Unspent Research Grant of ₹13.05 Lakh Treated as Deferred Liability: ITAT Holds Amount Non-Taxable Until Project Utilisation [Read Order]
The decision came in appeal for AY 2012–13, where the Assessing Officer had added ₹13.05 lakh to the income, holding the grant to be revenue in nature. The Tribunal accepted that such project-linked grants are like deferred liabilities and remain taxable only upon utilisation.
Unspent Research Grant - Liability - ITAT - taxscan
Unspent Research Grant - Liability - ITAT - taxscan
The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has ruled that an unutilised research grant received from the Department of Scientific and Industrial Research (DSIR) cannot be treated as taxable income until the associated project is executed or expenditure incurred.
During the assessment proceedings, the Assessing Officer noted that Intas Biopharma had received ₹13.05 lakh as a research grant from the DSIR for a specific scientific project.
The company had treated this amount as a liability in its books, stating that it had not yet been spent during the relevant financial year. The AO, however, held that the grant represented income under Section 28(iv) of theIncome Tax Act and added it to business profits.
On appeal, the Commissioner (Appeals) confirmed the addition, reasoning that the funds were already received and available to the company, and no condition explicitly postponed their taxability. The authority also observed that no refund had been made to DSIR, implying the funds were at the company’s disposal. Aggrieved by this order the assessee filed an appeal before the Tribunal.
The assessee contended before the Tribunal that the DSIR grant was sanctioned for a defined research project and could be used only for that purpose.
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Since the project was ongoing, the grant had not yet been recognised as income under the matching principle of accounting. The company emphasised that if the project was not executed, the funds were liable to be refunded to DSIR, reinforcing their character as a contingent liability.
The Department maintained that once the funds were received, they formed part of the assessee’s business resources. It argued that no specific provision in the grant agreement or DSIR’s communication deferred its taxability. Therefore, according to the Revenue, the AO had rightly treated the amount as income accruing in the year of receipt.
The Tribunal held that the research grant, though received, was subject to a future obligation of utilisation or refund and therefore could not be treated as income in the year of receipt.
It was observed that such funds are held by the assessee in a fiduciary capacity until the corresponding expenditure is incurred. Unless and until the grant is spent on the approved project, it remains a liability and not business income.
Allowing the assessee’s appeal, the two-member bench of Suchithra Kamble (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) directed the deletion of the ₹13.05 lakh addition. It clarified that the amount shall become taxable only when the related research activity is completed or the unspent portion is appropriated to income.
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