Natrip Implementation Society, New Delhi V. ADIT(E), New Delhi

CO 257/DEL/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8686 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 19-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 12-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K R MANJANI; PRAKASH K GUPTA
• Assessee Lawyers: GUNJAN P RASAD
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E: NEW DELHI) BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI I.C. SUDHIR, JUDICIAL MEMBER ITA NO. 1385/DEL/ 2011 (ASSESSMENT YEAR: 2006-2007) ADIT(E), VS. NATRIP IMPLEMENTATION SOCIETY, INV. CIR-II, ROOM NO. 306, 124, UDYOG BHAWAN, 3 RD FLOOR, AAYAKAR BHAWAN, NEW DELHI. LAXMI NAGAR DISTT. CENTRE, PAN NO. AAATN7662F NEW DELHI. (APPELLANT ) (RESPONDENT) & CROSS OBJECTION NO. 257/DEL/2012 (IN ITA NO. 1385/DEL/2011) ASSESSMENT YEAR: 2006-07 NATRIP IMPLEMENTATION SOCIETY, VS. ADIT(E), 124, UDYOG BHAWAN, NEW DELHI. INV. CIR-II, 3 RD FLOOR, PAN NO. AAATN7662F AAYAKAR BHAWAN, LAXMI NAGAR, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GUNJAN PRASAD, CIT(DR) RESPONDENT BY : SH. K.R. MANJANI, ADV. & SH. PRAKASH K. GUPTA, CA ORDER PER S.V. MEHROTRA, AM: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) DATED 24.12.2010 FOR AY 2006-07. THE ASSESS EE HAS FILED CROSS OBJECTION. ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGISTERED SOCIETY UNDER SOCIETY REGISTRATION ACT, 1860. IT IS ALSO R EGISTERED U/S 12A OF THE INCOME TAX ACT AND ALSO NOTIFIED U/S 80G(5)(VI) OF THE INCOME TAX ACT. THE MAIN OBJECTIVE OF THE ASSESSEE SOCIETY IS TO CREATE WORLD CLASS AUTOMOTIVE TESTING, VALIDATION ETC. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY ASSESSING OFFICER THAT THE ASSESSEE HAD GIVEN AN AD VANCE TO FOLLOWING PARTIES: 1. SIPCOT 6,00,00,000 2. ARAI, PUNE 21,80,00,000 3. VRDE 31,75,00,000 TOTAL 59,63,00,000 4. THE AO NOTICED THAT ASSESSEE HAD GIVEN ADVANCE F OR PURCHASE OF LAND AND UP-GRADATION OF EXISTING FACILITIES AGGREG ATING TO RS. 59.63 CRORES. HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO HOW THESE INVESTMENTS WERE AS PER REQUIREMENTS OF SECTION 11(5) OF THE IN COME TAX ACT, 1961. AFTER EXAMINING THE ASSESSEES REPLY, THE AO OBSERV ED THAT THE SAME HAD NO FORCE BECAUSE ASSESSEE SIMPLY STATED THAT THE AD VANCE WAS GIVEN OUT OF GOVERNMENT OF INDIA GRANT WHICH WAS MEANT FOR UT ILIZATION ACCORDING TO TERMS AND CONDITIONS OF THE RELEASE OF GOVERNMENT F UNDS. THE AO ALSO EXAMINED THE DETAILS OF OTHER ADVANCES AGGREGATING TO RS. 1,36,31,418/- ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 3 AND OBSERVED THAT ADVANCE GIVEN WAS NOT ACCORDING T O SEC. 11(5) AND, THEREFORE, VIOLATED THE PROVISION OF SECTION 13(1)( D). FURTHER HE OBSERVED THAT ASSESSEE PURCHASED THE LAND AT SILCHAR AT RS. 11,25,297/- BUT THE LAND WAS PURCHASED IN THE NAME OF DEPARTMENT OF HEA VY INDUSTRIES. THIS WAS ALSO NOT IN ACCORDANCE WITH SECTION 11(5) OF TH E ACT. THE AO, AFTER EXAMINING THE INCOME AND EXPENDITURE ACCOUNT, CONCL UDED THAT ONLY RS. 24 LAKHS WAS INCURRED TOWARDS EXPENSES AND, THEREFO RE, DETERMINED THE ASSESSEES INCOME AT RS. 3,99,85,170/-, INTER-ALIA, OBSERVING THAT ASSESSEE HAD NOT UTILIZED THE AMOUNT TO THE EXTENT OF 85% OF THE RECEIPTS. 