DCIT, Panchkula V. M/s State Urban Development Society Haryana, Chandigarh

ITA 17/CHANDI/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4918 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 12-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUNITA PURI
• Keywords: Charitable institution
• Section: 143(3); 12AA; 139(1); 12; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.17/CHD/2009 ASSESSMENT YEAR: 2005-06 THE DCIT, VS M/S STATE URBAN DEVELOPMENT SOCIETY PANCHKULA CIRCLE, HARYANA, CHANDIGARH PANCHKULA PAN NO. AAALS0251P & C.O. NO. 19/CHD/2009 (IN ITA NO.17/CHD/2009) ASSESSMENT YEAR: 2005-06 M/S STATE URBAN DEVELOPMENT SOCIETY, VS THE DCIT, HARYANA, CHANDIGARH PANCHKULA PAN NO. AAALS0251P (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SUNITA PURI RESPONDENT BY: SHRI AJAY JAIN ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF CIT(A), PANCHKULA DATED 27.10.2008 RELATING TO ASSESSMENT YEAR 2005- 06 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE APPEAL FILED BY THE REVENUE. 2. THE APPEAL FILED BY THE REVENUE AND CROSS OBJE CTION FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 3. THE REVENUE HAS RAISED THE UNDER MENTIONED GROUN DS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW IN TREATING THE INT EREST INCOME AS INCOME FROM PROPERTY HELD UNDER TRUST AND THEREFORE, EXEMPT UNDER SECTION 11? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) IS RIGHT IN HOLDING THAT AMOUNT WHIC H WAS BEEN ALLOCATED TO THE DISTRICT BUT COULD NOT BE ACTUALLY DISBURSED DUE TO IMPOSITION OF MODEL CODE OF CONDUCT DUE TO DECLARATION OF ELECTION IS TO TREATE D AS AMOUNT APPLIED TOWARDS THE CHARITABLE OBJECTS OF TH E ASSESSEE. 4. THE ASSESSEE IN ITS CROSS OBJECTION HAS RAISED T HE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) PANCHKULA HAS ERRED BY UPHOLDING THE GROSS AMOUNT RECEIVED FROM CENTRAL AND STATE GOVERNMENTS FOR THE PURPOSE OF DISBURSEMENT OF DIST RICT AUTHORITIES AND VARIOUS AUTHORITIES OF STATE GOVERN MENT AS INCOME OF SOCIETY. 2. THE LEARNED CIT(A) PANCHKULA HAS ERRED BY UPHOLDING THAT INTEREST ON SURPLUS AMOUNT KEPT IN BANK IN ACCORDANCE WITH INSTRUCTIONS WHICH IS PART OF GRANT IN AID AND TO BE DISBURSED ALONG WITH THE AMOUNT RECEI VED FROM CENTRAL AND STATE GOVERNMENT AS INCOME OF THE SOCIETY. 3. THE LEARNED CIT(A) PANCHKULA HAS ERRED BY DECLINING THE REVISED FORM NO.10 SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS PER CIRCULAR NO. 273 DATE D 3.6.1980 ISSUED BY CBDT. 3 6. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE SO CIETY IS FORMED BY THE GOVERNMENT OF HARYANA AS PER THE REGULATIONS OF GOV ERNMENT OF INDIA FOR IMPLEMENTATION AND MONITORING OF POVERTY ERADICATIO N PROGRAMMES IN THE URBAN AREA OF HARYANA. THE ASSESSEE RECEIVES SCHEME MONEY FROM GOVT. OF INDIA AND THE SAME IS DISTRIBUTED TO THE DISTRICTS OF HARYANA THROUGH ITS AGENCY DISTRICT URBAN DEVELOPMENT AGENCIES, WHICH ARE HEADED BY THE DEPUTY COMMISSIONER/ADDL. COMMISSIONER OF EVERY DIS TRICT OF HARYANA. CERTAIN AMOUNTS FROM SCHEME MONEY RECEIVED BY THE A SSESSEE WERE UTILIZED FOR ITS ADMINISTRATIVE AND OFFICE EXPENSES. THE A SSESSEE IS REGISTERED UNDER SECTION 12AA OF THE I.T. ACT GRANTED BY CIT, PANCH KULA W.E.F. 28.2.2003. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE W AS DISBURSING MONEY UNDER TWO SCHEMES I.E. SWARANA JAYANTI SHAHARI ROZG AR YOJANA (SJSRY) AND NATIONAL SLUM DEVELOPMENT PROGRAMME (NSDP). THE MEM ORANDUM OF ASSOCIATION OF THE ASSESSEE SOCIETY IS PLACED ON RE CORD BY THE ASSESSEE AT PAGES 1 TO 4 OF THE PAPER BOOK. THE GOVT. OF INDI A HAD ISSUED THE GUIDELINES FOR SJSRY SCHEME WHICH ARE PLACED AT PAGES 5 TO 2 3 OF THE PAPER BOOK FILED BY THE ASSESSEE AND THE SCHEME WAS PROMULGATED TO P ROVIDE GAINFUL EMPLOYMENT TO THE URBAN UNEMPLOYED OR UNDER UNEMPLO YED POOR THROUGH ENCOURAGEMENT OF SETTING UP OF SELF EMPLOYMENT VENT URES OR PROVISION OF WAGE EMPLOYMENT. THE NSDP SCHEME WAS FORMULATED TO IMPROVE THE LIVING CONDITIONS OF PEOPLE LIVING IN SLUMS IN THE URBAN A REA OF STATE OF HARYANA. 7. IN ADDITION TO THE SCHEME MONEY RECEIVED FROM G OVT. OF INDIA DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FOLLOWS A SYSTEM OF ACCOUNTING UNDER WHICH ANY AMOUNT REMAINING NOT DISBURSED AT T HE END OF THE FINANCIAL YEAR IS SHOWN AS OPENING BALANCE SCHEME MONEY TO BE UTILIZED IN THE NEXT FINANCIAL YEAR. THE PLEA OF THE ASSESSEE BEFORE A SSESSING OFFICER VIDE WRITTEN SUBMISSIONS DATED 14.11.2007 WAS THAT THE SCHEME MONEY RECEIVED 4 FROM THE GOVERNMENT OF INDIA CANNOT IN ANY WAY BE EQUATED WITH VOLUNTARY CONTRIBUTIONS AND DONATIONS AND CANNOT BE TREATED A S PART OF THE INCOME U /SS 11 & 12 OF THE ACT. THE SECOND PLEA OF THE ASSESSE E WAS THAT THE ASSESSEE HAD NEITHER SPENT NOR APPLIED THE SCHEME MONEY RECE IVED BUT HAD SHOWN IT AS AN EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT FOR T HE YEAR UNDER CONSIDERATION. FURTHER, THE ASSESSEE HAD NOT SANCT IONED NOR ALLOCATED THE DISTRIBUTION OF THE SCHEME MONEY REMAINING UNUTILIZ ED WITH IT. IN ADDITION, THE SCHEME MONEY RECEIVED UNDER NSDP SCHEME DURING THE YEAR WAS NEITHER DISTRIBUTED NOR ALLOCATED NOR SPENT AS