Can interest earned from fixed deposits made from grant in aid be held as income under the Income Tax Act?

The Income Tax Appellate Tribunal (ITAT) in Mumbai considered whether interest earned by the Maharashtra Tourism Development Corporation Ltd. on fixed deposits made from unutilised grant-in-aid funds is taxable income. The tribunal noted that previously, such interest was offered as business income, but a new government directive suggested it should only be used for the grant's original purpose. The Assessing Officer disagreed, but the CIT(A) deleted the addition, a decision the Revenue appealed.

THE INCOME TAX APPELLATE TRIBUNAL
“D” Bench, Mumbai
 Shri Shamim Yahya (AM) & Shri Ramlal Negi (JM)

 I.T.A. No. 6423/Mum/2017 (Assessment Year 2007-08)
 I.T.A. No. 6424/Mum/2017 (Assessment Year 2009-10)
 I.T.A. No. 6439/Mum/2017 (Assessment Year 2010-11)
 I.T.A. No. 6431/Mum/2017 (Assessment Year 2010-11)

DCIT 1(2)(2)
Room No. 535
5th Floor
Aayakar Bhavan
M.K. Road
Mumbai-400 020.
PAN : AAACM0712G
(Appellant) 

Vs. 

M/s. Maharashtra Tourism
Development Corporation Ltd.
CDO, Hutments, Opp LIC Bldg
Madam Cama Road
Mumbai-400 020.
(Respondent)

Assessee by Shri Anil Sathe
Department by Shri Surendra Kumar

Date of Hearing 10.03.2021
Date of Pronouncement 01.06.2021

 O R D E R

Per Shamim Yahya (AM) :-

 These are appeals by the Revenue against respective orders of learned CIT(A). Some issues are common and connected these are being consolidated and disposed of by this common order.

ITA Nos. 6423, 6324 & 6439/Mum/2017

2. In these appeals common grounds are raised. For the sake of reference we are referring to ground of appeal for A.Y. 2007-08 as under :

1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting of Rs. 13,76,73,805/- on account of interest earning from fixed deposits made from grant in aid by holding that the same cannot held as income.

2. On the facts and in the circumstances of the case and in law, the Ld C1T(A) erred in deleting of Rs. 8,91,87,037/- of unutilized revenue grant in aid by holding that the same cannot be considered as income.

3. The Ld CIT(A) erred in law and facts by entertaining an altogether an allegation new additional ground by treating the same as revised ground without granting any opportunity to Revenue & without admitting the same as such.

3. Apropos Ground No. 1

Brief facts the assessee is a government company in which 100% share capital is held by the Maharashtra State Government. The assessee is engaged in the development of Tourism & allied activities in the state of Maharashtra on behalf of the State Government. For this, the appellant company receives grant from the Government which are to be utilized only for the purposes specified by the Government. Any unutilized grants are parked by the assessee company in form of the FDs with the banks. The appellant company earns interest income on such FDs made out of the unutilized grants. Up to AY 2006-07, the appellant company had offered such interest earned for tax under the head 'Business Income.' However, the Department had taxed the same under the head 'Income from Other Sources'. This has been upheld by Hon'ble ITAT Mumbai till AY 2006-07 and the assessee is in appeal before Hon'ble High Court on this issue. However, during the year under consideration, Office Memorandum dated 06/12/2006 was issued by the Central Government according to which such interest on FDs made out of unutilised grants-in-aid was to be utilized only for the purpose for which the grants were given.

4. However the Assessing Officer was not convinced. He referred to earlier ITAT order in assessee’s own case and made the disallowance.

5. Upon assessee’s appeal learned CIT(A) took into account the new government direction and deleted the addition. He noted the assessee’s submission as under : 

To know more in details find the attachment file