TMI Blog2019 (2) TMI 1840X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) for the specific purpose of purchase of lands for furtherance of the assessee s objects cannot be regarded as income under section 2(24)(iia) of the Act since they are capital receipts for specific purpose. - Assessee s appeals are allowed. - ITA Nos.274 and 277/Bang/2017 - - - Dated:- 6-2-2019 - Shri N. V. Vasudevan, Vice President And Shri Jason P Boaz, Accountant Member For the Appellant : Shri. V. K. Gurunathan, Advocate For the Respondent : Shri. R. N. Siddappaji, Addl. CIT ORDER PER JASON P BOAZ, ACCOUNTANT MEMBER These two appeals by the assessee are directed against the orders of the CIT(A)-14, LTU, Bangalore, dated 25.11.2016, for Assessment Year 2011-12 and 2012-13. Since common issues are involved, these appeals were heard together and we therefore deem it appropriate to dispose off the same by way of this consolidated order. 2. Briefly stated, the facts of the case are as under: 2.1 The assessee-trust, established on 22.11.2011, filed its return of income for Assessment Year 2011-12 on 18.01.2012 declaring income of ₹ 3,180/- and for Assessment Year 2012-13 on 31.07.2012 declaring NIL income, after claiming that receipts from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls before the Tribunal wherein it has raised identical grounds. We, therefore, extract hereunder only the grounds raised by the assessee in Assessment Year 2011-12: 1. The order of the learned Commissioner of Income-tax (A) which was passed on mere suspicious and surmises is opposed to law and accordingly liable to be set aside and the claim of the appellant ought to have been allowed. 2. The learned Commissioner (A) in the interest of natural justice ought to have given an opportunity to the appellant to prove the identity of the donors to whom the receipts have been issued before concluding that the donations were unproved by ignoring the receipts to deny the benefit to the appellant as claimed u/s.11 of the Act. 3. The learned Commissioner (A) ought to have appreciated that the claim of the appellant for the exclusion of the income u/s.11 of the Act in respect of corpus donations was in accordance with law and the appellant was entitled to the exclusion as claimed irrespective of the facts that the registration u/s.12A was granted with effect from A.Y 2014-15. 4. The learned Commissioner (A) ought to have appreciated that the case law cited squarely support th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DR for Revenue supported the orders of the authorities below. According to the learned DR, the assessee trust has secured registration under section 12AA of the Act only on 18.11.2013 and therefore was entitled for exemption in respect of voluntary corpus donation/contributions only w.e.f. Assessment Year 2014-15. Therefore the voluntary corpus donations/contributions received by it for purchase of lands in furtherance of its objects in the period relevant to Assessment Years 2011-12 and 2012-13, are not eligible for exemption under section 11 of the Act. It was prayed that the impugned orders of the authorities below be upheld. 3.4.1 We have heard the rival contentions 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 corpus donations/ contributions received by it was for the specific purpose of purchase of land for furtherance of its objectives. In short, the assessee has pleaded that the amount r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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:- ITA Nos.281 to 285/Bang/2014 M/s. Vokkaligara Sangha. The assessee had not been granted 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 registration. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 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-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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the judgment of this Bench in the case of Nirmal Agricultural Society (supra). 26. Honourable Andhra Pradesh High Court in the case 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 regarded as a branch or as a part of the parent body, was a finding of fact and no question of law arose for reference. (ii) That the mere fact that the rice millers paid contributions 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction 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 contributions made with a specific 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), Voluntarypayments ... p.320.) (c) Section 12 goes one step furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the will of the donors or by any compulsion or under any obligation. In that sense, it can be said that the donations are voluntary. Before us, the assessee filed a list of donors in Paper Book form at page Nos. 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. Consequently, general provisions of Income-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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 those villagers/ agriculturists who are the beneficiaries. The purpose and activity of the assessee-society is to engage in such charitable activities. Whatever amount has been spent 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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. 63. Being so, as seen from the above order of the Tribunal the amount received 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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