Ms Nice Foundation, Hyd, Hyderabad V. DDIT (E)-1, Hyderabad

ITA 2039/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66179 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V RAGHURAM
• Assessee Lawyers: M S RAO
• Keywords: Charitable institution; Capital receipt; Condonation of delay; Capital expenditure
• Section: 12A; 12AA; 6; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 2039/HYD/2011 ASSESSMENT YEAR : 2007-08 NICE FOUNDATION, APPELLANT HYDERABAD. (PAN AAATN9395H) VS. DY. DIRECTOR OF INCOME-TAX(EXEMPTION)-I, RESP ONDENT HYDERABAD. ITA NO. 268/HYD/2012 ASSESSMENT YEAR : 2007-08 DY. DIRECTOR OF INCOME-TAX(EXEMPTION)-I, APPE LLANT HYDERABAD. NICE FOUNDATION, RESPONDENT HYDERABAD. (PAN AAATN9395H) ASSESSEE BY : MR. M.S. RAO REVENUE BY : MR. A.V. RAGHURAM DATE OF HEARING : 06/08/2012 DATE OF PRONOUNCEMENT : 08/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THESE CROSS APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE ORDER OF THE CIT(A), GUNTUR, PASSED ON 10/06/2011 FOR THE ASSESSMENT YEAR 2007-08. 2 ITA NO. 2039/HYD/11 & 268/HYD/12 M/S NICE FOUNDATION ITA NO. 2039/HYD/2011 APPEAL BY THE ASSESSEE 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE TR UST WAS ESTABLISHED ON 06/02/2002 AND WAS REGISTERED U/S 12 A OF THE IT ACT ON 21/11/2004 W.E.F. 01/04/2007 TO 31/03/2010 A ND THE BENEFIT OF CONDONATION OF DELAY WAS NOT GRANTED TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE ITA T, HYDERABAD, AND THE ITAT, HAD DIRECTED THE DIT (EXEMPTIONS) TO CONSIDER THE PETITIONS OF THE ASSESSEE PRAYING FOR CONDONATION O F DELAY FROM 01/04/2002, VIDE ORDER DT. 30/04/2008 AND THE MATTE R IS PENDING FOR DISPOSAL BEFORE DIT(EXEMPTIONS), HYDERABAD TILL DATE. 3. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN SU BMISSIONS, WHEREIN IT WAS STATED AS UNDER:- OURS IS A TRUST AND IS REGISTERED U/S 12A FROM 01/0 4/2008. THE ITAT, HYDERABAD, VIDE THEIR ORDER DT. 30/04/200 8 DIRECTED THE DIT(E) TO CONSIDER OUR APPLICATION FOR CONDONATION OF DELAY IN SEEKING REGISTRATION FROM 01/04/2002 AND THE SAME IS PENDING BEFORE THE DIT(E ). IN VIEW OF LIMITATION UNDER THE PROVISIONS OF SEC. 12A A, THE REGISTRATION SHOULD BE DEEMED TO HAVE BEEN GRANTED FROM 01/04/2002, SINCE NO ORDER IS PASSED ON THE ORDER O F ITAT, DT. 01/04/2008, TILL DATE. BE THAT AS IT MAY, WE SU BMIT THAT IF THE REGISTRATION IS GRANTED BY DIT(E), THE ORDER OF DEMAND FOR THIS ASSESSMENT YEAR WILL NOT SURVIVE, SINCE TH E SAME IS PASSED DENYING EXEMPTION U/S 11. WITHOUT PREJUDICE TO THE ABOVE, WE SUBMIT THAT THE AO HAS NOT EXAMINED WHETHER THE RECEIPTS OF RS. 1,57,30,60 4/- BE TREATED AS REVENUE RECEIPTS. IT IS SETTLED LAW THAT WHEN DEDUCTION U/S 