2012 (1) TMI 77 - HC - Income Tax

Society registered u/s 12A & 80G - pledged FDRs with a bank to enable some other societies to obtain loan from a bank few members of the management committee of the respondent society and other two societies are common Revenue contending violation of Section 13(1)(c)(ii) read with Section 13(3) and Explanation 3 (ii) non-utilization of grant received fully Held that - A.O. has not been able to record any finding that the persons in control of the management of the three societies had, at any point of time, not less than 20% shares in the profits of such concern. This being the position, invocation of Section 13(1) (c) (ii) has to fail and is accordingly rejected. Grants were received for specific purposes/projects from the government, non-government, foreign institutions etc. In case of specific tied up grants, money is received for specific purposes and is to be utilized for the same. Unutilized amount has to be refunded back to the funding agencies. 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 will and, thus, these are not voluntary contribution as per Section 12 of the Act - Decided against the Revenue

Summary

Issues:
- Alleged perversity in ITAT's order
- Violation of provisions u/s 13(1)(c) of the Act
- Failure to maintain separate books of accounts
- Incorrect procedure of accounting

Alleged perversity in ITAT's order:
The Supreme Court's decision in Motilal Padampur Sugar Mills Co. Ltd. is deemed inapplicable to the case. The appellant argues that the ITAT's order raises substantial questions of law due to the society pledging FDRs with a bank to facilitate other societies in obtaining loans, allegedly breaching Section 13(1)(c)(ii) read with Section 13(3) and Explanation 3(ii) of the Income Tax Act, 1961. Additionally, the appellant claims that unspent grants amounting to significant sums were not utilized by the respondent-society.

Violation of provisions u/s 13(1)(c) of the Act:
The respondent society, registered under Section 12A and Section 80G of the Act, is engaged in various charitable activities. It had pledged FDRs as collateral for credit facilities to other societies, with common members in their management committees. The interest on the FDRs was paid to the respondent-society, and upon maturity, the pledged FDRs were encashed. The tribunal confirmed these findings, indicating no dispute over these facts.

Failure to maintain separate books of accounts:
The appellant contended that the respondent had not maintained separate books of accounts for each donor agency during the relevant assessment year. However, the tribunal did not find this argument compelling, leading to a dismissal of this ground of appeal.

Incorrect procedure of accounting:
The appellant further argued that the accounting procedure adopted by the respondent was incorrect and contravened Section 12 of the Act, citing the Supreme Court's decision in Motilal Padampur Sugar Mills Co. Ltd. v. State of Uttar Pradesh (1979) 118 ITR 326. Despite this assertion, the tribunal did not find merit in this argument, leading to a rejection of this ground of appeal as well.

In conclusion, the tribunal rejected the appellant's contentions regarding the alleged violations of Section 13(1)(c)(ii) and the unspent grants issue. The tribunal upheld the order passed by the Commissioner of Income Tax (Appeals) and dismissed the appeals without any order as to costs, based on the factual positions presented.