ITA NOS. 1239/DEL/2010 & 139/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 1239/DEL/2010 & 139DEL/2011 A.Y. : 2006-07 & 2007-08 ITO(E), TRUST WARD - II, 4 TH FLOOR, ROOM NO. 411, AAYAKAR BHAVAN, LAXMI NAGAR DISTT. CENTRE, DELHI 110 092 VS. SOCIETY FOR DEVELOPMENT ALTERNATIVES, B-32, TARA CRESCENT, QUTAB INDUSTRIAL AREA, NEW MEHRAULLI ROAD, NEW DELHI 110 016 (PAN/GIR NO. : AAAAS0278B) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. VINOD BINDAL, CA DEPARTMENT BY : SH. GAJANAND MEENA, C.I.T. ( D.R.) ORDER ORDER ORDER ORDER PER PER PER PER BENCH BENCH BENCH BENCH THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE RESPECTIVE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEARS 2006-07 & 2007-08. SINCE THE ISSUES ARE IDENTICA L AND THE APPEALS WERE HEARD TOGETHER. THESE ARE BEING DISPOSED OF TOG ETHER. FOR THE SAKE OF CONVENIENCE, WE TAKE THE GROUND AND FACTS FROM I TA NO. 1239 FOR ASSESSMENT YEAR 2006-07. ITA NOS. 1239/DEL/2010 & 139/DEL/2011 2 2. THE GROUNDS RAISED READ AS UNDER:- 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT REGISTRATION U/S 12A OF THE ACT IS GRANTED BY THE DIT(E) ON CERTAIN TERMS AND CONDITIONS WHICH H AVE TO BE MET BY THE ASSESSEES. REGISTRATION U/S 12A DOES NOT AUTOMATICALLY GUARANTEE EXEMPTION FROM INCOME-TAX U/S 11 OF THE ACT. ONE OF THE CONDITIONS GOVERNING THE GRANT OF REGISTRATION U/S 12A IS THAT T HE ENTITY SHOULD PROVE BEFORE THE ASSESSING OFFICER THAT IT IS INVOLVED I N ACTIVITIES WHICH ARE CHARITABLE IN NATURE AND THAT IT IS NOT ENGAGED IN COMMERCIAL ACTIVITIES WITH A PROFIT MOTIVE. THE REGISTRATION GRA NTED U/S 12A CASTS AN ONUS UPON THE ASSESSEE TO PROVE, DURING ASSESSMENT PROCEE DINGS, THAT PROVISIONS OF SECTION 2(15) AND SECTION 11 ARE SA TISFIED BY IT AND ALSO THAT THERE IS NO CONTRAVENTION OF PROVISIONS OF SE CTION 13 OF THE ACT. ONCE IT IS DISCOVERED THAT COMMERCIAL ACTIVITIES ARE BEING DONE IN THE GUISE OF CHARITABLE ACTIVITIES AND PROVISIONS OF SE CTION 13 ARE CONTRAVENED' THEN, THE CONDITIONS PRESCRIBED IN THE R EGISTRATION CERTIFICATE ARE VIOLATED AND, HENCE, THE ASSESSING OFFI CER IS ENTITLED TO HOLD THE VIEW THAT EXEMPTION U/S 11 IS DENIABLE BECAU SE ACTIVITIES OF THE ASSESSEE WERE FOR PROFIT MOTIVE. THEREFORE, LD. CIT (A) HAS ERRED IN ALLOWING THE BENEFIT OF SECTION 11 TO THE ASSESSEE. 