ACIT, Vijayawada V. Sri Prakash Educational Society, Tuni

ITA 466/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8680 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 17-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SATYANANDAM
• Keywords: Capital asset; Gift; Charitable institution; Question of law; Notional interest; Capital receipt; Commercial expediency; Reassessment proceedings; Capital expenditure
• Section: 133A; 12AA; 12; 11

Judgement Text

ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NOS.382, 465, 466 & 467/VIZAG/2017 ( / ASSESSMENT YEARS: 2009-10, 2008-09, 2010-11 & 2011-12 RESPECTIVELY) THE ACIT (EXEMPTIONS) VIJAYAWADA M/S. SRI PRAKASH EDUCATIONAL SOCIETY TUNI [PAN NO. AACTS0826J ] ( ' / APPELLANT) ( ()' / RESPONDENT) C.O. NOS.75, 89, 90 & 91/VIZAG/2017 (ARISING OUT OF I.T.A.NOS.382, 465, 466 & 467/VIZAG /2017) ( / ASSESSMENT YEARS: 2009-10, 2008-09, 2010-11 & 2011-12 RESPECTIVELY) M/S. SRI PRAKASH EDUCATIONAL SOCIETY TUNI THE ACIT (EXEMPTIONS) VIJAYAWADA ( ' / APPELLANT) ( () ' / RESPONDENT) / APPELLANT BY : SHRI T. SATYANANDAM, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 07.03.2018 / DATE OF PRONOUNCEMENT : 1 4.03.2018 ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 2 / O R D E R PER BENCH: THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AGA INST COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2 {CIT(A)}, GUNTUR FOR THE ASSESSMENT YEARS 2008-09 TO 2011-12. THE CR OSS OBJECTIONS FILED BY THE ASSESSEE ARE IN SUPPORT OF THE ORDERS PASSED BY THE CIT(A)-2, GUNTUR. SINCE, THE FACTS ARE IDENTICAL AND THE ISS UES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.382, 465, 466 & 467/VIZAG/2017 (A.Y. 2008-0 9 TO 2011-12): 2. THE ASSESSING OFFICER (A.O.) HAS FILED APPEALS F OR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION AND THE ASSESS EE HAS FILED THE CROSS OBJECTIONS. THERE WAS A DELAY IN FILING THE A PPEALS BY THE REVENUE FOR 4 DAYS IN ALL THE APPEALS AND THE ASSESSING OFF ICER (A.O.) HAS FILED CONDONATION PETITION FOR CONDONING THE DELAY. AFTE R HEARING BOTH THE SIDES, THE DELAY IS CONDONED AND THE APPEALS ARE AD MITTED. 2.1 THE COMMON ISSUE IN ALL THE APPEALS RAISED BY THE REVENUE IS RELATED TO THE TREATMENT OF DEVELOPMENT FEE RECEIVE D BY THE ASSESSEE. THE ASSESSEE IS A SOCIETY REGISTERED UNDER SOCIETIE S ACT, 1860 BY ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 3 REGISTRATION NO.493 OF 1983 ON 27 TH DAY OF NOVEMBER, 1983 AND CARRYING ON THE ACTIVITY OF RUNNING EDUCATIONAL INSTITUTIONS . IN THIS CASE, A SURVEY U/S 133A OF THE ACT WAS CONDUCTED IN THE ASSESSEES BUSINESS PREMISES AND DURING THE COURSE OF SURVEY, CERTAIN DESCREPENC IES WERE FOUND BY THE AO, HENCE, THE CHIEF COMMISSIONER OF INCOME TAX CANCELLED THE EXEMPTION GRANTED U/S 10(23C) OF THE INCOME TAX ACT , 1961 (HEREINAFTER CALLED AS 'THE ACT') DATED 8.11.2011. THEREFORE, THE INCOME OF THE ASSESSEE BECAME TAXABLE, AS THE ASSESSEE IS NOT ENJOYING EXEMPTION U/S 11 OF THE ACT. 2.2 THE FACTS ARE IDENTICAL IN ALL THE APPEALS AND FOR THE SAKE OF CONVENIENCE THE FACTS ARE EXTRACTED FROM THE A.Y 20 08-09. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT THERE W AS A SHORT ADMISSION OF INCOME TO THE EXTENT OF ` 1,15,87,468/- FOR THE ASSESSMENT YEAR 2008-09 AND CALLED FOR EXPLANATION FROM THE AS SESSEE AS TO WHY THE DIFFERENCE INCOME OF ` 1,15,87,468/- SHOULD NOT BE ASSESSED TO INCOME TAX. THE A.O. OBSERVED THAT THE TOTAL RECEIPT AS P ER LEDGER ACCOUNT WAS ` 10,87,17,017/- AND THE INCOME ADMITTED WAS ONLY ` 9,71,29,543/- THUS RESULTING IN DIFFERENCE OF ` 1,15,87,468/-. SUCH DIFFERENCE FOR THE ASSESSMENT YEARS 2009-10 TO 2011-12 IS AS FOLLOWS: 2009-10 - ` 1,37,06,214/- 2010-11 - ` 1,30,96,505/- 2011-12 - ` 70,44,262/- ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 4 2.3 THE ASSESSEE EXPLAINED TO A.O. STATING THAT IT HAD RECEIVED THE VOLUNTARY CONTRIBUTIONS FROM THE PARENTS OF THE CHILDREN TOWARDS THE DEVELOPMENT FEES FOR CREATING INFRASTRUCTURE IN TH E SCHOOL SUCH AS CONSTRUCTION OF BUILDINGS, ETC. AND THE SAME IS IN THE NATURE OF CAPITAL RECEIPT AND THE DEVELOPMENT FUND SO RECEIVED WAS SE T APART FOR THE SPECIFIC PURPOSE OF INFRASTRUCTURE DEVELOPMENT PROV IDED TO THE STUDENTS AND IS APPLIED FOR THE SAID PURPOSE. THE UTILIZATI ON OF FUND IS INCLUDED IN THE COST OF FIXED ASSETS AND ARGUED THAT THESE RECE IPTS HAVE TO BE EXCLUDED FROM THE INCOME AND DOES NOT FALL WITHIN T HE AMBIT OF SECTION 2(24) OF THE ACT WHICH IS CHARGEABLE TO INCOME TAX AND NO ADDITION IS WARRANTED ON ACCOUNT OF DEVELOPMENT FUND. NOT BEIN G CONVINCED WITH THE EXPLANATION SUBMITTED BY THE ASSESSEE, THE A.O. HELD THE DIFFERENCE AMOUNT OF ` 1,15,87,468/- AS THE INCOME UNDERSTATED AND ACCORD INGLY, BROUGHT TO TAX IN THE ASSESSMENT YEARS AS PER THE D ETAILS MENTIONED ABOVE. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) HELD THAT THE VOLUNTARY CONTRIBUTIONS RECEIVED ARE INCOME AND FURTHER HELD THAT THE VOLUNTARY CONTRIBUTIONS RECEIVED FOR SPECIFIC PURPOSE AND TH E AMOUNT SPENT FOR THE PURPOSE SPECIFIED SHOULD BE ALLOWED AS DEDUCTIO N. THE CIT(A) RELIED ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 5 ON THE ORDER OF THE COORDINATE BENCH OF ITAT HYDERA BAD IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. ITO (2000) 67 TTJ 0 127. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E FILED APPEAL BEFORE US. THE LD. D.R. RELIED ON THE ORDERS OF TH E A.O. AND ARGUED THAT THE DEVELOPMENT FEES IS AN INCOME WHICH REQUIRED TO BE BROUGHT TO TAX AND SHOULD NOT BE ALLOWED AS A DEDUCTION PER CONTRA THE LD. A.R. RELIED ON THE ORDERS OF THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE, THE ASSESSEE HAD RECEIVED THE VOLUNTARY CONTR IBUTIONS FOR THE PURPOSE OF BUILDING INFRASTRUCTURE IN THE EDUCATION AL INSTITUTION. THIS FACT WAS CONFIRMED BY THE PARENTS BEFORE THE LD. CI T(A). THE CIT(A) HAS FORWARDED THE AFFIDAVITS RECEIVED FROM THE ASSE SSEE CONFIRMING THE CONTRIBUTIONS FOR SPECIFIC PURPOSE AND THE A.O. HAS SUBMITTED THE REMAND REPORT. CONSIDERING THE REMAND REPORT, THE CIT(A) HAS GIVEN A FINDING THAT THE CONTRIBUTIONS WERE RECEIVED FOR SP ECIFIC PURPOSE AND USED BY THE ASSESSEE FOR THE SAME PURPOSE AND NO SU RPLUS WAS LEFT OUT. THUS, THE A.O. AS WELL AS THE CIT(A) HELD THAT THE DONATIONS CONFIRMING PART OF CORPUS WAS IN THE NATURE OF INCOME WITHIN T HE MEANING OF SECTION 2(24) OF THE ACT. ON IDENTICAL