TARAKESWAR VIVEKANANDA PALLY SEVA KENDRA,HOOGHLY vs. ITO, WARD-24(3), HOOGHLY, KOLKATA

This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax-(A)-6, Kolkata relating to A.Y. 2010-11 on the following grounds :- 1) That the Ld. A.O. and the Hon 'ble C.1.T. (A) have wrongly considered the outstanding un-expensed portion of the Government's Grant as Income of the Assessee which is unjustified and against the principle of Government's Grant.

2) That the Ld. A.O. and the Hon’ble C.1.T. (A) is not justified in treating the outstanding expenses of the relevant year as Income of the G.N.M. Training Centre Unit.

3) That the Hon'ble C.I.T.(A) is not justified in confirming the Addition made by the Ld. A.O. without any findings in respect of. Income from A.N.M. and C.N.M. Training Centres.

4) That the Hon'ble C.I.T. (A) is not justified and wrong in treating the Government's Grant as Income of the Sport Complex Unit, which is exclusively for construction of Mini Indoor Games Complex to promote the Games & Sports.

5) That the Hon'ble C.I.T.(A) has wrongly enhanced the Assessed Income by making further Addition of the amount of Repayment of Loan under Wrong Findings.

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6) That the Appellant crave leave to adduce further ground or grounds an) time before or at the time of hearing.”

5.1. The assessee is a registered society, duly registered under West Bengal Societies Registration Act, 1961 and is engaged in, infer alia, running of institutions like -an ANM Training Centre, a GNM Training centre, an XRAY/ECG & USG Clinic Unit, a Hospital unit, Society General Fund, Seva Pharmacy and Sports Complex primarily guided by philanthropic motive.

5.2. The assessee-filed its return of income for the Assessment Year 2010- 11 on. 13th October, 2010 and declared an income of Rs. 14,01,904/-. The return was processed under section 143( 1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act) ' Subsequently, notices under sections 143(2) and 142(1) were served on the assessee.

5.3. In the course of the assessment proceedings, the Assessing Officer, while treating the assessee as an Association of Persons, assessed the total income of the assessee from different units run by the assessee at, Rs. 25, 85,.045/-. The assessee maintains that the factual scenario is different. This submission which was not accepted by the Assessing Officer.

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5.4. The assessee was allotted two financial sanctions under National Rural Health Mission from the Department of Health & Family Welfare, Government of West Bengal during the Financial Year 2009-10.' The assessee had Received the financial sanctions as a cost towards the running of the Nursing training schools for a temporal frame of six months at a time. The first assistance received for expense, covering a period from 12th March, 2009 to 12th September, 2009 (hereinafter referred to as "the first period") amounted to Rs. 10,31,750/-. The assessee submits that the assistance received for expense over a further period of six months, from so" October. 2009 to 30th April. 2010. (hereinafter referred to as "the second period") amounted to Rs. 15,16,000/-. The assessee states that the assistance allotted for the second period amounting to Rs. 15,16,000/- should exclude a sum of Rs. 2 ,52.667/·· .approx). being the allotment, pro rata, for the period from March. 2010, to April, 2010. as it is outside the period of the above mentioned financial year.

5.5. The assessee had treated the sum of Rs. 24,00,000/- (being the sum of assistance received after adjusting the excess amount paid earlier) as receipt of Financial assistance for expenditure over a period of six months The Assessing Officer, however, treated the sum of Rs. 24,00,000/- as gross receipt and thus calculated income of the assessee from the ANM Training at Rs. 2 ,82.488/-, disregarding the fact that the amount should exclude one month of April, 2010-11. Improper accounting treatment by the assessee should not be fatal to the case of the assessee.

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Financial Year 2009-10, continuing till 31st March, 2010, amounts to Rs. 2,61,096/- (approx). The assessing officer treated the entire sum of Rs. 5,47,525/- as gross receipt and thereby calculated the income of the' assessee for the Financial Year 2009-10 at Rs. 4,01,324/- .

In the alternate and without prejudice to the aforesaid, the assessee states that even the amount ascertained by the surveyor is taken as the loss of stock, the difference in the amount claimed as stock loss by the assessee and the amount ascertained by the surveyor is Rs. 50,738/- and not Rs. 99,329/- as added back by the Assessing Officer.

