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TMI Blog2018 (3) TMI 1974X X X X Extracts X X X X X X X X Extracts X X X X ..... application. Accordingly, the orders of the CIT(A) on this ground is upheld and the appeals of the revenue are dismissed. Disallowance of notional interest @ 12% on the sums advanced and the same was reduced from the interest debited to the profit loss account - HELD THAT:- We have gone through the balance sheet and found that sufficient interest free funds are available to the assessee in the current liabilities and the AO has not made out a case that the advances were given out of interest bearing fund. The assessee is free to give the interest free funds to make the advances as per the business requirements and contingencies. Hence we are of the view that the said advance was given out of interest free funds and for the purpose of business and accordingly, delete the disallowance made by the A.O. and set aside the orders of the lower authorities. Disallowance of notional interest on the amounts advanced to be Secretary of the institution - assessee argued that Mr. Narasimha Rao has advanced more funds to the assessee society and if interest is to be calculated, society would be liable to pay interest to Mr. Narasimha Rao. Therefore, no part of the interest payment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under consideration and the assessee has filed the cross objections. There was a delay in filing the appeals by the revenue for 4 days in all the appeals and the Assessing Officer (A.O.) has filed condonation petition for condoning the delay. After hearing both the sides, the delay is condoned and the appeals are admitted. 2.1 The common issue in all the appeals raised by the revenue is related to the treatment of development fee received by the assessee. The assessee is a Society registered under Societies Act, 1860 by registration No.493 of 1983 on 27th day of November, 1983 and carrying on the activity of running educational institutions. In this case, a survey u/s 133A of the Act was conducted in the assessee s business premises and during the course of survey, certain descrepencies were found by the AO, hence, the Chief Commissioner of Income Tax cancelled the exemption granted u/s 10(23C) of the Income Tax Act, 1961 (hereinafter called as 'the Act') dated 8.11.2011. Therefore, the income of the assessee became taxable, as the assessee is not enjoying exemption u/s 11 of the Act. 2.2 The facts are identical in all the appeals and for the sake of convenience the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the development fees is an income which required to be brought to tax and should not be allowed as a deduction per contra the Ld. A.R. relied on the orders of the Ld. CIT(A). 5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case, the assessee had received the voluntary contributions for the purpose of building infrastructure in the educational institution. This fact was confirmed by the parents before the Ld. CIT(A). The CIT(A) has forwarded the affidavits received from the assessee confirming the contributions for specific purpose and the A.O. has submitted the remand report. Considering the remand report, the CIT(A) has given a finding that the contributions were received for specific purpose and used by the assessee for the same purpose and no surplus was left out. Thus, the A.O. as well as the CIT(A) held that the donations confirming part of corpus was in the nature of income within the meaning of section 2(24) of the Act. On identical facts, this Tribunal has considered issue with regard to the taxability of donations received for specific purpose in the case of Touchin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion considered the number of decisions of various Tribunals including the decision of Coordinate Bench, ITAT, Hyderabad in Nirmal Agricultural Society Vs. Income Tax Officer, J.B. Educational Society vs. ACIT, Hon ble Delhi High Court in the case of Basanti Devi Sri Chakhan Lal Garg Education Trust. For the sake of convenience and clarity, we extract the relevant paragraphs of the order of the Tribunal which reads as under : 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. Firstly, we would like to consider the legal position with regard to the voluntary contributions urged by the parties. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht or title over those properties. Those expenses were incurred as part of its normal activities for which the society was formed. Therefore, the money spent by the assessee- society in constructing houses, reclaiming the land, for non-formal education, etc., had to be allowed as deduction in the computation of income. The grants received from foreign donor were for specific purposes. The grants which were for specific purposes did not belong to the assessee-society; such grants did not form corpus of the assessee or its income. Those grants were not donations to the assessee so as to bring them under the purview of Section 12. Voluntary contributions covered by Section 12 are those contributions freely available 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Estate (supra), the Honourable Rajasthan High Court held as follows (as per head note):- The intention of the donor-trust as well as the donee-trust was to treat the money as capital to be spent for the Ladnu Water Supply Scheme. It was of no significance whether the amount had since been paid to the State Government or kept in the account of the said scheme by the assesseetrust. The amount of Rs. 70,000/- did not constitute income of the petitioner. The reassessment proceedings were not valid and were liable to be quashed. This Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for asst. year 1998-99, in its order dated 25-6-2002 to which one of us was 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 assesseesociety 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is Section 4(1) which levies income-tax, as only one tax, on the total income of the assessee as defined in Section 2(45) of that Act. AO income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the total amount of income referred to in Section 5 . Secondly, it must be computed in the manner laid down in this Act . If either of these conditions fails, the income will not be a part of the total income that can be brought to charge [CIT v. Harprasad Co. P. Ltd., (1975) 99 ITR 118, 125 (SC)] . 28. As argued by the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O (61 ITD 196) wherein even after considering section 2(24)(iia) of the Act it was held as follows: Section 2(24)(iia) has to be read in the context of the introduction of present section 12. In the instant case the Assessing Officer on evidence had accepted the fact that all the donations had been received towards the corpus of the endowments. In view of this clear finding, they could not be assessed as income of the assessees. Therefore, the voluntary contributions received by the assessees towards the corpus could not be brought to tax. 59. Now the issue for our consideration is whether the amounts received by the assessee were 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, firstl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT (172 ITR 373) (Bom) the Hon‟ble High Court held that even ignoring the amendment to section 12, which means that even before the words appearing in parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards corpus of the trust may be brought to tax.. The aforesaid decision was followed by the Bombay High Court in the case of CIT vs. Trustees of Kasturbai Scindia Commission Trust (189 ITR 5) (Bom). In the present case donations being received for specific purpose, towards corpus of the trust, cannot be assessed as income of the assessee. 