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2015 (8) TMI 920 - ITAT BANGALORE

2015 (8) TMI 920 - ITAT BANGALORE - TMI - Registration under Section 12AA - CIT (Appeals) deleting the income from Voluntary contributions taxed by the Assessing Officer - whether voluntary contribution received by Trust (whether towards capital or revenue account) is income of the Trust as per section 2(24)(iia) - Held that:- Voluntary contributions received for a specific purpose cannot be regarded as income under Section 2(24)(iia) of the Act since they are capital receipts and tied up grants .....

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justice it is necessary to direct the Assessing Officer to examine and verify the donation receipts maintained by the assessee, to come to the conclusion as to whether the amounts credited as building fund corpus in the accounts are supported by donation receipts issued. Subject to the examination and verification of the donation receipts as directed above, the amounts credited cannot be regarded as income as the same has been credited to the corpus fund/building fund and the order of the learn .....

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e same were heard together and are being disposed off by way of this common order. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is a society registered under the Karnataka Societies Registration Act, 1960 for carrying on activities for charitable purposes. The assessee was granted registration under Section 12A of the Income Tax Act, 1961 (in short 'the Act') w. E. F. Assessment Year 2012-13 onwards. In the course of proceedings for registration under Section 12A o .....

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, the income from voluntary donations were claimed to be exempt from taxation by claiming application towards charitable purposes, even though the income of the assessee was not eligible for exemption as it did not have the benefit of registration under Section 12A of the Act for these assessment years. In that view of the matter, the Assessing Officer initiated proceedings under Section 147 of the Act to bring to tax income of the assessee that had escaped assessment for Assessment Years 2005-0 .....

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or Assessment Years 2005-06 to 2009-10, all dt.28.9.2012, the assessee preferred appeals before the CIT (Appeals), Mysore. The learned CIT (Appeals) disposed off these appeals by way of a common order dt.20.8.2013 and allowed the assessee's appeals by following the decision of a co-ordinate bench of the ITAT, Bangalore in the case of St. Anns Home for the Aged V ITO 10 TTJ 144 relied on by the assessee. The issue that was considered by the learned CIT (Appeals) in these appeals was whether t .....

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he Assessing Officer relying on ITAT decision reported in 13 TTJ 185 ignoring the fact that in the case before ITAT, assessee was registered under Section 12AA of the Act but in the present case, assessee was not registered under Section 12AA during the relevant period. 2. The CIT (Appeals) erred in allowing the relief overlooking the fact that any voluntary contribution received by Trust (whether towards capital or revenue account) is income of the Trust as per section 2(24)(iia) of the Act. 3. .....

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o adjudication or finding is called for thereon. 5.0 Grounds No.1 to 3. 5.1 In respect of the Grounds at S. Nos. 1 to 3, the learned Departmental Representative submitted that the assessee society has secured registration only w. E. F. Assessment Year 2012-13 and therefore the voluntary contributions received by the assessee in the period relevant to Assessment Years 2005-06 to 2009-10 are liable to be considered as income under Section 2(24)(iia) of the Act. The learned Departmental Representat .....

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dable as income irrespective of whether they are for a specific purpose or otherwise. 5.2 The learned Authorised Representative for the assessee filed a paper book containing, inter alia, details of donations, copy of pamphlet dt.16.8.2003 and a copy of sample receipt in support of the collection of donations. Copies of certain judicial pronouncements were also placed on record by the learned Authorised Representative. The ld. A. R. submitted that voluntary contributions received for a specific .....

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s and perused and carefully considered the material on record; including the judicial pronouncements 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 amount received by the assessee .....

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ad Bench in the case of Society for Integrated Development in Urban and Rural Areas reported in 90 ITD 493 (Hyd) wherein the Tribunal followed 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 under :- "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 Ben .....

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sessing Officer was right as he had acted only according 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 benefits, the Assessing Officer could assess only net income of the assessee and not gross receipts. As far as the assessee was concerned, construction of houses, reclamation of land, etc., were part of its regular activities. Houses were built on the land of poor agriculturists. The asses .....

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d were capital expenditure. As far as the assessee 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-formal education, etc., had to be allowed as deduction in the computation of income. The grants received from foreign donor were for spec .....

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rants for a specified purpose would only mean that the assessee which was a voluntary organisation, had agreed to act as a trustee of a special fund granted by donor with the result that it need not be 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 same trustee could act as a trustee of more than one trust. Tiedup amount need not, therefore, be treated as amounts which were required .....

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ed 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 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 expenses-side. (3) Any non-r .....

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s for the 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 response 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 capital to be spent for the water supply scheme. The fact that the amount had not been paid over to the State Government and was kept unutilised in the account of the assessee-trus .....

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ficance whether the amount had since been paid to the State Government or kept in the account of the said scheme by the assessee-trust. The amount of ₹ 70,000/- did not constitute income of the petitioner. The reassessment proceedings were 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 order dated 25-6-2002 to which one of us was a party, was inclined to uphold the view of the Comm .....

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o violation, whatsoever of the provisions of Section 13(1)(c) and (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 not clear whether the Revenue has accepted or gone on appeal against the judgment of this Bench in the case of Nirmal Agricultural Society (supra). .....

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s. (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 were being utilised for purposes other than charitable and religious was a finding of fact and no question of law arose for reference." This judgment was relied upon by the Reference. A careful reading of this judgment does not indicate that the question raised by the assessee before us was posed to the court. We do not feel that this is a preceden .....

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Honourable Andhra Pradesh High Court (supra) does not help the case of the Revenue. 27. On other hand, learned authors Chaturvedi and Pithisaria in their book Income Tax Law, Fifth edition, Vol.1, at page 424, under the heading "Income, when falls into the tax net", observed as follows:- "Although Section 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 .....

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the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions are income, to our mind this by itself does not entitle the tax gatherer to ignore all other well settled principles of taxation and general law and levy tax on gross receipts without considering the claim for deductions. Principles such as capital versus revenue, doctrines of overriding title, form versus substance, interpretation of deeming provisions etc., have to be applied wherever necessary. Only the surplus or pr .....

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ection that they shall form part of the corpus of the trust [original in italics]. Therefore, such contributions on capital account do not have to be applied to charitable purposes but can be retained as the corpus of the recipient trust without attracting any tax liability. Although the italicized 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 co .....

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such contributions stand on the same footing as gifts and are therefore not taxable. (See under Section 10(3), "Voluntarypayments ..."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 such contributions all the conditions and restrictions under Sections 11 and 13 for claiming exemptions. (See also Expln. (1) to Section 11(1).] (d) Section 11(1)(d) specifically grants exe .....

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hankar Bhagwan Estate vs. ITO (61 ITD 196) wherein even after considering section 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 Assessing Officer on evidence had accepted the fact that all the donations had been received towards the corpus of the endowments. In view of this clear finding, they could not be assessed as income of the assessees. Therefore, the voluntary contribu .....

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these donations are received from members 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 voluntary if it is done by free choice of once own accord, without compulsion or obligation, without valuable consideration, gratuitous, .....

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e-tax Act would become applicable. According to 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 receipt. If the donations are made voluntarily for specific purpose, the same cannot be 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 the a .....

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972. Section 12 makes it clear by the words appearing in parenthesis that contributions made 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 dated 20.3.1973 is extracted at page 1754 of Volume I of Sampath Iyengar Law of Income-tax (10th Edition), in which the interrelation between sections 12 and 2(24) has been brought out. Gifts made with clear direction that they shall form .....

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Bombay High 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 Dwarakadeesh 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 Welf .....

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;9. But as far as the contents of the assessments are concerned, we find 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 .....

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as the assessee is concerned, those expenses are revenue expenses. The assessee has no rig ht 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-formal education, etc., has to be allowed as deduction in the computation of income. 10. The grants received from Bread for the World were for specific purposes. The grants .....

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se would only mean that the assessee, which is a voluntary organisation, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled 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 act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are required to be considered for a .....

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the donor, could be treated as income of the assessee, if the donor did not insist for the repayment of the balance amount. 12. Therefore, in the light of the examination of the 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 .....

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eceived by the assessee for specific purpose would only mean that 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 integrated with the assessee's normal income or corpus. The assessee is acting as an independent trustee for that amount 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 no .....

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income of the assessee, if it is used for specific purpose for which it has been given and it cannot be considered as revenue receipts so as to tax the same……. 5.3.4 In coming to the aforesaid conclusion the Hyderabad Bench of the ITAT has also relied upon the decisions 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 Trust (supra) wherein similar issue raised has been consid .....

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ns received for a specific purpose cannot be regarded as income under Section 2(24)(iia) of the Act since they are capital receipts and tied up grants for specific purpose. 5.3.6 Before looking into the facts of the case, we notice that Revenue has relied upon a judgment of the Hon'ble Apex Court in the case of U. P. Forest Corporation & Another V DCIT reported in 297 ITR 1 (SC). According to the aforesaid decision, registration under Section 12AA of the Act is mandatory for availing the .....

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