FACTS, THIS TRIBUNA L HAS CONSIDERED ISSUE WITH REGARD TO THE TAXABILITY OF DONATIONS RECEIVED FOR SPECIFIC PURPOSE IN ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 6 THE CASE OF TOUCHING HEART MINISTRIES VS. ITO IN IT A NO.101/VIZAG/2015 DATED 22.11.2017 AND HELD THAT THE CONTRIBUTIONS RE CEIVED FOR SPECIFIC PURPOSE CANNOT BE REGARDED AS AN INCOME U/S 2(24) O F THE ACT. FOR THE SAKE OF CONVENIENCE AND CLARITY WE EXTRACT RELEVANT PARAGRAPH OF THE ORDER OF THIS TRIBUNAL WHICH READS AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL PLACED ON RECORD AND GONE THROUGH THE CASE LAWS RELIED UPON B Y THE ASSESSEE AND THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSEE IS A TRUST R EGISTERED UNDER THE SOCIETIES ACT FOR THE ASSESSMENT YEAR 2011-12. THE ASSESSEE DID N OT HAVE EXEMPTION U/S 11 AND THE EXEMPTION U/S 11 WAS AVAILABLE TO THE ASSESSEE W.E.F. 31.03.2011 I.E. THE DATE OF APPLICATION SUBMITTED BY THE ASSESSEE IN THE FORM N O.10A. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, THE ASSESSEE HAD R ECEIVED THE DONATIONS AMOUNTING TO RS. 1,49,26,785/-OUT OF WHICH A SUM OF RS.56,45,286/- FOR OBJECTIVES CREDITED TO THE INCOME AND EXPENDITURE ACCOUNT AN D RS.92,81,499/- TO CAPITAL FUND FORMING PART OF CORPUS. THE SAID SUM OF RS.92,81,49 9/- RECEIVED BY THE ASSESSEE FOR ACQUIRING THE LAND , CONSTRUCTION OF BUILDING AT TU NI FOR PROCUREMENT OF LAND AND DEVELOPMENT OF CONFERENCE AND TRAINING CENTRE. THE FACT THAT THE DONATIONS WERE RECEIVED FOR THE PURPOSE OF ACQUIRING THE CAPITAL A SSETS WAS EVIDENCED BY THE COPIES OF THE LETTERS PLACED BY THE ASSESSEE IN THE PAPER BOOK PAGE NOS. 32 TO 36. FROM THE RETURN OF INCOME AND THE ENCLOSED BALANCE SHEET, IT IS EVIDENT THAT THE ENTIRE SUM OF DONATIONS RECEIVED FOR CORPUS WAS APPLIED BY THE AS SESSEE FOR THE PURPOSE OF ACQUIRING THE FIXED ASSETS AS SPECIFIED IN THE LETT ERS OF DONORS. THE SUM OF RS.92,81,499/- WAS TIED UP DONATIONS FOR A SPECIFIC PURPOSE. THERE IS NO DISPUTE WITH REGARD TO THE IDENTITY OF THE DONOR AS WELL AS THE PURPOSE FOR WHICH THE DONATIONS WERE RECEIVED BY THE ASSESSEE. THE AO AS WELL AS TH E CIT(A) HELD THAT BOTH THE RECEIPTS OF THE DONATIONS AS WELL AS THE DONATIONS FORMING PART OF CORPUS WAS IN THE NATURE OF INCOME WITHIN THE MEANING OF SECTION 2(24 )(IIA) OF I.T.ACT. ON THE SIMILAR FACTS AND CIRCUMSTANCES, ITAT, BANGALORE IN ITO VS. VOKKALIGARA SANGHA REPORTED IN 2015 44 CCH 0509 BANGALORE TRIBUNAL HELD THAT VOLUN TARY CONTRIBUTIONS RECEIVED FOR SPECIFIC PURPOSE CANNOT BE REGARDED AS INCOME U/S 2 (24)(IIA) OF I.T.ACT. THE COORDINATE BENCH WHILE RENDERING THE DECISION CONSI DERED THE NUMBER OF DECISIONS OF VARIOUS TRIBUNALS INCLUDING THE DECISION OF COOR DINATE BENCH, ITAT, HYDERABAD IN NIRMAL AGRICULTURAL SOCIETY VS. INCOME TAX OFFICER, J.B. EDUCATIONAL SOCIETY VS. ACIT, HONBLE DELHI HIGH COURT IN THE CASE OF BASAN TI DEVI & SRI CHAKHAN LAL GARG EDUCATION TRUST. FOR THE SAKE OF CONVENIENCE AND CL ARITY, WE EXTRACT THE RELEVANT PARAGRAPHS OF THE ORDER OF THE TRIBUNAL WHICH READS AS UNDER : 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNC EMENTS CITED AND PLACED RELIANCE UPON. FIRSTLY, WE WOULD LIKE TO CONSIDER THE LEGAL POSITION WITH REGARD TO THE VOLUNTARY CONTRIBUTIONS URGED BY THE PARTIES. THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT THE VOLUNTARY CONTRIBUTIONS RECEIVED BY IT WAS FOR THE SPECIFIC PURPOSE OF CONSTRUCTION OF A KALYAN MANTAP . IN SHORT, THE ASSESSEE HAS PLEADED THAT THE ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 7 AMOUNT RECEIVED BY THE ASSESSEE WAS A TIED UP GRANT OR AN AMOUNT RECEIVED FOR A SPECIFIC PURPOSE AS BEING CAPITAL IN NATURE. IN SUP PORT OF THIS PROPOSITION, THE ASSESSEE HAS CITED / PLACED RELIANCE ON SEVERAL DEC ISIONS OF VARIOUS BENCHES OF THE ITAT, WHEREIN IT HAS BEEN HELD THAT VOLUNTARY CONTR IBUTIONS RECEIVED FOR SPECIFIC PURPOSES CANNOT BE CONSIDERED AS INCOME. 5.3.2 IN THE CASE OF J.B. EDUCATIONAL SOCIETY V ACI T REPORTED IN 159 TTJ 234 (HYD), THE HYDERABAD BENCH OF THE TRIBUNAL FOLLOWED AN EAR LIER DECISION OF THE HYDERABAD BENCH IN THE CASE OF SOCIETY FOR INTEGRATED DEVELOP MENT IN URBAN AND RURAL AREAS REPORTED IN 90 ITD 493 (HYD) WHEREIN THE TRIBUNAL F OLLOWED THE ORDER OF ANOTHER COORDINATE BENCH IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY (2000) 67 TTJ (HYD) AND RECORDED THE OBSERVATIONS THEREIN WHICH WERE AS UND ER :- '24. COMING TO THE SECOND LIMB OF THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ENTIRE RECEIPTS CANNOT BE TAXED, WE FIND THAT THE ISSUE IS COVERED BY THE JUDGMENT OF THIS BENCH IN NIRMAL AGRICULTURAL SOCIETY V. ITO, 71 ITD 152. IN THAT CASE, IT HAS BEEN HELD (AS PER HEAD NOTE) AS UNDER:- 'THE ASSESSEE HAD NOT BEEN GR ANTED REGISTRATION UNDER SECTION 12A, AS THE COMMISSIONER THOUGHT IT FIT TO REFUSE TO CONDONE THE LONG DELAY CAUSED BY THE ASSESSEE IN APPLYING FOR THE REGISTRA TION. THEREFORE, 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 SECTIO N 13. TO THAT EXTENT, THE ASSESSING OFFICER WAS RIGHT AS HE HAD ACTED ONLY AC CORDING TO WILL OF LAW. BUT AS FAR AS THE CONTENTS OF THE ASSESSMENTS WERE CONCERNED, EVEN WHEN THE ASSESSEE HAD BEEN ASSESSED AS AOP AND DEPRIVED OF SECTION 11 BEN EFITS, THE ASSESSING OFFICER COULD ASSESS ONLY NET INCOME OF THE ASSESSEE AND NO T GROSS RECEIPTS. AS FAR AS THE ASSESSEE WAS CONCERNED, CONSTRUCTION OF HOUSES, REC LAMATION OF LAND, ETC., WERE PART OF ITS REGULAR ACTIVITIES. HOUSES WERE BUILT O N THE LAND OF POOR AGRICULTURISTS. THE ASSESSEE-SOCIETY HAD NO LEGAL TITLE OR RIGHT OVER T HE LAND OR HOUSES OF THOSE VILLAGERS/ AGRICULTURISTS WHO WERE THE BENEFICIARIES. THE PURP OSE AND ACTIVITY OF THE ASSESSEE- SOCIETY WAS TO ENGAGE IN SUCH CHARITABLE ACTIVITIES . WHATEVER AMOUNT HAD BEEN SPENT ON THOSE PROGRAMMES/PROJECTS, IT WAS SPENT IN THE USUAL COURSE OF CARRYING ON ITS ACCLAIMED OBJECTS. THEREFORE, THERE WAS NO BASI S WHATSOEVER, FACTUAL OR LEGAL, TO HOLD THAT THE AMOUNTS SPENT BY THE ASSESSEE IN CONS TRUCTING HOUSES OR RECLAIMING LAND WERE CAPITAL EXPENDITURE. AS FAR AS THE ASSESS EE WAS CONCERNED, THOSE EXPENSES WERE REVENUE EXPENSES. THE ASSESSEE HAD NO RIGHT OR TITLE OVER THOSE PROPERTIES. THOSE EXPENSES WERE INCURRED AS PART OF ITS NORMAL ACTIVITIES FOR WHICH THE SOCIETY WAS FORMED. THEREFORE, THE MONEY SPENT BY THE ASSESSEE- SOCIETY IN CONSTRUCTING HOUSES, RECLAIMING THE LAND, FOR NON-F ORMAL