2010 (3) TMI 1151 - AT - Income Tax

Summary

Issues Involved:
1. Whether the advance payment of Rs. 20,00,000 towards the purchase of property qualifies as an application of income for charitable purposes u/s 11 of the Income Tax Act, 1961.
2. Relevance and applicability of the decision in CIT vs. VGP Foundation 262 ITR 187 to the present case.

Summary:

Issue 1: Application of Income for Charitable Purposes
The assessee, a society registered u/s 12A of the Income Tax Act, claimed that the advance payment of Rs. 20,00,000 for the purchase of property should be considered as an application of income for charitable purposes. The AO and CIT(A) rejected this claim, stating that the assessee had not divested its ownership of the money and retained beneficial interest therein. The AO relied on the decision in CIT vs. VGP Foundation, where funds given as an advance to a sister concern were not considered as applied for charitable purposes.

The Tribunal noted that the assessee had paid Rs. 20,00,000 as an advance to Mr. Manjeet Singh for the purchase of land, which was later registered in the name of the society. The Tribunal emphasized that the payment was made by account payee cheque, and the irrevocable General Power of Attorney executed by Mr. Manjeet Singh confirmed the receipt of the advance and the transfer of possession to the assessee. The Tribunal held that the advance payment constituted an application of income for charitable purposes, as the assessee had acquired a capital asset in the form of land, which was used for the trust's objectives.

Issue 2: Applicability of CIT vs. VGP Foundation
The Tribunal distinguished the present case from CIT vs. VGP Foundation, where the advance was given to a sister concern with trustees as directors, and the amount remained idle without any security or interest. In contrast, the advance in the present case was given to an unrelated third party, and the assessee had taken possession of the property and obtained an irrevocable General Power of Attorney. The Tribunal concluded that the revenue authorities misapplied the decision in CIT vs. VGP Foundation to the facts of the present case.

Conclusion:
The Tribunal reversed the orders of the AO and CIT(A), directing the AO to treat the advance payment of Rs. 20,00,000 as an application of income for charitable purposes u/s 11 of the Income Tax Act. The appeal filed by the assessee was allowed.