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TMI Blog2015 (8) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... to the conclusion as to whether the amounts credited as building fund corpus in the accounts are supported by donation receipts issued. Subject to the examination and verification of the donation receipts as directed above, the amounts credited cannot be regarded as income as the same has been credited to the corpus fund/building fund and the order of the learned CIT (Appeals) is upheld. - Decided partly in favour of revenue for statistical purposes. - I. T. A. Nos.281 to 285/Bang/2014 - - - Dated:- 14-8-2015 - SHRI VIJAYPAL RAO AND SHRI JASON P. BOAZ, JJ. For The Appellant : Dr. P. K. Srihari, Addl. CIT (D. R.) For The Respondent : Shri V. Srinivasan, C. A. ORDER Per Bench : These appeals by Revenue are directed against the common order of the CIT (Appeals), Mysore dt.20.8.2013 for Assessment Years 2005-06 to 2009-10. Since common issues are involved, the same were heard together and are being disposed off by way of this common order. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is a society registered under the Karnataka Societies Registration Act, 1960 for carrying on activities for charitable purposes. The assessee was gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the common order of the CIT (Appeals), Mysore dt.20.8.2013 for Assessment Years 2005-06 to 2009-10, revenue is in appeal before us raising the following common grounds for all the Assessment Years 2005-06 to 2009-10 :- 1. The CIT (Appeals) erred in deleting the income from Voluntary contributions taxed by the Assessing Officer relying on ITAT decision reported in 13 TTJ 185 ignoring the fact that in the case before ITAT, assessee was registered under Section 12AA of the Act but in the present case, assessee was not registered under Section 12AA during the relevant period. 2. The CIT (Appeals) erred in allowing the relief overlooking the fact that any voluntary contribution received by Trust (whether towards capital or revenue account) is income of the Trust as per section 2(24)(iia) of the Act. 3. The CIT (Appeals) erred in allowing the relief overlooking the decision of Hon'ble Supreme Court in 297 ITR 1, as per which benefit of section 11 12 will not be available to the Trust, once it is not registered under Section 12AA of the Act. 4. For these and such other grounds that may be urged at the time of hearing, the order of the CIT (Appeals) be set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The case of the assessee before the authorities below was that the voluntary contributions received by it was for the specific purpose of construction of a Kalyan Mantap . In short, the assessee has pleaded that the amount received by the assessee was a tied up grant or an amount received for a specific purpose as being capital in nature. In support of this proposition, the assessee has cited / placed reliance on several decisions of various benches of the ITAT, wherein it has been held that voluntary contributions received for specific purposes cannot be considered as income. 5.3.2 In the case of J. B. Educational Society V ACIT reported in 159 TTJ 234 (Hyd), the Hyderabad Bench of the Tribunal followed an earlier decision of the Hyderabad Bench in the case of Society for Integrated Development in Urban and Rural Areas reported in 90 ITD 493 (Hyd) wherein the Tribunal followed the order of another coordinate bench in the case of Nirmal Agricultural Society (2000) 67 TTJ (Hyd) and recorded the observations therein which were as under :- 24. Coming to the second limb of the argument of the learned counsel for the assessee that the entire receipts cannot be taxed, we find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable to the assessee without any stipulation, which the assessee can utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee which was a voluntary organisation, had agreed to act as a trustee of a special fund granted by donor with the result that it need not be pooled or integrated with the assessee s normal income or corpus. In the instant case, the assessee was acting as an independent trustee for that grant, just as same trustee could act as a trustee of more than one trust. Tiedup amount need not, therefore, be treated as amounts which were required to be considered for assessment for ascertaining the amount expended or the amount to be accumulated. The assessee should have actually credited the grant in the personal account of the donor and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected 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 dono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a party, was inclined to uphold the view of the Commissioner (Appeals) in that case by holding in para 15 of that order as follows: Though we find considerable force in the other argument of the assessee s counsel i. E. the income should be computed on commercial principles, as we have held that the assessee-society is eligible for exemption Under Section 11 of the Act and as we have also held that the objects of the society were of charitable nature within the meaning of Section 2(15) of the Act, and as we have further held that there is no violation, whatsoever of the provisions of Section 13(1)(c) and (d) of the I. T. Act, 1961, the other grounds of the assessee need not be gone into, as it would be of academic interest only. The Revenue has not brought to our notice any judgment from any High Court which has dealt at length on this issue and which is in its favour. It is also not clear whether the Revenue has accepted or gone on appeal against 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are income, to our mind this by itself does not entitle the tax gatherer to ignore all other well settled principles of taxation and general law and levy tax on gross receipts without considering the claim for deductions. Principles such as capital versus revenue, doctrines of overriding title, form versus substance, interpretation of deeming provisions etc., have to be applied wherever necessary. Only the surplus or profit can be brought to tax and the same has to be computed in the manner laid down in the Act applying the normal principles of accountancy and taxation laws. 29. The learned authors Kanga and Palkhivala in the book The Law and Practice of Income Tax, Eighth edition, Vol. I, at page 387, state the legal position as follows:- Voluntary contributions towards corpus of recipient trust.-- The present Section 12 is expressly made applicable to voluntary contributions which are made with a specific 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the nature of voluntary donations received for specific purpose. If yes, whether the same could be considered towards corpus of the trust. Alternatively, if the donations are not voluntarily made, then whether such donations could be considered as income chargeable to tax. The assessee has taken a plea before us that these donations are received from members of the trust and their associated companies/persons for a specific purpose, it is a tied up grant. Sections 11, 12 and 2(24)(iia) of the Act speak of voluntary contributions. Therefore, firstly, it has to be seen whether such donations are voluntary or not. According to the dictionary meaning, an act can be said to be voluntary if it is done by free choice of once own accord, without compulsion or obligation, without valuable consideration, gratuitous, etc. There is no material on record to suggest that such donations are given against 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Shri Dwarakadeesh Charitable Trust vs. ITO (98 ITR 557), DCIT vs. Nasik Gymkhana (77 ITD 500), ITO vs. M/s. Gaudiya Granth Anuved Trust in ITA No. 386/Agra/2012 order dated 2.8.2013, Penta Software Employees Welfare Foundation vs. ACIT in ITA Nos. 751-752/Mds/2007 and DIT (Exemptions) Anr. vs. Sri Belimath Mahasamsthana Socio, Cultural and Educational Trust (336 ITR 694) (Kar). 62. Further, we have also carefully gone through the order of the Tribunal in the case of Nirmal Agricultural Society vs. ITO (71 ITD 152) relied on by the DR. Specifically paragraphs 9 to 12 of that order support the case of the assessee rather than the Revenue. For clarity, we reproduce the said paragraphs as under: 9. But as far as the contents of the assessments are concerned, we find much force in he contentions advanced by the assessee. Even when the assessee has been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture account of the assessee. At the end of the project, the balance, if any, available to the credit of Bread for the World, the donor, could be treated as income of the assessee, if the donor did not insist for the repayment of the balance amount. 12. Therefore, in the light of the examination of the facts of the case, we direct the AO to redo the assessments in 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 expense 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. 63. Being so, as seen from the above order of the Tribunal the amount received by the assessee for specific purpose would only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act is mandatory for availing the benefits under Section 11 12 of the Act. However, the question that arises for our consideration in the case on hand is not the benefit under Section 11 12 of the Act, but rather whether voluntary contributions are income at all. Thus, with due respects, the aforesaid decision, in our view, would not be of any help to Revenue in the case on hand. 6.1 Now coming to the facts of the case on hand, it is seen that the learned CIT (Appeals) has relied upon a pamphlet dt.16.8.2003 soliciting donations for construction of the Kalyana Mantap . An English translation of the same has also been filed before us (placed at pages 26 27 of assessee's paper book). From a plain reading of the same, it can be seen that the assessee society has solicited donations for the specific purpose of construction of a Kalyana Mantap building. For this purpose, it has established a building corpus fund and donations received have been credited to the said fund. The list of Donors has been filed before us in the assessee's paper book for the five years under consideration; viz. for the years ending 31.3.2005 to 31.3.2009; along with a sample receipt and a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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