EDUCATION, ETC., HAD TO BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF INCOME. THE GRANTS RECEIVED FROM FOREIGN DONOR WERE FOR SPECIFIC PURPOSES. THE GRANTS WHICH WERE FOR SPECIFIC PURPOSES DID NOT BELONG TO THE ASSESSEE-SOCIETY; SUCH GRANTS DID NOT FORM CORPUS OF THE ASSESSEE OR ITS INCOME. THOSE GRANTS WERE NOT DONATIONS TO T HE ASSESSEE SO AS TO BRING THEM UNDER THE PURVIEW OF SECTION 12. VOLUNTARY CONTRIBU TIONS COVERED BY SECTION 12 ARE THOSE CONTRIBUTIONS FREELY AVAILABLE TO THE ASSESSE E WITHOUT ANY STIPULATION, WHICH THE ASSESSEE CAN UTILISE TOWARDS ITS OBJECTIVES ACCORDI NG TO ITS OWN DISCRETION AND JUDGMENT. TIED-UP GRANTS FOR A SPECIFIED PURPOSE WO ULD ONLY MEAN THAT THE ASSESSEE WHICH WAS A VOLUNTARY ORGANISATION, HAD AGREED TO A CT AS A TRUSTEE OF A SPECIAL FUND GRANTED BY DONOR WITH THE RESULT THAT IT NEED NOT B E POOLED OR INTEGRATED WITH THE ASSESSEE S NORMAL INCOME OR CORPUS. IN THE INSTANT CASE, THE ASSESSEE WAS ACTING AS AN INDEPENDENT TRUSTEE FOR THAT GRANT, JUST AS S AME TRUSTEE COULD ACT AS A TRUSTEE OF MORE THAN ONE TRUST. TIEDUP AMOUNT NEED NOT, THE REFORE, BE TREATED AS AMOUNTS ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 8 WHICH WERE REQUIRED TO BE CONSIDERED FOR ASSESSMENT FOR ASCERTAINING THE AMOUNT EXPENDED OR THE AMOUNT TO BE ACCUMULATED. THE ASSES SEE SHOULD HAVE ACTUALLY CREDITED THE GRANT IN THE PERSONAL ACCOUNT OF THE D ONOR AND ANY AMOUNT SPENT AGAINST THAT GRANT SHOULD HAVE BEEN DEBITED TO THAT SEPARATE ACCOUNT 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 DONOR, 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 FO LLOWING LINES. (1) THE TIED-UP GRANTS RECEIVED FROM THE DONOR, BREAD FOR THE WORLD , WILL BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE INCOME-SIDE. (2) ALL THE MONEY SPENT UNDER THE TIED- UP PROGRAMMES DIRECTED BY THE DONOR ALSO WILL BE TA KEN OUT OF THE COMPUTATION OF INCOME FROM THE EXPENSES-SIDE. (3) ANY NON-REFUNDAB LE CREDIT BALANCE IN THE PERSONAL ACCOUNT OF BREAD FOR THE WORLD WILL BE TRE ATED AS INCOME IN THE YEAR IN WHICH SUCH NON- REFUNDABLE BALANCE WAS ASCERTAINED. (4) THE EXPENSES INCURRED BY THE ASSESSEE FOR HOUSE CONSTRUCTION, RECLAMATION OF LAND, NON-FORMAL EDUCATION PROGRAMME (OTHER THAN COVERED BY THE TIED-UP GRANTS ) WILL BE DEDUCTED AS REVENUE EXPENSES.' 25. HONOURABLE RAJASTHAN HIGH COURT IN THE CASE OF SUKHDEO CHARITY ESTATE (SUPRA) HELD AS FOLLOWS (AS PER HEAD NOTE):- 'IT WAS FOR TH E SPECIFIC PURPOSE OF IMPLEMENTATION OF THE WATER SUPPLY SCHEME THAT THE REQUEST FOR CONTRIBUTION HAD BEEN MADE BY THE ASSESSEE-TRUST AND IT WAS IN RESPO NSE TO THAT REQUEST THAT THE AMOUNT HAD BEEN GIVEN BY THE CALCUTTA TRUST. IT WAS CLEAR THAT THE INTENTION OF THE DONOR AND THE DONEE WAS TO TREAT THE MONEY AS CAPIT AL TO BE SPENT FOR THE WATER SUPPLY SCHEME. THE FACT THAT THE AMOUNT HAD NOT BEE N PAID OVER TO THE STATE GOVERNMENT AND WAS KEPT UNUTILISED IN THE ACCOUNT O F THE ASSESSEE-TRUST WAS NOT RELEVANT. THE AMOUNT COULD NOT BE SAID TO BE 'INCOM E' AND COULD NOT BE INCLUDED AS PART OF THE ASSESSABLE INCOME OF THE TRUST UNDER TH E PROVISIONS OF SECTION 12(2).' IN YET ANOTHER JUDGMENT IN THE CASE OF SUKHDEO CHARITY ESTATE (SUPRA), THE HONOURABLE RAJASTHAN HIGH COURT HELD AS FOLLOWS (AS PER HEAD N OTE):- 'THE INTENTION OF THE DONOR-TRUST AS WELL AS THE DONEE-TRUST WAS TO TREAT THE MONEY AS CAPITAL TO BE SPENT FOR THE LADNU WATER SUPPLY SCHEME. IT WAS OF NO SIG NIFICANCE WHETHER THE AMOUNT HAD SINCE BEEN PAID TO THE STATE GOVERNMENT OR KEPT IN THE ACCOUNT OF THE SAID SCHEME BY THE ASSESSEETRUST. THE AMOUNT OF RS. 70,0 00/- DID NOT CONSTITUTE INCOME OF THE PETITIONER. THE REASSESSMENT PROCEEDINGS WER E NOT VALID AND WERE LIABLE TO BE QUASHED.' THIS BENCH OF THE TRIBUNAL IN THE CASE OF ARYA VYSYA ABHYUDAYA SANGHAM (SUPRA) FOR ASST. YEAR 1998-99, IN ITS ORDE R DATED 25-6-2002 TO WHICH ONE OF US WAS A PARTY, WAS INCLINED TO UPHOLD THE VIEW OF THE COMMISSIONER (APPEALS) IN THAT CASE BY HOLDING IN PARA 15 OF THAT ORDER AS FO LLOWS: 'THOUGH WE FIND CONSIDERABLE FORCE IN THE OTHER ARGUMENT OF THE ASS ESSEE S COUNSEL I.E. THE INCOME SHOULD BE COMPUTED ON COMMERCIAL PRINCIPLES, AS WE HAVE HELD THAT THE ASSESSEE- SOCIETY IS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT AND AS WE HAVE ALSO HELD THAT THE OBJECTS OF THE SOCIETY WERE OF CHARIT ABLE NATURE WITHIN THE MEANING OF SECTION 2(15) OF THE ACT, AND AS WE HAVE FURTHER HE LD THAT THERE IS NO VIOLATION, WHATSOEVER OF THE PROVISIONS OF SECTION 13(1)(C) AN D (D) OF THE I.T. ACT, 1961, THE OTHER GROUNDS OF THE ASSESSEE NEED NOT BE GONE INTO , AS IT WOULD BE OF ACADEMIC INTEREST ONLY.' THE REVENUE HAS NOT BROUGHT TO OUR NOTICE ANY JUDGMENT FROM ANY HIGH COURT WHICH HAS DEALT AT LENGTH ON THIS ISSUE AND WHICH IS IN ITS FAVOUR. IT IS ALSO ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 9 NOT CLEAR WHETHER THE REVENUE HAS ACCEPTED OR GONE ON APPEAL AGAINST THE JUDGMENT OF THIS BENCH IN THE CASE OF NIRMAL AGRICU LTURAL SOCIETY (SUPRA). 26. HONOURABLE ANDHRA PRADESH HIGH COURT IN THE CAS E OF CHAIRMAN, ANDHRA PRADESH WELFARE FUND V. CIT, AS PER HEAD NOTE, HELD AS FOLLOWS:- '(I) THAT THE FINDING OF THE TRIBUNAL, THAT THE ASSESSEE COULD NOT BE REG ARDED AS A BRANCH OR AS A PART OF THE PARENT BODY, WAS A FINDING OF FACT AND NO QUEST ION OF LAW AROSE FOR REFERENCE. (II) THAT THE MERE FACT THAT THE RICE MILLERS PAID CONTR IBUTIONS WITH AN OBLIQUE MOTIVE WOULD NOT AFFECT THE CHARACTER OF THE CONTRIBUTIONS , AS VOLUNTARY CONTRIBUTIONS. (III) THAT THE FINDING OF THE TRIBUNAL, THAT THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION AS A TRUST UNDER SECTION 12 BECAUSE SOME OF THE FUNDS WE RE BEING UTILISED FOR PURPOSES OTHER THAN CHARITABLE AND RELIGIOUS WAS A FINDING O F FACT AND NO QUESTION OF LAW AROSE FOR REFERENCE.' THIS JUDGMENT WAS RELIED UPON BY TH E REFERENCE. A CAREFUL READING OF THIS JUDGMENT DOES NOT INDICATE THAT THE QUESTION R AISED BY THE ASSESSEE BEFORE US WAS POSED TO THE COURT. WE DO NOT FEEL THAT THIS IS A PRECEDENT FOR LAYING DOWN A PROPOSITION OF ALLOWABILITY OF EXPENDITURE FOR COMP UTATION OF INCOME OF A CHARITABLE INSTITUTION WHICH IS DENIED BENEFIT UNDER SECTION 1 1. HONOURABLE SUPREME COURT IN THE CASE OF GOODYEAR INDIA LTD. V. STATE OF HARYANA (1991) 188 ITR 402 (SC), AS PER HEAD NOTE, HELD AS FOLLOWS: ' PRECEDENT -- AUTHORIT Y ONLY FOR WHAT IT DECIDES - NOT FOR WHAT MAY REMOTELY OR EVEN LOGICALLY FOLLOWS - DECIS ION ON QUESTION NOT ARGUED CANNOT BE TREATED AS PRECEDENT.' THUS, THE JUDGMENT OF HONOURABLE ANDHRA PRADESH HIGH COURT (SUPRA) DOES NOT HELP THE CASE OF THE RE VENUE. 