TMI Blog2017 (12) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT, Bangalore, we hold that the donations received for specific purpose of acquiring the capital assets are tied up grants and cannot be treated as income u/s 2(24)(ii)(a) of I.T.Act. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee - I.T.A.No.101/Viz/2015 - - - Dated:- 22-11-2017 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri G.V.N.Hari, AR For The Respondent : Shri M.K.Sethi, DR ORDER PER D.S. SUNDER SINGH, Accountant Member: 1. This appeal is filed by the assessee against the order of the Commissioner of Income-Tax (Appeals)-2, [CIT(A)], Visakhapatnam vide ITA No.0024/13-14/373/ITO W-1 Tuni/2014-15 dated 30.01.2015 for the assessment year 2010-11. 2. The assessee is a Trust registered with District Registrar of Societies, Kakinada vide certificate dated 31.07.2007 with the objectives of gospel development project and social development project. The Society is engaged in ecclesiastical activities such as training to pastors, bible lessons, preaching, conduction of prayers etc., and social development activities like education progr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 12A, the Ld.CIT(A) held that the assessee would be ineligible to claim exemption from taxation of its income by way of corpus donation. Accordingly, the Ld.CIT(A) confirmed the addition made by the AO representing the corpus donation of ₹ 92,81,499/- and allowed the regular expenditure claimed by the assessee amounting to ₹ 60,05,327/- incurred on objects of the Society. In the result the CIT(A) deleted the addition of ₹ 30,26,148/- relating to income and expenditure account and confirmed the corpus donation received with a specific purpose. For ready reference, we extract the relevant paragraph of the CIT(A) order in para no. 5.1 to 5.2 which reads as under : 5.1. The Direct Tax Laws (Amendment) Act, 1987 w.e.f. April 1, 1989 inserted clause (d) in sub-section(1) of section 11 to provide that the income in the form of voluntary contributions made with a specific direction, that they form a part of the corpus of the trust or the institution shall be excluded from the total income of the trust or the institution. The expression not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land at Tuni and the entire amount was applied for the purpose for which the donations were received. As an evidence, the Ld.AR filed a paper book containing the letters of donations received from the donors vide page nos. 32 to 36 along with account copy of donations forming part of corpus. The assessee also filed income and expenditure account and the Balance sheet evidencing the acquiring of land and payments made for acquiring the site and establishing that the amount received for the corpus of the Trust was used for the purpose of acquiring the fixed assets and there was no balance left. Ld. AR argued that the assessee is a Trust registered under Societies Act received the donations from the identified donors for a specific purpose of acquiring the assets. The amount received by the assessee is not at the disposal of the assessee for applying its objectives and hence the donations received for specific purpose cannot be treated as income of the assessee. Though the words in section 2(24)(iia) deleted the voluntary contributions for specific purpose, the law laid down by various high courts and tribunals holds that even though the assessee does not enjoy the exemption u/s 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for acquiring the land, construction of building at Tuni 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 assets 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 assessee for the purpose of acquiring the fixed assets as specified in the letters of donors. The sum of ₹ 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 the 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 voluntary contributions received for specific purpose cannot be regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Assessing Officer had no other option but to complete the assessments in the status of AOP also closing his eyes towards Section 11 and Section 13. To that extent, the Assessing 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 assessee-society had no legal title or right over the land or houses of those villagers/ agriculturists who were the beneficiaries. The purpose 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 basis whatsoever, factual or legal, to hold that the amounts spent by the assessee in constructing houses or reclaiming land were capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p programmes directed by the donor also will be taken out of the computation of income from the expenses-side. (3) Any non-refundable credit balance in the personal account of Bread for the World will be treated 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 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-trust was not relevant. The amount could not be said to be income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 precedent for laying down a proposition of allowability of expenditure for computation of income of a charitable institution which is denied benefit Under Section 11. 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 -- Authority only for what it decides - Not for what may remotely or even logically follows - Decision 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 Revenue. 27. On other hand, learned authors Chaturvedi and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific direction that they 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 received 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 and 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 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 exemption to capital contributions to make the fact of non-taxability clear beyond doubt. But it proceeds on the erroneous assumptions that such contributions are of income nature - income in the form of voluntary contributions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee shows that it has been received from members of the trust and their associated companies/persons towards building construction and the same were expended for that purpose. So far as section 2(24)(iia) is concerned, this section has 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 present 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 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 Iyenga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on those programmes/ projects, they were spent in the usual course of carrying 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 reclaiming land are capital expenditure. As far 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 which are for specific purposes do not belong to the assessee- society. Such grants do not form corpus of the assessee or its income. 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 assessee could utilise towards its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 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 purpose 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 assessee cannot be brought to tax even the trust is not registered u/s. 12AA of the Act. The tied up donations received by the assessee should not be taxable as 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) wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled terms. The appellant has to submit inter/final progress/work completion reports along with evidences 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 amount has to be refunded back to the funding agencies in most of the cases. All the terms and conditions are simultaneously complied with otherwise the grants are withdrawn. The appellant has to utilize the funds as per the terms and conditions of the grant. if the appellant fails to utilize the grants for the purpose for which grant is sanctioned, the amount is recovered by the funding agency. On the basis of the evidences placed on record, it is seen that the appellant is not free to use the funds 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 custodian of the funds given by the funding agency to channelize the same in a particular direction. In case of voluntary contribution, the appellant is free to use the money as per its will and neither have to render the account of the same to the donor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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