IT WAS NOT A LLOWED BY THE FINANCE DEPARTMENT, HARYANA GOVERNMENT AS IT WOULD VIOLATE THE MODEL CODE OF CONDUCT. THE ASSESSEE HAD SHOWN THE AOE MONEY RECE IVED AS ITS INCOME FOR THE YEAR AND EXPENDITURE WAS DEBITED AGAINST THE SA ME, BUT IT WAS NOT UTILIZED IN ENTIRETY. OUT OF THE SCHEME MONEY RECEIVED THE ASSESSEE IS SPENDING A PART OF THE SCHEME MONEY ON ADMINISTRATIVE AND OFFI CE EXPENSES. ACCORDINGLY, THE ASSESSEE FURNISHED A DECLARATION I N FORM NO.10 UNDER RULE 17 OF INCOME TAX RULES THAT A SUM OF RS. 51,25,966/ - WAS THE ACCUMULATED INCOME TO BE UTILIZED FOR CHARITABLE PURPOSES IN FU TURE. 8. THE ASSESSING OFFICER WAS OF THE VIEW THAT PROVI SIONS OF SECTIONS 11 / 12 OF INCOME TAX ACT WERE APPLICABLE TO SCHEME MONE Y. THE ASSESSING OFFICER ON THE BASIS OF THE BALANCE SHEET AND THE P ROFIT AND LOSS ACCOUNT NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED AND DISBURSED / UTILIZED THE UNDER MENTIONED FUNDS UNDE R THE TWO SCHEMES RESPECTIVELY. SJSRY SCHEME OPENING BALANCE OF LAST YEAR : RS. 4,28,20,000/- MONEY RECEIVED DURING THE YEAR : RS. 7,57,96,000/ - INTEREST INCOME EARNED : RS. 12,12,660/- DURING THE YEAR ON SJSY FUNDS 5 TOTAL : RS. 11,98,28,660/- AMOUNT UTILIZED UNDER SJSRY SCHEME IN THE RELEVAN T YEAR AMOUNT DISBURSED IN THE RELEVANT YEAR RS. 5,00,48,0 00/- ADMINISTRATIVE AND O.E. RS. 76,39,000/- TOTAL RS. 5,76,87,000/- NSDP SCHEME OPENING BALANCE OF LAST YEAR RS. 3,82,51,000/- AMOUNT RECEIVED IN THE YEAR RS. 10,47,000/- INTEREST EARNED ON NSDPFUNDS RS. 7,96,332/- AMOUNT UTILIZED UNDER NSDP IN THE RELEVANT YEAR AMOUNT DISBURSED IN THE RELEVANT YEAR RS. 3,44,10,0 00/- ADMINISTRATIVE AND O.E. RS. 3,27,000/- TOTAL RS.3,47,37,000/- 9. THE ASSESSING OFFICER FURTHER OBSERVED THAT IF B OTH THE SCHEMES ARE CONSIDERED JOINTLY, THEN THE TOTAL RECEIPTS FOR THE RELEVANT YEAR CAME TO RS. 18,25,04,992/- AND THE TOTAL UTILIZATION MADE BY TH E ASSESSEE IN THE ASSESSMENT YEAR WAS RS. 9,24,24,000/- I.E. 50.64% O F THE TOTAL INCOME DERIVED DURING THE YEAR FROM PROPERTY HELD UNDER TR UST. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE BALANCE INCOME OF RS. 9,00,80,992/- WAS THE ACCUMULATED INCOME TO BE UTILIZED FOR THE PURPOSES OF THE TRUST IN FUTURE, AGAINST WHICH THE ASSESSEE HAD FURNISHED THE FORM N O.10 ONLY FOR ACCUMULATIONS TO THE EXTENT OF RS. 51,25,966/-. T HE ASSESSEE WAS CONFRONTED WITH THE ABOVE SAID FACTS DURING THE COURSE OF ASSE SSMENT PROCEEDINGS AND THE ASSESSEE SUBMITTED A REVISED FORM NO.10 FOR SET TING APART OF RS. 20,08,76,786/- BEING 72.54% OF THE TOTAL RECEIPTS, WHICH HAD BEEN SET APART AT THE END OF THE PREVIOUS YEAR. THE SAID REVISED FOR M NO.10 FILED BY THE 6 ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER VIDE LETTER NO. 2247 DATED 12.9.2007 AS THE SAME WAS FILED AFTER THE EXPIRY OF TIME ALLOWED FOR FURNISHING THE RETURN OF INCOME U/S 139(1) OF THE A CT. THE ASSESSEE THEREAFTER REFERRING TO CIRCULAR NO. 2723 DATED 30. 6.1980 POINTED OUT THAT THE BELATED APPLICATIONS U/S 11(2) OF THE ACT READ WITH RULE 17 OF I.T. RULES, CAN BE ADMITTED AND AN APPLICATION WAS MOVED TO THE CIT , PANCHKULA FOR THE ADMISSION OF REVISED FORM NO.10. THE SAID REVISED FORM NO.10 FILED BY THE ASSESSEE WAS REJECTED AS THE AFORESAID CIRCULAR WAS HELD TO BE APPLICABLE ONLY IN THOSE CASES WHERE THERE WAS DELAY IN FILING THE ORIGINAL FORM NO.10. ACCORDINGLY, THE ASSESSING OFFICER DENIED THE EXEMP TION CLAIMED U/S 11 & 12 OF THE ACT AS THE ASSESSEE HAD NOT UTILIZED ITS INCOME FOR ITS PURPOSES AND NO DECLARATION UNDER FORM 10 WAS GIVEN. INCOME OF R S.9,00,80,992/- WAS HELD AS TAXABLE IN THE HANDS OF THE ASSESSEE. THE PLEA OF THE ASSESSEE THAT THE SCHEME MONEY RECEIVED FROM GOVT. OF INDIA IS NOT VO LUNTARY CONTRIBUTION AND / OR DONATION AS ENVISAGED UNDER SECTION 11/12 OF T HE ACT WAS REJECTED BY THE ASSESSING OFFICER AS THE ASSESSEE HAD BOOKED ALL TH E SCHEME MONEY RECEIVED AS ITS INCOME FOR THE YEAR AND THE SAME WAS REFLECT ED IN THE INCOME AND EXPENDITURE ACCOUNT. FURTHER, THE ASSESSEE HAD SHO WN IT AS EXPENDITURE IN PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDER ATION BUT THE ASSESSEE HAD NOT SANCTIONED AND NOT ALLOCATED THE DISTRIBUTION O F THE SCHEME MONEY REMAINING UNUTILIZED WITH IT. THE PLEA OF THE VIOLA TION OF MODEL CODE OF CONDUCT WAS ALSO REJECTED BY ASSESSING OFFICER. FU RTHER, THE ASSESSEE HAD SHOWN INTEREST INCOME EARNED AT RS. 12,12,600/- IN THE ACCOUNT OF SJSRY AND RS. 7,96,332/- IN THE ACCOUNT OF NSDP . THE SAID INTEREST INCOME WAS HELD AS TAXABLE BY THE ASSESSING OFFICER AND IT WAS ALSO HE LD THAT THE SAME WOULD NOT QUALIFY FOR EXEMPTION AS IT IS INCOME OF THE CHARIT ABLE INSTITUTION, NOR A TRUST. 7 THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER I N TREATING THE ENTIRE RECEIPTS UNDER THE SCHEME AS INCOME OF THE ASSESSEE FOR THE PURPOSES OF SECTION 11 & 12 OF THE ACT. THE CIT(A) HELD THAT THE FUNDS RECEIVED UNDER SJSRY AND NSDP SCHEMES ARE INCOME OF THE ASSESSEE A ND 85% OF THE INCOME HAD TO BE APPLIED TOWARDS THE OBJECTS OF THE TRUST. THE AMOUNT WHICH HAD BEEN ALLOCATED TO THE DISTRICT BUT NOT DISBURSED WA S HELD TO BE APPLIED FOR CHARITABLE OBJECTS. THE INTEREST INCOME EARNED BY THE ASSESSEE WAS ASSESSED AS PART OF INCOME OF THE ASSESSEE BY THE CIT(A) AND EXEMPTION TO BE WORKED OUT IN ACCORDANCE WITH SECTION 11(1)(A) OF THE ACT. HOWEVER, THE OBSERVATIONS OF THE ASSESSING OFFICER THAT EXEMPTIO N U/S 11(1)(A) WERE NOT APPLICABLE TO THE ASSESSEE AS IT WAS AN INSTITUTION AND NOT A TRUST WAS NEGATED BY THE CIT(A). 