11 IS NOT BEING ALLOWED THE INCOME IS TO BE COMPUTED APPLYING COMMERCIAL PRINCIPLES. WHEN THE R ECEIPTS ARE SEEN APPLYING COMMERCIAL PRINCIPLES IT WILL BE CLEAR THAT DONATIONS FROM OTHER TRUST CANNOT BE REVENUE RECEIP T BUT WILL BE CAPITAL RECEIPT. THEREFORE, THE AO OUGHT NO T TO HAVE TAXED THE INCOME. THE DETAILS OF RECEIPTS ARE AS UN DER:- SCHOOL HEALTH PROGRAMME, HYDERABAD -RS.37,46,630/- SCHOOL HEALTH PROGRAMME, UDAIPUR - RS. 27,52, 742/- NICE INSTITUTE PROJECT - RS. 92,21,834/- 3 ITA NO. 2039/HYD/11 & 268/HYD/12 M/S NICE FOUNDATION WE SUBMIT THAT THESE AMOUNTS WERE RECEIVED FROM NAA NDI FOUNDATION ANOTHER PUBLIC CHARITABLE TRUST WHICH IS ENGAGED IN CHILDRENS EDUCATION AND HEALTH PROGRAMMES. THEY WANTED THIS TRUST TO TAKE CARE OF SCHOOL CHILDREN H EALTH PROGRAMME AND ACCORDINGLY GRANTED THESE SUMS WITH S PECIFIC DIRECTION AS TO THE PURPOSE FOR WHICH IT SHOULD BE APPLIED. IN SUCH CIRCUMSTANCES THESE RECEIPTS CANNOT BE COME OU R REVENUE RECEIPT AND OUR INCOME. OF THESE RECEIPTS, THE AMOUNT OF RS. 92,21,834/- IS RECEIVED TOWARDS EXECU TING THE NICE INSTITUTE PROJECT WHICH INCLUDE CONSTRUCTION O F BUILDING AND PROVIDING OTHER INFRASTRUCTURE FACILITIES. THIS AMOUNT WAS RECEIVED IN MARCH 2006 AND HENCE THE SAME COULD NOT BE APPLIED FOR THE PURPOSE FOR WHICH IT WAS GIVEN. THE MAJOR PART OF SURPLUS THAT REMAINED OF RS. 95,42,908/- IS FROM THIS AMOUNT ONLY. IN THIS REGARD WE INVITE KIND ATTENTIO N OF THE HONBLE CIT(A) TO THE FOLLOWING DECISION WHEREIN, I T WAS HELD THAT EVEN OF REGISTRATION U/S 12A IS NOT AVAILABLE TIED UP GRANTS CANNOT BE TAXED AS INCOME. 71 ITD 152 HYDERABAD ITAT, IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY. 90 ITD 493 HYDERABAD ITAT, IN THE CASE OF SOCIETY FOR INTEGRATED DEVELOPMENT IN URBAN & RURAL AREAS. IN VIEW OF THE ABOVE DECISIONS, WE SUBMIT THAT THE TAXING THE SURPLUS WHICH IS NOTHING BUT TIED UP GRANT FROM NAANDI FOUNDATION TOWARDS THE NICE PROJECT FOR CONSTRUCTIO N OF BUILDING AND OTHER INFRASTRUCTURE DEVELOPMENT. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) HELD AS UNDER:- 4.2.1 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT, GONE THROUGH THE ORDER OF THE AO. IT IS SEEN FROM THE RECORDS THAT THE ASSESSEE TRUST HAS RECEIV ED DONATION OF RS. 1,57,21,206/- FROM NANDI FOUNDATION DURING THE YEAR AND HAS DECLARED GROSS RECEIPTS OF RS. 1,57,30,604/- AND ARRIVED NET INCOME OF RS. 95,42,9 08/-, AFTER CLAIMING EXPENDITURE UNDER SEVERAL HEADS. AS SEEN FROM THE RECORDS, THE ASSESSEE HAS NOT BEEN GRANTED REGISTRATION U/S 12A FOR THE AY 2007-08 AND WAS GRA NTED REGISTRATION W.E.F. 01/04/2007 ONWARDS AND HENCE, T HE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S 11 OF THE ACT AS POINTED OUT BY THE AO. IN VIEW OF THE ABOVE, SINCE THE ASSESSEE HAS NOT BEEN GRANTED REGISTRATION U/S 12A FOR THE RELEVANT PERIOD I.E. AY 2007-08, THE ACTION OF THE AO IN 4 ITA NO. 2039/HYD/11 & 268/HYD/12 M/S NICE FOUNDATION REJECTING THE EXEMPTION CLAIMED U/S 11 AND BRINGING THE SURPLUS OF INCOME TO TAX IS UPHELD. 