Recovery of out of pocket costs incurred by society from ultimate beneficiaries of grant not taxable in the hands of society

Case Law Citation: ITO vs. Haryana Renewable Energy (ITAT Chandigarh), IT Appeal No.-896/2009, AY 2006-07, Date of Pronouncement -24.09.2015 , Assessment Year : 2006-07

Brief of the case:

The ITAT Chandigarh in the case of Haryana Renewable Energy held that recovery of a part of cost from ultimate customers by the society working for funding the projects from government grant being in nature of reimbursements cannot be taxed in the hands of society. Facts of the case:

The assessee Haryana Renewable Energy Development Agency was incorporated in 1997 and was registered as a society. The objects of the assessee are to popularize, promote and implement the application of various types of new and renewable sources of energy in the State.
Its income comprises grants, interest and miscellaneous receipts. For the year under consideration, the assessee filed return declaring nil income as on 31.7.2007 claiming its income to be exempt.
The Assessing Officer during the course of assessment proceedings observed that the assessee is an AOP as per sect ion 2(31) (v) of the Income Tax Act, 1961.
During the course of assessment proceedings, the Assessing Officer noticed that the grants received by the assessee amounting to Rs.2,10,03,884/- includes receipt on account of user share of which the nature and utility of the same towards the aims and objects of the assessee society have not been explained. As such, the addition of Rs.2,10,03,884/- was made by the Assessing Officer.
The CIT(A) held that the user share is nothing but a part of the cost of the renewable energy devices recovered from the consumers, the rest being met by way of subsidy from the Governments. Since it is only recovery of part of the cost already incurred by the assessee, it cannot be termed as taxable income by any stretch of imagination. This way, the learned CIT (Appeals) deleted the addition on account of user share made by the Assessing Officer. Aggrieved revenue is in appeal before ITAT.
Contention of the Assessee:

It was submitted that the user share means that part of total cost of solar device which is to be borne by the ultimate beneficiary of that device for popularization of renewable energy in Haryana on subsidized rates.
Since nothing out of the user share is left over and the entire amount gets spent or utilized along with   the grant, it is not a taxable receipt.
The ITAT observed that the assessee acted as facilitator in arranging energy resources for the ultimate user. The user share which assessee recovered represent the cost to be borne by ultimate user for use of energy, remaining cost is met by assessee out of grants received from state/central govt. for the same.
As such the assessee has only recovered the cost which was incurred by it and to be ultimately borne by the user as per the scheme announced by the state/central govt. termed as user share. In this way, by no stretch of imagination it can be said that the user share is any income earned by the assessee or any part of this user share is income earned by the assessee taxable as per Income Tax Act.
Other Issue: Whether Interest received by assessee on grants deposited in bank account taxable in its hands?

ITAT observed that the assessee is only getting grant from the Central Government or from the State Government for financing the subsidy part of the cost of renewable energy devices. Any surplus or unutilized amount belongs to the sanctioning authority and payable back to govt. The interest shown as received is fully accountable to the Government and is adjusted against future grant and in case a particular grant is not spent or utilized, it is refunded back to the grant sanctioning authority.
Thus, the amount does not belong to the assessee but to the sanctioning authority only. Therefore, the same cannot be taxable in the hands of the assessee.
CA Saurabh Chokhra