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“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 that the issue is covered by the judgment of this Bench in Nirmal Agricultural Society v. ITO, 71 ITD 152. In that case, it has been held (as per head note) as under:- "The assessee had not been granted registration under Section 12A, as the Commissioner thought it fit to refuse to condone the long delay caused by the assessee in applying for the registration. Therefore, the Assessing Officer had no other option but to complete the assessments in the status of AOP also closing his eyes towards Section 11 and Section 13. To that extent, the Assessing Officer was right as he had acted only according to will of law. But as far as the contents of the assessments were concerned, even when the assessee had been assessed as AOP and deprived of Section 11 benefits, the Assessing Officer could assess only net income of the assessee and not gross receipts. As far as the assessee was concerned, construction of houses, reclamation of land, etc., were part of its regular activities. Houses were built on the land of poor agriculturists. The assessee-society had no legal title or right over the land or houses of those villagers/agriculturists who were the beneficiaries. The purpose and activity of the assessee-society was to engage in such charitable activities. Whatever amount had been spent on those programmes/projects, it was spent in the usual course of carrying on its acclaimed objects. Therefore, there was no basis whatsoever, factual or legal, to hold that the amounts spent by the assessee in constructing houses or reclaiming land were capital expenditure. As far as the assessee was concerned, those expenses were revenue expenses. The assessee had no right 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

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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 independent trustee for that grant, just as same trustee could act as a trustee of more than one trust. Tied-up 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 donor did not insist for the repayment of the balance amount. Therefore, the Assessing Officer was to be directed to redo the assessment on 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 expenses-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." 25. Honourable Rajasthan High Court in the case of Sukhdeo Charity Estate, Ladnu v. CIT, 149 ITR 470, held as follows (as per head note):- "It was for the specific purpose of implementation of the water supply scheme that the request for contribution had been made by the assessee- trust and it was in response to that request that the amount had been given by the Calcutta trust. It was clear that the intention of the donor and the donee was to treat the money as capital to be spent for the water supply scheme. The fact that the amount had not been paid over to the State Government and was kept unutilised in the account of the assessee- trust was not relevant. The amount could not be said to be "income" and

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could not be included as part of the assessable income of the trust under the provisions of Section 12(2)." In Yet another judgment in the case of Sukhdeo Charity Estate v. ITO, 192 ITR 615, 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 assessee-trust. 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 v. DCIT, I.T.A.No. 77/Hyd/2002 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 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) That the finding of the Tribunal, that the assessee could not be regarded as a branch or as a part of the parent body, was a finding of fact and no question of law arose for reference. (ii) That the mere fact that the rice millers paid contributions with an oblique motive would not affect the character of the contributions, as voluntary contributions.

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(iii) That the finding of the Tribunal, that the assessee was not entitled to exemption as a trust under Section 12 because some of the funds were being utilised for purposes other than charitable and religious was a finding of fact and no question of law arose for reference." This judgment was relied upon by the Reference. A careful reading of this judgment does not indicate that the question raised by the assessee before us was posed to the court. We do not feel that this is a precedent for laying down a proposition of allowability of expenditure for computation of income of a charitable institution which is denied benefit Under Section 11. Honourable Supreme Court in the case of Goodyear India Ltd. v. State of Haryana (1991) 188 ITR 402 (SC), as per head note, held as follows: "Precedent -- Authority only for what it decides - Not for what may remotely or even logically follows - Decision on question not argued cannot be treated as precedent." Thus, the judgment of Honourable Andhra Pradesh High Court (supra) does not help the case of the Revenue. 27. On other hand, learned authors Chaturvedi and Pithisaria in their book Income Tax Law, Fifth edition, Vol.1, at page 424, under the heading "Income, when falls into the tax net", observed as follows:- "Although Section 14 of the 1961 Act classifies income under six heads, the main charging 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 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:-

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"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 any tax liability. Although the italicized words have now been omitted from Section 2(24)(ii-a), the exclusion of such capital donations from the definition of "income" implicit in that section. The correct legal position is as under: (a) All contributions made with a specific direction that they shall form part of the corpus of the trust are capital receipts in the hands of the trust. They are not income either under the general law or under Section 2(24)(ii-a) rightly construed. (See under Section 2(24)(ii-a), "Voluntary contributions received by charity".) (b) Section 2(24)(ii-a) deems revenue contributions to be income of the trust. It thereby prevents the trust from claiming exemption under general law on the ground that such contributions stand on the same footing as gifts and are therefore not taxable. (See under Section 10(3), "Voluntary payments ..." p.320.) (c) Section 12 goes one step further and deems such revenue contributions to be income derived from property held under trust. It thereby makes applicable to such contributions all the conditions and restrictions under Sections 11 and 13 for claiming exemptions. (See also Expln. (1) to Section 11(1).] (d) Section 11(1)(d) specifically grants exemption to capital contributions to make the fact of non-taxability clear beyond doubt. But it proceeds on the erroneous assumptions that such contributions are of income nature - "income in the form of voluntary contributions". This assumption should be disregarded."

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Order pronounced in the Court on 31.10.2017.

Sd/- [ J.Sudhakar Reddy ] Accountant Member Dated : 31.10.2017. [RG Sr.PS] Copy of the order forwarded to: 1.Tarakeshwar Vivekananda Pally Seva Kendra, P.O.Tarakeswar, Dt.Hooghly- 712410. 2. I.T.O., Ward-24(3), Hooghly, Chinsurah. 3. C.I.T.(A)- 6, Kolkata 4. C.I.T-8, Kolkata 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,

Senior Private Secretary Head of Office/D.D.O, ITAT Kolkata Benches