In ITA No.136/Ahd/2014 -ITAT- ITAT (Ahmedabad) grants relief to Gujarat State Road Development Corporation, rules ‘Unspent Grant’ from State Government not to be treated as Income
Members Annapurna Gupta (Accountant) & T.R. Senthil Kumar (Judicial) [10-07-2023]

Read Order: The ACIT Gandhinagar Circle Gandhinagar v. Gujarat State Road Development Corporation Ltd.

Chahat Varma

New Delhi, July 19, 2023: In a recent judgment, the Ahmedabad bench of the Income Tax Appellate Tribunal has provided relief to Gujarat State Road Development Corporation Ltd. (assessee), recognizing that the assessee served as a nodal agency responsible for implementing specific government schemes. The Tribunal emphasized that the unspent grant received by the assessee remained the property of the Government and was required to be returned upon demand. As a result, the Tribunal concluded that there was no basis for treating the grant as income of the assessee.

The factual background of the case was that the assessee was engaged in building infrastructure projects and received financing, including grants from the State Government. The Assessing Officer (AO) treated the unspent grants as income and added them to the assessee's income for the relevant year. Additionally, the AO discovered that the assessee had deposited the surplus grants with Gujarat State Financial Services (GSFS) and earned interest on those deposits. The assessee did not report this interest as income, considering it as a current liability within the grants received. However, the AO deemed the interest taxable as income from other sources and included it in the assessee's income. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted all the additions made by the AO except for the interest on deposits with GSFS. The CIT(A) partially allowed the assessee's appeal. Dissatisfied with the decision, both the Revenue and the assessee filed appeals before the Income Tax Appellate Tribunal.

The coram of Annapurna Gupta (Accountant) and T.R. Senthil Kumar (Judicial) observed that an identical issue had previously been addressed by the Tribunal in the case of the assessee, where it was held that the unspent grant could not be considered as the assessee's income.

Furthermore, the bench referred to the case of Commissioner of Income Tax v. Sar Infracon (P) Ltd. [LQ/GujHC/2013/1182], and observed that grants provided by State Governments, including the requirement to deposit surplus grants in a specific manner and the interest earned on them, should be treated as part of the grants and not as the assessee's income.

The bench also highlighted Clause 13A of the Memorandum and Articles of Association, which explicitly stated that any surplus received by the assessee from the State Government must be deposited as per the government's direction, and the company cannot generate profits from it. Therefore, the interest earned on surplus funds was not freely available to the assessee for its own use or profit-making. Accordingly, the bench held that the interest received by the assessee on the surplus funds should not be treated as the assessee's income.