Unspent grants cannot be treated as Income

To give more clarity to Civil society sector, regarding taxability of unspent grant, a recent decision by Courts has held that unspent grant cannot be treated as income. In a recent decision in JM Financial Foundation vs CIT[1]Mumbai Income Tax Tribunal has relied on the case of DIT vs Society for Development Alternatives.

CIT (Exemptions) added unspent grants of JM Financial Foundation received during the year as Income. Tribunal after considering the arguments of CIT (E) and assessee, decided that the income of the Trust was to be spent on Ashoka University as per the directions of the donor and hence cannot be stated to be income of the year. It relied on the case of DIT vs Society for Development Alternatives where it was held that the respondent assessee had received grants for specific purposes / projects from the government, NGOs, foreign institutions, etc. These grants were to be spent as per the terms and conditions of the project grant. The amount which remained unspent at the year-end, got spilled over to the next year and was treated as unspent grant.

The Tribunal noted that the grants are not free grants, but the donor require several reporting from the Trust for utilisiung the grant. These grants are can be further subjected to audit by the donor and if remains unspent at the end of the project has to be refunded back.

Thus, these are not free grants which the assessee could use according to its free will, but depends upon the donor requirements. case was on not utilised, remained unutilised and could not be treated as income of the Trust. Thus the matter was decided in the favour of assessee. Relying on the above principles mentioned in Development Alternative case, the Tribunal decided the matter in favour of the assessee.

[1]https://itatonline.org/digest/verdicts/jm-financial-ltd-v-dy-cit-itat-mumbai/