27. ON OTHER HAND, LEARNED AUTHORS CHATURVEDI AND P ITHISARIA IN THEIR BOOK INCOME TAX LAW, FIFTH EDITION, VOL.1, AT PAGE 424, UNDER T HE HEADING 'INCOME, WHEN FALLS INTO THE TAX NET', OBSERVED AS FOLLOWS:- 'ALTHOUGH SECTI ON 14 OF THE 1961 ACT CLASSIFIES INCOME UNDER SIX HEADS, THE MAIN CHARGING PROVISION IS SECTION 4(1) WHICH LEVIES INCOME-TAX, AS ONLY ONE TAX, ON THE 'TOTAL INCOME' OF THE ASSESSEE AS DEFINED IN SECTION 2(45) OF THAT ACT. AO INCOME IN ORDER TO CO ME WITHIN THE PURVIEW OF THAT DEFINITION MUST SATISFY TWO CONDITIONS. FIRSTLY, IT MUST COMPRISE THE 'TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5. SECONDLY, IT MUST BE COMPUTED IN THE MANNER LAID DOWN IN THIS ACT. IF EITHER OF THESE CONDITIONS FA ILS, THE INCOME WILL NOT BE A PART OF THE TOTAL INCOME THAT CAN BE BROUGHT TO CHARGE [CIT V. HARPRASAD & CO. P. LTD., (1975) 99 ITR 118, 125 (SC)]. 28. AS ARGUED BY THE REVENUE, THOUGH BY VIRTUE OF S ECTION 2(24)(IIA) VOLUNTARY CONTRIBUTIONS ARE INCOME, TO OUR MIND THIS BY ITSEL F DOES NOT ENTITLE THE TAX GATHERER TO IGNORE ALL OTHER WELL SETTLED PRINCIPLES OF TAXATIO N AND GENERAL LAW AND LEVY TAX ON GROSS RECEIPTS WITHOUT CONSIDERING THE CLAIM FOR DE DUCTIONS. PRINCIPLES SUCH AS CAPITAL VERSUS REVENUE, DOCTRINES OF OVERRIDING TIT LE, FORM VERSUS SUBSTANCE, INTERPRETATION OF DEEMING PROVISIONS ETC., HAVE T O BE APPLIED WHEREVER NECESSARY. ONLY THE SURPLUS OR PROFIT CAN BE BROUGHT TO TAX AN D THE SAME HAS TO BE COMPUTED IN THE MANNER LAID DOWN IN THE ACT APPLYING THE NORMAL PRINCIPLES OF ACCOUNTANCY AND TAXATION LAWS. 29. THE LEARNED AUTHORS KANGA AND PALKHIVALA IN THE BOOK THE LAW AND PRACTICE OF INCOME TAX, EIGHTH EDITION, VOL. I, AT PAGE 387, ST ATE THE LEGAL POSITION AS FOLLOWS:- VOLUNTARY CONTRIBUTIONS TOWARDS CORPUS OF RECIPIEN T TRUST. THE PRESENT SECTION 12 IS EXPRESSLY MADE APPLICABLE TO VOLUNTARY CONTRIBUT IONS WHICH ARE MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST [ORIGINAL IN ITALICS]. ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 10 THEREFORE, SUCH CONTRIBUTIONS ON CAPITAL ACCOUNT DO NOT HAVE TO BE APPLIED TO CHARITABLE PURPOSES BUT CAN BE RETAINED AS THE CORP US OF THE RECIPIENT TRUST WITHOUT ATTRACTING ANY TAX LIABILITY. ALTHOUGH THE ITALICIZ ED WORDS HAVE NOW BEEN OMITTED FROM SECTION 2(24)(II-A), THE EXCLUSION OF SUCH CAPITAL DONATIONS FROM THE DEFINITION OF INCOME IMPLICIT IN THAT SECTION. THE CORRECT LEGAL POSITION IS AS UNDER (A) ALL CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT T HEY SHALL FORM PART OF THE CORPUS OF THE TRUST ARE CAPITAL RECEIPTS IN THE HANDS OF THE TRUST. THEY ARE NOT INCOME EITHER UNDER THE GENERAL LAW OR UNDER SECTION 2(24)(II-A) RIGHTLY CONSTRUED. (SEE UNDER SECTION 2(24)(II-A), 'VOLUNTARY CONTRIBUTIONS RECEI VED BY CHARITY'.) (B) SECTION 2(24)(II- A) DEEMS REVENUE CONTRIBUTIONS TO BE INCOME OF THE TRUST. IT THEREBY PREVENTS THE TRUST FROM CLAIMING EXEMPTION UNDER GENERAL LAW ON THE GROUND THAT SUCH CONTRIBUTIONS STAND ON THE SAME FOOTING AS GIFTS AN D ARE THEREFORE NOT TAXABLE. (SEE UNDER SECTION 10(3), 'VOLUNTARY PAYMENTS ...'P.320. ) (C) SECTION 12 GOES ONE STEP FURTHER AND DEEMS SUCH REVENUE CONTRIBUTIONS TO BE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. IT THEREBY MAKES APPLICABLE TO SU CH CONTRIBUTIONS ALL THE CONDITIONS AND RESTRICTIONS UNDER SECTIONS 11 AND 13 FOR CLAIM ING EXEMPTIONS. (SEE ALSO EXPLN. (1) TO SECTION 11(1).] (D) SECTION 11(1) (D) SPECIF ICALLY GRANTS EXEMPTION TO CAPITAL CONTRIBUTIONS TO MAKE THE FACT OF NON-TAXABILITY CL EAR BEYOND DOUBT. BUT IT PROCEEDS ON THE ERRONEOUS ASSUMPTIONS THAT SUCH CONTRIBUTION S ARE OF INCOME NATURE - 'INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS'. TH IS ASSUMPTION SHOULD BE DISREGARDED.' 5.3.3 AFTER, RELYING ON THE OBSERVATIONS FROM THE D ECISION OF THE COORDINATE BENCH (SUPRA), THE HYDERABAD BENCH IN THE CASE OF J.B. ED UCATIONAL SOCIETY (SUPRA) OBSERVES AS UNDER :- 58. FURTHER, IN THE CASE OF SH RI SHANKAR BHAGWAN ESTATE VS. ITO (61 ITD 196) WHEREIN EVEN AFTER CONSIDERING SEC TION 2(24)(IIA) OF THE ACT IT WAS HELD AS FOLLOWS: 'SECTION 2(24)(IIA) HAS TO BE READ IN THE CONTEXT OF THE INTRODUCTION OF PRESENT SECTION 12. IN THE INSTANT CASE THE ASSESSI NG OFFICER ON EVIDENCE HAD ACCEPTED THE FACT THAT ALL THE DONATIONS HAD BEEN R ECEIVED TOWARDS THE CORPUS OF THE ENDOWMENTS. IN VIEW OF THIS CLEAR FINDING, THEY COU LD NOT BE ASSESSED AS INCOME OF THE ASSESSEES. THEREFORE, THE VOLUNTARY CONTRIBUTIO NS RECEIVED BY THE ASSESSEES TOWARDS THE CORPUS COULD NOT BE BROUGHT TO TAX.' 59. NOW THE ISSUE FOR OUR CONSIDERATION IS WHETHER THE AMOUNTS RECEIVED BY THE ASSESSEE WERE IN THE NATURE OF VOLUNTARY DONATIONS RECEIVED FOR SPECIFIC PURPOSE. IF YES, WHETHER THE SAME COULD BE CONSIDERED TOWARDS C ORPUS OF THE TRUST. ALTERNATIVELY, IF THE DONATIONS ARE NOT VOLUNTARILY MADE, THEN WHETHER SUCH DONATIONS COULD BE CONSIDERED AS INCOME CHARGEABLE TO TAX. TH E ASSESSEE HAS TAKEN A PLEA BEFORE US THAT THESE DONATIONS ARE RECEIVED FROM ME MBERS OF THE TRUST AND THEIR ASSOCIATED COMPANIES/PERSONS FOR A SPECIFIC PURPOSE , IT IS A TIED UP GRANT. SECTIONS 11, 12 AND 2(24)(IIA) OF THE ACT SPEAK OF VOLUNTARY CONTRIBUTIONS. THEREFORE, FIRSTLY, IT HAS TO BE SEEN WHETHER SUCH DONATIONS ARE VOLUNTARY OR NOT. ACCORDING TO THE DICTIONARY MEANING, AN ACT CAN BE SAID TO BE VOLUNT ARY IF IT IS DONE BY FREE CHOICE OF ONCE OWN ACCORD, WITHOUT COMPULSION OR OBLIGATION, WITHOUT VALUABLE CONSIDERATION, GRATUITOUS, ETC. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT SUCH DONATIONS ARE GIVEN AGAINST THE WILL OF THE DONORS OR BY ANY COMP ULSION OR UNDER ANY OBLIGATION. IN THAT SENSE, IT CAN BE SAID THAT THE DONATIONS ARE V OLUNTARY. BEFORE US, THE ASSESSEE FILED A LIST OF DONORS IN PAPER BOOK FORM AT PAGE N OS. 637 TO 656 GIVING DETAILS OF THE DONORS. IF THE DONATIONS ARE NOT VOLUNTARILY MADE, THE SAME FALL OUTSIDE THE AMBIT OF SECTIONS 11, 12 AND 2(24)(IIA) OF THE ACT. CONSEQUE NTLY, GENERAL PROVISIONS OF ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 11 INCOME-TAX ACT WOULD BECOME APPLICABLE. ACCORDING T O THE GENERAL PROVISIONS OF THE ACT ALL RECEIPTS ARE NOT INCOME. DONATIONS RECEIVED FOR SPECIFIC OBJECT ARE TO BE CONSIDERED AS TIED UP FUND AND IT IS CAPITAL RECEIP T. IF THE DONATIONS ARE MADE VOLUNTARILY FOR SPECIFIC PURPOSE, THE SAME CANNOT B E HELD AS INCOME OF THE ASSESSEE, SINCE THE DONATIONS WERE, IN OUR OPINION, GIVEN FOR SPECIFIC PURPOSE AS TIED UP GRANT AND IT CANNOT BE TAXED AS INCOME. 