11. THE LEARNED AR FOR THE ASSESSEE POINTED OUT THA T THE ASSESSEE WAS A NODAL AGENCY FOR DISTRIBUTION OF THE FUNDS OF SCHEM E OF GOVT. OF INDIA FOR THE WELFARE OF POOR IN THE STATE OF HARYANA. THE LEARN ED AR FURTHER SUBMITTED THAT THE NATURE OF GRANT RECEIVED BY THE ASSESSEE U NDER THE TWO SCHEMES FUNCTIONAL DURING THE YEAR WAS NOT LOOKED INTO BY T HE AUTHORITIES BELOW. THE PLEA OF THE ASSESSEE IN THIS REGARD ARE THAT THE RE CEIPTS ARE GRANTS AND THE SAME CANNOT BE EQUATED WITH THE VOLUNTARY CONTRIBUT ION OR DONATION U/S 11 & 12 OF THE ACT. THE LEARNED AR DREW OUR ATTENTION TO THE REPLY FILED BEFORE THE ASSESSING OFFICER DATED 14.11.2007 PLACED AT PA GES 1 TO 5 OF THE PAPER BOOK FILED BY REVENUE. FURTHER REPLY DATED 12.9.20 07 WAS ALSO REFERRED TO PROVE THE STAND OF THE ASSESSEE THAT THE SOCIETY WA S MERELY ACTING AS A NODAL AGENCY AND WAS SUPERVISING THE EXECUTIONS OF THE SC HEME OF GOVT. OF INDIA AND STATE GOVT. BUT HAD NO DISCRETION TO UTILIZE TH E AMOUNTS AS PER OWN REQUIREMENTS. THE SAID REPLIES ARE PLACED AT PAGES 25 & 26 OF THE PAPER BOOK FILED BY REVENUE. THE LEARNED AR FURTHER SUBMITTED THAT ENTRIES IN THE BOOKS 8 OF ACCOUNT WERE NOT DECISIVE ABOUT THE NATURE OF IN COME. RELIANCE WAS PLACED ON KEDARNATH JUTE MFG CO LTD VS. CIT [82 ITR 363 (SC)] AND MOOL CHAND MAHESH CHAND [115 ITR 1 (ALL). THE LEARNED A R FILED ON RECORD THE COMMUNICATION DATED 29.3.2006 ISSUED BY GOVT. OF IN DIA FOR THE SANCTION OF RELEASE OF GRANTS IN AID UNDER S.J.S.R.Y SCHEME. IN THE SAID COMMUNICATION, IT HAS BEEN STIPULATED THAT THE GRAN T IS TO BE UTILIZED IN ACCORDANCE WITH THE APPROVED GUIDELINES FOR THE IMP LEMENTATION OF THE SCHEME. THE LEARNED AR FURTHER RELIED UPON THE COM MUNICATION DATED 26 TH SEPT, 2008 ISSUED BY THE MINISTRY OF HOUSING, GOVT. OF INDIA IN CONNECTION WITH THE GRANTS UNDER S.J.S.R.Y SCHEME WHERE IT HAS BEEN STIPULATED THAT THE GRANT IS SUBJECT TO THE CONDITIONS THAT THE FUNDS I F NOT UTILIZED FOR THE PURPOSE FOR WHICH IT WAS GIVEN, HAVE TO BE REFUNDED ALONG WITH INTEREST TO THE AUTHORITIES. THE LEARNED AR THUS SUBMITTED THAT T HE VARIOUS AMOUNTS RECEIVED BY THE ASSESSEE ARE NOT TO BE INCLUDED AS INCOME OF THE ASSESSEE. RELIANCE WAS PLACED ON ITO VS. PUNJAB SPORTS COUN CIL (ITA NO. 904/CHANDI/2006 ASSESSMENT YEAR 2003-04). SIMI LARLY, THE INTEREST EARNED BY THE ASSESSEE ON THE FUNDS PARKED IN FDRS WITH BANKS BECAME PART OF THE SCHEME AND THE SAME HAD TO BE EXPANDED AS PE R THE SCHEME. RELIANCE WAS PLACED IN CIT VS. KARNATAKA URBAN INFRASTRUCTUR E DEVELOPMENT AND FINANCE CORPORATION [284 ITR 582 (KARNATAKA)] AND G UJARAT MUNICIPAL FINANCE BOARD VS. DCIT [221 ITR 317 (GUJ.)), THAT S UCH INTEREST IS NOT THE INCOME OF ASSESSEE. OUR ATTENTION WAS DRAWN TO TH E SCHEME FORMULATED BY THE GOVT. OF INDIA PLACED AT PAGES 5 TO 23 OF THE A SSESSEES PAPER BOOK. 12. THE LEARNED DR PLACED RELIANCE ON THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD RECE IVED THE SCHEME MONEY AND HAD UTILIZED CERTAIN AMOUNT FROM THE SCHEME MON EY FOR ITS ADMINISTRATIVE AND OFFICE EXPENSES. THE ASSESSEE HAS CLAIMED EXEM PTION U/S 11 & 12 OF THE 9 ACT. IT WAS SUBMITTED BY THE LEARNED DR THAT THE A SSESSEE ITSELF HAD BOOKED ALL THE SCHEME MONEY RECEIPTS AS ITS INCOME FOR THE YEAR IN ITS BOOKS OF ACCOUNT. FURTHER, IT HAD CARRIED FORWARDED THE UNS PENT AMOUNT OF THE LAST FINANCIAL YEAR TO INCOME SIDE OF ITS INCOME AND EXP ENDITURE ACCOUNT. ANY DISBURSEMENT OR ALLOCATION IS SHOWN BY IT AS EXPEND ITURE. THE CONTENTION OF THE LEARNED DR WAS THAT IN CASE IT IS TO BE TREATED AS ITS LOAN OR GRANT, THEN THE SAME SHOULD HAVE BEEN SHOWN AS LIABILITIES IN T HE BALANCE SHEET AND THE RECEIPTS AND DISBURSEMENTS SHOULD BE TREATED AS CAP ITAL. THE UTILIZATION OF THE SCHEME MONEY BY THE ASSESSEE FOR ADMINISTRATIVE AND OFFICE EXPENSES ON DAY TO DAY BASIS FURTHER PROVE THE CASE OF THE REVE NUE. IN THE ABSENCE OF THE ASSESSEE FULFILLING THE REQUIREMENT OF APPLICAT ION OF FUNDS TOWARDS CHARITABLE TRUST TO THE EXTENT OF 85%, THE LEARNED DR POINTED OUT THAT THE ORDER OF THE CIT(A) HAD TO BE UPHELD. IN RESPECT O F THE AMOUNTS ALLOCATED TO THE DISTRICT, BUT NOT ACTUALLY DISBURSED DUE TO IMP OSITION OF ELECTION CODE OF CONDUCT, IT WAS POINTED OUT THAT NO WHERE IN THE IN STRUCTIONS IT IS WRITTEN THAT THE SCHEME MONEY IS NOT TO BE DISBURSED OR ALLOCATE D. THE LEARNED DR THUS SUBMITTED THAT IN THE ABSENCE OF THE FORM NO.10 UND ER RULE 17 OF I.T. RULES, BEING NOT FILED FOR THE FIRST TIME, WITH THE RETURN OF INCOME, THE ASSESSEE AS NOT ENTITLED TO THE BENEFIT OF SETTING APART OF ITS INCOME. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE IS CONSTITUTED BY THE ORDER OF GOVT. OF HA RYANA AS PER THE REGULATIONS OF GOVT. OF INDIA. THE ASSESSEE IS THE STATE NODAL AGENCY FOR MONITORING, COORDINATING AND IMPLEMENTING THE SCHEM ES FOR THE URBAN POOR IN STATE OF HARYANA. IT AIMS AND OBJECTS ARE AS UNDER :- I) TO IDENTIFY THE URBAN POOR IN HARYANA STATE THRO UGH URBAN LOCAL BODIES ON THE PRINCIPLES LAID DOWN BY GOVERNMENT OF INDIA FOR NEHRU ROZGAR YOGANA. 10 II) TO IMPLEMENT THROUGH URBAN LOCAL BODIES / DISTR ICT URBAN DEVELOPMENT AGENCIES / CHIEF ADMINISTRATOR, H OUSING BOARD, HARYANA / CHIEF ADMINISTRATOR, FARIDABAD COM PLEX ADMINISTRATION, FARIDABAD, VARIOUS SCHEMES OF NEHRU ROZGAR YOGNA AND THE SCHEME OF URBAN BASIC SERVICES FOR TH E POOR AND ANY SUCH OTHER SCHEME AS MAY BE STARTED SUBSEQU ENTLY BY THE GOVERNMENT OF INDIA OR HARYANA GOVERNMENT. III) TO MAINTAIN LIAISON WITH DISTRICT URBAN DEVELO PMENT AGENCIES, FARIDABAD COMPLEX ADMINISTRATION AND HOUS ING BOARD, HARYANA IN IMPLEMENTATION OF NEHRU ROZGAR YO GANA AND URBAN BASIC SERVICES FOR THE POOR OR SUCH SCHEM ES AS MAY BE STARTED SUBSEQUENTLY BY THE GOVERNMENT OF INDIA OR HARYANA GOVERNMENT OF THE BENEFIT OF URBAN POOR. IV) TO INVOLVE THE URBAN LOCAL BODIES IN THE IDENTI FICATION OF BENEFICIARIES OF THE NEHRU ROZGAR YOGANA, MAINTA INING WITH REGARD THE SELECTION OF PROJECTS, ALLOTMENT OF SITE S ETC. THOUGH DISTRICT URBAN DEVELOPMENT AGENCIES. V) TO MONITOR THE IMPLEMENTATION OF THE SCHEME UNDE R NEHRU ROZGAR YOGANA / URBAN BASIC SERVICES FOR THE POOR AND SUCH OTHER SCHEMES AS THE GOVERNMENT BODY OF THE SO CIETY MAY, FROM TIME TO TIME, DIRECT OF SUCH SCHEMES AS M AY BE STARTED SUBSEQUENTLY BY THE GOVERNMENT OF INDIA OR HARYANA GOVERNMENT FOR THE BENEFIT OF URBAN POOR. TO ACHIEVE ABOVE SAID OBJECTS, THE ASSESSEE MAY - I) SEEK AND RECEIVE GRANTS, LOANS AND SUCH OTHER SUMS OF MONEY AS THE CENTRAL / STATE GOVERNMENT MAY SANCTION FROM TIME TO TIME. II) PROVIDE FUNDS THROUGH URBAN LOCAL BODIES / DISTRICT URBAN DEVELOPMENT AGENCIES TO THE FINANCIA L INSTITUTIONS FOR DISBURSEMENT TO THE IDENTIFIED BENEFICIARIES AS SUBSIDY AT THE TIME OF RELEASE OF LOANS; 11 III) TAKE STEPS TO ENSURE LOANS AND CREDIT FACILITI ES TO THE IDENTIFIED BENEFICIARIES BY THE FINANCIAL INSTI TUTIONS. IV) ALLOCATE / SANCTION / DISBURSE FUNDS TO URBAN LOCAL BODIES THROUGH DISTRICT URBAN DEVELOPMENT AGENCIES AND TO CHIEF ADMINISTRATOR, FARIDABAD COMPLEX ADMINISTRATION, FOR THE IMPLEMENTATION OF NEHRU ROZGAR YOGANA AND URBAN BASIC SERVICES FOR POOR PROGRAMME. V) SANCTION EXPENDITURE TO MEET THE COST OF ESTABLISHMENT AND THE INFRASTRUCTURE REQUIRED FOR CARRYING OUT THE PURPOSES OF THE SOCIETY. 15. THE ASSESSEE AS STATE NODAL AGENCY IS DISBURSIN G THE FUNDS RECEIVED FROM GOVT. OF INDIA & STATE GOVT. TO DISTRICT AUTHO RITIES FOR FURTHER DISTRIBUTION TO ELIGIBLE BENEFICIARIES IN LINE WITH THE SCHEMES LAUNCHED BY GOVT. OF INDIA AND STATE GOVT. FROM TIME TO TIME. T HE FUNCTION OF THE ASSESSEE IS TO DISBURSE AND MONITOR THE FUNDS DISBU RSED UNDER THE SCHEMES FOR THE IMPLEMENTATION OF PROGRAMMES. DURING THE YEAR U NDER CONSIDERATION, THE GOVT. OF INDIA HAD NOTIFIED TWO SCHEMES FOR POVERTY ERADICATION NAMELY S.J.S.R.Y SCHEME AND NSDP THROUGH THE DISTRICT URBA N DEVELOPMENT AGENCIES / MUNICIPAL COMMITTEES / MUNICIPAL COUNCIL S IN THE URBAN AREAS OF STATE OF HARYANA. THE SAID SCHEMES WERE FUNDED BY THE GOVERNMENT OF INDIA AND STATE GOVERNMENT. THE ASSESSEE FOLLOWS A SYSTEM OF ACCOUNTING WHEREIN THE FUNDS RECEIVED IN THE TWO SCHEMES ARE K EPT IN BANKS PRIOR TO ITS DISBURSEMENT TO THE DISTRIBUTING AGENCIES. IN ADD ITION, IF ANY AMOUNT REMAINS NOT DISBURSED AT THE END OF THE FINANCIAL Y EAR, THE SAME IS SHOWN AS OPENING BALANCE SCHEME MONEY TO BE UTILIZED IN THE NEXT FINANCIAL YEAR. DURING THE YEAR UNDER CONSIDERATION, AS PER THE ASS ESSING OFFICER THE ASSESSEE HAD RECEIVED THE FOLLOWING AMOUNTS UNDER T HE TWO SCHEMES RESPECTIVELY :- 12 SJSRY SCHEME OPENING BALANCE OF LAST YEAR : RS. 4,28,20,000/- MONEY RECEIVED DURING THE YEAR : RS. 7,57,96,000/ - INTEREST INCOME EARNED : RS. 12,12,660/- DURING THE YEAR ON SJSY FUNDS TOTAL : RS. 11,98,28,660/- NSDP SCHEME OPENING BALANCE OF LAST YEAR RS. 3,82,51,000/- AMOUNT RECEIVED IN THE YEAR RS. 10,47,000/- INTEREST EARNED ON NSDPFUNDS RS. 7,96,332/- 16. OUT OF THE ABOVE SAID FUNDS RECEIVED BY THE ASS ESSEE, THE AMOUNT IS TO BE DISBURSED TO THE DISTRIBUTING AGENCIES BY THE AS SESSEE. THE ASSESSEE IS ONLY ALLOWED TO RETAIN FIXED PERCENTAGE FOR ADMINIS TRATIVE AND OTHER EXPENSES (AOE) - 5% AND INFORMATION AND EDUCATION COMPONENT (IEC) - 2%, IN ORDER TO MEET ITS ADMINISTRATIVE AND OTHER EXPENSES. THE UNSPENT AMOUNT OUT OF THE AOE AND IEC COMPONENTS AFTER MEETING EXPENSES IS TO BE ACCUMULATED AND SPENT. DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE AS PER THE ASSESSING OFFICER HAD SHOWN THE UTILIZATION OF THE AMOUNT UND ER THE RESPECTIVE SCHEMES AS UNDER:- SJSRY SCHEME AMOUNT UTILIZED UNDER SJSRY SCHEME IN THE RELEVAN T YEAR AMOUNT DISBURSED IN THE RELEVANT YEAR RS. 5,00,48,0 00/- ADMINISTRATIVE AND O.E. RS. 76,39,000/- TOTAL RS. 5,76,87,000/- NSDP SCHEME AMOUNT UTILIZED UNDER NSDP IN THE RELEVANT YEAR AMOUNT DISBURSED IN THE RELEVANT YEAR RS. 3,44,10,0 00/- 13 ADMINISTRATIVE AND O.E. RS. 3,27,000/- TOTAL RS.3,47,37,000/- 17. THE ASSESSEE HAD NOT UTILIZED THE ENTIRE AOE & IEC FUNDS DURING THE YEAR AND IN RESPECT OF THE BALANCE AMOUNT AVAILABLE , FORM NO.10 FOR UTILIZATION IN FUTURE, WAS SUBMITTED ALONG WITH RET URN OF INCOME. 18. FURTHER, THE AMOUNT TO BE UTILIZED UNDER NSDP S CHEME WAS ALLOCATED BUT NEITHER DISTRIBUTED NOR SPENT DURING THE YEAR A S THE MODEL CODE OF CONDUCT OF ELECTIONS WAS IMPLEMENTED. THE ASSESSEE AS PER THE DIRECTIONS OF FINANCE DEPARTMENT, HARYANA DID NOT DISBURSE THE SC HEME MONEY UNDER THE NSDP SCHEME. THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAD BOOKED THE SCHEME MONEY AS ITS INCOME FOR THE YEAR AND SHOWN AS EXPEN DITURE ON ALLOCATION OF FUNDS. 19. THE ASSESSEE HAD SHOWN INTEREST EARNED ON DEPOS ITS ON ACCOUNT OF FUNDS AVAILABLE IN SJYSRY SCHEME AT RS. 12,12,660/- AND UNDER NSDP SCHEME AT RS. 7,96,332/-. THE PLEA OF THE ASSESSEE IS THAT THE SAID INTEREST IS ALSO IN THE NATURE OF GRANTS RECEIVED BY THE ASSES SEE AS THE SAME HAS TO BE UTILIZED IN LINE WITH THE SCHEME FORMULATED BY THE GOVT. OF INDIA AND NO PART OF THE SAID INCOME IS INCLUDABLE IN THE HANDS OF TH E ASSESSEE. 20. TO ADJUDICATE THE ISSUE AT HAND, IT IS NECESSAR Y TO REFER TO VARIOUS COMMUNICATIONS ISSUED IN THIS REGARD. THE GOVT. OF INDIA FORMULATED THE SJSRY SCHEME & ITS GUIDELINES, COPY OF WHICH IS PLA CED AT PAGES 5 TO 23 OF THE PAPER BOOK FILED BY ASSESSEE. ON THE APPROVAL OF SJSRY SCHEME, INSTRUCTIONS WERE ISSUED BY THE GOVT. OF INDIA VIDE D.O. NO. K- 11019/103/MIS/UPA/97 DATED 11.9.1997 THAT UNSPENT A MOUNTS UNDER THE OLD SCHEMES ON 30.11.1997 SHALL BE TREATED AS OPENING B ALANCE OF THE NEW 14 SCHEME ON 1.12.1997 AND BOTH THE UNSPENT CENTRAL AL LOCATION AND ENTIRE UNSPENT STATE SHARE WAS TO BE TREATED AS OPENING BA LANCE OF SJSRY SCHEME AND TO BE UTILIZED FOR ANY COMPONENTS OF SJSRY SCHE ME EXCEPT FOR A&OE PURPOSES. 21. THE GOVERNMENT OF INDIA VIDE LETTER DATED 17 TH MARCH 1999 BEARING NO.IK-14011/6/99-UPA/USEP)/DWCUA GAVE THE UNDER MEN TIONED DIRECTIONS. 1. AS PER THE GUIDELINES THE FUNDS RELEASED BY THE CEN TRAL GOVERNMENT AS WELL AS THE STATE GOVERNMENT / UT/ ADMINISTRATIONS TO THE URBAN LOCAL BODIES FOR IMPLEMENTATION OF SWARAN JAYANTI SHAHARI ROZGAR YOAJANA (SJSRY) ARE REQUIRED TO BE DEPOSITED IN A SAVING BANK ACCOUNT AND SUCH DEPOSITS WOULD EARN TH E NORMAL INTEREST AT ADMISSIBLE RATE FROM TIME TO TIM E, AS PER INSTRUCTIONS OF RESERVE BANK OF INDIA. 2. . 3. THE MATTER HAS BEEN CONSIDERED IN THIS MINISTRY AND IT HAS BEEN DECIDED THAT THE TOTAL INTEREST EARNED ON SUCH DEPOSITS IN THE SAVING BANK ACCOUNTS UNDER SWARAN JAYANTI SHAHARI ROZGAR YOZANA (SJSRY) WILL BE DISTRIBUTED BETWEEN ALL THE COMPONENTS OF THE SCHEM E ON PRO-RATE BASIS AND EXPENDITURE OUT OF SUCH INTEREST MONEY INDICATED ACCORDINGLY. 22. THE GOVT. OF INDIA VIDE COMMUNICATION DATED 3 RD MAY 2000 BEARING NO. K-14012/4/97-UPA/NRY FURTHER CLARIFIED THAT THO UGH THERE IS NO SEPARATE CLARIFICATION FOR A&OE & IEC UNDER SJSRY S CHEME, THE STATES CAN UTILIZE THE FUNDS FOR A&OE WITHIN THE PRESCRIBED LI MITS. IN OTHER WORDS THE EXPENDITURE ON A&OE, IEC, ETC. SHOULD BE SUBSUMED I N THE FUNDS RELEASED FOR THE SPECIFIED COMPONENTS OF SJSRY. VIDE GOVT. ORDER NO. G- 15 24011/6/2005-UPA-1 DATED 11 TH JULY 2005, ALLOCATION OF CENTRAL FUNDS FOR THE YEAR 2005-06 WERE MADE UNDER THE SJSRY SCHEME. THE CLARIFICATION IN GUIDELINES FOR THE UTILIZATION OF THE GRANT IN SAID SJSRY SCHEME WERE ISSUED BY THE GOVT. OF INDIA ON 29.3.2006 VIDE G.O. NO.G-2 4011/8/2005-UPA-I, WHICH PROVIDED AS UNDER :- 2. THE ABOVE GRANT IS SUBJECT TO THE FOLLOWING CONDITI ONS NAMELY :- (I) UTILIZE THE GRANT IN ACCORDANCE WITH THE APPROVED GUIDELINES FOR THE IMPLEMENTATION OF THE SCHEME. (II) PROVIDE THE STATE SHARE IN THE SHARING PATTERING OF 75.25 BETWEEN THE CENTRAL GOVERNMENT AND THE STATE GOVERNMENT. (III) DISTRIBUTE / ALLOCATE IN ANY OF THE COMPONENTS / SU B COMPONENTS OF SJSRY. HOWEVER, THE ACHIEVEMENT OF PHYSICAL TARGETS MUST BE KEPT IN VIEW WHILE ALLOCAT ING FUND SUNDER THE DIFFERENT COMPONENTS / SUB-COMPONEN TS. (IV) FURNISH THE UTILIZATION CERTIFICATES FOR THE GRANT RELEASED IN THE EARLIER YEAR FOR THE SJSRY. (V) FURNISH QUARTERLY PROGRESS REPORT FOR THE SCHEME IN TIME. 23. IT WAS CLARIFIED VIDE COMMUNICATION DATED 26.9. 2008 BEARING NO. G- 24011/1/2008-UPA THAT THE GRANT IS SUBJECT TO THE CONDITION THAT THE FUNDS MAY BE UTILIZED FOR THE PURPOSE FOR WHICH THEY ARE GIVEN. OTHERWISE, THEY WILL HAVE TO BE REFUNDED ALONG WITH INTEREST AS PER PROVISION OF GFR-2005 24. IN RESPECT OF THE NSDP SCHEME PERTAINING TO T HE FINANCIAL YEAR 2004- 05, ALLOCATION OF FUNDS AMOUNTING TO RS. 1047.00 LA CS WAS MADE BY THE GOVT. OF INDIA AS PER THE COMMUNICATION FILED BY THE REVE NUE AT PAGES 27 TO 29 OF 16 THE PAPER BOOK. THE DETAILS OF FUNDS PROPOSED TO BE AVAILABLE FOR ALLOCATION WAS AS UNDER:- LOAN GIA TOTAL ADDITIONAL CENTRAL ASSISTANCE 732.90 314.10 1047.00 A&OE 5% OF GIA FOR (FOR SUDESH) 0.00 15.70 15.70 NET AMOUNT FOR ALLOCATION 732.90 298.40 1031.30 25. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSEE VIDE LETTER DATED 30.8.2007 / 12.9.2007 EXPLAINED AS UNDER:- THE AMOUNT RECEIVED FROM GOVERNMENT OF INDIA AND G OVT OF HARYANA IS A LIABILITY OF THE SOCIETY AND THE SO CIETY IS UNDER OBLIGATION TO DISBURSE TO DISTRICT AUTHORITIES FOR THE PURPOSE OF IMPLEMENTATION OF SCHEME. IN THE SOCIETYS CASE, THE ASSESSEE HAS NO DISCRET ION TO UTILIZE THE AMOUNT RECEIVED FROM GOVT. OF INDIA AN D STATE GOVERNMENT, EXCEPT DISBURSEMENT TO DISTRICT AUTHORI TIES IN ACCORDANCE WITH INSTRUCTIONS GIVEN BY GOVERNMENT OF INDIA AND STATE GOVERNMENT FROM TIME TO TIME AND THEREFORE, THE AMOUNT RECEIVED FORM GOVT. OF INDIA AND STATE GOVT. IN ACC ORDANCE WITH SPECIFIED SCHEME SHOULD NOT BE TREATED AS RECEIPT I N THE NATURE OF INCOME OF THE SOCIETY. IN THIS CASE, THE SOCIETY IS MERELY ACTING AS NODAL AGENCY RECEIVING GRANTS FROM GOI AND STATE GOVT. AND DISTR IBUTING THE SAME TO VARIOUS DISTRICT AUTHORITIES FOR IMPLEMENTA TION OF VARIOUS GOVT. OF INDIA SCHEMES AND SUPERVISING THE EXECUTION OF THE SCHEMES BUT HAS NO DISCRETION TO UTILIZE THE AM OUNT AS PER OWN REQUIREMENTS. YOU ARE HEREBY REQUESTED TO KINDLY TAKE NOTE OF THE SAME. WE SHALL BE VERY THANKFUL TO YOU. WE ARE ENCLOSING TH E ALLOCATION 17 ORDER APPROVED BY THE THEN COMMISSIONER & SECRETARY , GOVT. OF HARYANA, URBAN DEVELOPMENT DEPARTMENT AND THE COPY OF INSTRUCTIONS ISSUED BY FINANCE DEPTT., HARYANA TO E NSURE NON VIOLATION OF MODEL CODE OF CONDUCT. . 26. THE ASSESSING OFFICER VIDE LETTER DATED 6.11.20 07 REQUISITIONED THE ASSESSEE AS UNDER:- 1. YOU HAVE SHOWN TOTAL SCHEME MONEY RECEIVED DURI NG THE FINANCIAL YEAR 2004-05 RELEVANT ASSESSMENT YEAR 200 5-06 AT RS. 18,04,96,000/-. OUT OF THIS THE AMOUNT UTILIZED BY YOU DURING THE FINANCIAL YEAR 2004-05 RELEVANT TO ASSES SMENT YEAR 2005-06 HAS BEEN STATED AT RS. 13,09,37,000/- ) PLE ASE REFER TO YOUR SUBMISSION DATED 6.11.2007. YOU HAVE ALSO RECE IVED INTEREST SAT RS. 20,08,992/- FOR THE ASSESSMENT YEA R 2005-06 AND THE AMOUNT OF INTEREST CARRIED FORWARDED FORM P .Y. IS AT RS. 1,00,70,928/-. THE AMOUNT OF UNUTILIZED GRANT CARRIED FORWARDED FORM P.Y. AT RS. 8,10,71,000/-. PLEASE R EFER TO YOUR WRITTEN SUBMISSION FIELD ON 6.11.2007 WHERE YOU HA VE ALSO CLAIMED RS. 1,04,70,000/- AS BEING UTILIZED. . 2. YOU HAVE SHOWN INTEREST INCOME OF RS. 1,00,70,92 8/- CARRIED FORWARDED FROM P.Y. AS RS. 20,08,992/-. AS INTEREST RECEIVED FOR THE ASSESSMENT YEAR 2005-06, WHICH YOU HAVE STATED AS NOT BEING INCOME BUT, IT TO BE ADDED TO T HE GRANT RECEIVED . 27. THE ASSESSEE IN REPLY VIDE LETTER DATED 14.11.2 007 SUBMITTED AS UNDER:- A. REGARDING RS. 1804.96 LAKH GIA LOAN TOTAL SJSRY 757.96 NIL 757.96 NSDP 314.10 732.90 10.47.00 TOTAL 1072.06 732.90 1804.96 B. REGARDING RS. 1309.37 LAKH 18 SJSRY 1091.29 NIL 1091.29 NSDP 65.42 152.66 218.08 TOTAL 1156.71 152.66 1309.37 C. REGARDING RS. 1047.00 LAKH (ALLOCATED BUT NOT DI SBURSED DUE TO IMPOSITION OF MODEL CODE OF CONDUCT BY ELECTION COM MISSION OF INDIA IN STATE OF HARYANA DUE TO ELECTIONS IN THE STATE. SJSRY - - NIL NSDP 314.10 732.39 1047.00 TOTAL 314.10 732.39 1047.00 TOTAL (B) + (C) 1470.81 885.56 2356.37 D. REGARDING RS. 20.08 LAKH (INTEREST MONEY) SJSRY 12.13 - 12.13 NSDP 7.96 - 7.96 TOTAL 20.09 - 20.09 REGARDING RS. 810.71 LAKH (OPENING BALANCE) WITH DISTRICT PRE YEAR AMOUNT BUT RECEIVED IN2004-50 UNALLOCATED WITH SUDESH TOTAL SJSRY 94.87 - 333.33 428.20 NSDP 164.43 - 218.08 382.51 TOTAL 259.30 - 551.41 810.71 28. IT WAS FURTHER CLARIFIED BY THE ASSESSEE AS UND ER:- AND THESE GRANTS AND LOAN MONEY CANNOT IN ANY MANN ER BE EQUATED WITH THE VOLUNTARY CONTRIBUTIONS OR DONATIO NS WHICH MAY FORM PART OF THE CORPUS. IN THE CASE OF THE ASS ESSEE, ONLY THE A&OE MONEY CAN, BY SOME STRETCH OF IMAGINA TION, BE TREATED AS PART OF CORPUS MONEY AND HENCE FOR TH AT SURPLUS, WE HAD SUBMITTED FORM NO. 10. 19 29. THE PERUSAL OF THE MATERIAL ON RECORD REFLECTS THAT THE ASSESSEE WAS CONSTITUTED AS A NODAL AGENCY TO RECEIVE THE GRANTS FROM GOVERNMENT OF INDIA AND STATE GOVERNMENT UNDER THE RESPECTIVE SCHEMES F ORMULATED FOR THE STATE OF HARYANA AND DISBURSE THE SAME TO VARIOUS DISTRIC T AUTHORITIES. THE FUNCTIONING OF THE NODAL AGENCY IS GOVERNED BY THE VARIOUS GUIDELINES AND INSTRUCTIONS ISSUED FROM TIME TO TIME. THE SECOND ROLE OF THE ASSESSEE IS TO SUPERVISE THE EXECUTION OF FUNDS FOR THE SCHEMES AN D FURNISH THE UTILIZATION CERTIFICATES FOR THE GRANTS RELEASED. THE ASSESSEE SOCIETY HAS NO DISCRETION TO UTILIZE THE GRANTS RECEIVED FROM GOVERNMENT OF INDI A AND STATE GOVERNMENT AS PER OWN REQUIREMENTS EXCEPT THE AMOUNT EARMARKED FOR MEETING ITS EXPENDITURE UNDER A&OE AND IEC. THE UNSPENT GRANT S ALLOCATED BY THE GOVERNMENT OF INDIA / STATE GOVERNMENT AT THE CLOSE OF THE YEAR ARE TO BE TREATED AS OPENING GRANTS UNDER THE RESPECTIVE SCHE MES AT THE START OF THE SUCCEEDING YEAR. IN CASE OF THEIR NON UTILIZATION AT THE CLOSE OF THE SCHEME, THE FUNDS ARE TO BE REFUNDED ALONGWITH INTEREST TO THE GOVERNMENT OF INDIA / STATE GOVERNMENT. SUCH GRANTS RECEIVED BY THE ASS ESSEE FOR FURTHER DISBURSEMENT TO DISTRICT AUTHORITIES DO NOT BELONG TO THE ASSESSEE SOCIETY. THE GRANTS DO NOT FORM CORPUS OF THE ASSESSEE NOR IT IS INCOME OF THE ASSESSEE UNDER SECTION 11 OF THE ACT. THE SAID GRANTS ARE N OT DONATIONS OR VOLUNTARY CONTRIBUTIONS U/S 12 OF