2. ON THE FACTS & IN CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED IN HOLDING THAT PROVISIONS OF SECTION 13 WERE N OT VIOLATED BY THE ASSESSEE BY IT'S ACTION OF PLEDGING FDR'S AS COLLATERAL SEC URITIES FOR THE PURPOSES OF GRANT OF LOANS TO OTHER SOCIETIES BY BANKS S PECIFICALLY WHEN THE SOCIETY MEMBERS HELD BENEFICIAL INTERESTS IN THOSE OTHER SOCIETIES. CONSEQUENTLY, THE LD.CIT(A) ERRED IN DELETING ADDITI ON MADE AT `.6,96,676/- BECAUSE IN THE EVENT OF INELIGIBILITY F OR TAKING BENEFITS U/S 11 OF THE ACT EXPENSES, INCURRED TOWARDS THE PURCHASE O F FIXED ASSETS ARE NOT ALLOWABLE AS APPLICATION OF INCOME TO THE ASSE SSEE. ITA NOS. 1239/DEL/2010 & 139/DEL/2011 3 3. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) HAS ERRED IN HOLDING THAT UNSPENT GRANTS AMOUNTING TO ` 16,92,50,496/- CANNOT BE TAXED AS INCOME IGNORING THE DECISION OF H ON'BLE SUPREME COURT IN MOTI LAL PADAMPUR SUGAR MILLS CO. LTD. VS ST ATE OF UTTAR PRADESH (1979) 118 ITR 326 AND ALSO FAILING TO APPREC IATE THAT SEPARATE BOOKS OF ACCOUNTS WERE NOT MAINTAINED AND TH E ACCOUNTING PROCEDURE WAS ALSO NOT CORRECT AS PER ACCOUNTING POLIC IES. 4 THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. APROPOS TO GROUND NO. 1 AND 2, THE FACTS OF THE CASE ARE THAT THE APPELLANT IS A REGISTERED CHARITABLE SOCIETY U/S.12A UN DERTAKING THE ACTIVITIES RELATING TO RESEARCH, DEVELOPMENT AND DISSEMINATION OF : I) TECHNOLOGIES FOR FULFILLMENT OF BASIC NEEDS OF RU RAL HOUSEHOLDS. II) SOLUTIONS FOR REGENERATION OF NATURAL RESOURCES A ND THE ENVIRONMENT. III) COMMUNITY BASED INSTITUTION STRENGTHENING METHOD S TO IMPROVE ACCESS TO ENTITLEMENTS FOR THE POOR. THESE ACTIVITIES INCLUDED PROJECTS ON DEVELOPMENT OF A LTERNATIVES LIKE LOW COST BUILDING MATERIALS, SMOKE FREE COOK STOVES, WATER SU PPLY AND PURIFICATION, SANITATION, ORGANIC FARMING, ADAPTATIO N TO CLIMATE CHANGE AND ISSUE BASED AWARENESS CREATION PROGRAMMES. 3.1 ASSESSING OFFICER PROCEEDED TO WITHDRAW EXEMPTION U/S 11 ON THE FOLLOWING GROUNDS:- - THE FDRS OF THE ASSESSEE OF RS. 12 LACS WERE PLACED AS COLLATERAL SECURITY FOR ALLOWING CREDIT FACILITIES TO TWO SOCIET IES NAMELY TARA NIRMAN KENDRA AND SOCIETY FOR TECHNOLOGY AND ACTION FOR RU RAL ADVANCEMENT. SINCE ITA NOS. 1239/DEL/2010 & 139/DEL/2011 4 THE OTHER TWO SOCIETIES WERE HAVING SOME COMMON MANAGE MENT COMMITTEE MEMBERS AS OF THE APPELLANT, THERE IS AN INFRINGEMENT OF THE PROVISIONS OF SECTION 13(1)(C), 13(2)(A) OF THE ACT R/W SECTION 13 (3). - THAT THE AUDITORS OF THE APPELLANT HAVE QUALIFIED THEIR REPORT BY REFERRING TO THE SAID CONTRAVENTION U/S 13. - THE MINUTE BOOKS AUTHORIZING THE PLEDGING OF FDRS WERE NOT PLACED ON RECORD. THUS, THE ASSESSEE HAS ADVANCED UNSECURED LOANS TO THE INTERESTED PERSON WITHOUT ANY ADEQUATE SECURITY AND AUTHORIZATIO N OF THE MANAGING COMMITTEE. - IN VIEW OF THE DEFAULT COMMITTED BY THE ASSESSEE, TH E FUND TO THE EXTENT OF LOAN MADE AVAILABLE TO THE BENEFICIARY TR USTS ON