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Taxability of unspent revenue grants

Dinesh Bhattacharya (Retired) (90 Points)

21 November 2012

Sir/ Madam.

A Govt. Company( 100% owned by the Govt) received Revenue Grant worth Rs. 100 :Lakh from the Government to meet the revenue expenses ( like Salary, advertisement, travelling & conveyance exp and other misc. exp) as the Company is yet to generate business income. Actual expenses was Rs. 60 Lakh.( Rs. 55 Lakh from Grant and Rs. 5 lakh from Interest Income) My query is whether the Company is liable to pay Income Tax on the Unspent Balance of Revenue Grant of Rs. 45 Lakh. What would be the mode of presentation in Income Statement & Balance Sheet as per AS-12

D. Bhattacharya

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5 Replies

Ravi Kumar Mahaur (CA-FINAL) (202 Points)
Replied 22 November 2012

AS per Income Tax Act--Supreme Court has decided the matter in respect of Tuticorin Alkali & Fertilizers Ltd, this grant is taxable as normal business income and it is not a capital reciept in the hands of assessee.

As per AS--12, if grant is related to any FIxed asset then deffer such amount upto the life of such asset and remaining balance should be shown as liability in the B/S.

And if such grant is in the nature of revenue then Dr all expenses in P& L a/c and remaining should be shown as liability in B/S.

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Dinesh Bhattacharya (Retired) (90 Points)
Replied 23 November 2012

Originally posted by : Ravi Kumar Mahaur
	AS per Income Tax Act--Supreme Court has decided the matter in respect of Tuticorin Alkali & Fertilizers Ltd, this grant is taxable as normal business income and it is not a capital reciept in the hands of assessee. As per AS--12, if grant is related to any FIxed asset then deffer such amount upto the life of such asset and remaining balance should be shown as liability in the B/S. And if such grant is in the nature of revenue then Dr all expenses in P& L a/c and remaining should be shown as liability in B/S.

But, Sir, is it not something unusual that Governmrnt is paying Income Tax on its own money?. This money is given to meet up revenue expenses for its own Company. Balance sum may be refunded to Govt. exchequre. Any further clarification?

Ravi Kumar Mahaur (CA-FINAL) (202 Points)
Replied 24 November 2012

Mr. Bhattacharya

The provisions of Income Tax Act is applicable on all kinds of companies. So the decided case as i menetioned you in my last quote is also applicable to such company.