Voluntary Action Net Work, Anantapur V. ACIT, Anantapur

ITA 1352/HYD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1370 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2004-2005
• Appeal Filed On: 07-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: K NEERAJA
• Keywords: Capital receipt; Capital expenditure; Set aside
• Section: 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCONTANT MEMBER ITA NO. 1352/HYD/2008 ASSTT. YEAR 2004-05 M/S VOLUNTARY ACTION NETWORK, ANANTHAPUR (PAN AAATV3095 N) VS ACIT, CIRCLE 1, ANANTHAPUR (APPELLANT) (RESPONDENT) APPELLANT BY: : SMT. K. NEERAJA RESPONDENT BY : SMT. NIVEDITA BISWAS, DR O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 30.4.2008. THE ASSESSEE RAISED THE FOLLOWING GROU NDS: 1. THE CIT(A) FAILED TO APPRECIATE IN PROPER PERSPECTI VE, THE FACTS PRESENTED BEFORE HIM THAT THE ASSESSEE IS ONLY A TRUSTEE/CUSTODIAN/DISBURSING AGENCY OF THE FUNDS SU PPLIED BY EED, A FUNDING AGENCY OF GERMANY, FUNDING THE VARIOUS CHAR ITABLE ACTIVITIES CARRIED OUT THROUGH NICE CHARITABLE ORGANIZATIONS I N INDIA AND ANY SURPLUS NOT DISBURSED DURING THE YEAR OF ACCOUNT DO ES NOT GET THE CHARACTER OF INCOME IN THE HANDS OF THE ASSESSEE. 2. THE CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE W AS DISBURSING THE FUNDS TO THE ABOVE MENTIONED ORGNAISATIONS IN ACCOR DANCE WITH AN AGREEMENT ENTERED INTO BY THE ASSESSEE WITH EED GER MANY AND AS PER THE AGREEMENT ANY SURPLUS REMAINING WITH THE AS SESSEE HAD TO BE RETURNED TO EED THE FUNDING AGENCY AS PER ITS DIREC TIONS, IN WHICH CASE ANY SURPLUS REMAINING IN THE HANDS OF THE ASSE SSEE AT THE END OF ANY FINANCIAL YEAR CANNOT BECOME THE INCOME OF THE ASSESSEE. 3. THE CIT(A) ERRED IN HIS FINDING THAT ANY DEVIATION IN METHOD OF ACCOUNTING BY THE ASSESSEE WITH REGARD TO THE FUNDS SUPPLIED BY EED WOULD MAKE THE SURPLUS IN THE HANDS OF THE ASSESSEE AS ITS INCOME CHANGING THE CHARACTER OF THE SURPLUS FROM CAPITAL TO REVENUE. 2 4. THE CIT(A) MISREAD THE DECISION OF HON'BLE TRIBUNA L OF HYDERABAD 'B' BENCH DATED 28.12.1998 IN THE CASE OF NIRMAL AGRICU LTURAL SOCIETY VS. ITO WHICH IS IN FACT ON ALL FOURS WITH THE FACTS IN THE CASE OF THE ASSESSEE. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE ADVANC ED AT THE TIME OF HEARING, THE ASSESSEE PRAYS THAT THE ORDER OF TH E CIT(A) MAY KINDLY BE REVERSED HOLDING THAT THE SURPLUS IN THE HANDS OF THE ASSESSEE IS NOT ITS INCOME.' 