THE STRENGTH OF THE SAID FIXED DEPOSITS MADE OUT OF CORPUS FUND FAILS TO QU ALIFY FOR EXEMPTION. IN VIEW OF THE DEFAULT AS ABOVE, THE EXEMPTION U/S 11 O F THE ACT WAS DENIED TO THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. - THE ASSESSING OFFICER RELIED ON A DECISION OF THE ITAT HYDERABAD BENCH 'B' IN THE CASE OF SOCIETY FOR INTEGRATED DEVELOPMEN T IN URBAN AND RURAL AREAS VS DCIT POINTING OUT INFRINGEMENTS OF VARIOUS SUB SECTIONS OF THE SEC 13 OF THE ACT. - THE ASSESSING OFFICER ALSO DISALLOWED AN AMOUNT OF ` 6,96,676/- BEING INCURRED TOWARDS PURCHASE OF FIXED ASSETS ALLOWABLE U/S 11 AS APPLICATION TOWARDS CHARITABLE PURPOSE. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX ( APPEALS) ELABORATELY CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUBMISSIONS PLAC ED ON RECORD. INCOME DERIVED FROM PROPERTY HELD UNDER TR UST FOR CHARITABLE PURPOSES IS ELIGIBLE FOR EXEMPTION U/S 11 IF THE SAME HAS BEEN UTILIZED FOR THE CHARITABLE PURPOSES IN INDIA. HOWEVER, SECTIO N 13 PROVIDES FOR ITA NOS. 1239/DEL/2010 & 139/DEL/2011 5 THAT THE EXEMPTION U/S 11 WILL NOT APPLY IN CERTAIN CASES. THE ASSESSING OFFICER HAS DENIED THE EXEMPTION TO THE APPELL ANT TRUST U/S 13(1)(C) & 13(2)(A) READ WITH 13(3) OF THE ACT. ON PERUSAL OF THE SECTIONS 13(1)(C) , 13(2)(A) AND 13(3) READ TOGETHER, IT IS CLEAR THAT THE PROVISIONS OF SECTIONSI3(1)(C) AND 13(2)(A) ARE APPLICA BLE ONLY WHEN THE BENEFIT OF THE INCOME OF THE TRUST OR ITS PROPERTY GO ES TO THE PERSONS COVERED U/S 13(3) AND NOT TO ANYBODY ELSE. THOUGH SOME OF THE MEMBERS OF THE EXECUTIVE COMMITTEE ARE SAME IN THE AP PELLANT SOCIETY AND THE BORROWING SOCIETY, EVEN THEN THE SAID TWO SOCIETIES ARE NOT COVERED UNDER THE PERSONS REFERRED TO IN SECTION 13(3) BECAUSE ON PERUSAL OF SECTION 13(3) OF THE ACT, IT IS SEEN THAT C LAUSES (A) TO (D) APPLY TO INDIVIDUAL PERSONS AND SOCIETIES LIKE APPELLAN T ARE NOT COVERED THEREIN. THE SOCIETIES CAN BE COVERED ONLY UNDER CLAU SE 13(3)(E) ONLY WHEN THE PERSONS MENTIONED IN SECTION 13(3)(A) TO 13(3 )(D) HAVE SUBSTANTIAL INTEREST IN THE SAID SOCIETY WHICH IS NOT THE CASE HERE. THE PERUSAL OF THE MEMORANDUM OF ASSOCIATION OF BOTH THE SO CIETIES MAKE IT CLEAR THAT THE FUNDS OF THE SOCIETY CAN BE DISTRIBU TED TO THE SOCIETIES OF SIMILAR OBJECTS AND NOT TO ANY INDIVIDUAL OR MEMBE R OF THE EXECUTIVE COMMITTEE. THUS, NONE OF THE MEMBER OF THE EXECUTIVE COMMITTEE OF THE APPELLANT HAVE ANY INTEREST IN THE TWO BORROWING SOCIETIES AND, THEREFORE, THE TWO BORROWING SOCIETIES ARE NOT COVERE D U/S 13(3) AT ALL. THE CASE OF ITAT HYDERABAD BENCH 'B' IN THE CASE OF S OCIETY FOR INTEGRATED DEVELOPMENT IN URBAN AND RURAL AREAS VS DC IT RELIED UPON BY THE ASSESSING OFFICER IS NOT APPLICABLE TO THE FACT OF THE APPELLANT SOCIETY AS IN THE SAID CASE, THE FDRS WERE USED FOR THE B ENEFIT OF THE SECRETARY OF THE TRUST WHO WAS A PERSON COVERED U/S 13( 3) OF THE ACT. HOWEVER, IN THE PRESENT CASE, THE FDRS HAVE ONLY BEEN PLEDGED AND THE BENEFIT ACCRUED TO A PERSON NOT COVERED U/S 13(3 ) OF THE ACT. THUS THE CASE IS CLEARLY DISTINGUISHABLE. ITA NOS. 1239/DEL/2010 & 139/DEL/2011 6 THE APPROVAL OF MANAGING COMMITTEE IS NOT RELEVANT AS FAR AS THE UTILIZATION OF FUNDS FOR CHARITABLE PURPOSE IS CONCER NED. IF THE FUNDS HAVE BEEN UTILIZED FOR THE PERSONS REFERRED TO IN SECT ION 13(3) EVEN WITH THE APPROVAL OF MANAGING COMMITTEE, THE EXEMPT ION U/S 11 WILL NOT BE ALLOWED. HOWEVER, ON PERUSAL OF THE BALANCE SH EET FOR THE YEAR ENDED 31/3/99 AND 31/3/2004, 31/3/2005, IT IS SEEN TH AT THE SAME IS SIGNED BY THE MEMBERS OF THE MANAGING COMMITTEE AND, THUS, THE PLEDGING OF THE FDRS FOR ALLOWING CREDIT FACILITY TO THE BORROWING SOCIETY WAS WITH THEIR APPROVAL ONLY. HOWEVER, SINCE IN THE C ASE OF THE ASSESSEE, THE BENEFIT DOES NOT ACCRUE TO THE PERSON COVER ED U/S 13(3), THE PROVISIONS OF SECTION 13(1)(C) 'AND 13(2)(A) ARE N OT APPLICABLE AT ALL. ON PERUSAL OF THE AUDITOR'S REPORT AND AUDITED BALANC E SHEET, IT WAS SEEN THAT THE FACT REGARDING THE PLEDGING OF FDR HAS BEEN MENTIONED IN THE NOTES TO ACCOUNT ATTACHED WITH BALANCE SHEET WHICH ARE PREPARED BY THE APPELLANT ONLY FOR THE PURPOSE OF DI SCLOSURE. THERE IS NO DISQUALIFICATION BY THE AUDITOR'S IN THEIR REPORT AND THE CONTENTION OF THE ASSESSING OFFICER IN THIS REGARD IS NOT CORRECT. ON PERUSAL OF THE MEMORANDUM OF ASSOCIATION OF THE SAID TWO SOCIETIES, IT WAS SEEN THAT THEIR OBJECTS ARE SIMILAR TO THAT OF THE APPELLANT SOCIETY AND THUS CHARITABLE IN NATURE. IF A CHARITABLE ORGANIZATION DONATES CERTAIN MONEY TO ANOTHER CHARIT ABLE ORGANIZATION, THE SAME IS TREATED AS UTILIZATION OF FUNDS. IN CASE OF THE APPELLANT, THE FUNDS HAVE NOT BEEN PARTED AWAY AS THE FDRS WERE LYING INTACT IN THE BANK, THE APPELLANT WAS RECEIVED INTEREST THEREON AND GOT THE MATURITY PROCEEDS IN THE NEXT YEAR. EVEN IF IT IS PRESUMED THAT THE FUNDS HAVE BEEN USED / GIVEN TO THE SOCIETIES, IT WILL BE AN APPL ICATION OF THE FUNDS FOR CHARITABLE PURPOSES AND THE EXEMPTION U/S 11 CANN OT BE DENIED ON THIS GROUND. ITA NOS. 1239/DEL/2010 & 139/DEL/2011 7 THIS VIEW HAS BEEN PROPOUNDED BY THE DECISION IN THE CASE OF ALARIPPU VS ITO (1997) 60 ITD (DEL) 478 ,WHEREIN, I T WAS HELD THAT LOAN WAS GIVEN TO ANOTHER VOLUNTARY GROUP WITH SIMILAR OBJ ECTS, FOR CONDUCTING SEMINARS, ETC. AND