THE ITO WARD - 2(1), Guntur V. Veda Educational Development Association, Guntur

ITA 252/VIZ/2014

• Counselvise Citation: 25225314 RSA 2014
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 19-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH : VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.252/VIZAG/2014 ASSESSMENT YEAR 2006-2007 THE INCOME TAX OFFICER, WARD 2 (1) GUNTUR. VS. VEDA EDUCATIONAL DEVELOPMENT ASSOCIATION, CHILAKALURIPET GUNTUR DISTRICT. PAN AAATV6004D (APPELLANT) (RESPONDENT) FOR REVENUE : MR. D. MANOJ KUMAR, SR. D.R. FOR ASSESSEE : MR. C. SUBRAHMANYAM DATE OF HEARING : 03.03.2015 DATE OF PRONOUNCEMENT : 05.03.2015 ORDER PER J. SUDHAKAR REDDY, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A), GUNTUR DATED 12.02.2014 FOR TH E ASSESSMENT YEAR 2006-2007 ON THE FOLLOWING GROUNDS : 1. WHETHER THE LEARNED CIT(A) WAS JUSTIFIED IN DIRECTING ALLOWANCE OF EXPENDITURE GIVEN THE FACT THAT THE FOREIGN GRANTS WERE PROVED TO BE NON-TIED UP GRANTS ? 2. WHETHER IT IS JUSTIFIABLE TO ALLOW ANY EXPENDITURE OTHER THAN EXPENDITURE INCURRED DIRECTLY IN CONNECTION WITH EARNING OF INCOME IN CASE OF DONATIONS OR CONTRIBUTIONS RECEIVED BY AN ORGANIZATION WHICH IS NOT REGISTERED U/S.12A OR 12AA OF THE INCOME TAX ACT, 1961, ESPECIALLY DUE TO THE FACT THAT ALL TYPES OF CONTRIBUTIONS WOULD BE TAXABLE AS INCOME FROM OTHER SOURCES OR OTHER APPROPRIATE HEAD IN CASE REGISTRATION U/S.12A OR 12AA IS NOT AVAILABLE TO SUCH INSTITUTIONS? WHETHER 2 ITA.NO.252/VIZAG/2014 VEDA EDUCATIONAL DEVELOPMENT ASSOCIATION, CHILAKALURIPET, GUNTUR DI ST. IT IS JUSTIFIABLE TO IGNORE THE FACT THAT ALL VOLUN TARY CONTRIBUTIONS (WHETHER 'TIED-UP' OR 'NON-TIED-UP') ARE TAXABLE AS INCOME UNDER PROVISIONS OF SEC.2(24)(IIA ) OF THE INCOME TAX ACT, 1961 AND WOULD BE EXEMPT AS PER PROVISIONS OF SEC.11 AND 12 OF THE INCOME TAX ACT, ONLY WHEN THE CONCERNED RECIPIENT ORGANIZATION IS REGISTERED EITHER U/S.12 OR 12AA OF THE INCOME TAX ACT, 1961 ? 3. WHETHER THE CONCEPT OF 'TIED-UP' OR 'NON-TIED-UP' NATURE OF ANY DONATIONS, GRANTS, VOLUNTARY CONTRIBUTIONS OR SUCH RECEIPTS ARE RELEVANT WHEN SEEN FROM THE CONTEXT THAT WHEN ONCE SUCH AN AMOUNT IS GIVEN AS VOLUNTARY CONTRIBUTION, GRANT OR DONATION, THE SAME CANNOT BE RECOVERED BY THE DONOR EVEN IF THE DONEE RECIPIENT DOES NOT SPENT IT FOR THE PURPOSE FOR WHICH SUCH CONTRIBUTION IS GIVE N ? 4. WHETHER IT IS CORRECT NOT TO DISTINGUISH BETWEEN TH E NATURE OF AMOUNTS RECEIVED BY WAY OF 'VOLUNTARY CONTRIBUTION/DONATION/GRANT' AND AS AN 'ADVANCE', I N VIEW OF THE FACT THAT IN CASE OF 'VOLUNTARY CONTRIBUTION/DONATION/GRANT' THE AMOUNT NEED NOT BE RETURNED TO THE DONOR, UNDER ANY CIRCUMSTANCE, WHEREAS, IN CASE OF ADVANCE, THE SAME IS CONDITIONAL AND HAS TO BE SPENT FOR THE PURPOSE GIVEN OR RETURNED TO THE PERSON GIVING SUCH ADVANCE ? 