2022 (9) TMI 1186 - AT - Income Tax

Exemption u/s 11 - assessee has incurred expenses in foreign currency outside India under the head Expenses on Specialized fairs and Buyers Seller Meet Abroad - HELD THAT - It is evident that the grants are given specifically for participation in a particular events held in abroad, the grant approval includes a condition that a separate account for the projects have to be maintained. The assessee has utilize the funds as per the terms and conditions of the grant and the grants are not to be utilized in any other purpose than for which it is issued and also that the execution of the project is not be entrusted to any other organization. The up spent grant along with interest @10% from the date of release of the fund has to be reimbursed by the Government. Therefore it is evident that the assessee is not free to use the funds voluntarily as per its own whims and fancies and the same has to be spent as per the terms and conditions of the grant. As in the case of Society for integrated Development in urban and rural areas (SIDUR) 2002 (12) TMI 205 - ITAT HYDERABAD-B the issue regarding treatment of tide up grants was considered by the Tribunal wherein it was held that voluntarily contributions covered by Section 12 are those contributions freely available to the assessee without any stipulation, which the assessee can utilize towards his objectives according to its own discretion and judgment. The tide up grants for a specific purpose would only mean that the assessee which was voluntarily organization, had agree to act as a trustee of a special fund granted by the donor with the result that it need not be pooled or integrated with the assessee is normal income or corpus. We do not find any legal infirmity or error in the order of the CIT(A) in deleting the addition made by the A.O and we find no merits in the grounds of Appeal of the Revenue.

Summary

Issues involved:
Appeals filed by the assessee against separate orders of the CIT (Appeals) for Assessment Years 2012-13, 2013, 14 & 2014-15 regarding spending by the trust outside India without CBDT approval, treatment of government grants as exempt income, utilization of grant for specified purpose, and permissibility of receiving amounts not forming part of trust's income.

Analysis:

Issue 1: Spending by the trust outside India without CBDT approval
The assessee incurred expenses in foreign currency outside India under "Expenses on Specialized fairs and Buyers Seller Meet Abroad." The AO disallowed these expenses under Section 11(1)(c) of the Act for lack of CBDT approval. The assessee argued that these expenses were for charitable purposes in India as per Section 11(1)(a). The CIT(A) deleted the addition, citing the Delhi High Court's decision that grants for specific purposes are not voluntary contributions. The Tribunal upheld the CIT(A)'s decision, emphasizing the terms and conditions of the grant and the inability of the assessee to use funds at its discretion.

Issue 2: Treatment of government grants as exempt income
The grants were sanctioned for specific events abroad, with conditions like maintaining a separate account, detailed record-keeping, and audit requirements. The grants were not to be diverted and had to be utilized as per the sanctioned purpose. The Tribunal relied on precedents to establish that tied-up grants are not voluntary contributions under Section 12 and need not be considered as income or for accumulation. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition.

Issue 3: Utilization of grant for specified purpose
Precedents like the case of Society for Development Alternatives were cited to support the view that grants for specific purposes are not voluntary contributions and do not form part of the assessee's income. The Tribunal emphasized that such grants should be treated as separate funds and not integrated with the assessee's normal income or corpus. The Tribunal found no legal infirmity in the CIT(A)'s decision to delete the addition made by the AO, dismissing the Revenue's appeal.

Issue 4: Permissibility of receiving amounts not forming part of trust's income
The Tribunal reiterated that grants for specific purposes do not belong to the assessee and should not be considered as income. It emphasized that such grants are not donations or voluntary contributions under Sections 11 and 12 of the Act. The Tribunal upheld the CIT(A)'s decision, citing binding decisions and holding that the grants received should not be considered as income or for accumulation. The Revenue's appeal was dismissed, affirming the CIT(A)'s order.

In conclusion, the Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions to delete the additions made by the AO regarding the treatment of government grants and the utilization of funds for specified purposes. The Tribunal's analysis relied on legal precedents and the terms and conditions of the grants to establish that such grants are not voluntary contributions and should not be considered as part of the assessee's income.