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TMI Blog2013 (8) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 12A is that the entity should prove before the Assessing Officer that it is involved in activities which are charitable in nature and that it is not engaged in commercial activities with a profit motive. The Registration granted u/s 12A casts an onus upon the Assessee to prove, during assessment proceedings, that provisions of Section 2(15) and Section 11 are satisfied by it and also that there is no contravention of provisions of Section 13 of the Act. Once it is discovered that commercial activities are being done in the guise of charitable activities and provisions of Section 13 are contravened" then, the conditions prescribed in the Registration Certificate are violated and, hence, the Assessing Officer is entitled to hold the view that exemption u/s 11 is deniable because activities of the Assessee were for profit motive. Therefore, Ld. CIT(A) has erred in allowing the benefit of Section 11 to the Assessee. 2. On the facts & in circumstances of the case, the Ld. CIT(A) has erred in holding that provisions of Section 13 were not violated by the Assessee by it's action of pledging FDR's as collateral securities for the purposes of grant of loans to other societies by banks s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. Thus, the assessee has advanced unsecured loans to the interested person without any adequate security and authorization of the managing Committee. - In view of the default committed by the assessee, the fund to the extent of loan made available to the beneficiary trusts on the strength of the said fixed deposits made out of corpus fund fails to qualify for exemption. In view of the default as above, the exemption u/s 11 of the Act was denied to the appellant for the year under consideration. - The assessing officer relied on a decision of the ITAT Hyderabad Bench "B" in the case of Society for Integrated Development in Urban and Rural Areas vs DCIT pointing out infringements of various sub sections of the sec 13 of the Act. - The assessing officer also disallowed an amount of Rs 6,96,676/- being incurred towards purchase of fixed assets allowable u/s 11 as application towards charitable purpose. 4. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) elaborately considered the issue and held as under:- "I have considered the assessment order and submissions placed on record. Income derived from property held under trust for charitable purposes is eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of the balance sheet for the year ended 31/3/99 and 31/3/2004, 31/3/2005, it is seen that the same is signed by the members of the managing committee and, thus, the pledging of the FDRs for allowing credit facility to the borrowing society was with their approval only. However, since in the case of the assessee, the benefit does not accrue to the person covered U/S 13(3), the provisions of section 13(1)(c) 'and 13(2)(a) are not applicable at all. On perusal of the Auditor's report and audited balance sheet, it was seen that the fact regarding the pledging of FDR has been mentioned in the Notes to Account attached with Balance Sheet which are prepared by the appellant only for the purpose of disclosure. There is no disqualification by the Auditor's in their Report and the contention of the assessing officer in this regard is not correct. On perusal of the Memorandum of Association of the said two societies, it was seen that their objects are similar to that of the appellant society and thus charitable in nature. If a charitable organization donates certain money to another charitable organization, the same is treated as utilization of funds. In case of the appellant, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Executive Committee of the assessee have any interest in the two borrowing societies and, therefore, the two borrowing societies are not covered u/s 13(3) at all. The assessee can be covered only under clause 13(3)(e) only when the persons mentioned in section 13(3)(a) to 13(3)(d) have substantial interest in the society which is not the case here. Ld. Commissioner of Income Tax (Appeals) has also rightly observed that perusal of the auditor report and audited balance sheet it was seen that fact regarding the pledging of FDRs has been mentioned in the Notes to Account attached with balance sheet which are prepared by the assessee only for the purpose of disclosure. This cannot be said to be disqualification of the auditors in the report. In these circumstances, it is apparent that the assessee's funds have not been parted away as the FDRs were lying intact in the bank, the assessee has received interest thereon and got the maturity proceeds in the next year. Under the circumstances, in our considered opinion, Ld. Commissioner of Income Tax (Appeals) is correct in holding that pledging of FDRS for availing credit facilities is not infringement as per section 13 of the Act and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific purpose / project to be utilized over a particular period. The utilization of the said grants is monitored by the funding agencies who send persons for inspection and also appoint independent auditors to verify the utilization of funds as per settled terms. The appellant has to submit interim / final progress / work completion reports along with evidences to the funding agencies from time to time. These agreements also include a term that separate audited 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal stands allowed and the addition of Rs. 16,92,50,496/- is hereby deleted." 9. Against the above order the revenue is in appeal before us. 10. We have heard the rival contentions and perused the relevant records. We find that Ld. Commissioner of Income Tax (Appeals) has given categorical finding that on the basis of the evidences placed on record grants received by the assessee are tied up grants and not voluntarily contribution. He has also given a finding that the assessee has maintained separate accounts for each project and grant and has given complete details regarding the same in the audited balance sheet itself. The Assessing Officer did not point out any discrepancy in the said details and brought nothing adverse to prove its allegations. The case laws relied upon by the Ld. Commissioner of Income Tax (Appeals) are also germane and support the case of the assessee. In these circumstances, we uphold the order of the Ld. Commissioner of Income Tax (Appeals) that unspent grant cannot be taxed as voluntary contribution or income u/s 12 of the Act. 11. Our above findings are also applicable to ITA No. 139/Del/2011 for assessment year 2007-08, as the facts are identical. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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