61. Same view was taken in the case 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal income or corpus. In this case, the assessee is acting as an independent trustee for that grant, just as same trustee can act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are. required to be considered for assessment, for ascertaining the amount expended or the amount to be accumulated. 11. The assessee should have actually credited that grant in the personal account of the donor, Bread for the World 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 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 spen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 2(24)(iia) of the Act. 5.3.5 Following the above decisions of the Tribunal (supra), relied upon by the assessee, we hold that voluntary contributions received for a specific purpose cannot be regarded as income under Section 2(24)(iia) of the Act since they are capital receipts and tied up grants for specific purpose 6.1. Further, Hon ble Delhi High Court in the case of DIT vs. Society for Development Alternatives relied upon by the assessee has considered the decision of Hon ble Rajasthan High Court in the case of Sukhdeo Charity Estate v. CIT [149 ITR 470] and upheld the order of the Ld.CIT holding that if the assessee fails to utilize the grants for the purpose for which it was sanctioned, the amounts so unutilized required to be brought to tax, if it is not refunded back to the funding agencies. For clarity and convenience, we extract the relevant paragraphs of the order of the High Court of Delhi in para no.7 and 8 which reads as under : With regard to the second contention, the findings recorded by the tribunal are that the respondent-assessee had received grants for specific purposes/projects from the government, nongovernment, foreign institutions etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Estate v CIT(1984) 149 ITR 470 (Raj.). In view of the aforesaid factual position, the tribunal has upheld the order passed by the Commissioner of Income Tax (Appeals) and has not accepted the appeal filed by the Revenue. In view of the aforesaid factual position, we are not inclined to entertain the present appeals on the second aspect 6.2. In the instant case, the donations were received for specific purpose for acquiring the fixed assets. This is evidenced by the letters placed before us from the donors. The funds are not freely available to the assessee society, for utilizing its objectives other than acquiring specified assets. The entire amount received for acquiring the fixed assets was utilized by the assessee and there are no surplus funds available to the assessee. The above facts are not disputed by the Ld. DR. The fact that the amount was utilized was evidenced by the Balance Sheet, thus the facts of the case is squarely covered by the decision of the Coordinate Bench of Bangalore in the case of Vokkaligara Sangha cited supra, wherein the Coordinate Bench held that contributions received for specific purpose cannot be regarded as income u/s 2(24)(iia) of the act. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India], any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body. 9. Plain reading of section 40(ba) of the Act clearly shows that the disallowance is applicable in case of an association of persons, body of individuals other than a company or a cooperative society registered under Societies Registration Act, 1860. Since the assessee is a registered cooperative society, section 40(ba) of the Act has no application. Accordingly, the orders of the CIT(A) on this ground is upheld and the appeals of the revenue are dismissed for the assessment years 2008-09 to 2010-11. C.O. Nos.89, 90 91/Vizag/2017 (2008-09, 2010-11 2011-12): 10. The assessee filed cross objections for all the assessment years. There was a delay in filing cross objections by the assessee for 32 days for all the assessment years. The assessee filed condonation petition for condoning the delay. After hearing both the sides, the delay is condoned and the cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest. The Ld. A.R. also submitted that in fact the amount of advance was given to CALFPL for the purpose of regular supply of milk, gas, etc. as submitted before the A.O. Since the assessee is having sufficient interest funds to meet the advances given to CALFPL, the Ld. A.R. argued that there is no reason for disallowing the interest. 14. On the other hand, the Ld. D.R. relied on the assessment order. 15. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. As per the balance sheet available, the assessee has given a sum of Rs. 22.11 lakhs as advance to CALFPL and the amount outstanding as on 31.3.2008 was Rs. 22.11 lakhs. The assessee argued that sufficient interest free funds are available to give such advances. Since assessee is not paying any interest on interest free funds, the Ld. A.R. argued that no reason to disallow the interest. We have gone through the balance sheet and found that sufficient interest free funds are available to the assessee in the current liabilities and the AO has not made out a case that the advances were given out of interest bearing fund. The assessee is free to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) and confirm he addition made by the assessing officer. The cross objection on this ground is dismissed. C.O. No.75/Vizag/2017: 18. For the assessment year 2009-10, the assessee in ground No.3 raised the disallowance of Rs. 4,90,038/- being interest paid on capital work in progress u/s 36(1)(iii) of the Act. During the assessment proceedings, the A.O. found that the assessee had utilized the funds for work in progress as shown in balance sheet. However, the assessee debited interest paid to the banks in income and expenditure account and claimed as deduction. The A.O. treated the interest towards capital work in progress and has capitalized the same. The A.O. disallowed the interest expenditure and made the addition of Rs. 4,90,038/-. The CIT(A) confirmed the addition made by the A.O. During the appeal hearing, the Ld. A.R. relied on the ground of appeal. 19. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The assessee has borrowed the funds and used for the work in progress for building the capital assets. Therefore, the interest accrued on the borrowing required to be capitalized ..... X X X X Extracts X X X X X X X X Extracts X X X X
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