3. THE ASSESSEE IS A SOCIETY REGISTERED WITH REGISTRAR OF SOCIETIES. IT FILED ITS RETURN OF INCOME FOR THE ASSESSME NT YEAR 2004-05 CLAIMING 'EXCESS OF INCOME OVER EXPENDITURE' AS EXEMPT U/ S 11 OF THE INCOME TAX ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT BEEN GRAN TED REGISTRATION U/S 12AA OF THE ACT, THE ASSESSING OFFICER HA S DENIED THE ASSESSEE'S CLAIM FOR EXEMPTION OF ITS INCOME U/S 11 OF THE IT ACT AND BROUGHT TO TAX THE ENTIRE SURPLUS AS THE TAXABLE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05. 4. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS RECEIV ED GRANT FOR SPECIFIC PURPOSE AND THE ASSESSEE HAVING NO CONTROL OVER THA T FUND. THE ASSESSEE HAS NOT MAINTAINED A SEPARATE BOOKS OF ACCOUNT FOR THIS RECEIPT OR MAINTAINED SEPARATE BANK ACCOUNT OF THAT INCO ME, THAT CANNOT BE THE REASON TO TREAT THIS RECEIPT AS INCOME O F THE ASSESSEE. THE NON MAINTENANCE OF SEPARATE BOOKS OF ACCOUNT OR THE BANK ACCOUNT CANNOT CHANGE THE CHARACTER OF THE RECEIPT AND THUS A CA PITAL RECEIPT CANNOT BECOME A REVENUE RECEIPT. SHE SUBMITTED THAT D ONATION WAS RECEIVED FOR SPECIFIC PURPOSE AND IT IS A CAPITAL RECEIPT AND SHE RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S NIRMALA A GRICULTURAL SOCIETY VS. ITO (71 ITD 152) WHEREIN IT WAS HELD THAT : 3 'THE ASSESSEE HAD NOT BEEN GRANTED REGISTRATION U/ S 12A, AS THE COMMISSIONER THOUGHT IT FIT TO REFUSE CONDONE THE L ONG DELAY CAUSED BY THE ASSESSEE IN APPLYING FOR REGISTRATION. THEREFO RE, THE ASSESSING OFFICER HAD NO OTHER OPTION BUT TO COMPLETE THE ASS ESSMENTS IN THE STATUS OF AOP ALSO CLOSING HIS EYES TOWARDS SECTION 11 AND SECTION 13. TO THAT EXTENT, THE ASSESSING OFFICER WAS RIGHT AS HE HAD ACTED ONLY ACCORDING TO WILL OF LAW. BUT AS FAR AS THE CONTE NTS OF THE ASSESSMENTS WERE CONCERNED, EVEN WHEN THE ASSESSEE HAD BEEN ASS ESSED AS AOP AND DEPRIVED OF SECTION 11 BENEFITS, THE ASSESSING OFFICER COULD ASSESS ONLY NET INCOME OF THE ASSESSEE AND NOT GROSS RECEI PTS. AS FAR AS THE ASSESSEE WAS CONCERNED, CONSTRUCTION OF HOUSES, REC LAMATION OF LAND ETC., WERE PART OF ITS REGULAR ACTIVITIES. HOUSES WERE BUILT ON THE LAND OF POOR AGRICULTURISTS. THE ASSESSEE SOCIETY HAD N O LEGAL TITLE OR RIGHT OVER THE LAND OR HOUSES OF THOSE VILLAGERS/AGRICULT URISTS WHO WERE THE BENEFICIARIES. THE PURPOSE AND ACTIVITY OF THE AS SESSEE SOCIETY WAS TO ENGAGE IN SUCH CHARITABLE ACTIVITIES. WHATEVER AMO UNT HAD BEEN SPENT ON THOSE PROGRAMMES/PROJECTS, IT WAS SPENT IN THE U SUAL COURSE OF CARRYING ON ITS ACCLAIMED OBJECTS. THEREFORE, THER E WAS NO BASIS WHATSOEVER, FACTUAL OR LEGAL, TO HOLD THAT THE AMOU NTS SPENT BY THE ASSESSEE IN CONSTRUCTING HOUSES OR RECLAIMING LAND WERE CAPITAL EXPENDITURE. AS FAR AS THE ASSESSEE WAS CONCERNED, THOSE