5. IS NOT THE VERY PURPOSE OF PROVISIONS OF SEC.11 AND 12 DEFEATED, BY CREATING THE CONCEPT OF 'TIED-UP' O R 'NON-TIED-UP' GRANTS WHEN SEEN FROM THE CONTEXT THA T ONLY INSTITUTIONS WHICH ARE REGISTERED U/S.12A OR 12AA OF THE IT ACT, 1961 ARE ELIGIBLE TO CLAIM ANY SORT OF EXPENDITURE WHETHER CAPITAL OR REVENUE IN NATURE (OTHER THAN EXPENDITURE DIRECTLY ATTRIBUTABL E TO EARNING INCOME), IN RESPECT OF VOLUNTARY CONTRIBUTION/DONATION/GRANT' ? 6. WHETHER IT IS JUSTIFIABLE TO ALLOW EXPENDITURE NOT DIRECTLY ATTRIBUTABLE TO THE EARNING OF INCOME AS DEDUCTION IN RESPECT OF VOLUNTARY CONTRIBUTIONS/DONATIONS/GRANTS, DEFEATING THE VERY PURPOSE OF INCOME TAX ACT? WHETHER THE CIT(A) IS JUSTIFIED IN IGNORING THE FACT THAT EVEN IF THE ASS ESSEE 3 ITA.NO.252/VIZAG/2014 VEDA EDUCATIONAL DEVELOPMENT ASSOCIATION, CHILAKALURIPET, GUNTUR DI ST. HAD NOT SPENT A SINGLE RUPEE FOR THE PURPOSES FOR WHICH THE DONATIONS/VOLUNTARY CONTRIBUTIONS/GRANTS WAS GIVEN BY THE DONOR, THERE WAS NO METHOD OF RECOVERY BY THE DONOR FOR SUCH UNSPENT AMOUNT, SINCE ONCE AN AMOUNT IS GIVEN AS 'VOLUNTARY CONTRIBUTION/DONATION/GRANT' AND NOT AS AN 'ADVANCE', THERE WOULD BE NO CONTROL OF THE DONOR O F SUCH CONTRIBUTIONS MADE? IN THIS CONTEXT, WHETHER THE CIT(A) IS JUSTIFIED IN ALLOWING ANY TYPE OF CAP ITAL OR REVENUE EXPENDITURE, INCLUDING ADMINISTRATIVE CHARGES, HOSPITALITY CHARGES, CYCLONE RELIEF CHARGE S AND TRANSPORTATION CHARGES ETC ? 2. BRIEFLY STATED, THE ASSESSEE SOCIETY IS RUNNING A SCHOOL AND FILED ITS RETURN OF INCOME FOR THE ASSES SMENT YEAR 2006-07 ON 31.10.2006 ADMITTING NIL INCOME. FOR THE RELEVANT ASSESSMENT YEAR , THE ASSESSEE WAS NOT REGISTERED U NDER SECTION 12AA OF THE INCOME TAX ACT AND THEREFORE, WAS NOT E NTITLED TO DERIVE THE BENEFIT UNDER SECTION 11 OF THE INCOME T AX ACT, 1961. THE ASSESSING OFFICER COMPLETED THE ORIGINAL ASSESS MENT UNDER SECTION 143(3) ON 31.12.2008 ADDING THE ENTIRE AMOU NT OF FOREIGN CONTRIBUTION RECEIVED I.E., RS.68,57,108 AS INCOME OF THE SOCIETY AND SIMULTANEOUSLY DISALLOWED THE EXPENDITURE TOWAR DS MID-DAY MEAL PROGRAMME, CYCLONE RELIEF EXPENSES, TRANSPORT EXPENDITURE ETC., AND DETERMINED THE INCOME OF THE ASSESSEE SOC IETY AT RS.1,14,71,239. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), GUNTUR WHO V IDE ORDER DATED 12.11.2009 FOLLOWING THE ORDER OF THE ITAT, H YDERABAD IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. ITO HEL D THAT THE ENTIRE AMOUNT OF FOREIGN CONTRIBUTION OTHER THAN FO REIGN EXCHANGE GAIN ARE TIED UP GRANTS, SINCE THE END USE HAS BEEN SPECIFIED AND TIED UP GRANTS CANNOT BE TREATED AS INCOME OF THE A PPELLANT. FURTHER, THE LD. CIT(A) ALSO ALLOWED EXPENSES ON MI D-DAY MEAL PROGRAMME, TRANSPORTATION AND HOSPITALITY. AGAINST THE ORDER OF THE LD. CIT(A), THE DEPARTMENT HAS FILED AN APPEAL BEFORE ITAT, 4 ITA.NO.252/VIZAG/2014 VEDA EDUCATIONAL DEVELOPMENT ASSOCIATION, CHILAKALURIPET, GUNTUR DI ST. VISAKHAPATNAM BENCH AND THE TRIBUNAL VIDE ITS ORDER DATED 12.04.2012 SET ASIDE THE ORDER OF THE LD. CIT(A) WI TH A DIRECTION TO RE-EXAMINE THE ISSUE AFRESH WITH A LIBERTY TO TH E ASSESSING OFFICER TO EXAMINE WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IS CAPITAL EXPENDITURE OR REVENUE EXPENDIT URE, WITHOUT BEING INFLUENCED BY THE ORDER OF THE ITAT, HYDERABA D BENCH IN THE CASE OF M/S. NIRMAL AGRICULTURAL SOCIETY VS. IT O. . IN PURSUANCE OF THE SAME, THE ASSESSING OFFICER HELD T HAT THE CAPITAL CONTRIBUTIONS RECEIVED FROM FOREIGN DONORS ARE TIED UP GRANTS FOR A SPECIFIC PURPOSE AND EXPENDED FOR THE SAME PURPOSE. THEREFORE, ASSESSING OFFICER HELD THAT THE FOREIGN GRANTS RECEIVED FOR CAPITAL EXPENDITURE DO NOT AMOUNT TO INCOME EXC EPT A SUM OF RS.2,58,295 WHICH IS IN THE NATURE OF REIMBURSEMENT AND CANNOT BE TREATED AS TIED UP GRANT. THE ASSESSING OFFICER ADDED GRANTS RECEIVED TOWARDS MID-DAY MEAL PROGRAMME, ADMINISTRA TIVE EXPENSES AND TRANSPORT EXPENSES ON THE GROUND THAT THESE ARE ALSO IN THE NATURE OF REIMBURSEMENT AND HENCE, CANN OT BE TREATED AS TIED UP GRANTS AND COMPUTED THE INCOME O F THE ASSESSEE SOCIETY AT RS.30,14,978. 3. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY CONTENDING INTER ALIA, THAT AS FAR AS REVENUE GRANTS ARE CONCERNED, THE RELIEF GIVEN BY THE LD. C IT(A) VIDE HIS ORDER DATED 12.11.2009 HAS BECOME FINAL AS THE DEPA RTMENT HAS NOT RAISED THE ISSUE BEFORE THE TRIBUNAL. IN SO FAR AS ADDITIONS OF RS.16,23,877, RS.7,65,955 AND RS.1,67,861, THESE WE RE CONSIDERED BY ASSESSING OFFICER WITHOUT JURISDICTIO N WHEN THE SAME WAS ACCEPTED BY THE DEPARTMENT IN LINE WITH TH E ORDERS OF LD. CIT(A) DATED 12.11.2009. THE LD. CIT(A) ACCEPTE D THE CONTENTION OF THE ASSESSEE AND ALLOWED THE APPEAL. THE RELEVANT OBSERVATIONS OF LD. CIT(A) ARE AS UNDER : 5 ITA.NO.252/VIZAG/2014 VEDA EDUCATIONAL DEVELOPMENT ASSOCIATION, CHILAKALURIPET, GUNTUR DI ST. 11. IN THE PRESENT CASE, GRANTS RECEIVED ON REVENU E ACCOUNT HAVE BEEN RIGHTLY HELD BY THE ASSESSING OFF ICER AS NON TIED UP GRANTS I.E., VOLUNTARY CONTRIBUTIONS NO T SPECIFICALLY TO THE CORPUS OF THE TRUST. THIS MOUNT WHICH WORKS OUT TO RS.30,04,399 SHOULD BE ADDED TO THE IN COME OF THE APPELLANT. HOWEVER, FROM THE