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TMI Blog2018 (6) TMI 1054X X X X Extracts X X X X X X X X Extracts X X X X ..... est that the assessee having committed to spend total of ₹ 3.19 crores for construction of the school buildings ended up paying ₹ 1 crore short to the contractor for the reasons which are neither clear nor very important for us. Had the assessee retained such amount, a serious question of its taxability would have arisen. However, the assessee almost, as soon as it becomes clear that the amount is not to be actually paid, transferred the same to the Prime Minister's National Relief Fund - this was done on 31.12.204 as against the prescribed deadline of 31.03.2004 contained in section 80G(5C) - It was not possible for the assessee to foresee and transfer any part of such amount in the Prime Minister's National Relief Fund. In such a situation, the deadline on 31.03.2004 contained in section 80G(5C)(iv) must be held to be directory and not mandatory. Hence Tribunal committed an error in holding that sum of ₹ 1 crore was not applied for earthquake relief before 31.03.2004 and in view of the fact that such sum remained unspent after 31.03.2004 was also transferred by the assessee to the Prime Minister's National Relief Fund though after 31.03.2004, the adverse cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: [ 5C] This [section] applies in relation to amounts referred to in clause (d) of sub-section (2) only if the trust or institution or fund is established in India for a charitable purpose and it fulfills the following conditions namely:- ( i) it is approved in terms of clause (vi) of sub-section (5); ( ii) it maintains separate accounts of income and expenditure for providing relief to the victims of earthquake in Gujarat; ( iii) the donations made to the trust or institution or fund are applied only for providing relief to the earthquake victims of Gujarat on or before the 31st day of March, [2004] [( iv) the amount of donation remaining unutilized on the 31st day of March, [2004] is transferred to the Prime Minister's National Relief Fund on or before the 31st day of March, [2004];] ( v) it renders accounts of income and expenditure to such authority and in such manner as may be prescribed on or before the 30th day of June, [20 04] 3. Sub-section (3) was added to section 12 of the Act w.e.f. 03.02.2001 which provides as under: [(3) Notwithstanding anything contained in section 11, any amount of donation received the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction contractors. A sum of ₹ 2.17 lacs was spent during the assessment year 2000-01. A sum of ₹ 1.59 crore was spent in the subsequent year and lastly, a sum of ₹ 3.89 crores was applied in the year 2002-03. It was pointed out that such amount was committed for application and that therefore, the necessary conditions contained in the statute have been fulfilled. 6. The Assessing Officer doubted the stand of the assessee. He was of the opinion that a sum of ₹ 3.19 crores was neither applied for the purpose of earthquake relief nor surrendered to the Prime Minister's National Relief Fund before 31.03.2004. He therefore, issued a show-cause notice calling for further response from the assessee. The assessee contended that such sum of ₹ 3.19 crores was committed which would amount to application. Actual spending was not necessary. It was pointed out that such committed fund was utilized for making payments for the ongoing construction activity. It was eventually found that after making full payments, there was balance of ₹ 1 crore which was transferred to the Prime Minister's National Relief Fund on 31.12.2004. 7. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before 31.03.2004. 10. Learned counsel Mr. J P Shah for the appellant submitted that the contract for construction of the school was awarded. The contractor had raised a bill of ₹ 3.13 crores on 15.03.2004 for such construction. Supplementary bills were raised shortly thereafter. The assessee had passed an entry on 31.03.2004 crediting the said sum of ₹ 3.13 crores in the account of the contractor. Similar entries were made for other sundry sums. Tax of ₹ 6,42,038/- was also deducted at source simultaneously and credited to the Government account on 20.09.2004. Section 80G(5C) requires application of the funds and not actual spending. The assessee had accepted the bill raised by the contractor and committed to the payment by making entries. There was thus sufficient application of the fund. The Tribunal committed an error in bifurcating the sum of ₹ 3.19 crores into ₹ 2.19 crores which was later on actually spent and ₹ 1 crore which remained surplus, though the same was transferred to the Prime Minister's National Relief Fund. Counsel submitted that the last date for transferring the fund contained in clause (iv) of sub-section (5C) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the trustees after considering the request, sanction certain amounts in deserving cases. As soon as the resolution passed, the secretary informs the institution that such and such amounts have been sanctioned by the trustees at a meeting held on a particular date and also intimates the purposes for which they are sanctioned. In cases where the amounts are not disbursed during the amounting year, the amounts are debited to the income and expenditure account and credited to the outstanding payment account which contains the amount due to the various donees as per the resolutions passed by the board. When the payment is made, this Amount is debited. The amounts debited to the income and expenditure account but which are not actually disbursed are shown as liabilities in the balance sheet. In our view, these facts and circumstances would constitute application of the funds for charitable purposes within the meaning of s.11(1)(a) of the Act. We agree with the Tribunal that it is not correct to equate the word applied with the word spent . If the Legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word. There cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmitted to spend total of ₹ 3.19 crores for construction of the school buildings ended up paying ₹ 1 crore short to the contractor for the reasons which are neither clear nor very important for us. Had the assesse retained such amount, a serious question of its taxability would have arisen. However, the assessee almost, as soon as it becomes clear that the amount is not to be actually paid, transferred the same to the Prime Minister's National Relief Fund. This was of-course on 31.12.204 as against the prescribed deadline of 31.03.2004 contained in sub-section (5C) of section 80G of the Act. However, the assessee would not have a hindsight on 31.03.2004 that a part of the amount already committed would remain unspent. It was therefore not possible for the assesse to foresee and transfer any part of such amount in the Prime Minister's National Relief Fund. In such a situation, the deadline on 31.03.2004 contained in clause (iv) of sub-section (5C) of section 80G must be held to be directory and not mandatory. Any other view would lead to an anomalous situation of irreconcilable legal complication. As in the present case, an assessee would apply the total funds fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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