5. BEFORE LD. CIT(A) THE ASSESSEE HAD, INTER-ALIA, STATED THAT ASSESSEE WAS ACTING ONLY AS A TRUSTEE OF GOVERNMENT FUNDS. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE SOCIETY HAD EARNED INTE REST AMOUNTING TO RS. 2,20,71,587/- ON THE FIXED DEPOSIT MADE OUT OF UN-U TILIZED PROJECT GRANT RECEIVED BY IT DURING THE YEAR FOR IMPLEMENTATION O F THE PROJECT ON BEHALF OF GOVERNMENT OF INDIA. IT WAS FURTHER CLARIFIED T HAT THE ASSESSEE SOCIETY WAS UNDER OBLIGATION TO REFUND THE INTEREST SO EARN ED ON UN-UTILIZED GRANT TO GOVERNMENT OF INDIA AS PER GENERAL FINANCIAL RUL ES AND MINISTRY OF FINANCE DIRECTIVES. THE ASSESSEE FURTHER POINTED O UT THAT IT HAD RECEIVED PROJECT GRANT AS PER GRANT RELEASE LETTER DATED 27 TH SEPTEMBER, 2005, 29 TH ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 4 DECEMBER, 2005, 23 RD APRIL, 2006 AND LETTER DATED 27 TH SEPTEMBER, 2006 SANCTION LETTERS OF THE GRANT INCLUDED THE FOLLOWIN G CONDITIONS: ALL THE LANDS PURCHASED/LEASED OUT OF THESE FUNDS SHALL BELONG TO THE GOVERNMENT. THE ASSETS, IF ANY ACQUIRED OUT OF THESE FUNDS SHOULD NOT WITHOUT THE PRIOR SANCTION OF THE GOVERN MENT BE DISPOSED OF, ENCUMBERED OR UTILIZED FOR THE PURPOSE OTHER THAN FOR WHICH THE FUNDS HAVE BEEN RELEASED. THE RELEASE OF FUNDS TO THE APPELLANT SOCIETY IS SU BJECT TO FULFILLMENT OF FOLLOWING TERMS & CONDITIONS: A) IN TERMS OF THE APPROVAL OF THE DEPARTMENT OF HEAVY INDUSTRY, NATIS, WILL SUBJECT ITS ACCOUNTS TO THE S TATUTORY AUDIT AS WELL AS THE AUDIT BY THE COMPTROLLER AND A UDITOR GENERAL OF INDIA IN TERMS OF RULE 211(1) OF THE GEN ERAL FINANCIAL RULES. B) NATIS WILL FURNISH TO THIS DEPARTMENT CERTIFICATE T O THE EFFECT THAT THE GRANT HAS BEEN UTILIZED FOR THE SPE CIFIC PURPOSE FOR WHICH IT WAS SANCTIONED. IT WILL ALSO FURNISH THE UTILIZATION CERTIFICATE IN FORM GFR-19A AS REQUIRED UNDER GFR 212(1). C) NATIS WILL SPEND THIS FUND IN ACCORDANCE WITH THE R ULES AND REGULATIONS FRAMED BY IT WITHIN THE FRAMEWORK OF TH E GENERAL PRINCIPLES LAID DOWN IN GFRS AND THE CONDITIONS DET AILED OUT IN THE ANNEXURE. 5.1 LD. CIT(A) FURTHER NOTED AS UNDER: THE MINUTES OF CABINET COMMITTEE MEETING DATED 25.7 .2005 (CONFIDENTIAL) COMPRISES THE FOLLOWING CLAUSE, WHIC H CLEARLY ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 5 ESTABLISH THAT THE APPELLANT SOCIETY IS WORKING AT THE INSTANCE OF GOVT. OF INDIA AS TRUSTEE. CLAUSE 7.2 (PAGE 77 WRITTEN SUBMISSION DATED 15.9.2 009) IS REPRODUCED BELOW: DEPARTMENT OF HEAVY INDUSTRY PROPOSES TO ENDOW FUL L IMPLEMENTATION RESPONSIBILITY ON NATIS AND WOULD EN ABLE IT COMPREHENSIVELY FOR TAKING REQUIRED DECISIONS ON PR OJECT IMPLEMENTATION. THE PIB, BEING THE GOVERNING COUNC IL OF NATIA, WILL ACCORDINGLY BE EMPOWERED TO TAKE ALL NE CESSARY DECISIONS CONCERNING THE IMPLEMENTATION OF NATRIP E XCEPT THAT IT WILL REQUIRE PRIOR PERMISSION OF THE GOVERNMENT IN THE DEPARTMENT OF HEAVY INDUSTRY FOR FOLLOWING: I. CHANGE IN LOCATION OF CENTERS. II. NOMINATION OF ADDITIONAL MEMBERS ON THE PIB REPRESENTING THE INTERESTS OF THE GOVERNMENT. III. REPLACEMENT OF GLOBAL CONSULTANTS. IV. CHANGE IN FINANCING PATTERN OF PROJECT. V. FUNDAMENTAL CHANGE IN GOVERNANCE STRUCTURE OF THE CENTERS. VI. CHANGE IN INCUMBENCY OF PROJECT DIRECTOR OF THE CHI EF EXECUTIVE OFFICER OF NATIS. 6. LD. CIT(A) ALLOWED THE ASSESSEES APPEAL, INTER- ALIA, OBSERVING THAT: A) PROJECT GRANT IS NEITHER INCOME NOR CORPUS OF T HE ASSESSEE SOCIETY; B) INTEREST RECEIVED ON FDR MADE OUT OF UNUTILIZED PROJECT GRANT RECEIVED BY THE ASSESSEE SOCIETY WAS NOT AN INCOME OF SOCIETY. ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 6 6.1 BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), T HE DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING ASSESSEES APPEAL BECA USE THE INVESTMENT MADE BY THE ASSESSEE SOCIETY IS NOT ACCO RDING TO SEC. 11(5) OF THE ACT AND HAD VIOLATED THE PROVISIO NS OF SECTION 13(1)(D) OF THE I.T. ACT. 7. LD. DR RELIED ON THE ORDER OF AO. 8. LD. COUNSEL SUBMITTED THAT THIS ISSUE IS SQUAREL Y COVERED BY THE DECISION OF TRIBUNAL IN 52 SOT 216. 8.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. BEFORE LD. CIT(A) THE ASSESSEE HAD STATED THAT THE ASSESSEE IS AN AUTONOMOUS BODY INCORPORATED AS SOCI ETY UNDER SOCIETY REGISTRATION ACT, 1860 FORMED AT THE INSTANCE OF MI NISTRY OF HEAVY INDUSTRIES, GOVERNMENT OF INDIA WITH PRE-DEFINED OB JECTIVES AND PROJECT OUTLAY. THE ASSESSEE SOCIETY IS BEING MANAGED BY T HE NOMINEE OF VARIOUS GOVERNMENT DEPARTMENT AND REPRESENTATIVE OF AUTOMOB ILE INDUSTRY. IT WAS FURTHER STATED THAT THE ASSESSEE SOCIETY WILL BE IN CLUDED AS AN AUTONOMOUS ORGANIZATION UNDER THE DEPARTMENT OF HEAVY INDUSTRY , GOVERNMENT OF INDIA (ALLOCATION OF BUSINESS) RULE, 1961 AFTER RECEIVING APPROPRIATE GOVERNMENT ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 7 APPROVAL AND ITS ACCOUNTS WILL BE LAID ON THE TABLE OF BOTH THE HOUSES OF THE PARLIAMENT ON ANNUAL BASIS. 8.2 ADMITTEDLY, THE ASSESSEE HAD RECEIVED SPECIFIC PURPOSE GRANT FOR BEING SPENT IN ACCORDANCE WITH THE OBJECTS FORMULAT ED BY THE GOVERNMENT OF INDIA WITHIN A SPECIFIED TIME. THE ASSESSEES C ONTENTION IS THAT GRANT CAN NEITHER BE CONSTRUED AS CORPUS NOR INCOME OF THE SO CIETY. THE SECOND ISSUE IS REGARDING INTEREST RECEIVED ON FDR WHERE T HE CONTENTION OF ASSESSEE IS THAT INTEREST RECEIVED ON FDS, IF REMA INED UNUTILIZED, HAD TO BE RETURNED TO THE GOVERNMENT. THUS, THE CONTENTION I S THAT THERE IS OVERRIDING TITLE OVER THE INTEREST ON FDRS. 9. SECTION 11 EXEMPTS INCOME FROM PROPERTY HELD FOR CHARGEABLE OR RELIGIOUS PURPOSES. CLAUSE (A) OF SEC. 11(1) EXEMP TS INCOME TO THE EXTENT THE INCOME IS APPLIED FOR CHARGEABLE OR RELIGIOUS P URPOSES. IN CASE THE APPLICATION OF INCOME IS LESS THAN 85% OF THE INCOM E DERIVED DURING THE YEAR FROM PROPERTY HELD UNDER TRUST THEN AS PER SEC TION 11(2) THE ASSESSEE IS REQUIRED TO MAKE AN APPLICATION BEFORE THE AO FO R ACCUMULATING THE INCOME. THE REQUIREMENT IS THAT THE MONEY SO ACCUM ULATED OR SET A PART WILL REMAIN INVESTED OR DEPOSITED IN THE FORMS AND MODES AS SPECIFIED U/S 11(5). ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 8 9.1 THE CONTENTION OF AO IS THAT THE ADVANCES GIVEN OUT OF THE GRANT RECEIVED BY ASSESSEE COULD NOT BE TREATED AS AN INV ESTMENT AS PER SECTION 11(5). IN OUR OPINION THE REASONING GIVEN BY AO IS NOT CORRECT IN-AS-MUCH AS THE ADVANCES GIVEN BY ASSESSEE TOWARDS IMPLEMENTATI ON OF ITS PROJECT HAVE TO BE TREATED AS APPLICATION OF INCOME AND NOT AS A N INVESTMENT OUT OF THE GRANT RECEIVED BY ASSESSEE. THE WORD APPLIED NEE D NOT NECESSARILY IMPLY SPENT. EVEN IF AN AMOUNT IS IRRETRIEVABLY EAR MA RKED AND ALLOCATED FOR THE CHARITABLE OR RELIGIOUS PURPOSE OR PURPOSES, IT MAY BE SAID TO HAVE BEEN APPLIED TO THE PURPOSES. (CIT VS. RADHASWAMI SAT SANG SABHA 25 ITR 472). THEREFORE, THE AO WAS WRONG IN OBSERVING THA T THE APPLICATION OF FUNDS BY ASSESSEE WAS NOT ACCORDING TO SECTION 11(5 ) AND THE ADVANCE WAS NOT UTILIZATION OF THE FUNDS. THEREFORE, THE ADVAN CE TO THE TUNE OF RS. 59.63 CRORES AND RS. 1.36 CRORE WAS TO BE TREATED AS APPL ICATION OF INCOME. FURTHER, THE AO HELD THAT PURCHASE OF LAND AT SILCH AR FOR RS. 11,25,297/- WAS IN VIOLATION TO SEC. 11(5) AS PROPERTY PURCHASED WA S IN THE NAME OF DEPARTMENT OF HEAVY INDUSTRY AND NOT IN THE NAME OF ASSESSEE. CONSIDERING THE TERMS OF THE GRANT, THIS OBJECTION IS NOT SUSTAINABLE. THEREFORE, THE PURCHASE OF LAND IS ALSO TO BE CONSI DERED AS APPLICATION OF INCOME. ACCORDINGLY, THERE WAS NO VIOLATION OF SEC TION 11(5). THEREFORE, THE VERY PREMISE, ON WHICH AO HAD PROCEEDED, WAS WRONG AND THE SAME CANNOT ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 9 BE SUSTAINED. FURTHER THE GRANT RECEIVED WAS ON CA PITAL ACCOUNT AND NOT A RECURRING GRANT TOWARDS REVENUE EXPENSES. HENCE IT COULD NOT BE TAKEN TO INCOME & EXPENDITURE ACCOUNT AS PER ACCOUNTING STAN DRAD-12 ISSUED BY ICAI. THEREFORE, LD. CIT(A) RIGHTLY HELD THAT THE PROJECT GRANT WAS NEITHER INCOME NOR CORPUS OF THE ASSESSEE SOCIETY. 10. AS FAR AS INTEREST ON FDR IS CONCERNED THE SAME RELATED TO UN-UTILIZED PROJECT GRANT ON WHICH GOVERNMENT HAD OVERRIDING TI TLE. FURTHER, THIS INTEREST WAS ALSO AT PAR WITH THE GRANT RECEIVED FR OM GOVERNMENT OF INDIA AND, THEREFORE, THE SAME REASONING WOULD APPLY TO T HE INTEREST ON FDR AS TO GRANT. THEREFORE, INTEREST ON FDR AMOUNTING TO RS. 2,20,21,847/- COULD NOT BE TREATED AS INCOME OF SOCIETY WHICH IS ALSO E VIDENT FROM THE FOLLOWING DETAILS GIVEN IN THE STATEMENT OF FACTS FILED BEFOR E LD. CIT(A): DURING THE YEAR UNDER REVIEW, THE APPELLANT SOCIE TY RECEIVED GRANT IN AID TO THE EXTENT OF RS. 182.33 C RORES IN FOUR INSTALLMENTS. THE SAID GRANT HAS BEEN RELEASE D TO THE APPELLANT SOCIETY WITH THE UNDERTAKING THAT ENTIRE MONEY OF THE GRANT SO RELEASED SHALL BE SPENT ON SPECIFIED P ROJECTS AS PER THE GRANT SANCTION LETTER ISSUED BY GOVERNME NT OF INDIA IN PERSUASION OF OFFICE MEMORANDUM DATED 31.08.2005. THE APPELLANT SOCIETY INVARIABLY KEEPS THIS MONEY IN THE FIXED DEPOSITS WITH THE BANK TILL IT I S NEEDED FOR THE PURPOSE FOR WHICH IT IS BEING SANCTIONED AN D RELEASED BY THE SANCTIONING AUTHORITY ON BEHALF OF ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 10 GOVERNMENT OF INDIA. THE INCOME IN THE SHAPE OF INT EREST ON SUCH FDR WITH THE BANK CANNOT BE CONSIDERED AS INCOME OF THE APPELLANT SOCIETY, IN VIEW OF THE FAC T THAT AS PER THE TERMS AND CONDITIONS OF RELEASE OF GRANT IN AID, EITHER THE INTEREST AMOUNT WILL BE SUBTRACTED FROM THE OVER ALL GRANT AMOUNT SANCTIONED TO THE APPELLANT SOCIET Y FOR THE PROJECT OR THE APPELLANT SOCIETY IS UNDER AN OBLIGA TION TO REFUND THIS MONEY TO GOVERNMENT OF INDIA AS PER THE GENERAL FUNCTIONAL RULES (GFRS) & MINISTRY OF FINA NCE (MOF) DIRECTIVES. THUS THE INTEREST ON FDRS EARNE D BY THE SOCIETY BELONGS TO THE GOVT. OF INDIA AND IS NO T AN INCOME OF THE APPELLANT SOCIETY. THE LD. AO WHILE DRAFTING THE IMPUGNED ASSESSMENT O RDER HAS FAILED TO UNDERSTAND TRUE NATURE OF GRANT IN AI D RECEIVED FROM GOVT. OF INDIA AND INCOME THEREON IN THE SHAPE OF INTEREST ON FDR. THE ALLEGED INCOME OF TH E APPELLANT SOCIETY IS PER-SE A GRANT MADE BY THE GOVT. OF INDIA WITH SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE SOCIETY. LIKEWISE, THE ALLEGED INCOM E ON FDR AMOUNTING TO RS. 2,20,21,847/- IS NOT INCOME OF THE APPELLANT SOCIETY AT ALL AS THE SAME HAS TO BE REFU NDED BACK TO THE GOVT. OF INDIA OR ALTERNATIVELY THE INT EREST INCOME OR ANY OTHER INCOME ON THE GRANT MONEY EARNE D BY THE APPELLANT SOCIETY SHALL BE ADJUSTED TOWARDS TOT AL APPROVED GRANT FOR THE PROJECT, AS PER LETTER DATED 05.03.2007. COPY OF WHICH WAS SUPPLIED TO THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS. ITA NO. 1385/D/2011 & CO NO. 257/DEL/2012 11 THUS, IN SUM AND SUBSTANCE, THE INTEREST ON FDR COU LD NOT BE TREATED AS ASSESSEES INCOME. 11. IN VIEW OF ABOVE DISCUSSION, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). 12. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF LD. CIT(A)S ORDER AND, THUS, HAS BECOME INFRUCTUOUS IN THE LIGHT OF ABOVE FINDINGS IN THE APPEAL FILED BY THE DEPARTMENT. 13. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMI SSED AND CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS INF RUCTUOUS. ORDER PRONOUNCED IN OPEN COURT 28/06/2013 SD/- SD/- (I.C. SUDHIR) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28/06/2013 * KAVITA COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), NEW DELHI TRUE COPY BY ORDER ASSISTANT REGISTRAR