THE ACT, WHICH ARE RECEIVED WITHOUT ANY CONDITIONS AND CAN BE UTILIZED IN ANY MANNER. THE ASSESSEE IN PRESENT SET UP IS THE TRUSTEE OF THE GRANTS GIVEN BY THE GOVERNMENT OF IN DIA / STATE GOVERNMENT UNDER THE VARIOUS SCHEMES FLOATED FOR THE STATE OF HARYANA, WHICH IS IN THE NATURE OF SPECIAL FUND ENTRUSTED TO THE ASSESSEE FO R FURTHER DISBURSEMENT TO DISTRICT AUTHORITIES. ACCORDINGLY, THE GRANTS RECE IVED BY THE ASSESSEE ARE NOT TO BE CONSIDERED EITHER AS INCOME OR FOR ASCERTAIN ING THE AMOUNT EXPANDED OR THE AMOUNT TO BE ACCUMULATED. THE PROVISIONS OF SE CTION 11 AND 12 OF THE 20 ACT ARE NOT APPLICABLE TO THE GRANTS RECEIVED BY TH E ASSESSEE UNDER THE SJSRY SCHEME OR NSDP SCHEME. IN VIEW OF THE SAME, THE AS SESSEE IS NOT OBLIGED TO FILE ANY CERTIFICATE OF UTILIZATION OF ACCUMULATED FUNDS BY WAY OF FORM NO.10. 30. HOWEVER, THE AMOUNT ALLOCATED UNDER THE A&OE AN D IEC ACCOUNT EARMARKED TO BE UTILIZED FOR MEETING THE ADMINISTRA TIVE AND OTHER EXPENSES OF THE ASSESSEE SOCIETY IS INCOME OF THE FINANCIAL YEA R AND PROVISIONS OF SECTION 11 OF THE ACT ARE APPLICABLE. THE ASSESSEE IS TO A PPLY 85% OF THE INCOME FOR SUCH PURPOSES AND IF THERE IS SHORTFALL IN ITS APPL ICATION DURING THE FINANCIAL YEAR, THEN THE SAME AS PER THE PROVISIONS OF THE AC T MAYBE ACCUMULATED FOR EXPENDITURE IN FUTURE AS PER THE PROVISIONS OF THE ACT. THE ASSESSEE THUS IS STATUTORILY REQUIRED TO FILE ITS INTENTION OF EXPAN DING THE ACCUMULATED FUNDS IN FUTURE BY WAY OF FORM NO.10. 31. NOW WE MAY REFER TO THE VARIOUS JUDICIAL PRONO UNCEMENTS RELIED UPON DURING THE COURSE OF HEARING. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. M/S PUNJAB STATE SPORTS COUNCIL, CHANDIGAR H IN ITA NO. 190 OF 2008 HELD THAT THE GRANTS RECEIVED FROM CENTRAL AND STATE GOVERNMENT FOR SPECIFIC PURPOSE FOR DEVELOPING SPORTS AND MEETING EXPENSES OF THE SOCIETY ARE NOT TO BE TREATED AS VOLUNTARY CONTRIBUTION OR AS TAXABLE INCOME OF THE SOCIETY. 32. THE CHANDIGARH BENCH OF THE TRIBUNAL IN ITA NO. 904/CHANDI/2006 IN ITO VS. PUNJAB STATE SPORTS COUNCIL VIDE ORDER DAT ED 20 TH JULY 2007 HAD HELD THE GRANT RECEIVED SPECIFICALLY FOR THE PROMOT ION OF THE SPORTS WITH A RIDER TO REFUND THE UNUTILIZED GRANTS, WOULD NOT BE THE I NCOME OF THE ASSESSEE. HOWEVER, THE OTHER TYPE OF GRANTS RECEIVED FOR MEET ING EXPENSES FOR THE 21 PURPOSE OF WHICH THE SOCIETY WAS CREATED, BEING RE FLECTED IN THE INCOME AND EXPENDITURE STATEMENT WOULD FORM THE INCOME FOR THE PURPOSE OF SECTIONS 11 & 12 OF THE INCOME TAX ACT. 33. THE HYDERABAD BENCH OF THE TRIBUNAL IN NIRMAL A GRICULTURAL SOCIETY VS. ITO [71 ITD 152 (HYD.)] HELD AS UNDER:- TIED-UP AMOUNTS NEED NOT, THEREFORE, BE TREATED AS AMOUNTS WHICH ARE REQUIRED TO BE CONSIDERED FOR ASSESSMENT, FOR ASCERTAINING THE AMOUNT EXPENDED OR THE AMOUNT TO BE ACCUMULATED. ANY NON-REFUNDABLE CREDI T BALANCE IN THE PERSONAL ACCOUNT OF BW WILL BE TREAT ED AS INCOME IN THE YEAR IN WHICH SUCH NON-REFUNDABLE BAL ANCE WAS ASCERTAINED. 34. IN TRUSTEES OF SHRI KOT HINDU SHREE MANDER VS. CIT [209 ITR 396(BOM], IT WAS HELD THAT SUBSCRIPTION AMOUNT RECE IVED BY THE ASSESSEE TRUST FROM MEMBERS BY WAY OF MEMBERSHIP FEE, WAS NOT VOLU NTARY CONTRIBUTION WITHIN THE MEANING OF SECTION 12 OF THE ACT, HENCE COULD NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE SOCIETY. 35. IN CIT VS. KERALA HAND DEVELOPMENT CORPORATIO N LTD (232 ITD 575)(KER.), IT WAS HELD THE SUBSIDY GRANTED BY GOVE RNMENT, WHICH COVERS THE SUPERVISION CHARGES AND OVERHEAD EXPENSES OF THE CO RPORATION CANNOT BE TREATED AS A TRADE RECEIPT AND IT DOES NOT PARTAKE CHARACTER OF A REVENUE RECEIPT. 36. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HA D SHOWN THE GRANTS RECEIVED DURING THE YEAR AS ITS INCOME OF THE YEAR AND HENCE ITS TREATMENT IS TO BE CONSIDERED. WE FIND NO MERIT IN THE STAND OF THE REVENUE IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPRME COURT IN KEDAR NATH JUTE 22 MANUFACTURING COMPANY LTD VS. CIT [82 ITR 363 (SC) ] WHEREIN IT HAS BEEN HELD WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DE DUCTION OR NOT WILL DEPEND ON THE PROVISION OF THE LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHT NOR CAN THE EX ISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONC LUSIVE IN THE MATTER. THE ASSESSEE HAD SHOWN THE ENTIRE AMOUNT AS ITS INCOME AND ALSO CLAIMED THE AMOUNTS TO BE DISBURSED AS ITS EXPENDITURE. MERE EN TRIES IN THE BOOKS OF ACCOUNT DO NOT DECIDE THE NATURE OF RECEIPTS AND IT S TAXABILITY UNDER THE INCOME TAX ACT AS HELD BY THE APEX COURT AND HENCE WE DISMISS THIS PLEA OF THE REVENUE. 37. THE SECOND OBJECTION OF REVENUE WAS NON-DISBURS EMENT OF FUNDS UNDER NSDP SCHEME. AS ELABORATELY DEALT BY US IN THE PARA S HEREINABOVE, THE ASSESSEE IS A NODAL AGENCY IN RECEIPT OF GRANTS FRO M GOVERNMENT OF INDIA & STATE GOVERNMENT AND SUCH GRANTS ARE TO BE DISTRIBU TED TO VARIOUS DISTRICT AUTHORITIES AND SURPLUS REMAINING IF ANY HAS TO BE SURRENDERED TO THE GOVERNMENT OF INDIA / STATE GOVERNMENT. WE HAVE RE FERRED TO VARIOUS NOTIFICATIONS ISSUED BY THE GOVERNMENT OF INDIA IN CONNECTION WITH THE SJSRY SCHEME, IN THE PARAS HEREINABOVE AND THE LEA RNED AR POINTS OUT THAT SIMILAR NOTIFICATIONS ARE RECEIVED UNDER NSDP SCHEM E. THE ONLY POINT OF DISTINCTION WAS THAT THE ASSESSEE HAD DISBURSED THE FUNDS TO VARIOUS DISTRICT AUTHORITIES UNDER SJSRY SCHEME BUT WITH REGARD TO T HE GRANTS RECEIVED UNDER NSDP SCHEME, THE SAME WERE ALLOCATED BUT WERE NOT D ISBURSED DUE TO THE IMPOSITION OF MODEL CODE OF CONDUCT BY ELECTION COM MISSION OF INDIA IN STATE OF HARYANA. IN VIEW OF OUR HOLDING, THE GRAN TS BEING NOT INCOME OF THE ASSESSEE SOCIETY, ITS ALLOCATION BUT NON DISBURSAL DUE TO THE ELECTION CODE OF CONDUCT WOULD NOT CHANGE THE NATURE OF RECEIPTS IN THE HANDS OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE VARIOUS CASE LAWS REFERR ED TO ABOVE, WE HOLD THAT THE GRANTS RECEIVED BY THE ASSESSEE FROM GOVERNMENT OF INDIA AND STATE 23 GOVERNMENT UNDER DIFFERENT SCHEMES IS NOT TO BE INC LUDED AS INCOME U/S 11 OR 12 OF THE INCOME TAX ACT. ONCE THE GRANT IS NOT INCLUDABLE AS INCOME, THE SURPLUS AT THE END OF THE YEAR REMAINING UNSPENT IS NOT OF ANY RELEVANCE VIS- A-VIS IT BEING CHARGEABLE TO TAX. 38. THE ASSESSEE IN ITS CROSS OBJECTION BY GROUND N O.1 HAS RAISED THE ISSUE IN RESPECT OF THE GRANTS RECEIVED FROM THE CENTRAL AND STATE GOVERNMENT FOR THE DISBURSEMENT TO DISTRICT AUTHORITIES AS NOT BEI NG ITS INCOME. IN LINE WITH OUR DISCUSSION IN THE PARAS HEREINABOVE, WE ALLOW T HE GROUND NO.1 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION. THE SAID GRAN TS ARE NOT TO BE INCLUDED AS INCOME OF THE SOCIETY U/S 11 & 12 OF THE ACT AND CO NSEQUENTLY, THE ASSESSEE IS NOT TO APPLY OR ACCUMULATE THE SAID GRANTS FOR I TS OBJECTS AND HENCE, NO REQUIREMENT OF FURNISHING THE REVISED FORM NO.10 IN RESPECT OF THE BALANCE NON-APPLIED GRANTS RECEIVED UNDER THE TWO SCHEMES. HOWEVER, AS THE RECEIPTS ON ACCOUNT OF A&OE AND I.E.C. ARE HELD TO BE INCOME U/S 11 OF THE ACT IN THE HANDS OF THE ASSESSEE, IN CASE OF ITS NO N-APPLICATION TOWARDS THE OBJECTS, THE ASSESSEE IS TO FURNISH ITS INTENTION O F EXPANDING THE SAME IN FUTURE BY WAY OF FORM NO.10 UNDER RULE 17 OF I.T. R ULES. THE ASSESSEE IN THE PRESENT CASE HAS FURNISHED ON RECORD FORM NO.10 IN RESPECT OF THE BALANCE NON-APPLIED GRANTS ALONG WITH THE RETURN OF INCOME AND IN VIEW THEREOF, SUCH INCOME IS NOT INCLUDIBLE IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE GROUND NO.3 RAISED B Y THE ASSESSEE IN ITS CROSS OBJECTION IS THUS ALLOWED AS INDICATED HEREIN ABOVE. 39. THE GROUND NO.1 RAISED BY THE REVENUE AND THE G ROUND NO.2 RAISED IN THE CROSS OBJECTION BY THE ASSESSEE ARE AGAINST THE TREATMENT OF INTEREST INCOME AS INCOME FROM PROPERTY HELD UNDER TRUST AND CLAIM OF EXEMPTION U/S 11 OF THE ACT. THE ASSESSEE AS PER THE DIRECTIONS OF THE CENTRAL & STATE GOVERNMENT IS TO KEEP THE FUNDS IN SEPARATE ACCOUNT S WITH BANK AND INTEREST 24 EARNED ON SUCH DEPOSITS WAS TREATED AS PART OF THE GRANTS UNDER THE RESPECTIVE SCHEMES TO WHICH THE SAID FUNDS RELATE. THE INSTRU CTIONS ISSUED BY THE CENTRAL GOVT. WHILE FORMULATING THE SCHEME ALSO PRO VIDE THAT THE INTEREST EARNED ON SUCH DEPOSITS SHALL BE ACCUMULATED AS PAR T OF GRANTS RELEASED UNDER THE SCHEME AND IN CASE OF THEIR NON-UTILIZATION THE SAME WILL FORM PART OF THE OPENING SCHEME MONEY OF THE SUCCEEDING YEAR. THE ASSESSEE HAD CLAIMED SUCH INTEREST EARNED ON BANK DEPOSITS AS EXEMPT FRO M THE PURVIEW OF SECTION 11 OF THE ACT. WE FIND THAT THE HON'BLE KARNATAKA HIGH COURT IN CIT VS. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANC E CORPORATION, 284 ITR 582 (KAR) HAD HELD THAT INTEREST INCOME OF A GO VERNMENTAL NODAL AGENCY SET UP FOR DEVELOPMENT ACTIVITIES ON FUNDS PROVIDED BY CENTRAL GOVERNMENT BUT PARKED IN BANKS FOR THE PERIOD OF NON-UTILISATI ON IS NOT INCOME CHARGEABLE TO TAX. THE ISSUE IS ALSO COVERED BY THE RATIO LAI D DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. HARYANA C.M. RELIEF FUND, 309 ITR 275 (P&H). IN LINE WITH THE RATIO LAID DOWN B Y THE HON'BLE PUNJAB & HARYANA HIGH COURT AND KARNATAKA HIGH COURT WE HOLD THAT THE INTEREST INCOME EARNED BY THE ASSESSEE SOCIETY IS EXEMPT FRO M THE PROVISIONS OF SECTION 11 OF THE ACT. THE GROUND NO.1 RAISED BY THE REVENUE IS THUS DISMISSED AND GROUND NO.2 RAISED BY THE ASSESSEE IN CROSS OBJECTION IS ALLOWED. 40. THE REVENUE IN GROUND NO.2 IS AGGRIEVED BY THE ORDER OF CIT(A) IN ALLOWING THE CLAIM IN RESPECT OF AMOUNTS NOT DISBUR SED DUE TO THE IMPOSITION OF ELECTION CODE OF CONDUCT. WE FIND THAT THE ISSU E IS ACADEMIC IN NATURE IN VIEW OF OUR HOLDING THAT GRANTS RECEIVED BY THE ASS ESSEE SOCIETY ARE NOT INCOME CHARGEABLE TO TAX U/S 11 & 12 OF THE ACT. FURTHER WE FIND SUPPORT FROM THE RATIO LAID DOWN BY HON'BLE ANDHRA PRADESH IN CIT TRUSTEES OF H.E.H. THE NIZAMS CHARITABLE TRUST (SUPRA) THAT AC TUAL SPENDING OF INCOME 25 ON CHARITABLE PURPOSE NOT NECESSARY TO OBTAIN EXEMP TION WHERE AMOUNT IS DEBITED TO THE ACCOUNTS. THE SAME WAS HELD AS SUFF ICIENT COMPLIANCE WITH THE PROVISIONS OF SECTION 11 OF THE ACT. IN VIEW OF TH E SAME, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.2 RAISED BY THE REVENUE. 41. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH JULY, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR