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2014 (1) TMI 1764 - ITAT CHANDIGARH

2014 (1) TMI 1764 - ITAT CHANDIGARH - TMI - Eligibility of exemption u/s 12A - grants and advances or loans receipts - Held that:- As where the authority had been constituted by the Government for the specific purposes of carrying on the activities of the Government and where the grants and advances or loans are disbursed by the Government to the assessee, the said grants, advances cannot not be held to the income of the assessee as the said grants/advances are released to the assessee for the s .....

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purposes before the end of the year, which in turn was utilized in the succeeding years for the said specific purposes. In the totality of the facts and circumstances, where the assessee was acting on the directives of the Government of Haryana in implementing the scheme of the Government of Haryana, the grants so received by the assessee were not the income of the assessee and do not form the corpus of the assessee. Such grants are not donations or voluntary contribution under section 12 of the .....

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he grant of ₹ 25.10 crores received by the assessee during the year under consideration is not the income of the assessee for the relevant assessment year. In view thereof, the said grant was received by the assessee for the purpose of disbursement for the promotion of the schemes of Government of Haryana and was not its income as the assessee was acting as a nodal agency for the disbursement of the grants only. Accordingly, we direct the Assessing Officer to delete the addition of ₹ .....

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Income- tax Act, 1961 ( 'the Act' for short). 2. The assessee has raised the following grounds of appeal : 1. That the Impugned order is bad in law and contrary to the facts of the case, The Commissioner of Income Tax, Panchkula has not appreciated the facts and law in the correct manner and in accordance with the statute. 2. That in the facts and circumstances of the case, the learned CIT Panchkula gravely erred in treating grant received from Haryana Government of ₹ 25,10,00,000 .....

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f Haryana for promotion of regulated development of rural areas and to provide basic amenities, sanitation, hygiene, residential and housing facilities to villagers in and around villages. 5. That the CIT (A) further gravely erred in initiating penalty proceedings u/s 271(l)(c) of the Income Tax Act. 3. The brief facts of the case are that the assessee had furnished return of income on 30.9.2008 declaring total income at nil. During the course of assessment proceedings the assessee was asked to .....

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nd villages. The functions of the assessee society were provided under section 230 of the Haryana Panchayati Raj Act. The assessee also pointed out to the Assessing Officer that though the assessee had filed an application for registration under section 12A of the Act on 30.9.2008 but the same was pending for disposal. Vide para 2.3 of the assessment order, the Assessing Officer observed that no application was filed by the assessee for grant of registration with the Commissioner of Income Tax, .....

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authority. The Assessing Officer vide para 3.1 of the assessment order noted that the assessee had not furnished the year wise break-up in which the amount was entered. Hence as the assessee was not entitled to the exemption under sections 11 and 12 of the Act and had not utilized 85% of its income towards the objects for which it was created, deduction claimed by the assessee at ₹ 25.10 crores was not allowed to the assessee. 4. The CIT (Appeals) noted that the assessee had been granted r .....

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lowing reasons: i) The amount received is shown as Grants-in-Aid in receipt and expenditure account filed by the appellant with return of income. ii) Sanction order of Haryana govt. Dated 27.03.2008 shows that there is no condition as to refund of the unspent amount to the Govt. as in case of other unspent funds in Govt. iii) The appellant has not refunded surrendered the unutilized amount during the year. This fact is admitted by the appellant vide submission dated 09.12.2010 before the AO. iv) .....

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ct. The CIT (Appeals) thus held as under: The appellant has failed to specify, by notice in writing given to the office in the prescribed manner and the purpose for which the income is being accumulated/set apart and the period for which the income is to be accumulated/set apart. Therefore conditions of section 11(2) are not complied with. 6. In thereof, the income of the assessee was deemed to be the income of the assessee of the previous year in which the same ceased to be so accumulated i.e. .....

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nder section 12A of the Act was granted vide order passed under section 12AA(1)(b) of the Act on 2.9.2011 w.e.f. 1.4.2010. However, this order was rectified under section 154 of the Act vide order dated 1.3.2012 and the said registration was granted w.e.f. 1.4.2008. In view thereof, for the relevant assessment year 2008-09 no registration was granted under the Act to the assessee and no deduction has been claimed under section 11 of the Act. Our attention was further drawn to the gazette notific .....

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ed that all the funds belong to the Government. The learned A.R. for the assessee further stated that the authority was constituted by the Government to govern and implement the specified acts and the receipts and payments which were unspent during the year were to be carried forward in the Balance Sheet. Our attention was drawn to the letter issued by the Financial Commissioner, Principal Secretary to Government of Haryana Development and Panchayati Department, Chandigarh dated 26.9.2008 under .....

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see and further additional grant of ₹ 25 crores was made in the next year as is apparent from the receipts and payments reflected at pages 38 and 39 of the Paper Book. During the succeeding year an amount of ₹ 10 crores was spent on the scheme. In the year ending March, 2010 the grants-in-aid was ₹ 69.66 crores and the assessee spent ₹ 79.17 crores. The learned A.R. for the assessee pointed out the issue arising in the present appeal is whether the grants-in-aid was incom .....

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cts and hence the said grants were its receipts and unless there was diversion of income, the said receipts were taxable. Reliance was placed decision of the Hon'ble Supreme Court in the case of Adityapur Industrial Area Development Authority Vs. Union of India And Others [283 ITR 97 (SC)]. 9. The learned A.R. for the assessee in the rejoinder pointed out that the judgment has to be seen in its context. The said judgment talks of income-tax society and does not decide the issue that the gran .....

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urther in exercise of the powers conferred under section 220 (3) of the Act, the Governor of Haryana appointed the following Members of the authority : OFFICIAL MEMBERS (i) Chief Minister, Haryana Chairman .. (ii) Minister Incharge of Development and Panchayats Department Vice Chairman .. (iii) Financial Commissioner and Principal Secretary, to Government Haryana, Finance Department Member .. (iv) Financial Commissioner and Principal Secretary to Government, Haryana, Development and Panchayats D .....

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ministrator, Haryana Rural Development Authority .. NON-OFFICIAL MEMBERS (ix) Shri Raj Singh Dahiya, House Number 3, Surya Vihar, Opposite Sector 4, Gurgaon Member .. (x) Shri Deep Chand Phulia, 622, New Diwan Nagar, Near Government High School, Kamal Camp. Panipat Member .. (xi) Shri Bhom Pal Singh, Advocate, 'Ashirwad , Village & Post Office Kaimalgarh, Jhajjar Member .. The Headquarter of the Authority shall be at Chandigarh. .. URVASHI GULATI Financial Commissioner and Principal Secr .....

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apter an authority to be known as the Haryana Rural Development Authority . The said authority shall be a body corporate having perpetual succession and a common seal. Under section 229 of the Amendment Act the objects of the authority are provided, which are as under: 229. The objects of the Authority shall be to promote and secure regulated development of the rural area and development zo0ne in an around villages including Lal Dora and to provide amenities, sanitation and hygiene in rural area .....

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elopment of residential and housing facilities in villages particularly for weaker sections by acquisition and development of land. (f) Providing financial and technical support to the Panchayati Raj Institutions for (he development of rural area and development zone in and around villages. (g) Distributions of house sites in the development zone and maintenance of record thereof. (h) Maintenance of buildings under its control or transferred to it by the Government or any public authority. (i) M .....

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the Government, by way of loans or debentures; (c) all fees and fines received by the Authority; | (d) ail fees, fines and remittance charged by any other authority for rural development; (e) all moneys received by the Authority from the disposal of lands, buildings and other properties, movable and immovable; (f) all moneys received by the Authority by way of rents and profits or in any other manner or from any other source. (2) The fund shall be applied towards meeting- (a) expenditure incurre .....

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of the same shall be credited to the fund of the Authority. 14. Under section 237 of the Amendment Act, the authority is to maintain proper accounts and also prepare an annual statement of accounts including the Balance Sheet in such form, as may be prescribed. The said accounts shall be subject to audit annually and the audited accounts were to be forwarded to the Government annually. 15. Under part-G of the said Amendment Act, it is provided that the said authority would be controlled by the G .....

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the Amendment Act the authority is duty bound to furnish to the Government such reports, returns, record and other information as the Government may require from time to time. 16. The authority constituted by the Government can be dissolved and the power of dissolution are with the State Government as provided under section 260 of the Amendment Act, which reads as under: 260. (1) Where the Government is satisfied that the purposes for which the Authority is constituted under this Chapter have be .....

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ority, shall vest in, or be realizable by the Government; (b). all liabilities which are enforceable against the Authority shall be enforceable against the Government; and for the purpose of carrying out any development which has not been fully carried out by the Authority and for the purpose of realizing properties, funds and dues referred to in clause (a), the functions of the Authority shall be discharged by the Government. 17. After the dissolution of the authority it is clearly provided und .....

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Under section sub-section 262 of the Amendment Act the Government may by notification in the official gazette, make rules for carrying out the purposes of this Chapter. Further under section 264 of the Amendment Act the power is vested with the Government to make grants, advances and loans to the authority, which reads as under: The Government may make such grants, advances and loans to the Authority, as the Government may deem necessary, for the performance of the functions under this Chapter a .....

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assessee before us. 20. As per the order dated 27.3.2008, the Financial Commissioner & Principal Secretary to Government of Haryana, Development & Panchayats Department released funds under the scheme to Haryana Rural Development Authority (HRDA ) during the year 2007-08 totaling ₹ 2510.00 lacs. The said funds were sanctioned and released to the assessee under the scheme as per the rules and guidelines of HRDA. The amount was to be drawn and handed over to the Chief Administrator, .....

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08. The copy of the said communication is placed at page 27 of the Paper Book. The assessee in the receipts and payments account for the year ending 31.3.2008 reflected the grants-in-aid of ₹ 25.10 crores and also declared that the said amount was unspent as on the close of the year and was carried forward to the Balance Sheet. Copy of the Balance Sheet and income & expenditure account for the year ending 31.3.2008 are placed at pages 30 and 31 of the Paper Book. Thereafter another com .....

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was to provide infrastructure in different bastis and the Government had decided that the authority with the available budget resources would develop infrastructural facilities in the said bastis. The assessee was thus directed to provide infrastructural facilities like pavement of street, water supply line, drains and electrification etc. Further vide communication dated 20.11.2008 from the Director, Panchayats Haryana, Chandigarh to the Chief Administrator of the assessee authority, it was pr .....

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₹ 10 crores was spent on the development of the scheme and balance of ₹ 17.46 crores alongwith balance of ₹ 25.10 crores totaling ₹ 42.56 were carried forward to the succeeding year. Copies of the Balance Sheet and receipts and payments account are placed at pages 38 and 39 of the Paper Book. Further during the year ending 31.3.2010 the assessee received grants of ₹ 69.66 crores and out of the total funds allocated, ₹ 79.17 crores were spent on the developmen .....

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lication for rectification under section 154 of the Act and after examining the facts and records of the case, the Commissioner of Income Tax passed order under section 154 of the Act dated 1.3.2012 granting registration under section 12AA(1)(b) of the Act w.e.f. 1.4.2008. The year under appeal before us is assessment year 2008-09 i.e. the financial year 2007-08 and during the said year, the assessee were not registered as a charitable trust by the Commissioner of Income Tax under section 12A of .....

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e, the receipts we re taxable in the hands of the assessee. 22. The perusal of the provisions of Haryana Panchayati Raj Amendment Act reflects that the assessee corporation was incorporated by the State Government for the purpose and objects and the authority so constituted were to promote and to secure development of the rural area as per the schemes formulated by the Government. The duties and functions of the authority so constituted were regulated by the Haryana Panchayati Raj Amendment Act, .....

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ed under section 252 of the Haryana Panchayati Raj Amendment Act, that the authority is to carry out such directions as may be issued by the Government from time to time and further under section 253 of the Haryana Panchayati Raj Amendment Act, it is provided that the assessee had to furnish reports, returns, records and other information to the Government from time to time and as called for. Further the assessee authority can be dissolved by the State Government as per the provisions of section .....

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escribed by the Government. 23. In the above said facts and circumstances, where the authority had been constituted by the Government for the specific purposes of carrying on the activities of the Government and where the grants and advances or loans are disbursed by the Government to the assessee, the said grants, advances cannot not be held to the income of the assessee as the said grants/advances are released to the assessee for the specific purposes for carrying on the development work. In t .....

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ized in the succeeding years for the said specific purposes. In the totality of the facts and circumstances, where the assessee was acting on the directives of the Government of Haryana in implementing the scheme of the Government of Haryana, the grants so received by the assessee were not the income of the assessee and do not form the corpus of the assessee. Such grants are not donations or voluntary contribution under section 12 of the Act and thus the same should not be considered as income o .....

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the Hon'ble Punjab & Haryana High Court in case of CIT Panchkula Vs. State Urban Development Society in ITA No.210 of 2011 (date of decision 19.10.2011) wherein the Hon'ble High Court held as under: The Tribunal held that the Society is acting as a nodal agency receiving grant from Government of India and State Governments and distributes to district authorities for implementation of various Schemes of Government of Indian and supervising the execution of Schemes. It has no discretio .....

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the grants received by the assessee should not be considered either as income or for ascertaining the amount expanded or amount to be accumulated. Provisions of Section 11 and 12 of the Act are not applicable for grants received by the assessee under the Schemes It further held that the assessee is statutorily required to file its intention of expanding the accumulated funds in future by way of Form No. 10. The argument that the assessee has shown the entire amount as its income in the profit a .....

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. In respect of the Bank interest, the Tribunal found that the assessee has to keep funds in separate accounts and such interest is treated as part of the grants under respective Schemes to which said funds relate. Hence, with the said findings, the orders of the Assessing Officer and Commissioner of Income Tax (Appeals) was set aside. Learned counsel for the appellant vehemently argued that the Society itself has reflected the grants received from Central and State Governments as income. Theref .....

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