THE AMOUNT WAS RECOVERED BACK IN SUBSEQUENT YEAR. IT WAS HELD THAT AMOUNT GIVEN WAS NEIT HER FOR INVESTMENT NOR FOR DEPOSIT. THE SAME CONSTITUTED APPLIC ATION OF INCOME IN FURTHERANCE OF OBJECTS OF ASSESSEE. HENCE, THERE WAS N O VIOLATION OF S. 13(I)(D) AND EXEMPTION COULD NOT BE DENIED ON THA T GROUND. IN VIEW OF THE ABOVE FACTS AND POSITION OF LAW, I AM OF THE OPINION THAT PLEDGING OF THE FDRS FOR AVAILING CREDIT FACILITIES T O THE BANK IS NOT INFRINGEMENT AS PER SECTION 13 OF THE ACT AT ALL AND THEREFORE, THE APPELLANT IS ELIGIBLE FOR EXEMPTION U/S 11 OF THE AC T. IN VIEW OF THE ABOVE, THE FIRST GROUND OF APPEAL STANDS ALLOWED. SINCE THE APPELLANT IS ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT, THE AMOUNT OF RS. 6,96,676/- BEING INCURRED TOWARDS PURCH ASE OF FIXED ASSETS WILL BE TREATED AS APPLICATION OF FUNDS FOR CHARI TABLE PURPOSES AND WILL BE ALLOWABLE FOR EXEMPTION U/S 11 OF THE AC T. THUS, THE SECOND GROUND OF APPEAL ALSO STANDS ALLOWED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RELEVANT RECORDS. WE FIND THAT ASSESSING OFFICER HAS HELD THAT THERE IS I NFRINGEMENT OF THE PROVISIONS OF SECTION 13(1)(C), 13(2)(A) OF THE ACT RE AD WITH SECTION 13(3). THIS HAS BEEN DONE ON THE GROUND THAT FDR OF THE ASSESSEE OF ` 12 LACS WERE PLACED AS COLLATERAL SECURITY FOR ALLOWING CREDIT FAC ILITIES TO TWO SOCIETIES. ASSESSING OFFICER HAS ALSO NOTED THAT THE AUDITORS OF THE ASSESSEE HAVE QUALIFIED THEIR REPORT BY REFERRING THE SAID CONTRAV ENTION. UNDER THE CIRCUMSTANCES, ASSESSING OFFICER HAS DENIED EXEMPTION U/S 11 OF THE IT ACT AND ALSO DISALLOWED AN AMOUNT OF ` 696676/- INCURRED TOWARDS PURCHASE OF FIXED ASSETS. WE FIND THAT LD. COMMISSIONER OF INCOME T AX (APPEALS) HAS ITA NOS. 1239/DEL/2010 & 139/DEL/2011 8 GIVEN A FINDING THAT NONE OF THE MEMBERS OF THE EX ECUTIVE COMMITTEE OF THE ASSESSEE HAVE ANY INTEREST IN THE TWO BORROWING SOCIE TIES AND, THEREFORE, THE TWO BORROWING SOCIETIES ARE NOT COVERED U/S 13(3) AT ALL. THE ASSESSEE CAN BE COVERED ONLY UNDER CLAUSE 13(3)(E) ONLY WHEN THE PERSONS MENTIONED IN SECTION 13(3)(A) TO 13(3)(D) HAVE SUBSTANTIAL INTER EST IN THE SOCIETY WHICH IS NOT THE CASE HERE. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO RIGHTLY OBSERVED THAT PERUSAL OF THE AUDITOR REPORT A ND AUDITED BALANCE SHEET IT WAS SEEN THAT FACT REGARDING THE PLEDGING OF FDRS HAS BEEN MENTIONED IN THE NOTES TO ACCOUNT ATTACHED WITH BALANCE SHEET WHI CH ARE PREPARED BY THE ASSESSEE ONLY FOR THE PURPOSE OF DISCLOSURE. THIS CANNOT B E SAID TO BE DISQUALIFICATION OF THE AUDITORS IN THE REPORT. IN TH ESE CIRCUMSTANCES, IT IS APPARENT THAT THE ASSESSEES FUNDS HAVE NOT BEEN PARTED A WAY AS THE FDRS WERE LYING INTACT IN THE BANK, THE ASSESSEE HAS RECEIVED INTEREST THEREON AND GOT THE MATURITY PROCEEDS IN THE NEXT YEAR. UND ER THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CORRECT IN HOLDING THAT PLEDGING OF FDRS FOR AVAILING CREDI T FACILITIES IS NOT INFRINGEMENT AS PER SECTION 13 OF THE ACT AND, THEREF ORE, ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. SINCE THE ASSESSEE IS E LIGIBLE FOR EXEMPTION U/S 11 OF THE ACT, THE AMOUNT OF ` 6,96,676/- BEING INCURRED TOWARDS PURCHASE OF FIXED ASSETS WILL BE TREATED AS APPLICATION OF FUNDS FOR CHARITABLE PURPOSES AND WILL BE ALLOWABLE FOR EXEMPTION U/S 11 O F THE ACT. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOM E TAX (APPEALS). 7. APROPOS TO GROUND NO. 3, THE ASSESSING OFFICER HAS MA DE THE ADDITION ON FOLLOWING GROUNDS: THE APPELLANT RECEIVES GRANTS FOR SPECIFIC PURPOSES / P ROJECTS FROM THE GOVERNMENT, NON GOVERNMENT, FOREIGN INSTITUTIONS AND GOVERNMENTS, ETC, WHICH ARE TO BE SPENT AS PER THE TERMS AND CONDIT IONS OF THE PROJECT GRANT. THE AMOUNT WHICH REMAINS UNSPENT AT T HE YEAR END OUT OF THE GRANTS RECEIVED IS CALLED UNSPENT GRANT. THE AM OUNT OF UNSPENT GRANTS AS ON 31/3/2006 WAS RS. 16,92,50,496/-. ITA NOS. 1239/DEL/2010 & 139/DEL/2011 9 FROM THE EXAMINATION OF THE BOOKS OF ACCOUNT OF THE ASSESSEE IT IS OBSERVED THAT NO SEPARATE BOOKS OF ACCOUNTS FOR EACH DONOR AGENCY WERE MAINTAINED. A CHARITABLE INSTITUTION CAN EITHER RECEIVE VOLUNTAR Y CONTRIBUTION OR CORPUS DONATION BUT AN AMOUNT OF DONATION RECEIVED C ANNOT BE CATEGORIZED UNDER THE SAID TWO HEADS AT THE SAME TIME . THESE VOLUNTARY CONTRIBUTIONS CANNOT BE TREATED AS CORPUS IN THE YEAR OF RECEIPT AND, THEREAFTER, SHOWN AS INCOME IN THE YEAR IN WHICH THESE ARE SPENT. IN TERMS OF THE SECTION 2(24)(IIA) OF THE ACT, EVERY DONATION RECEIVED BY A CHARITY AMOUNTS TO AN INCOME IN ITS HAND. IN TER MS OF THE SECTION 12(1), THERE IS AN EXCLUSIONARY PROVISION WHICH EXEMPT S FROM TREATMENT AS INCOME ANY DONATION MADE WITH A SPECIFIC DIRECTION THAT IT SHALL FORM PART OF THE CORPUS OF THE TRUST AND ALL VOLUNTARY CONTRIBUTIONS RECEIVED SHALL BE DEEMED TO BE INCOME O F THE TRUST AND PROVISIONS OF SECTION 13 SHALL APPLY. GRANTS RECEIVED ARE VOLUNTARY CONTRIBUTIONS AND ARE, THEREFORE, TAXABLE IN THE YEAR OF RECEIPT. THEREFORE, THE AMOUNT OF ` 16,92,50,496/- REMAINING UNSPENT OUT OF THE GRANTS RECEIVED WAS ADDE D TO INCOME. 8. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX ( APPEALS) ELABORATELY CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT ALONG WITH EVIDENCES PLACED ON RECORD. ON PERUSAL OF THE EVIDENCES REGARDING THE PROJECT GRANTS PLACED ON REC ORD, IT IS SEEN THAT THE SAID AMOUNTS ARE RECEIVED / SANCTIONED FOR A SPECIF IC PURPOSE / PROJECT TO BE UTILIZED OVER A PARTICULAR PERIOD. TH E UTILIZATION OF THE SAID GRANTS IS MONITORED BY THE FUNDING AGENCIES WHO SEND PE RSONS FOR INSPECTION AND ALSO APPOINT INDEPENDENT AUDITORS TO VE RIFY THE ITA NOS. 1239/DEL/2010 & 139/DEL/2011 10 UTILIZATION OF FUNDS AS PER SETTLED TERMS. THE APPELLAN T HAS TO SUBMIT INTERIM / FINAL PROGRESS / WORK COMPLETION REPORTS ALO NG WITH EVIDENCES TO THE FUNDING AGENCIES FROM TIME TO TIME. THESE AGRE EMENTS ALSO INCLUDE A TERM THAT SEPARATE AUDITED ACCOUNTS FOR THE PROJECT WILL BE MAINTAINED. THE UNUTILIZED AMOUNT HAS TO BE REFUNDED BACK TO THE FUNDING AGENCIES IN MOST OF THE CASES. ALL THE TERMS AND CONDITIONS ARE SIMULTANEOUSLY COMPLIED WITH OTHERWISE THE GRANTS ARE W ITHDRAWN. THE APPELLANT HAS TO UTILIZE THE FUNDS AS PER THE TERMS AND CONDITIONS OF THE GRANT. IF THE APPELLANT FAILS TO UTILIZE THE GRANTS F OR THE PURPOSE FOR WHICH GRANT IS SANCTIONED, THE AMOUNT IS RECOVERED BY THE FUNDING AGENCY. ON THE BASIS OF THE EVIDENCES PLACED ON RECOR D, IT IS SEEN THAT THE APPELLANT IS NOT FREE TO USE THE FUNDS VOLUNTARILY AS PER ITS SWEET WILL AND, THUS, THESE ARE NOT VOLUNTARY CONTRIBUTION AS PER SECTION 12 OF THE ACT. THESE ARE TIED UP GRANTS WHERE THE APPELLANT ACTS AS A CUSTODIAN OF THE FUNDS GIVEN BY THE FUNDING AGENCY TO CHANNELISE THE SAME IN A PARTICULAR DIRECTION. IN CASE OF VOLUNTARY CONTRIBUTION, THE APPELLANT IS F REE TO USE THE MONEY AS PER ITS WILL AND NEITHER HAVE TO RENDER THE ACCOUNT OF THE SAME TO THE DONOR NOR THE SAME IS MONITORED BY THE DON OR. THE SAID AMOUNT BECOMES INCOME OF THE APPELLANT AND HAS TO BE USED FOR CHARITABLE PURPOSES AS PER ITS OBJECTS. HOWEVER, IN CASE OF SPECIFIC TIED UP GRANTS, MONEY IS RECEIVED FOR SPECIFIC PURPOSES AND I S TO BE UTILIZED FOR THE SAME. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF SUKHD EO CHARITY ESTATE VS CIT (1984) 149 ITR 470 (RAJ) HAS HELD THAT S CHEME OF SECTION 12(2) IS TO TAX VOLUNTARY CONTRIBUTION RECEIVED BY A CHARITABLE TRUST FROM ANOTHER CHARITABLE TRUST IF THE SAME BEARS INCOME CHARACTER AND IS NOT MEANT FOR ANY SPECIFIC PURPOSE. HOWEVER, THE AM OUNT RECEIVED FOR SPECIFIC PURPOSE AND CREDITED IN A SEPARATE ACCOU NT CANNOT BE TAXED AS INCOME. ITA NOS. 1239/DEL/2010 & 139/DEL/2011 11 THE HON'BLE ITAT IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS ITO (1999) 71 ITD 152 (HYD.) HAS CATEGORICALLY MENTIONED THAT THE TIED UP GRANTS RECEIVED FROM FUNDING AGENCIES FOR SPECIFIC PUR POSES DID NOT BELONG TO ASSESSEE SOCIETY AND SUCH GRANTS DID NOT FORM CO RPUS OF ASSESSEE OR ITS INCOME. THE ASSESSEE IS ACTING AS AN INDEPEND ENT TRUSTEE FOR THAT GRANT. ONLY THE NON-REFUNDABLE CRED IT BALANCE IN THE GRANT ACCOUNT WILL BE TREATED AS INCOME IN THE YEAR IN WHICH SUCH NON- REFUNDABLE BALANCE WAS ASCERTAINED. THE ASSESSEE IS FOLLOW ING THE SAME METHOD OF ACCOUNTING. WHEN A PROJECT IS COMPLETE D THE SURPLUS OR DEFICIT ARISING ON THE SAID PROJECT IS TRANSFERRED T O THE INCOME AND EXPENDITURE ACCOUNT. IN VIEW OF THE EVIDENCES PLACED ON RECORD, IT IS CLEA R THAT THE GRANTS RECEIVED BY THE APPELLANT ARE TIED UP GRANTS AND NOT VOLUNTARY CONTRIBUTIONS AND THE ABOVE MENTIONED CASES ARE SQUAREL Y APPLICABLE ON THE CASE OF THE APPELLANT. FURTHER, THE APPELLANT HAS MAINTAINED SEPARATE ACCOUN T FOR EACH PROJECT GRANT AND HAS GIVEN COMPLETE DETAILS REGARDIN G THE SAME IN THE AUDITED BALANCE SHEET ITSELF. THE ASSESSING OFFICER DID N OT POINT OUT ANY DISCREPANCY IN THE SAID DETAILS AND BROUGHT NOTHING AD VERSE TO PROVE ITS ALLEGATION. THUS, THE CONTENTION OF THE ASSESSING OF FICER IS NOT TENABLE. IN VIEW OF THE ABOVE FINDINGS, THE UNSPENT GRANT CAN NOT BE TAXED AS VOLUNTARY CONTRIBUTION OR INCOME U/S 12 OF THE ACT. THUS, THE GROUND NO. 3 OF THE APPEAL STANDS ALLOWED AND THE ADDITION O F RS. 16,92,50,496/- IS HEREBY DELETED. 9. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RELEVANT RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN CATEGORICAL ITA NOS. 1239/DEL/2010 & 139/DEL/2011 12 FINDING THAT ON THE BASIS OF THE EVIDENCES PLACED ON R ECORD GRANTS RECEIVED BY THE ASSESSEE ARE TIED UP GRANTS AND NOT VOLUNTARILY C ONTRIBUTION. HE HAS ALSO GIVEN A FINDING THAT THE ASSESSEE HAS MAINTAINED SEPA RATE ACCOUNTS FOR EACH PROJECT AND GRANT AND HAS GIVEN COMPLETE DETAI LS REGARDING THE SAME IN THE AUDITED BALANCE SHEET ITSELF. THE ASSESSING OFF ICER DID NOT POINT OUT ANY DISCREPANCY IN THE SAID DETAILS AND BROUGHT NOTHIN G ADVERSE TO PROVE ITS ALLEGATIONS. THE CASE LAWS RELIED UPON BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ARE ALSO GERMANE AND SUPPORT THE CASE OF THE ASSESSEE. IN THESE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) THAT UNSPENT GRANT CANNOT BE TAXED AS V OLUNTARY CONTRIBUTION OR INCOME U/S 12 OF THE ACT. 11. OUR ABOVE FINDINGS ARE ALSO APPLICABLE TO ITA NO . 139/DEL/2011 FOR ASSESSMENT YEAR 2007-08, AS THE FACTS ARE IDENTICAL. 12. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/04/2011. SD/- SD/- [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 01/04/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, A.R., ITAT, DELHI BENCHES