5. AGGRIEVED BY THE ORDER OF THE CIT(A, THE ASSESSE E IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL:- 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOT H ON FACTS AND IN LAW IN S FAR AS IT IS PREJUDICIAL TO T HE ASSESSEE. 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN HOLDING THE RECEIPTS OF THE TRUST TO BE TAXAB LE. 3. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT THE RECEIPTS ARE T IED UP GRANTS AND THEREFORE IS NOT TAXABLE IN SPITE OF CIT ING OF DECISIONS IN SUPPORT OF THE SAME. 4. THE LEARNED CIT(A) FURTHER ERRED IN NOT CONSIDER ING THE SUBMISSION THAT REGISTRATION U/S 12A IS DEEMED TO H AVE BEEN GRANTED SINCE THE DI(EXEMPTION) HAS NOT PASSED ORDE RS U/S 12AA AFTER THE SAME IS SET ASIDE TO HIS FILE WITHIN THE TIME STIPULATED IN THE ACT AND THEREBY ERRED IN HOLDING THAT THE ASSESSEE TRUST IS NOT ENTITLED FOR DEDUCTION U/S 11 . 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. 7. GROUND NO.1 IS GENERAL IN NATURE. 8. GROUND NO. 4 REGARDING REGISTRATION U/S 12A, IS DISPOSED OF AS UNDER:- 9. IN THE CASE OF SOCIETY FOR THE PROMOTION OF EDUC ATION ADVENTURE SPORT & CONSERVATION OF ENVIRONMENT VS. C IT & ORS., [2008] 5 DTR (ALL.) 329, THE HONBLE ALLAHABAD HIGH COURT HELD AS UNDER:- CHARITABLE TRUST-REGISTRATION U/S 12A EFFECT OF N ON- PASSING OF ORDER WITHIN THE TIME-LIMIT- TAKING THE VIEW THAT NON-CONSIDERATION OF THE REGISTRATION APPLICATION WITHIN THE TIME FIXED BY S. 12AA(2) WOULD RESULT IN DEEMED REGISTRATION, MAY AT THE WORST CAUSE LOSS OF SOME R EVENUE OR INCOME-TAX PAYABLE BY THE INDIVIDUAL ASSESSEE ON THE OTHER HAND, IF A CONTRARY VIEW IS TAKEN, IT WOULD L EAVE THE 5 ITA NO. 2039/HYD/11 & 268/HYD/12 M/S NICE FOUNDATION ASSESSEE TOTALLY AT THE MERCY OF THE IT AUTHORITIES INASMUCH AS THE ASSESSEE HAS NOT BEEN PROVIDED ANY REMEDY UN DER THE ACT AGAINST NON-DECISION MOREOVER, THE FORMER VIEW FURTHERS THE OBJECT AND PURPOSE OF THE STATUTORY PR OVISION THUS, THE BETTER INTERPRETATION WOULD BE TO HOLD TH AT THE EFFECT OF NON-CONSIDERATION OF THE APPLICATION FOR REGISTRATION U/S 12A WITHIN THE TIME FIXED BY S. 12AA(2) WOULD B E A DEEMED GRANT OF REGISTRATION. 10. IN THE CASE OF SARDARILAL OBERAI MEMORIAL CHART IABLE TRUST VS. ITO, 3 SOT 229 (DELHI), IT HAS BEEN HELD THAT T HE CIT(A) HAVING PASSED NO ORDER OF REFUSAL WITHIN THE TIME P ERIOD OF SIX MONTHS PRESCRIBED IN SECTION 12AA(2) OF THE ACT, AP PLICATION U/S 12A FOR REGISTRATION OF TRUST SHALL BE DEEMED TO HA VE BEEN ALLOWED. 11. IN THE CASE OF REV FATHER TRUST OSCAR COLASCO MEMORIAL MEDICAL ASSOCIATION VS. CIT, [2009] 31 SOT 1 (MUMBA I), THE HONBLE MUMBAI HIGH COURT HELD THAT AS THE CIT IN T HE PRESENT CASE HAS FAILED TO INITIATE THE ENQUIRY IN TIME TO COMPLETE THE PROCESS OF GRANT OF REGISTRATION WITHIN THE STIPULA TED PERIOD OF SIX MONTHS AND AS THE ORDER HAS NOT BEEN PASSED WITHIN THE TIME- LIMIT PRESCRIBED, THE APPLICATION IS DEEMED TO HAVE BEEN GRANTED. THE ORDER OF THE CIT REFUSING THE REGISTRATION IS A NULLITY AND IS QUASHED. THE REGISTRATION IS DEEMED TO HAVE BEEN GR ANTED TO THE ASSESSEE. CIT VS. SOHAN LAL CHHAJAN MAL [2009] 222 CTR (P&H) 190: [2008] 307 ITR 53 (P&H), BHAGWAD SWARUP SHRI S HRI DEVRAHA BABA MEMORIAL SHRI HARI PARMARTH DHAM TRUST VS. CIT [2007] 111 TTJ (DEL)( (SB) 424: [2007] 17 SOT 281 ( DEL)(SB) AND DHARMA SANSTHAPAK SANGH (NIYAS) VS. CIT [2008] 118 TTJ (DEL) 823 FOLLOWED. 12. IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE DEC ISIONS, THE EFFECT OF NON-CONSIDERATION OF THE APPLICATION FOR REGISTRATION U/S 6 ITA NO. 2039/HYD/11 & 268/HYD/12 M/S NICE FOUNDATION 12A WITHIN THE TIME FIXED BY SECTION 12AA(2) WOULD BE A DEEMED GRANT OF REGISTRATION. THUS, GROUND NO. 4 RAISED BY THE ASSESSEE IS ALLOWED 13. AS REGARDS GROUNDS NOS. 2 & 3 REGARDING RECEIPT OF GRANTS, IT IS OBSERVED THAT THE GRANTS RECEIVED BY THE ASSESSE E ARE FROM NANDI FOUNDATION AND ARE IN THE NATURE OF TIED-UP G RANTS TO BE USED TOWARDS CONSTRUCTION OF NICE INSTITUTE PROJECT. ALL THE RECORDS RELATING TO THIS HAVE BEEN PRODUCED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. THE HYDERABAD ITAT HA S HELD IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY (71 ITD 152) AND SOCIET Y FOR INTEGRATED DEVELOPMENT IN URBAN & RURAL AREAS (90 I TD 493) THAT TIED-UP GRANTS, EVEN IF REGISTRATION U/S 12A IS NOT AVAILABLE, CANNOT BE TAXED AS INCOME. FOLLOWING THE ABOVE DECI SIONS OF THE ITAT HYDERABAD, IN THE PRESENT CASE, WE POINT OUT T HAT REGISTRATION U/S 12A IS DEEMED, THEREFORE, WE DECID E THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GROUND NOS. 2 & 3 ARE ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ITA NO. 268/HYD/12 APPEAL BY THE REVENUE 15. GROUND NO. 1 IS GENERAL IN NATURE. GROUND NOS. 2 & 3 ARE DIRECTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELET ING THE DISALLOWANCE OF 20% OF EXPENDITURE AMOUNTING TO RS. 12,37,538/- MADE IN THE ASSESSMENT. 16. THE ASSESSING OFFICER HELD THAT SINCE THE PROJE CT IS NOT COMPLETED AND EXPENDITURE COULD NOT BE BIFURCATED, HENCE 20% OF 7 ITA NO. 2039/HYD/11 & 268/HYD/12 M/S NICE FOUNDATION EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE AND A DDED TO THE TOTAL INCOME, WHICH WORKS OUT TO RS. 12,37,538/- 17. ON APPEAL, THE CIT(A) HELD AS UNDER:- 4.2.2 IN AS MUCH AS DISALLOWING 20% OF EXPENDITURE TREATING IT AS CAPITAL EXPENDITURE IS CONCERNED, I BELIEVE THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TAKING S UCH A DECISION. IT IS BORN BY RECORDS THAT APPELLANT FOUN DATION WAS CONSTRUCTING THE BUILDING FOR NICE INSTITUTE PROJEC T FOR THE HEALTH CARE OF NEW BORN CHILDREN OUT OF THE DONATIO NS RECEIVED DURING THE YEAR UNDER CONSIDERATION. WHEN SO MUCH OF EXPENDITURE WAS INCURRED FOR CONSTRUCTION AS TO HOW THE ASSESSING OFFICER HAS COME TO THE CONCLUSION THAT 2 0% OF SUCH EXPENDITURE PERTAINS TO CAPITAL NATURE AND EVE N WHEN HE IS TRUE AS TO WHY HE WAS DISALLOWING WAS NOT SPE LT OUT. THUS, IN MY CONSIDERED OPINION, THIS ADDITION WAS P URELY ADHOC IN NATURE FOR WHICH NO BASIS IS AVAILABLE. AN Y ADDITION MADE WITHOUT ANY BASIS OR MATERIAL OR BASED ON IMAG INATION CANNOT BE SUSTAINED AND IT HAS TO BE DELETED. IN TH E CIRCUMSTANCES, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAME. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 18. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE DO NOT FIND INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING 20% OF EXPENDITURE OF RS. 12,37, 538/- MADE BY THE ASSESSING OFFICER TREATING THE SAME AS CAPIT AL EXPENDITURE. THE CIT(A) HAS RIGHTLY POINTED OUT THAT THE ASSESSI NG OFFICER WAS NOT CORRECT IN DISALLOWING 20% OF THE EXPENDITURE O N AN ADHOC BASIS. IN THE CASE OF SHANKER TRADING CO. (P) LTD. VS ACIT 152 TAXMAN 49 WITH RESPECT TO ADHOC DISALLOWANCE, IT WA S HELD BY THE TRIBUNAL THAT THE AO WAS NOT EMPOWERED TO MAKE ANY ADHOC DISALLOWANCE WITHOUT POINTING OUT DEFECTS IN VOUCHE RS PRODUCED BY THE ASSESSEE AND DELETED THE ADHOC DISALLOWANCE MAD E BY THE AO. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) ON T HIS COUNT AND THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD AR E DISMISSED. 19. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 8 ITA NO. 2039/HYD/11 & 268/HYD/12 M/S NICE FOUNDATION 20. TO SUM UP, APPEAL OF THE ASSESSEE IS ALLOWED AN D THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 08/08/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHA VAN) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED: 8 TH AUGUST, 2012 KV COPY TO:- 1) M/S NICE FOUNDATION, C/O S/SHRI K. VASANTKUMAR & A.V. RAGHURAM ADVOCATES, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 2) THE DDIT(E)-1, AAYAKAR BHAVAN, HYDERABAD 3) THE CIT (A), GUNTUR 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD