENT O R THE SHAREHOLDER, ON THE OTHER HAND, BECAUSE THE PROPERTY OF THE BOAR D IS OWNED BY THE STATE ITSELF. IN THE INSTANT CASE, THERE IS NO QUE STION OF TRADE OR BUSINESS BUT THE AMOUNT WHICH WAS LYING WITH THE BO ARD WAS INVESTED FOR WHICH INTEREST IS RECEIVED, WHICH THE STATE GOV ERNMENT IS TREATING AS A PART OF THE GRANT-IN-AID, AND, THEREFORE, THE QUESTION OF TAXING THAT AMOUNT DOES NOT ARISE. IN OUR VIEW, THE BOARD HAS RECEIVED THE INTEREST, BUT AS THE SAME IS TREATED AS GRANT-IN-AI D BY THE STATE AS PER LETTER AT ANNEXURE A, THE SAME CANNOT BE TAXED BE CAUSE THE AMOUNT OF INTEREST IS PURPORTED TO BE EARNED BY THE STATE AND IS GRANT-IN-AID AND NOT AN INCOME OF THE BOARD. THE ABOVE OBSERVATIONS OF THE HONBLE HIGH COURT RE ITERATE THE PROPOSITION THAT ANY GRANT-IN-AID CANNOT BE CONSIDERED AS INCOM E OF THE ASSESSEE ESPECIALLY WHEN THE GRANT IS TO BE USED FOR SPECIFI C PURPOSES. THE OBSERVATIONS ALSO ESTABLISH THE PROPOSITION THAT IF THE INTEREST IS PART OF THE GRANT, THE SAME IS ALSO NOT TAXABLE. THIS CASE APP LIES TO THE PRESENT APPEAL IN ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 9 THE SENSE THAT ANY GRANT MADE FOR SPECIFIC PURPOSES IS NOT TAXABLE AS INCOME AS ALSO THE INTEREST WHICH THE RECIPIENT DERIVES BY IN VESTING THE GRANT TEMPORARILY FOR INTEREST. THIS IS ANOTHER DIMENSION GIVEN TO THE PRESENT CASE. THE CIT(A) HAS HELD THAT THE ASSESSEE TREATED THE GRANTS GIVEN BY THE STATE GOVERNMENT AS ITS INCOME AND THEREFORE THE INTEREST EARNED BY TEM PORARY INVESTMENT OF THE GRANTS CANNOT BE EXEMPTED. IN THE LIGHT OF THE JUD GMENT, THIS VIEW OF THE CIT(A) SEEMS TO US TO BE ERRONEOUS BECAUSE, AS WE H AVE NOTED, THE RATIO OF THE JUDGMENT IS FIRSTLY THAT ANY GRANT-IN-AID CANNOT BE CONSIDERED AS INCOME. IF THAT IS SO, MERELY BECAUSE THE GRANT IS TREATED AS INCOME BY THE ASSESSEE IN ITS BOOKS, THE INTEREST DOES NOT BECOME TAXABLE. 9. THE AFORESAID JUDGMENT OF THE HONBLE JURISDICTI ONAL HIGH COURT SUPPORTS THE ASSESSEE ALSO IN ITS CONTENTION THAT T HE INTEREST WAS DIVERTED AT SOURCE BY AN OVERRIDING TITLE IN FAVOUR OF THE STAT E GOVERNMENT. BECAUSE OF THE DIRECTIVE FROM THE STATE GOVERNMENT, IN THE CIT ED CASE THE INTEREST WAS HELD NOT TO AMOUNT AS INCOME OF THE GUJARAT MUNICIPAL FI NANCE BOARD AND IT WAS HELD THAT THE INTEREST WAS DIVERTED TO THE STATE GO VERNMENT BY AN OVERRIDING TITLE. THE STATE GOVERNMENT COULD TREAT THE INTERE ST ALSO AS PART OF THE GRANT ONLY BECAUSE IT HAD FULL CONTROL AND DOMINION OVER THE INTEREST BY REASON OF THE OVERRIDING TITLE CREATED IN ITS FAVOUR BY ITS D IRECTIVE TO THE GUJARAT MUNICIPAL FINANCE BOARD. SIMILARLY IN THE PRESENT CASE, AS WE HAVE ALREADY SEEN, THERE WAS A LETTER DATED 31-12-2004 WRITTEN B Y THE FINANCE DEPARTMENT OF THE STATE GOVERNMENT TO THE ASSESSEE DIRECTING T HE ASSESSEE TO DEPOSIT THE INTEREST TO THE CREDIT OF THE CONSOLIDATED FUND OF THE STATE. THIS DIRECTIVE WAS REITERATED IN THE CERTIFICATE ISSUED BY THE PRINCIP AL SECRETARY. THESE DIRECTIVES CREATED AN OVERRIDING TITLE IN FAVOUR OF THE STATE GOVERNMENT SO FAR AS THE INTEREST ELEMENT WAS CONCERNED. THUS, ON TH IS POINT ALSO, NAMELY, THE CREATION OF OVERRIDING TITLE, THE JUDGMENT IS IN FA VOUR OF THE ASSESSEE. 10. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON BLE GUJARAT HIGH COURT (SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND HOLD THAT THE INTEREST OF RS.9,82,70,573/- CANNOT BE ASSESSED AS THE ASSESSEES INCOME. IN THE VIEW WE HAVE TAKEN IT IS NOT NECESSARY TO EXAMI NE THE ALTERNATIVE CONTENTION TO THE EFFECT THAT THE AMOUNT OF INTERES T CREDITED TO THE ACCOUNT OF THE STATE GOVERNMENT SHOULD BE TREATED AS APPLICATI ON OF THE INCOME FOR THE PURPOSE OF SECTION 11(1)(A) OF THE ACT, ON COMMERCI AL CONSIDERATION. THUS GROUND NO.1 IS ALLOWED. SINCE THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESS EE BY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE FEEL NO NEED TO INT ERFERE WITH HIS ORDERS AND THE SAME ARE UPHELD. ITA NOS. 2804,2957 & 23557 ASST. YEAR 2006-07 TO 2008-09 10 12. IN THE RESULT, ALL THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 21.12.11. SD/- SD/- (A. K. GARODIA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 7/12/2011. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 16/12/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..