SAME, EXPENSES INC URRED BY THE APPELLANT, WHICH ARE REVENUE ON ACCOUNT, SUC H AS HOSPITALITY CHARGES, TRANSPORT CHARGES AND ADMINIST RATIVE CHARGES SHOULD BE ALLOWED IN THEIR ENTIRETY. THE AS SESSING OFFICER HAS NOT ADDED BACK THE FOREIGN CONTRIBUTION RECEIVED ON REVENUE ACCOUNT BUT HAS INSTEAD ADDED THE AMOUNT OF ADMINISTRATIVE EXPENSES, TRANSPORT EXPENSES AND MID -DAY MEALS PROGRAMME EXPENSES, WHICH WERE DETERMINED BY THE LD. CIT(A, GUNTUR AS HAVING BEEN REIMBURSED BY THE FOREIGN GRANTS IN HER ORDER DATED 12.11.2009. IN MY VIEW, T HIS IS AN INCORRECT INTERPRETATION BY THE ASSESSING OFFICER. THE INCOME OF THE APPELLANT SOCIETY SHOULD BE THE FEE RECEIVED , VOLUNTARY CONTRIBUTIONS TOWARDS BUILDING FUND, INTEREST FROM BANK, FOREIGN CONTRIBUTIONS RECEIVED ON REVENUE ACCOUNT ( AS DISCUSSED ABOVE) AS WELL AS RS.2,58,295/-, WHICH TH E ASSESSING OFFICER HAS TREATED AS NON TIED UP GRANT OUT OF THE CAPITAL GRANT RECEIVED. FURTHER, AS POINTED OUT BY THE CIT(A), GUNTUR, IN HER ORDER DATED 12.11.2009, RS.3,77,869/ - IS THE AMOUNT OF FOREIGN EXCHANGE GAIN EARNED ON ACCOUNT O F FLUCTUATION, WHICH SHOULD BE TREATED AS INCOME FOR THE YEAR. AGAINST SUCH AGGREGATE INCOME, REVENUE EXPENDITURE AMOUNTING TO RS.76,22,903/- SHOULD BE ALLOWED, WHIC H INCLUDES THE ADMINISTRATIVE CHARGES, HOSPITALITY CH ARGES (MID-DAY MEAL PROGRAMME), CYCLONE RELIEF EXPENSES A ND TRANSPORTATION CHARGES. THE INCOME OF THE APPELLANT SOCIETY WORKS OUT TO RS.6,31,791/-. 4. AGGRIEVED, REVENUE PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT THE RECEIPTS P ERTAINS TO REIMBURSEMENT OF EXPENSES FROM FOREIGN GRANTS ARE O NLY ALLOWABLE BUT NOT THE EXPENSES PERTAINS TO HOSPITALITY, ADMIN ISTRATIVE CHARGES, TRANSPORTATION CHARGES AND CYCLONE RELIEF CHARGES ETC., AND STRONGLY PLEADED TO UPHOLD THE ORDER OF THE ASS ESSING OFFICER. 6 ITA.NO.252/VIZAG/2014 VEDA EDUCATIONAL DEVELOPMENT ASSOCIATION, CHILAKALURIPET, GUNTUR DI ST. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE HIM. 6. WE HAVE HEARD THE ARGUMENTS OF THE PARTI ES. ON CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES, W E FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). WE, TH EREFORE, CONFIRM THE SAME. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.0 3.2015. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM, DATED 5 TH MARCH, 2015. VBP/- COPY TO 1. THE INCOME TAX OFFICER, WARD 2 (1), 2 ND FLOOR, RAJKAMAL COMPLEX, MAIN ROAD, LAKSHMIPURAM, GUNTUR. 2. VEDA EDUCATIONAL DEVELOPMENT ASSOCIATION, SANDHY A ENCLAVE, NRT ROAD, CHILAKALURIPET, GUNTUR DISTRICT. 3. CIT(A), GUNTUR. 4. CIT, GUNTUR. 5. D.R. ITAT, VISAKHAPATNAM BENCH, VISAKHAPATNAM. 6. GUARD FILE