60. IN THE PRESENT CASE, THE RESOLUTION PASSED BY T HE ASSESSEE SHOWS THAT IT HAS BEEN RECEIVED FROM MEMBERS OF THE TRUST AND THEIR A SSOCIATED COMPANIES/PERSONS TOWARDS 'BUILDING CONSTRUCTION' AND THE SAME WERE E XPENDED FOR THAT PURPOSE. SO FAR AS SECTION 2(24)(IIA) IS CONCERNED, THIS SECTION HA S TO BE READ IN THE CONTEXT OF INTRODUCTION OF SECTION 12. IT IS SIGNIFICANT THAT SECTION 2(24)(IIA) WAS INSERTED WITH EFFECT FROM 1.4.1973 SIMULTANEOUSLY WITH THE PRESEN T SECTION 12, BOTH OF WHICH WERE INTRODUCED FROM THE SAID DATE BY FINANCE ACT, 1972. SECTION 12 MAKES IT CLEAR BY THE WORDS APPEARING IN PARENTHESIS THAT CONTRIBUTIONS M ADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION SHALL NOT BE CONSIDERED AS INCOME OF THE TRUST. THE BOARD CIRCULAR NO. 108 DAT ED 20.3.1973 IS EXTRACTED AT PAGE 1754 OF VOLUME I OF SAMPATH IYENGAR LAW OF INCOME-T AX (10TH EDITION), IN WHICH THE INTERRELATION BETWEEN SECTIONS 12 AND 2(24) HAS BEE N BROUGHT OUT. GIFTS MADE WITH CLEAR DIRECTION THAT THEY SHALL FORM PART OF THE CO RPUS OF THE RELIGIOUS ENDOWMENT CAN NEVER BE CONSIDERED AS INCOME. IN THE CASE OF R.B. SHREERAM RELIGIOUS AND CHARITABLE TRUST V. CIT (172 ITR 373) (BOM) THE HON BLE HIGH COURT HELD THAT EVEN IGNORING THE AMENDMENT TO SECTION 12, WHICH MEANS T HAT EVEN BEFORE THE WORDS APPEARING IN PARENTHESIS IN THE PRESENT SECTION 12, IT CANNOT BE HELD THAT VOLUNTARY CONTRIBUTIONS SPECIFICALLY RECEIVED TOWARDS CORPUS OF THE TRUST MAY BE BROUGHT TO TAX.. THE AFORESAID DECISION WAS FOLLOWED BY THE BOMBAY H IGH COURT IN THE CASE OF CIT VS. TRUSTEES OF KASTURBAI SCINDIA COMMISSION TRUST (189 ITR 5) (BOM). IN THE PRESENT CASE DONATIONS BEING RECEIVED FOR SPECIFIC PURPOSE, TOWARDS CORPUS OF THE TRUST, CANNOT BE ASSESSED AS INCOME OF THE ASSESSEE . 61. SAME VIEW WAS TAKEN IN THE CASE OF SHRI DWARAKA DEESH CHARITABLE TRUST VS. ITO (98 ITR 557), DCIT VS. NASIK GYMKHANA (77 ITD 500), ITO VS. M/S. GAUDIYA GRANTH ANUVED TRUST IN ITA NO. 386/AGRA/2012 ORDER DATED 2 .8.2013, PENTA SOFTWARE EMPLOYEES WELFARE FOUNDATION VS. ACIT IN ITA NOS. 7 51-752/MDS/2007 AND DIT (EXEMPTIONS) & ANR. VS. SRI BELIMATH MAHASAMSTHANA SOCIO, CULTURAL AND EDUCATIONAL TRUST (336 ITR 694) (KAR). 62. FURTHER, WE HAVE ALSO CAREFULLY GONE THROUGH TH E ORDER OF THE TRIBUNAL IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY VS. ITO (71 ITD 152) RELIED ON BY THE DR. SPECIFICALLY PARAGRAPHS 9 TO 12 OF THAT ORDER SUPPORT THE CASE O F THE ASSESSEE RATHER THAN THE REVENUE. FOR CLARITY, WE REPRODUCE THE SAID PARAGRA PHS AS UNDER: '9. BUT AS FAR AS THE CONTENTS OF THE ASSESSMENTS ARE CONCERNED, WE F IND MUCH FORCE IN HE CONTENTIONS ADVANCED BY THE ASSESSEE. EVEN WHEN THE ASSESSEE HAS BEEN ASSESSED AS AOP DEPRIVED OF S. 11 BENEFITS, THE AO COULD ASSESS ONLY NET INCOME OF THE ASSESSEE AND NOT GROSS RECEIPTS. AS FAR AS THE ASSESSEE IS CONCERNED, CONSTRUCTION OF HOUSES, RECLAMATION OF LAND, ETC., ARE PART OF ITS REGULAR ACTIVITIES. HOUSES ARE BUILT ON THE LAND OF POOR AGRICULTURISTS . THE ASSESSEE-SOCIETY HAS NO LEGAL TITLE OR RIGHT OVER THE LAND OR HOUSES OF THO SE VILLAGERS/ AGRICULTURISTS WHO ARE THE BENEFICIARIES. THE PURPOSE AND ACTIVITY OF THE ASSE SSEE-SOCIETY IS TO ENGAGE IN SUCH CHARITABLE ACTIVITIES. WHATEVER AMOUNT HAS BEEN SPE NT ON THOSE PROGRAMMES/ ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 12 PROJECTS, THEY WERE SPENT IN THE USUAL COURSE OF CA RRYING ON ITS ACCLAIMED OBJECTS. THEREFORE, THERE IS NO BASIS WHATSOEVER, FACTUAL OR LEGAL, TO HOLD THAT THE AMOUNTS SPENT BY THE ASSESSEE IN CONSTRUCTING HOUSES OR REC LAIMING LAND ARE CAPITAL EXPENDITURE. AS FAR AS THE ASSESSEE IS CONCERNED, T HOSE EXPENSES ARE REVENUE EXPENSES. THE ASSESSEE HAS NO RIGHT OR TITLE OVER T HOSE PROPERTIES. THOSE EXPENSES WERE INCURRED AS PART OF ITS NORMAL ACTIVITIES FOR WHICH THE SOCIETY WAS FORMED. THEREFORE, THE MONEY SPENT BY THE ASSESSEE-SOCIETY IN CONSTRUCTING HOUSES, RECLAIMING THE LAND, FOR NON-FORMAL EDUCATION, ETC. , HAS TO BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF INCOME. 10. THE GRANTS RECEIVED FROM BREAD FOR THE WORLD WE RE FOR SPECIFIC PURPOSES. THE GRANTS WHICH ARE FOR SPECIFIC PURPOSES DO NOT BELON G TO THE ASSESSEE- SOCIETY. SUCH GRANTS DO NOT FORM CORPUS OF THE ASSESSEE OR ITS IN COME. THOSE GRANTS ARE NOT DONATIONS TO THE ASSESSEE SO AS TO BRING THEM UNDER THE PURVIEW OF S. 12 OF THE ACT. VOLUNTARY CONTRIBUTIONS COVERED BY S. 12 ARE THOSE CONTRIBUTIONS FREELY AVAILABLE TO THE ASSESSEE WITHOUT ANY STIPULATION WHICH THE ASSE SSEE COULD UTILISE TOWARDS ITS OBJECTIVES ACCORDING TO ITS OWN DISCRETION AND JUDG MENT. TIED-UP GRANTS FOR A SPECIFIED PURPOSE WOULD ONLY MEAN THAT THE ASSESSEE , WHICH IS A VOLUNTARY ORGANISATION, HAS AGREED TO ACT AS A TRUSTEE OF A S PECIAL FUND GRANTED BY BREAD FOR THE WORLD WITH THE RESULT THAT IT NEED NOT BE POOLE D OR INTEGRATED WITH THE ASSESSEE S NORMAL INCOME OR CORPUS. IN THIS CASE, THE ASSESSEE IS ACTING AS AN INDEPENDENT TRUSTEE FOR THAT GRANT, JUST AS SAME TRUSTEE CAN AC T AS A TRUSTEE OF MORE THAN ONE TRUST. TIED-UP AMOUNTS NEED NOT, THEREFORE, BE TREA TED AS AMOUNTS WHICH ARE. REQUIRED TO BE CONSIDERED FOR ASSESSMENT, FOR ASCER TAINING THE AMOUNT EXPENDED OR THE AMOUNT TO BE ACCUMULATED. 11. THE ASSESSEE SHOULD HAVE ACTUALLY CREDITED THAT GRANT IN THE PERSONAL ACCOUNT OF THE DONOR, BREAD FOR THE WORLD AND ANY AMOUNT SPENT AGAINST THAT GRANT SHOULD HAVE BEEN DEBITED TO THAT SEPARATE ACCOUNT 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 BREAD FOR THE WORLD, THE DONOR, COULD BE TREATED AS INCOME OF THE ASSESS EE, IF THE DONOR DID NOT INSIST FOR THE REPAYMENT OF THE BALANCE AMOUNT. 12. THEREFORE, IN THE LIGHT OF THE EXAMINATION OF T HE FACTS OF THE CASE, WE DIRECT THE AO TO REDO THE ASSESSMENTS IN THE FOLLOWING LINES: (1) THE TIED-UP GRANTS. RECEIVED FROM THE DONOR, BREAD FOR THE WORLD, WILL BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE INCOME SIDE. (2) ALL THE MONEY SPENT UNDER THE TIED-UP PROGRAMMES DIRECTED BY THE DONOR ALSO WILL BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE EXPENSE SIDE. (3) ANY NON-REFUNDABLE CREDIT BALANCE IN THE PERSONAL ACCOUNT OF BREAD FOR THE WORLD WILL BE TREATED AS INCOME IN TH E YEAR IN WHICH SUCH NON- REFUNDABLE BALANCE WAS ASCERTAINED. (4) THE EXPENSE S INCURRED BY THE ASSESSEE FOR HOUSE CONSTRUCTION, RECLAMATION OF LAND, NON-FORMAL EDUCATION PROGRAMME (OTHER THAN COVERED BY THE TIED-UP GRANTS) WILL BE DEDUCTE D AS REVENUE EXPENSES. 63. BEING SO, AS SEEN FROM THE ABOVE ORDER OF THE T RIBUNAL THE AMOUNT RECEIVED BY THE ASSESSEE FOR SPECIFIC PURPOSE WOULD ONLY MEAN T HAT THE ASSESSEE AGREED TO ACT AS A TRUSTEE OF A SPECIAL FUND GRANTED BY ASSESSEE' S TRUSTEES/MEMBERS OR ASSOCIATED PERSONS. AS A RESULT IT NEED NOT BE POOLED OR INTEG RATED WITH THE ASSESSEE'S NORMAL INCOME OR CORPUS. THE ASSESSEE IS ACTING AS AN INDE PENDENT TRUSTEE FOR THAT AMOUNT ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 13 RECEIVED FROM THE ASSESSEE'S TRUSTEES/MEMBERS JUST AS SOME TRUSTEE CAN ACT AS A TRUST FOR MORE THAN ONE TRUST. TIED UP OR SPECIFIC GRANT NEED NOT, THEREFORE, BE TREATED AS AMOUNTS WHICH ARE REQUIRED TO BE CONSIDERED FOR ASSESSMENT. IN OTHER WORDS, TIED UP GRANT RECEIVED FROM DONORS FOR A SPECIFIC PURPOS E CANNOT FORM PART OF ASSESSEE'S INCOME. 64. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPINION THAT VOLUNTARY CONTRIBUTIONS IN THE NATURE OF TIED UP GRANT RECEIVED BY THE ASSE SSEE CANNOT BE BROUGHT TO TAX EVEN THE TRUST IS NOT REGISTERED U/S. 12AA OF THE ACT. T HE TIED UP DONATIONS RECEIVED BY THE ASSESSEE SHOULD NOT BE TAXABLE AS INCOME OF THE ASS ESSEE, IF IT IS USED FOR SPECIFIC PURPOSE FOR WHICH IT HAS BEEN GIVEN AND IT CANNOT B E CONSIDERED AS REVENUE RECEIPTS SO AS TO TAX THE SAME 5.3.4 IN COMING TO THE AFORES AID CONCLUSION THE HYDERABAD BENCH OF THE ITAT HAS ALSO RELIED UPON THE DECISION S OF THE ITAT, DELHI BENCH IN THE CASE OF SMT. BASANTHI DEVI (SUPRA) AND SRI CHAKHAN LAL GARG EDUCATION TRUST (SUPRA) AND IN THE CASE OF GAUDIYA GRANTH ANVED TRU ST (SUPRA) WHEREIN SIMILAR ISSUE RAISED HAS BEEN CONSIDERED BY BOTH THE DELHI AND AG RA BENCHES OF THE ITAT. WE ALSO FIND THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF BASANTI DEVI & SRI CHAKHAN LAL GARG EDUCATION TRUST VIDE ITS ORDER IN ITA NO.9 27/09 DT.23.9.2009 HAS ALSO AFFIRMED THE VIEW TAKEN BY THE HON'BLE ITAT IN HOLD ING THAT CORPUS DONATIONS CANNOT BE REGARDED AS INCOME UNDER SECTION 2(24)(IIA) OF T HE ACT. 5.3.5 FOLLOWING THE ABOVE DECISIONS OF THE TRIBUNAL (SUPRA), RELIED UPON BY THE ASSESSEE, WE HOLD THAT VOLUNTARY CONTRIBUTIONS RECE IVED FOR A SPECIFIC PURPOSE CANNOT BE REGARDED AS INCOME UNDER SECTION 2(24)(IIA) OF T HE ACT SINCE THEY ARE CAPITAL RECEIPTS AND TIED UP GRANTS FOR SPECIFIC PURPOSE 6.1. FURTHER, HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. SOCIETY FOR DEVELOPMENT ALTERNATIVES RELIED UPON BY THE ASSESSEE HAS CONSID ERED THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SUKHDEO CHARITY ESTATE V. CIT [149 ITR 470] AND UPHELD THE ORDER OF THE LD.CIT HOLDING THAT IF THE ASSESSEE FAILS TO UTILIZE THE GRANTS FOR THE PURPOSE FOR WHICH IT WAS SANCTIONED, THE AMOUNTS SO UNUTILIZED REQUIRED TO BE BROUGHT TO TAX, IF IT IS NOT REFUNDE D BACK TO THE FUNDING AGENCIES. FOR CLARITY AND CONVENIENCE, WE EXTRACT THE RELEVANT PA RAGRAPHS OF THE ORDER OF THE HIGH COURT OF DELHI IN PARA NO.7 AND 8 WHICH READS AS UN DER : WITH REGARD TO THE SECOND CONTENTION, THE FINDINGS RECORDED BY THE TRIBUNAL A RE THAT THE RESPONDENT-ASSESSEE HAD RECEIVED GRANTS FOR SPECIFIC PURPOSES/PROJECTS FROM THE GOVERNMENT, NON- GOVERNMENT, FOREIGN INSTITUTIONS ETC. THESE GRANTS WERE TO BE SPENT AS PER THE TERMS AND CONDITIONS OF THE PROJECT GRANT. THE AMOUNT, WH ICH REMAINED UNSPENT AT THE END OF THE YEAR, GOT SPILLED OVER TO THE NEXT YEARS AND WAS TREATED AS UNSPENT GRANT. THE COMMISSIONER OF INCOME TAX(APPEALS) WHILE DELETING THE SAID ADDITION HAD OBSERVED 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 RECORD, IT I S SEEN THAT THE SAID AMOUNTS ARE RECEIVED/SANCTIONED FOR A SPECIFIC PURPOSE/PROJECT TO BE UTILIZED OVER A PARTICULAR PERIOD. THE UTILIZATION OF THE SAID GRANTS IS MONIT ORED BY THE FUNDING AGENCIES WHO SEND PERSONS FOR INSPECTION AND ALSO APPOINT INDEPE NDENT AUDITORS TO VERIFY THE UTILIZATION OF FUNDS AS SETTLED TERMS. THE APPELLAN T HAS TO SUBMIT INTER/FINAL PROGRESS/WORK COMPLETION REPORTS ALONG WITH EVIDENC ES TO THE FUNDING AGENCIES FROM TIME TO TIME. THESE AGREEMENTS ALSO INCLUDE A TERM THAT SEPARATE AUDITS ACCOUNTS FOR THE PROJECT WILL BE MAINTAINED. THE UNUTILIZED AMOU NT HAS TO BE REFUNDED BACK TO THE ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 14 FUNDING AGENCIES IN MOST OF THE CASES. ALL THE TERM S AND CONDITIONS ARE SIMULTANEOUSLY COMPLIED WITH OTHERWISE THE GRANTS A RE WITHDRAWN. THE APPELLANT HAS TO UTILIZE THE FUNDS AS PER THE TERMS AND CONDITION S OF THE GRANT. IF THE APPELLANT FAILS TO UTILIZE THE GRANTS FOR THE PURPOSE FOR WHICH GRA NT IS SANCTIONED, THE AMOUNT IS RECOVERED BY THE FUNDING AGENCY. ON THE BASIS OF TH E EVIDENCES PLACED ON RECORD, IT IS SEEN THAT THE APPELLANT IS NOT FREE TO USE THE F UNDS 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 CU STODIAN OF THE FUNDS GIVEN BY THE FUNDING AGENCY TO CHANNELIZE THE SAME IN A PARTICUL AR DIRECTION. IN CASE OF VOLUNTARY CONTRIBUTION, THE APPELLANT IS FREE TO USE THE MONE Y AS PER ITS WILL AND NEITHER HAVE TO RENDER THE ACCOUNT OF THE SAME TO THE DONOR NOR THE SAME IS MONITORED BY THE DONOR. THE SAID AMOUNT BECOMES INCOME OF THE APPELLANT AND HAS TO BE USED FOR CHARITABLE PURPOSES AS PER ITS OBJECTS HOWEVER, IN CASE OF SPE CIFIC TIED UP GRANTS, MONEY IS RECEIVED FOR SPECIFIC PURPOSES AND IS TO BE UTILIZE D FOR THE SAME. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO REFERRED TO THE JU DGMENT OF THE RAJASTHAN HIGH COURT IN SUKHDEO CHARITY ESTATE V CIT(1984) 149 ITR 470 (RAJ.). IN VIEW OF THE AFORESAID FACTUAL POSITION, THE TRIBUNAL HAS UPHELD THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND HAS NOT AC CEPTED THE APPEAL FILED BY THE REVENUE. IN VIEW OF THE AFORESAID FACTUAL POSITION, WE ARE NOT INCLINED TO ENTERTAIN THE PRESENT APPEALS ON THE SECOND ASPECT 6.2. IN THE INSTANT CASE, THE DONATIONS WERE RECEIV ED FOR SPECIFIC PURPOSE FOR ACQUIRING THE FIXED ASSETS. THIS IS EVIDENCED BY TH E LETTERS PLACED BEFORE US FROM THE DONORS. THE FUNDS ARE NOT FREELY AVAILABLE TO THE A SSESSEE SOCIETY, FOR UTILIZING ITS OBJECTIVES OTHER THAN ACQUIRING SPECIFIED ASSETS. T HE ENTIRE AMOUNT RECEIVED FOR ACQUIRING THE FIXED ASSETS WAS UTILIZED BY THE ASSE SSEE AND THERE ARE NO SURPLUS FUNDS AVAILABLE TO THE ASSESSEE. THE ABOVE FACTS AR E NOT DISPUTED BY THE LD. DR. THE FACT THAT THE AMOUNT WAS UTILIZED WAS EVIDENCED BY THE BALANCE SHEET, THUS THE FACTS OF THE CASE IS SQUARELY COVERED BY THE DECISI ON OF THE COORDINATE BENCH OF BANGALORE IN THE CASE OF VOKKALIGARA SANGHA CITED S UPRA, WHEREIN THE COORDINATE BENCH HELD THAT CONTRIBUTIONS RECEIVED FOR SPECIFIC PURPOSE CANNOT BE REGARDED AS INCOME U/S 2(24)(IIA) OF THE ACT. RESPECTFULLY FOLL OWING THE VIEW TAKEN BY THE ITAT, BANGALORE, WE HOLD THAT THE DONATIONS RECEIVED FOR SPECIFIC PURPOSE OF ACQUIRING THE CAPITAL ASSETS ARE TIED UP GRANTS AND CANNOT BE TRE ATED AS INCOME U/S 2(24)(II)(A) OF I.T. ACT. ACCORDINGLY, WE SET ASIDE THE ORDERS OF T HE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE 6. SINCE THE FACTS OF THE ASSESSEES CASE ARE IDENT ICAL, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCH AN D HONBLE HIGH COURTS (SUPRA), WE HOLD THAT THE DONATIONS RECEIVED FOR SPECIFIC PURPOSE SHOULD NOT BE TREATED AS INCOME U/S 2(24) OF THE AC T AND ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE A PPEAL OF THE REVENUE. ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 15 7. THE NEXT ISSUE IN REVENUES APPEAL IS ADDITION U /S 40(BA) OF THE ACT. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR, THE ASSESSEE HAS PAID THE SALARIES TO MR. CH. VIJAY PRA KASH WHO HAPPENS TO BE THE JOINT SECRETARY OF THE ASSESSEE SOCIETY. TH E A.O. INVOKED THE PROVISIONS OF SECTION 40(BA) OF THE ACT AND DISALLO WED THE SALARY PAID TO MR. CH. VIJAY PRAKASH FOR THE ASSESSMENT YEAR 2008- 09 TO 2011-12 AS UNDER: 2008-09 - ` 2,11,200/- 2009-10 - ` 3,06,000/- 2010-11 - ` 3,66,000/- 2011-12 - ` 3,96,000/- 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DISALLOWED THE SALARY PAID TO THE JOINT SECRET ARY BY APPLYING SECTION 40(BA) OF THE ACT. THE LD. CIT(A) DELETED THE ADDI TION HOLDING THAT THE SECTION DOES NOT APPLY TO THE ASSESSEE SINCE IT IS A SOCIETY REGISTERED UNDER SOCIETIES ACT. AS DISCUSSED EARLIER, THE ASS ESSEE IS A SOCIETY REGISTERED UNDER SOCIETIES ACT, 1860. THE DISALLOW ANCE U/S 40(BA) OF THE ACT IS APPLICABLE IN CASE OF ASSESSEE OTHER THA N SOCIETIES. FOR READY REFERENCE, WE REPRODUCE SECTION 40BA OF THE ACT, WH ICH READS AS UNDER: AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO 95 [ 38 ], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARG EABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 16 .. [( BA ) IN THE CASE OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS [OTHER THAN A COMPANY OR A CO-OPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860), OR UNDER ANY L AW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA], ANY PAYMENT OF INTERES T, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, MADE BY SUC H ASSOCIATION OR BODY TO A MEMBER OF SUCH ASSOCIATION OR BODY. 9. PLAIN READING OF SECTION 40(BA) OF THE ACT CLEAR LY SHOWS THAT THE DISALLOWANCE IS APPLICABLE IN CASE OF AN ASSOCIATIO N OF PERSONS, BODY OF INDIVIDUALS OTHER THAN A COMPANY OR A COOPERATIVE S OCIETY REGISTERED UNDER SOCIETIES REGISTRATION ACT, 1860. SINCE THE ASSESSEE IS A REGISTERED COOPERATIVE SOCIETY, SECTION 40(BA) OF T HE ACT HAS NO APPLICATION. ACCORDINGLY, THE ORDERS OF THE CIT(A) ON THIS GROUND IS UPHELD AND THE APPEALS OF THE REVENUE ARE DISMISSED FOR THE ASSESSMENT YEARS 2008-09 TO 2010-11. C.O. NOS.89, 90 & 91/VIZAG/2017 (2008-09, 2010-11 & 2011-12): 10. THE ASSESSEE FILED CROSS OBJECTIONS FOR ALL THE ASSESSMENT YEARS. THERE WAS A DELAY IN FILING CROSS OBJECTIONS BY THE ASSESSEE FOR 32 DAYS FOR ALL THE ASSESSMENT YEARS. THE ASSESSEE FILED C ONDONATION PETITION FOR CONDONING THE DELAY. AFTER HEARING BOTH THE SIDES, THE DELAY IS CONDONED AND THE CROSS OBJECTIONS ARE ADMITTED. ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 17 11. GROUND NO.4 IN RESPECT OF CROSS OBJECTION IN AL L THE APPEALS FOR THE ASSESSMENT YEARS 2008-09 TO 2011-12 IS RELATED TO T HE DISALLOWANCE OF NOTIONAL INTEREST. DURING THE ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD ADVANCED THE SU MS TO M/S. CHITTURI AGRO & LACTATING FOODS PRIVATE LIMITED (CALFPL) AND ALSO TO MR. CH. V.K. NARASIMHA RAO, THE SECRETARY OF THE SOCIETY. IN THE CASE OF CALFPL, THE ASSESSEE EXPLAINED THAT THE ASSESSEE WA S RECEIVING THE SUPPLY OF MILK, GAS, ETC. FROM THE ABOVE COMPANY AT SUBSIDIZED RATES. SOMETIMES, IT PAID THE AMOUNTS IN ADVANCE WHICH ARE ADJUSTED IN THE SUBSEQUENT BILLS AS THE ASSESSEE IS GETTING SUBSIDI ZED RATES, IT IS NOT CHARGING INTEREST ON ADVANCES GIVEN. THE A.O. NOT BEING CONVINCED WITH THE EXPLANATION OFFERED BY THE ASSESSEE HELD THAT T HERE IS NO RATIONALE AND COMMERCIAL EXPEDIENCY SINCE THE ASSESSEE IS PAY ING INTEREST ON BORROWED FUNDS. ACCORDINGLY, THE A.O. DISALLOWED T HE NOTIONAL INTEREST @ 12% ON THE SUMS ADVANCED AND THE SAME WAS REDUCED FROM THE INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT. 12. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED THE ADDITIONS STATING THAT THE CHIEF COMMISSIONER OF INCOME TAX CANCELLED THE REGISTRATION AND HAS NOT ACCEPTED THAT THE AMOUNTS GIVEN TO RELA TED PARTIES ARE NOT IN THE NATURE OF RENTAL ADVANCE. THE ISSUE IS PEND ING BEFORE THE HONBLE ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 18 HIGH COURT OF ANDHRA PRADESH. HOWEVER, SINCE THE A .R. OF THE ASSESSEE COULD NOT PROVE THAT THERE IS NO NEXUS BETWEEN THE LOANS GIVEN AND AMOUNTS BORROWED, THE CIT(A) AGREED WITH THE ASSESS ING OFFICER AND ACCORDINGLY CONFIRMED THE ADDITION. 13. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE FILED PETITION BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, T HE LD. A.R. ARGUED THAT THE ASSESSEE IS HAVING SUBSTANTIAL INTEREST FR EE FUNDS TO MEET THE ADVANCES GIVEN TO CALFPL, HENCE NO INTEREST REQUIRE D TO BE DISALLOWED RELATING TO DIVERSION OF BORROWED FUNDS. HE SUBMIT TED THAT TUITION FEE RECEIVED IN ADVANCE OF ` 123.47 LAKHS, SUNDRY CREDITORS FOR ` 38.81 LAKHS AND CAUTION DEPOSIT OF ` 21.33 LAKHS ARE INTEREST FREE FUNDS WHICH ARE AVAILABLE TO THE ASSESSEE, HENCE NO INTEREST DISALL OWANCE IS REQUIRED. HE ARGUED THAT THE FUNDS ADVANCED TO THE CALFPL ARE OU T OF INTEREST FREE FUNDS AND THERE IS NO REASON TO DISALLOW THE INTERE ST. THE LD. A.R. ALSO SUBMITTED THAT IN FACT THE AMOUNT OF ADVANCE WAS GI VEN TO CALFPL FOR THE PURPOSE OF REGULAR SUPPLY OF MILK, GAS, ETC. AS SUBMITTED BEFORE THE A.O. SINCE THE ASSESSEE IS HAVING SUFFICIENT INTER EST FUNDS TO MEET THE ADVANCES GIVEN TO CALFPL, THE LD. A.R. ARGUED THAT THERE IS NO REASON FOR DISALLOWING THE INTEREST. 14. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE A SSESSMENT ORDER. ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 19 15. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. AS PER THE BALANCE SHEET AVAILABLE, THE ASSESSEE HAS GIVEN A SUM OF ` 22.11 LAKHS AS ADVANCE TO CALFPL AND THE AMOUNT OUTSTAND ING AS ON 31.3.2008 WAS ` 22.11 LAKHS. THE ASSESSEE ARGUED THAT SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE TO GIVE SUCH ADVA NCES. SINCE ASSESSEE IS NOT PAYING ANY INTEREST ON INTEREST FREE FUNDS, THE LD. A.R. ARGUED THAT NO REASON TO DISALLOW THE INTEREST. WE HAVE G ONE THROUGH THE BALANCE SHEET AND FOUND THAT SUFFICIENT INTEREST FR EE FUNDS ARE AVAILABLE TO THE ASSESSEE IN THE CURRENT LIABILITIES AND THE AO HAS NOT MADE OUT A CASE THAT THE ADVANCES WERE GIVEN OUT OF INTEREST B EARING FUND. THE ASSESSEE IS FREE TO GIVE THE INTEREST FREE FUNDS TO MAKE THE ADVANCES AS PER THE BUSINESS REQUIREMENTS AND CONTINGENCIES. H ENCE WE ARE OF THE VIEW THAT THE SAID ADVANCE WAS GIVEN OUT OF INTERES T FREE FUNDS AND FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY, DELETE THE DISALLOWANCE MADE BY THE A.O. AND SET ASIDE THE ORDERS OF THE LOWER A UTHORITIES. THE CROSS OBJECTION OF THE ASSESSEE ON THIS GROUND IS ALLOWED . 16. THE NEXT ISSUE IN THE CROSS OBJECTION IS WITH R EGARD TO THE DISALLOWANCE OF NOTIONAL INTEREST ON THE AMOUNTS AD VANCED TO MR. CH.V.K. NARASIMHA RAO, WHO HAPPENS TO BE SECRETARY OF THE INSTITUTION. BEFORE THE A.O., THE ASSESSEE ARGUED THAT MR. NARAS IMHA RAO HAS ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 20 ADVANCED MORE FUNDS TO THE ASSESSEE SOCIETY AND IF INTEREST IS TO BE CALCULATED, SOCIETY WOULD BE LIABLE TO PAY INTEREST TO MR. NARASIMHA RAO. THEREFORE, NO PART OF THE INTEREST PAYMENT WAS DISA LLOWED BY THE ASSESSEE. THE ASSESSING OFFICER EXAMINED THE ADVAN CE OF FUNDS AND OBSERVED THAT THE SOCIETY HAS ADVANCED MORE FUNDS A T REGULAR INTERVALS AND AFTER COMPUTING THE INTEREST MR. NARASIMHA RAO REQUIRED TO PAY INTEREST OF ` 28,974/- TO THE SOCIETY. ACCORDINGLY, THE A.O. BR OUGHT THE NOTIONAL INTEREST TO TAX. DURING THE APPEAL HEARIN G, THE LD. A.R. ARGUED THAT THE AMOUNTS ARE ADVANCED FROM THE INTEREST FRE E FUNDS, AND NO DISALLOWANCE CALLED FOR. WHILE DECIDING THE ISSUE WITH REGARD TO THE NOTIONAL INTEREST ON CALFPL IN PARA NO.13, WE OBSER VED THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS AND THE ASSE SSEE IS FREE TO MAKE USE OF THE FUNDS FOR GIVING ADVANCES. THEREFORE, W E DO NOT SEE ANY REASON TO SUSTAIN THE ADDITION. ACCORDINGLY, WE SE T ASIDE THE ORDER OF THE LD. CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE . 17. THE NEXT ISSUE IN CROSS OBJECTION IS DISALLOWAN CE U/S 40(A)(IA) OF THE ACT AS UNDER:. 2008-09 - ` 1,50,000/- 2009-10 - ` 1,50,000/- 2010-11 - ` 39,500/- ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 21 THE CIT(A) CONFIRMED THE ADDITION. IN THIS CASE, THE ASSESSEE HAS MADE THE PAYMENTS WITHOUT DEDUCTION OF TAXES. SINC E THE PAYMENT WAS ALREADY MADE, THE CIT(A) PLACING RELIANCE ON THE SP ECIAL BENCH DECISION IN THE CASE OF MERILYN SHIPPING & TRANSPORTS ALLOWE D THE APPEAL OF THE ASSESSEE. SINCE THE ISSUE IS SETTLED BY HONBLE SU PREME COURT IN THE CASE OF PALAM GAS COMPANY IN FAVOUR OF REVENUE, WE SET ASIDE THE ORDER PASSED BY THE CIT(A) AND CONFIRM HE ADDITION MADE B Y THE ASSESSING OFFICER. THE CROSS OBJECTION ON THIS GROUND IS DIS MISSED. C.O. NO.75/VIZAG/2017: 18. FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSEE I N GROUND NO.3 RAISED THE DISALLOWANCE OF ` 4,90,038/- BEING INTEREST PAID ON CAPITAL WORK IN PROGRESS U/S 36(1)(III) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT THE ASSESSEE HAD U TILIZED THE FUNDS FOR WORK IN PROGRESS AS SHOWN IN BALANCE SHEET. HOWEVE R, THE ASSESSEE DEBITED INTEREST PAID TO THE BANKS IN INCOME AND EX PENDITURE ACCOUNT AND CLAIMED AS DEDUCTION. THE A.O. TREATED THE INT EREST TOWARDS CAPITAL WORK IN PROGRESS AND HAS CAPITALIZED THE SAME. THE A.O. DISALLOWED THE INTEREST EXPENDITURE AND MADE THE ADDITION OF ` 4,90,038/-. THE CIT(A) CONFIRMED THE ADDITION MADE BY THE A.O. DURING THE APPEAL HEARING, THE LD. A.R. RELIED ON THE GROUND OF APPEAL. ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 22 19. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE HAS BORROWED THE FUNDS AND USED FOR THE WO RK IN PROGRESS FOR BUILDING THE CAPITAL ASSETS. THEREFORE, THE INTERE ST ACCRUED ON THE BORROWING REQUIRED TO BE CAPITALIZED TO THE CONCERN ED ASSET. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . CIT(A) AND THE SAME IS UPHELD. THE CROSS OBJECTION OF THE ASSESSEE ON THIS GROUND IS DISMISSED. 20. THE NEXT ISSUE IN CROSS OBJECTION FOR THE ASSES SMENT YEAR 2009-10 IS DISALLOWANCE OF EXPENSES AMOUNTING TO ` 47,212/- CLAIMED TOWARDS SOUVENIR ADVERTISEMENT AND FESTIVAL MAMOOLS PAID TO STAFF. THE LD. A.R. DID NOT PRESS THIS GROUND DURING THE APPEAL HEARING , THEREFORE, THIS GROUND IS DISMISSED AS NOT PRESSED. 21 THE LD. A.R. HAS RAISED VARIOUS OTHER GROUNDS, W HICH ARE GENERAL IN NATURE AND ARE NOT PRESSED AT THE TIME OF HEARIN G, THEREFORE, THE REMAINING GROUNDS OF CROSS OBJECTIONS ARE DISMISSED AS NOT PRESSED. 22. IN THE RESULT, ALL THE APPEALS FILED BY THE REV ENUE FOR THE ASSESSMENT YEARS 2008-09 TO 2011-12 ARE DISMISSED, CROSS OBJECTIONS ITA NOS.382, 465, 466 & 467/VIZAG/2017 CO 75 89 90 & 91/VIZAG/2017 M/S. SRI PRAKASH EDUCATIONAL SOCIETY, TUNI 23 FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2008 -09, 2010-11 & 2011-12 ARE PARTLY ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10 IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 14 TH MAR18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 14.03.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT (EXEMPTIONS), VIJAYAWAD A 2. / THE RESPONDENT M/S. SRI PRAKASH EDUCATIONAL SO CIETY, D.NO.5-17-20, RED CONVENT STREET, KOTHAPET, TUNI, EAST GODAVARI D IST. 3. + / THE CIT (EXEMPTIONS), HYDERABAD 4. + ( ) / THE CIT (A)-2, GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM