Dy. Director of Income Tax (Exemption-III), Hyderabad, Hyderabad V. Centre for World Solidarity, Secunderabad

CO 58/HYD/2014

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3240 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-04-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence
• Section: 12A; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1443/HYD/2014 ASSESSMENT YEAR: 2011-12 DY. DIRECTOR OF INCOME-TAX (EXEMPTIONS) III, HYDERABAD. VS. CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD PAN AAATC 2837 R (APPELLANT) (RESPONDENT) C.O. NO. 58/HYD/2014 (IN ITA NO. 1443/HYD/2014 ASSESSMENT YEAR: 2011-12) CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD PAN AAATC 2837 R VS. DY. DIRECTOR OF INCOME-TAX (EXEMPTIONS) III, HYDERABAD. (CROSS OBJECTOR) (RESPONDENT) REVENUE BY : SHRI M. SITARAM ASSESSEE BY : SHRI K.C. DEVDAS DATE OF HEARING 26-04-2016 DATE OF PRONOUNCEMENT 29-04-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY REVENUE AGAINST THE OR DER OF CIT(A)- IV, HYDERABAD DATED 20.06.2014 FOR THE AY 2011-12. THE ASSESSEE ALSO FILED C.O. IN SUPPORT OF THE ORDER OF THE CIT( A). 2. THE ASSESSEE IS A SOCIETY REGISTERED U/S 12A OF THE INCOME TAX ACT, 1961 (IN SHORT ACT). IT FILED RETURN OF INCO ME ON 22.09.2011 AND INCOME DECLARED AS NIL AFTER CLAIMING EXEMPTION U/S 11 OF THE ACT. 2 ITA NO. 1443/H/14 & CO NO. 58/HYD/14 CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD THE CASE WAS SELECTED FOR SCRUTINY AND THE TAXABLE INCOME WAS DETERMINED AT RS. 3,88,02,131/- AFTER DISALLOWING T HE PORTION OF INCOME I.E., RS. 5,57,71,857/-, WHICH WAS GIVEN BY WAY OF GRANTS TO THE OTHER NGOS TERMING THEM AS IN CONTRAVENTION TO THE OBJECTIVES OF THE SOCIETY. THE OBJECTIVES OF THE SOCIETY ARE AS B ELOW: I. TO WORK WITH THE PEOPLE LIVING BELOW POVERTY LIN E, WOMEN, DALITS, ADIVASIS AND DEPRIVED SECTIONS TOWARDS A J UST AND EQUITABLE SOCIETY. II. TO WORK TOWARDS CLEAN AND HEALTHY ENVIRONMENT A S NECESSARY CONDITION FOR OUR SURVIVAL AS A PEOPLE. III. TO WORK TOWARDS AN EDUCATION RELEVANT TO OUR O BJECTIVES AND ALSO TO STRIVE TO BUILD THE NECESSARY EDUCATIONAL M ATERIAL AND INFORMATION FOR DISSEMINATION. 2.1 IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE HAD SUBMITTED BEFORE AO THAT TO ACHIEVE THE OBJECTS, THE SOCIETY HAS FORMULATED THEIR ACTIVITIES AS MENTIONED IN THE MEMORANDUM OF ASSOCIATION (MOA) AND THE ACTIVITIES MENTIONED THEREIN SUPPORT THE ACT OF THE SOCIETY. IT IS ALSO STATED THAT THE OBJECTS ARE LON G TERM GOALS/IDEALS AND TO ACHIEVE THESE GOALS THE ACTIVITIES ARE MENTI ONED IN MOA. AO OPINED THAT THE ASSESSEE HAS STRESSED MORE ON THE A CTIVITIES OF SOCIETY INSTEAD OF OBJECTS. AO FELT THAT THE ACTIVI TIES SHOULD BE IN SUPPORT OF THE SOCIETYS OBJECTS AND CANNOT OVERTAK E THE OBJECTS. IT APPEARS THAT THE ASSESSEE SOCIETY HAS RELIED MORE O N PARTNERS FOR IMPLEMENTING ITS OBJECTS. 2.2 AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E AS THE OBJECTS BASING ON WHICH THE REGISTRATION GRANTED U/S 12A OF THE ACT, DO NOT SUPPORT THE CONTENTION OF THE ASSESSEE. EVEN THE SO CIETY IS ALSO UNABLE TO SUBSTANTIATE THAT THE ASSESSEE IS HAVING CONTROL OVER THE FUNDS TRANSFERRED TO THE OTHER NGOS AND IT SHOWS TH AT THE TRANSFERS WERE BLIND IN NATURE WITHOUT ANY CONTROL, WHICH IS IN CONTRAVENTION TO THE AGREEMENTS MADE WITH THE DONOR AGENCIES AS NO W HERE IT IS 3 ITA NO. 1443/H/14 & CO NO. 58/HYD/14 CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD MENTIONED THAT THE SOCIETY CAN PARTNER WITH OTHER N GOS TO EXECUTE THE PROJECTS AND ASSESSEE ALSO COULD NOT SUBSTANTIA TE THE SAME. 3. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFER RED AN APPEAL BEFORE CIT(A) AND CIT(A) AFTER CONSIDERING THE SUBM ISSIONS, CASE LAWS AND COPIES OF CONTRACTS WITH THE DONORS OF THE GRANTS, HAS GIVEN THE FINDINGS THAT THE GRANTS RECEIVED FROM THE DON ORS ARE NOT TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTI NG THE TOTAL INCOME OF THE ASSESSEE U/S 11 AS THEY ARE TIED UP GRANTS. 4. AGGRIEVED WITH THE ABOVE ORDER, REVENUE IS IN A PPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(APPEALS) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. CIT(APPEALS) ERRED IN LAW IN ACCEPTING T HE COPIES OF VARIOUS CONTRACTS FILED BY THE ASSESSEE, WHICH ARE IN THE NATURE OF ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE, DU RING THE COURSE OF APPEAL WITHOUT GIVING AN OPPORTUNITY TO T HE ASSESSING OFFICER TO EXAMINE AND VERIFY THE SAME, IN VIOLATIO N OF PROVISIONS OF RULE 46A OF THE INCOME TAX RULES, 1962. 3. THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN HOLDING THAT THE GRANTS/CONTRIBUTION RECEIVED BY THE ASSESSEE FROM D IFFERENT ORGANISATIONS, ARE IN THE NATURE OF TIED-UP GRANTS AND THUS CANNOT BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMP UTING TOTAL INCOME OF THE ASSESSES U/S 11 OF THE ACT. 4. THE LD. CIT(APPEALS) OUGHT TO HAVE APPRECIATED T HAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND WHEN THE AS SESSEE HAS NO CONTROL OVER SUCH FUNDS AMOUNTING TO RS.5,57,71, 857/- TRANSFERRED BY THE ASSESSEE TO OTHER NGOS, THE SAME CANNOT BE CONSIDERED AS APPLICATION OF INCOME U/S 11 OF THE A CT, IN THE HANDS OF THE ASSESSEE FOR THE A. Y 2011-12 IN THIS CASE. 5. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE FI LED CO BEFORE US AND PRESSED ONLY THE CROSS OBJECTION NO.1 THAT R ULE 46A IS NOT APPLICABLE BECAUSE ALL THE RELEVANT INFORMATIONS WE RE ALREADY FILED BEFORE AO. ACCORDINGLY WE DISMISS THE OTHER CROSS O BJECTIONS RAISED BY ASSESSEE. 6. LD DR SHRI M SITARAM, SUBMITTED THAT EVIDENCES SUBMITTED BY ASSESSEE BEFORE CIT(A) ARE IN THE NATURE OF ADDITIO NAL EVIDENCES AND 4 ITA NO. 1443/H/14 & CO NO. 58/HYD/14 CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD FAIR OPPORTUNITY WAS NOT EXTENDED TO AO TO EXAMINE AND VERIFY THE ADDITIONAL EVIDENCES, WHICH IS IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962. HE FURTHER SUBMITTED THAT CIT(A) T REATED THE GRANTS RECEIVED AS TIED UP GRANTS, WHICH IS NOT JUSTIFIED IN THE PRESENT CASE CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO ASSESSEE DOES NOT HAVE ANY CONTROL OVER THE FUNDS O NCE IT IS GRANTED THE FUNDS TO OTHER PARTNER NGOS, WHICH CANNOT BE CO NSIDERED AS APPLICATION OF INCOME U/S 11. HE FURTHER SUBMITTED THAT THIS ISSUE HAS TO BE REMITTED BACK TO THE AO TO VERIFY THE GRANTS WHETHER THEY ARE TIED UP GRANTS AND ITS PROPER APPLICATION. WITH REG ARD TO ADOPTING CONSISTENCY ON ASSESSMENTS, HE SUBMITTED THAT THE INCOME TAX ACT DOES NOT RECOGNIZE THE RES JUDICATA AND EVERY ASSESSMENT IS INDEPENDENT. 7. LD AR SUBMITTED THAT THE FACTS AND RELEVANT AGR EEMENTS WITH THE DONORS ARE ALREADY PLACED BEFORE AO AND CIT(A) AND ALL THE GRANTS RECEIVED BY THE ASSESSEE ARE IN THE NATURE O F TIED UP GRANTS AND AO HAS DESCRIBED ABOUT THE DONORS AGREEMENTS IN HIS REPORT, THEREFORE, IT CONVEYS THE VIEW THAT AO HAD IN FACT PERUSED ALL THE RELEVANT DONORS AGREEMENTS, HENCE THE DOCUMENTS SUB MITTED BEFORE CIT(A) ARE NOT FRESH MATERIALS. HE ALSO ACKNOWLEDGE D THAT RES JUDICATA IS NOT APPLICABLE IN THE INCOME TAX ACT BUT HE SUB MITTED THAT THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY FROM AY 2004-05 TO AY 2010-11 I.E., UPTO PREVIOUS AY (REFER PAGES 135 TO 147 OF THE PAPER BOOK), THE AO HAD VERIFIED THE NATURE OF TRANSACTIO NS OVER THE YEARS AND ACCEPTED THE NATURE OF TRANSACTIONS AS THEY ARE TIED UP GRANTS. HE, THEREFORE, POINTED OUT THAT WHY IS IT THAT DEPA RTMENT IS RAISING THIS ISSUE AFRESH, AS THERE IS NO CHANGE IN THE NATURE O F TRANSACTIONS AND PRINCIPAL OF CONSISTENCY HAS TO BE APPLIED IN THE A SSESSEES CASE. HE INSISTED THAT THERE IS NO NECESSITY TO REMIT THIS C ASE BACK TO THE FILE OF THE AO. 7.1 LD AR SUBMITTED THAT ASSESSEE HAS CREATED A MEC HANISM TO CONTROL THE FLOW OF FUNDS AND ITS UTILIZATION PROPE RLY. THIS IS BEING 5 ITA NO. 1443/H/14 & CO NO. 58/HYD/14 CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD FOLLOWED OVER THE YEARS. IT CANNOT BE TERMED AS THE BLIND TRANSFER. LD AR ALSO RELIES ON THE FOLLOWING CASE LAWS: 1. CIT VS EXCEL INDUSTRIES (358 ITR 295) (SC) 2. NIRMAL AGRICULTURE SOCIETY VS ITO (71 ITD 152) 3. SOCIETY FOR INTEGRATED DEVELOPMENT IN URBAN AND RURAL AREAS VS. DCIT, (90 ITD 493) (HYD.) 7. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS , MATERIAL FACTS ON RECORD AND CASE LAWS RELIED UPON. IN THE PRESENT CASE BEFORE US, THE MAIN QUESTIONS RAISED ARE PERTAINING TO RULE 46 A AND WHETHER THE GRANTS RECEIVED FROM DONORS ARE TIED UP OR NOT. 7.1 WITH REGARD TO RULE 46A, THE LD AR SUBMITTED BEFORE US THAT THE INFORMATIONS WERE AVAILABLE WITH THE AO BY REFE RRING TO AOS ORDER THAT WHILE PASSING THE ORDER, HE HAD RELIED ON THE DONORS AGREEMENTS, WHICH WE ARE REPRODUCING FOR THE SAKE OF CONVENIENC E: 3.1 .... ..... THE SOCIETY IS ALSO UNABLE TO SUBSTANTIATE T HAT THE ASSESSEE IS HAVING CONTROL OVER THE FUNDS TRANSFERRED TO TH E OTHER NGOS AND IT SHOWS THAT THE TRANSFERS WERE BLIND IN NATU RE WITHOUT ANY CONTROL WHICH IS IN CONTRAVENTION TO THE AGREEMENTS MADE WITH THE DONOR AGENCIES AS NO WHERE IT IS MENTIONED THAT THE SOCIETY CAN PARTNER WITH OTHER NGOS TO EXECUTE THE PROJECTS AND ASSESSEE ALSO COULD NOT SUBSTANTIATE THE SAME. FROM THE ABOVE SUBMISSION, WE ARE OF THE VIEW THAT AO HAD CONSIDERED THE RELEVANT AGREEMENTS WITH THE DONORS AND PASSED THE ASSESSMENT ORDER. NOW, THE LD DR CANNOT SUBMIT THAT THESE ARE FRESH MATERIAL AND RULE 46A HAS APPLICATION. ACCORDINGLY WE REJECT THE GROUND RAISED BY THE REVENUE AND ALLOW THE GROUND O F ASSESSEE IN THE CO. 6 ITA NO. 1443/H/14 & CO NO. 58/HYD/14 CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD 7.2 WITH REGARD TO TIED UP GRANTS, THE ASSESSEE HA S SUBMITTED THE PAPERS RELATING TO THE BUDGET PROPOSALS FOR GRANT A ND RELEVANT AGREEMENT OF CO-OPERATION (REFER PGS 148 TO 219 OF PAPER BOOK) BETWEEN THE ASSESSEE (WHO IS TERMED AS FACILITATING AGENCY), THE DONORS (TERMED AS RESOURCE AGENCY) AND THE NGOS (TE RMED AS IMPLEMENTING AGENCY). THIS TRI - PARTIED AGREEMENTS CLEARLY STATES THE BUDGETS SANCTIONED, THE RESPONSIBILITIES OF RESOURC E, IMPLEMENTING AND FACILITATING AGENCIES IN THE CASE OF PROJECTS W HICH ARE MEANT TO BE IMPLEMENTED THRU PARTNER NGOS. WHEREAS THE PROJE CTS WHICH ARE IMPLEMENTED THROUGH THE ASSESSEE, THE AGREEMENTS AR E ENTERED INTO WITH ASSESSEE AS IMPLEMENTING AGENCY ALONG WITH THE BUDGET PROPOSALS SANCTIONED. THESE CO-OPERATIVE DOCUMENTS ARE CLEARLY DEMONSTRATE THAT THESE GRANTS ARE SANCTIONED FOR TH E SPECIFIC PURPOSE AND THE ASSESSEE AND NGOS ARE REQUIRED TO SUBMIT TH E AUDIT FINANCIALS AND PROGRESS REPORTS TO THE RESOURCE AGE NCY. THESE TRANSACTIONS ARE SUBJECT TO ETHICAL AUDITS. SINCE T HESE PROJECTS ARE DRIVEN IN THE DIRECTION OF THE RESOURCE AGENCY AND ACCORDINGLY THE GRANTS ARE SANCTIONED, ARE CLEARLY DEMONSTRATE THAT THESE ARE TIED UP GRANTS. SINCE THE TIED UP GRANTS CANNOT BE TREATED AS THE INCOME OF THE SOCIETY AS PER THE RATIO LAID DOWN IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY (SUPRA). FOR THE SAKE OF CLARI TY, WE REPRODUCE THE RATIO LAID DOWN IN THE ABOVE DECISION: THE GRANTS RECEIVED FROM BW WERE FOR SPECIFIC PURPO SES. THE GRANTS WHICH ARE FOR SPECIFIC PURPOSES DO NOT BELONG TO THE ASSESSEE -SOCIETY. SUCH GRANTS DO NOT FORM CORPUS OF THE ASSESSEE OR ITS INCOME. THOS E GRANTS ARE NOT DONATIONS TO THE ASSESSEE SO AS TO BRING THEM UNDER THE PURVI EW OF S. 12. VOLUNTARY CONTRIBUTIONS COVERED BY S. 12 ARE THOSE CONTRIBUTI ONS FREELY AVAILABLE TO THE ASSESSEE WITHOUT ANY STIPULATION WHICH THE ASSESSEE COULD UTILISE TOWARDS ITS OBJECTIVES ACCORDING TO ITS OWN DISCRETION AND JUDG MENT. TIED-UP GRANTS FOR A SPECIFIED PURPOSE WOULD ONLY MEAN THAT THE ASSESSEE , WHICH IS A VOLUNTARY ORGANISATION, HAS AGREED TO ACT AS A TRUSTEE OF A S PECIAL FUND GRANTED BY BW WITH THE RESULT THAT IT NEED NOT BE POOLED OR INTEG RATED WITH THE ASSESSEES NORMAL INCOME OR CORPUS. IN THIS CASE, THE ASSESSEE IS ACTING AS AN INDEPENDENT TRUSTEE FOR THAT GRANT, JUST AS SAME TR USTEE CAN ACT AS A TRUSTEE OF MORE THAN ONE TRUST. TIED-UP AMOUNTS NEED NOT, T HEREFORE, BE TREATED AS AMOUNTS WHICH ARE REQUIRED TO BE CONSIDERED FOR ASS ESSMENT, FOR ASCERTAINING THE AMOUNT EXPENDED OR THE AMOUNT TO BE ACCUMULATED . ANY NON-REFUNDABLE CREDIT BALANCE IN THE PERSONAL ACCOUNT OF BW WILL B E TREATED AS INCOME IN THE YEAR IN WHICH SUCH NON-REFUNDABLE BALANCE WAS ASCER TAINED. 7 ITA NO. 1443/H/14 & CO NO. 58/HYD/14 CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD CONCLUSION: TIED UP GRANTS RECEIVED FROM DONOR FOR SPECIFIC PUR POSE DID NOT FORM PART OF ASSESSEE SOCIETYS INCOME. CONSIDERING THE RATIO OF THE ABOVE DECISION, WE ARE INCLINED TO HOLD THAT THE ABOVE GRANTS ARE IN THE NATURE OF TIED UP AND ASSESSEE HAS NO CONTROL OVER THE FUNDS EXCEPT FACILITATING TO IM PLEMENT THE PROJECTS. HENCE GROUND NOS. 3 AND 4 RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND CO OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 29 TH APRIL, 2016 KV COPY TO:- 1) DDIT (EXEMPTIONS) III, 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004. 2) CENTRE FOR WORLD SOLIDARITY, H.NO. 12-13-438, ST REET NO. 1, TARNAKA, SECUNDERABAD 500 017 3 CIT(A) - IV, HYDERABAD 4) ADDL. DIT(EXEMPTIONS), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 8 ITA NO. 1443/H/14 & CO NO. 58/HYD/14 CENTRE FOR WORLD SOLIDARITY, SECUNDERABAD S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER