TMI Blog2013 (8) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... grant received for specific purpose - Held that:- Assessee has maintained separate accounts for each project and grant and has given complete details regarding the same in the audited balance sheet itself. The Assessing Officer did not point out any discrepancy in the said details and brought nothing adverse to prove its allegations - Therefore, unspent grant cannot be taxed as voluntary contribution or income u/s 12 of the Act - Decided against Revenue. - I.T.A. Nos. 1239/Del/2010 & 139Del/2011 - - - Dated:- 1-4-2011 - Shri A. D. Jain And Shri Shamim Yahya,JJ. For the Petitioner : Sh. Vinod Bindal, CA For the Respondent : Sh. Gajanand Meena, C.I.T. (D.R.) ORDER Per Bench These appeals by the revenue are directed against the respective orders of the Ld. Commissioner of Income Tax (Appeals) for the assessment years 2006-07 2007-08. Since the issues are identical and the appeals were heard together. These are being disposed of together. For the sake of convenience, we take the ground and facts from ITA NO. 1239 for assessment year 2006-07. 2. The grounds raised read as under:- 1. On the facts in the circumstances of the case, the Ld. CIT(A) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modify alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 3. Apropos to ground no. 1 and 2, the facts of the case are that the appellant is a registered charitable society u/s.12A undertaking the activities relating to research, development and dissemination of: i) Technologies for fulfillment of basic needs of rural households. ii) Solutions for regeneration of natural resources and the environment. iii) Community based institution strengthening methods to improve access to entitlements for the poor. These activities included projects on development of alternatives like low cost building materials, smoke free cook stoves, water supply and purification, sanitation, organic farming, adaptation to climate change and issue based awareness creation programmes. 3.1 Assessing Officer proceeded to withdraw exemption u/s 11 on the following grounds:- - The FDRs of the assessee of Rs. 12 lacs were placed as collateral security for allowing credit facilities to two societies namely Tara Nirman Kendra and Society for technology and action for Rural Advancement. Since the other two societies were having some common management co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to (d) apply to individual persons and societies like appellant are not covered therein. The societies can be covered only under clause 13(3)(e) only when the persons mentioned in section 13(3)(a) to 13(3)(d) have substantial interest in the said society which is not the case here. The perusal of the Memorandum of Association of both the societies make it clear that the funds of the society can be distributed to the societies of similar objects and not to any individual or member of the executive committee. Thus, none of the member of the executive committee of the appellant have any interest in the two borrowing societies and, therefore, the two borrowing societies are not covered u/s 13(3) at all. The case of ITAT Hyderabad Bench "B" in the case of Society for Integrated Development in Urban and Rural Areas vs DCIT relied upon by the assessing officer is not applicable to the fact of the appellant society as in the said case, the FDRs were used for the benefit of the Secretary of the trust who was a person covered u/s 13(3) of the Act. However, in the present case, the FDRs have only been pledged and the benefit accrued to a person not covered U/S 13(3) of the Act. Thus the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be denied on that ground. In view of the above facts and position of law, I am of the opinion that pledging of the FDRs for availing credit facilities to the bank is not infringement as per section 13 of the Act at all and therefore, the appellant is eligible for exemption u/s 11 of the Act. In view of the above, the first ground of appeal stands allowed. Since the appellant is eligible for exemption u/s 11 of the Act, the amount of Rs. 6,96,676/- being incurred towards purchase of fixed assets will be treated as application of funds for charitable purposes and will be allowable for exemption u/s 11 of the Act. Thus, the second ground of appeal also stands allowed. 5. Against the above order the revenue is in appeal before us. 6. We have heard the rival contentions and perused the relevant records. We find that Assessing Officer has held that there is infringement of the provisions of section 13(1)(c), 13(2)(a) of the Act read with Section 13(3). This has been done on the ground that FDR of the assessee of Rs 12 lacs were placed as collateral security for allowing credit facilities to two societies. Assessing Officer has also noted that the auditors of the assessee have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006 was Rs. 16,92,50,496/-. From the examination of the books of account of the assessee it is observed that no separate books of accounts for each donor agency were maintained. A charitable institution can either receive voluntary contribution or corpus donation but an amount of donation received cannot be categorized under the said two heads at the same time. These voluntary contributions cannot be treated as corpus in the year of receipt and, thereafter, shown as income in the year in which these are spent. In terms of the section 2(24)(iia) of the Act, every donation received by a charity amounts to an income in its hand. In terms of the section 12(1), there is an exclusionary provision which exempts from treatment as income any donation made with a specific direction that it shall form part of the corpus of the Trust and all voluntary contributions received shall be deemed to be income of the trust and provisions of section 13 shall apply. Grants received are voluntary contributions and are, therefore, taxable in the year of receipt. Therefore, the amount of Rs 16,92,50,496/- remaining unspent out of the grants received was added to income. 8. Upon assessee s appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the amount received for specific purpose and credited in a separate account cannot be taxed as income. The Hon'ble ITAT in the case of Nirmal Agricultural Society Vs ITO (1999) 71 ITD 152 (Hyd.) has categorically mentioned that the tied up grants received from funding agencies for specific purposes did not belong to assessee society and such grants did not form corpus of assessee or its income. The assessee is acting as an independent trustee for that grant. Only the non-refundable credit balance in the grant account will be treated as income in the year in which such nonrefundable balance was ascertained. The assessee is following the same method of accounting. When a project is completed the surplus or deficit arising on the said project is transferred to the income and expenditure account. In view of the evidences placed on record, it is clear that the grants received by the appellant are tied up grants and not voluntary contributions and the above mentioned cases are squarely applicable on the case of the appellant. Further, the appellant has maintained separate account for each project grant and has given complete details regarding the same in the audited balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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