EXPENSES WERE REVENUE EXPENSES. THE ASSESSEE HAD NO RIGHT O R TITLE OVER THOSE PROPERTIES. THOSE EXPENSES WERE INCURRED AS PART O F ITS NORMAL ACTIVITIES FOR WHICH THE SOCIETY WAS FORMED. THERE FORE, THE MONEY SPENT BY THE ASSESSEE SOCIETY IN CONSTRUCTING HOUSE S, RECLAIMING THE LAND, FOR NO FORMAL EDUCATION ETC. HAD TO BE ALLOWE D AS DEDUCTION IN THE COMPUTATION OF INCOME. THE GRANTS RECEIVED FROM FOREIGN DONOR WERE FOR SPECIFIC PURPOSES. THE GRANTS WHICH WERE FOR SPECIFIC PURPO SES DID NOT BELONG TO THE ASSESSEE SOCIETY, SUCH GRANTS DID NOT FORM C ORPUS OF THE ASSESSEE OR ITS INCOME. THOSE GRANTS WERE NOT DONA TIONS TO THE ASSESSEE SO AS TO BRING THEM UNDER THE PURVIEW OF S ECTION 12. VOLUNTARY CONTRIBUTIONS COVERED BY SECTION 12 ARE T HOSE CONTRIBUTIONS FREELY AVAILABLE TO THE ASSESSEE WITHOUT ANY STIPUL ATION, WHICH THE ASSESSEE CAN UTILIZE TOWARDS ITS OBJECTIVES ACCORDI NG TO ITS OWN DISCRETION AND JUDGEMENT. TIED UP GRANTS FOR A SPE CIFIED PURPOSE WOULD ONLY MEAN THAT THE ASSESSEE WHICH WAS A VOLUN TARY ORGANIZATION, HAD AGREED TO ACT AS A TRUSTEE OF A S PECIFIC FUND GRANTED BY DONOR WITH THE RESULT THAT IT NEED NOT BE POOLED OR INTEGRATED WITH THE ASSESSEE'S NORMAL INCOME OR CORPUS. IN THE INS TANT CASE, THE ASSESSEE WAS ACTING AS AN INDEPENDENT TRUSTEE FOR T HAT GRANT, JUST AS SAME TRUSTEE COULD ACT AS A TRUSTEE OF MORE THAN ON E TRUST. TIED UP AMOUNTS NEED NOT, THEREFORE, BE TREATED AS AMOUNTS WHICH WERE REQUIRED TO BE CONSIDERED FOR ASSESSMENT FOR ASCERT AINING THE AMOUNT EXPENDED OR THE AMOUNT TO BE ACCUMULATED. 4 THE ASSESSEE SHOULD HAVE ACTUALLY CREDITED THE GR ANT IN THE PERSONAL ACCOUNT OF THE DONOR AND ANY AMOUNT SPENT AGAINST THAT GRANT SHOULD HAVE BEEN DEBITED TO THAT SEPARATE ACC OUNT OF THE DONOR. THAT INCOMING AND OUTGOING NEED NOT BE REFLECTED IN THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE, AT THE END OF THE PROJECT, THE BALANCE, IF ANY, AVAILABLE TO THE CREDIT OF THE DON OR, COULD BE TREATED AS INCOME OF THE ASSESSEE, IF THE DONOR DID NOT INSIST FOR THE REPAYMENT OF THE BALANCE AMOUNT. THEREFORE THE ASSESSING OFFICER WAS TO BE DIRECTED TO REDO THE ASSESSMENT ON THE FOLLOWING LINES. I) THE TIED UP GRANTS RECEIVED FROM THE DONOR, BREAD F OR THE WORLD, WILL BE TAKEN OUT OF THE COMPUTATION OF INCO ME FROM THE INCOME SIDE. II) ALL THE MONEY SPENT UNDER THE TIED UP PROGRAMMES DI RECTED BY THE DONOR ALSO WILL BE TAKEN OUT OF THE COMPUTAT ION OF INCOME FROM THE EXPENSE SIDE III) ANY NON REFUNDABLE CREDIT BALANCE IN THE PERSONAL A CCOUNT OF BREAD FOR THE WORLD WILL BE TREATED AS INCOME IN TH E YEAR IN WHICH SUCH NON REFUNDABLE BALANCE WAS ASCERTAINED. IV) THE EXPENSES INCURRED BY THE ASSESSEE FOR HOUSE CONSTRUCTION, RECLAMATION OF LAND, NON FORMAL EDUCA TION PROGRAMME (OTHER THAN COVERED BY THE TIED UP GRANTS ) WILL BE DEDUCTED AS REVENUE EXPENSES.' 5. FURTHER THE AR SUBMITTED THAT THE SOCIETY IS A NOD AL AGENCY FOR EED GERMANY FROM WHICH IT RECEIVED GRANTS AND DISBU RSED THE SAME TO SEVEN MEMBER OF PARTNER. THE EED, GERMANY WHILE SANCTIONING THE GRANT FOR THE 3 YEARS PROJECT PERIOD HAS STIPULATES THA T THE ASSESSEE HAD TO BRING IN ITS OWN CONTRIBUTION OF 18% IN CASH OR KI ND. AS THE ASSESSEE IS A CHARITABLE ORGANIZATION ENGAGED IN DEVELOPMENT W ORK, IT WAS NOT ABLE TO BRING ANY CASH CONTRIBUTION. THE ASSESSEE EVALUA TED THE MAN HOURS PUT IN BY ITS MEMBERS AND THE ESTABLISHMENT OF THE INFRASTRUCTURE WHICH TOTALLY CONTRIBUTED THE REQUIRED PERCENTAGE OF O WN MEANS CONTRIBUTION. 5 5.1 SHE FURTHER SUBMITTED THAT NOT A SINGLE PIE OF THE OW N MEANS CONTRIBUTION IS ACTUALLY RECEIVED IN CASH OR KIND AND H ENCE, DOES NOT FIND A PLACE IN THE FINANCIAL STATEMENTS. IT IS O NLY THE EVALUATION OF THE CONTRIBUTION MADE BY THE MEMBERS IN KIND WHICH IS DEEMED AS OWN MEANS CONTRIBUTION AND IS REFLECTED ONLY IN THE REPORT SENT TO EED BY THE ASSESSEE COMPANY. 5.2 SHE FURTHER SUBMITTED THAT IT IS NOT CORRECT ON THE PA RT OF DEPARTMENTAL REPRESENTATIVE TO SAY THAT THE FACTS OF T HE CASE IN NIRMAL AGRICULTURE CREDIT SOCIETY VS. ITO REPORTED IN ITD 152 ARE DISTINCT FROM THE FACTS OF THE CASE ON HAND. SHE FURTHER SUBMITTED THAT THE CASE IS FULLY COVERED BY THE ABOVE DECISION OF T HE ITAT CITED (SUPRA). 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED A SEPARATE ACCOUNT FOR THE PROJECT AND THE UTILIZATION NOT ROUTED THROUGH SE PARATE BANK ACCOUNT AND ALSO SEPARATE BOOKS OF ACCOUNT WAS ALSO NOT MAINTAINED BY THE ASSESSEE. SHE SUBMITTED THAT THE AGREEMENT OF COOPERATI ON WAS NOT COMPLIED BY THE ASSESSEE. THE ASSESSEE NOT ABLE TO SHOW THE UTILIZATION OF FUND AS PRESCRIBED BY THE EED, GERMANY. THE ASSESSEE SHOWED ALL THE RECEIPTS IN ITS BOOKS OF ACCOUNT AND NOT IN SEPARATE B OOKS OF ACCOUNT AND ALSO ASSESSEE TREATED THE RECEIPT AS REVENUE RECEIPTS W HILE FILING THE RETURN OF INCOME AND THE ASSESSEE HAS NOT TREATED IT AS TI ED UP GRANTS. SHE SUBMITTED THAT THE ORDER OF THE TRIBUNAL CITED B Y THE LEARNED COUNSEL FOR THE ASSESSEE IN FACT, SUPPORTS THE DEPARTMENT'S CLAIM. SHE RELIED ON THE ORDER OF THE CIT(A). 6 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE ASSESSEE IS ENGAGED IN THE ACTIVITIES OF RURAL DEVELOPMENT. FOR THE ASSESSMENT YEAR UNDER CONSIDE RATION, THE ASSESSEE IS HAVING NO REGISTRATION U/S 12AA OF THE INCOME T AX ACT. THE ASSESSEE COMPANY REGISTERED W.E.F. 1.4.2004 COVERING T HE ASSESSMENT YEAR 2005-2006. THE ASSESSEE, IN THE ASSESSMENT YEAR UNDE R CONSIDERATION, RECEIVED A GRANT OF RS.89,11,515/- OUT OF WHICH THE ASSESSEE UTILIZED AN AMOUNT OF RS.47,18,999/- LEAVING BA LANCE OF RS.39,87,929/- WHICH IS PENDING FOR UTILIZATION. ACCO RDING TO THE ASSESSEE, FUNDS ARE UTILIZED/DISBURSED ONLY ON RECEIPTS OF R EPORTS FROM THE MEMBER ORGANIZATION AND IT IS A CAPITAL RECEIPT. THE ASSESSING OFFICER STATED THAT SINCE THE ASSESSEE IS NOT HAVING REGISTR ATION U/S 12AA, THE SURPLUS IS LIABLE TO TAX AND TREATED THE ASSESSE E AS AOP AND BROUGHT THE SURPLUS OF AMOUNT RS.39,87, 929/- TO TAX. 8. IN OUR OPINION, IF THE GRANT RECEIVED BY THE ASSESSE E WAS FOR SPECIFIC PURPOSE AND IT CANNOT BE TREATED AS REVENUE RECEIPT A ND THE GRANT RECEIVED BY THE ASSESSEE FOR SPECIFIC PURPOSE IS TO BE UTILIZ ED FOR THE SAME PURPOSE AND THAT GRANT CANNOT BE BROUGHT INTO TAX . IF THE ASSESSEE HAVING NO CONTROL OVER THE GRANT RECEIPT AND THE ASSESSEE IS LIABLE TO UTILIZE THE SAME FOR SPECIFIC PURPOSE AND HAVI NG NO OWN DISCRETION, AND IF IT IS TIED UP GRANTS AND THE ASSESSEE IS ONLY ACTING AS TRUSTEE OF THAT FUND, AS PER DIRECTION OF GRANTING AGE NCY. THE CLAIM OF ASSESSEE CANNOT BE DENIED ONLY BECAUSE OF ASSESSEE MIXED UP WI TH HIS OWN FUND OR NOT MAINTAINED A SEPARATE ACCOUNT FOR THE SAME. ONLY ON COMPLETION OF THE PROJECT AND THE UNUTILIZED PORTION IF ANY, AVAILABLE WITH THE ASSESSEE FOR ITS OWN USE AND THE DONOR DO NOT INSIST F OR THE REFUND OF THE SAME, THAT AMOUNT SHOULD BE TREATED AS INCOME OF TH E ASSESSEE. AS 7 SUCH, THE ENTIRE MATTER HAS TO BE EXAMINED IN THE LIGH T OF THE DOCUMENTAL AGREEMENT UNDER WHICH THE GRANT HAS BEEN RE CEIVED BY THE ASSESSEE. SO, IN OUR OPINION, THE FINDINGS GIVEN BY TH E TRIBUNAL IN THE CASE OF NIRMAL AGRICULTURE CREDIT SOCIETY VS. ITO (71 I TD 152), HYDERABAD IS APPLICABLE TO THE FACT OF THE CASE. 9. ACCORDINGLY WE SET ASIDE THE ENTIRE ISSUE TO THE F ILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LIGHT OF TRIBUNA L ORDER CITED SUPRA. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON: 20.11.2009 SD/- SD/- N.R.S. GANESAN ACCOUNTANT MEMBER CHANDRA POOJARI ACCOUNTANT MEMBER DT/- 20TH NOVEMBER, 2009. COPY FORWARDED TO: 1. M/S VOLUNTARY ACTION NETWORK, ANANTHAPUR (VANA) D. NO.13- 2-647, SRINIVASA NAGAR, ANANTHAPUR 2. 3. CIT(A), ANANTHAPUR CIT, TIRUPATHI CHARGE, TIRUPATHI 3. CIT, HYDERABAD. 4. THE D.R., ITAT, HYDERABAD. NP