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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’: NEW DELHI
Before: SH. I.C. SUDHIR & SH. O.P. KANT
PER O.P. KANT, A.M.: This appeal of the assessee is directed against order dated 02/02/2012 of the learned Commissioner of Income-tax(Appeals)-XXI, New Delhi for assessment year 2010-11 raising following grounds: 1. That the authorities below are wrong in concluding that the grants/reimbursements for specific projects received from various sources including Govt., are tied up grants, therefore, their receipts and applications should be excluded from determining income derived and applied. 2. That the assessee society has been consistently, in the past, following the method of treating grants/reimbursements as income and expenditure thereof as application and this methodology has been accepted in all the earlier years. 3. That the income of Rs. 39,59,750/- compiled by the Assessing Officer being not according to law, is not only wrong but is bad in law.
2 ITA No. 1743/Del/2012 AY: 2008-09 4. That the tax levied at maximum marginal rate on the income computed by Assessing Officer is objected to, because Assessing Officer has overlooked the fact that provisions of section 164 (2) are attracted only when assessee has violated sections 13(1) (C) and 13(1) (D) of the income tax act. The assessee has not violated the provisions of these sections. 5. That interest u/s 234 D is not chargeable since refund of Rs. 7,61,900/- due has not been released. 6. That the appellant reserves the right to assail the order on any other ground that may be advanced at the time of hearing. 7. That the appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing. 2. The facts in brief of the case as culled out from the orders of the authorities below are that the assessee, a society, registered under the Societies Registration Act, filed return of income for the year under consideration declaring nil income on 30/09/2008, after claiming application of income as per provisions of section 11 of Income Tax Act, 1961 (in short the ‘the Act’). The case of the assessee was selected for scrutiny and in the course of scrutiny proceedings, the Assessing Officer (AO) observed that the assessee made two types of accounting entries for receipts. The first type of receipts from subscription, sale of technical literature and magazines, earning from auto Expo fair, collections from seminars/conferences and other income were entered in ‘income and expenditure’ statement. The other receipts received as grants/reimbursement from various agencies including government were entered directly under the various funds maintained in the Balance Sheet. For the purpose of application of income for charitable purpose as laid down in Section 11 of the Act, the assessee took both receipts entered in Income/Expenditure account and Balance Sheet and the expenses out of such receipts, as under:
“The Income of the assesse comprises of: a) Income side of the Income & Expenditure amount Rs. 6,14,55,432/- b) From Balance sheet through Fund schedule c) (Schedule 4,5,6 &7) d) Amount received during the year Rs. 3,77,52,275/- Total Receipt = Rs. 9,92,07,707/- 85% to be applied Rs. 8,43,26,551/-
3 ITA No. 1743/Del/2012 AY: 2008-09
Total application of income for the year under consideration has been arrived at as follows:- a) From the expenditure side of the Income & Expenditure Account - Rs. 2,36,77,333/- b) Purchase of fixed assets as per Balance Sheet - Rs. 10,96,668/- c) Application by way of utilization of grants Reflected in the Balance sheet (Sch. 4,5,6&7)- Rs. 5,43,68,295/- d) Deemed accumulation u/s 11(2) Rs. 2,00,00,000/- Total Application = Rs. 9,91,42,296/- Less amount spent out of previous Year’s accumulation Rs. 1,44,96,637/- Balance application for the year = Rs. 8,46,45,649/- *In the return originally filed this amount was reflected at Rs. 1,64,96,637/-. However, the assessee filed revised statement of income and applications of income before the AO with the above referred figure. Both the original computation and revised computation of income are enclosed for your ready reference.” 3. Whereas, according to the Assessing Officer receipts represented by grants/reimbursement directly accounted into the balance sheet were in the nature of tied-up of grant and not voluntary contribution or donations and, therefore, no part of such income of the assessee and also the application of same, can be considered for the purpose of application of income in terms of Section 11 of the Act. In support of the finding, the AO relied on the order dated 30/12/2009 of the learned Commissioner of Income-tax(Appeals) in the case of ‘Society for Development Alternatives’ for AY 2006-07. Accordingly, the AO computed short application of income of Rs. 39,59,750/- as income taxable in the hands of the assessee as under:
“Gross Receipts as per Income & Expenditure Account : Rs. 6,14,55,432/- Less: Application of income : Total expenditure as E&I A/C : Rs. 3,36,77,333/- Amount set apart as per From No. 10 : Rs. 2,00,00,000/- Total Application : Rs. 4,36,77,333/- Add: Amount spent on purchase of Fixes assets : Rs. 10,96,668/- Add: Amounts transferred from Income & Expenditure Statement To Balance Sheet and applied through Balancer sheet : Rs. 2,00,00,000/- Less :Amount spent out of previous years
4 ITA No. 1743/Del/2012 AY: 2008-09 Accumulation : Rs. 1,64,96,637/- Total deemed application :Rs. 4,82,77,364/- Taxable Income : (a) Amount of surplus remaining unspent : Rs. 1,31,78,068/- (b) Maximum 15% Income allowable to be Accumulated u/s 11(1)(a) : Rs. 92,18,315/- (c) Total taxable Income (a) minus (b) : Rs. 39,59,753/- (d) Rounded off to : Rs. 39,59,750/-
Before the learned Commissioner of Income-tax(Appeals), the assessee claimed that no donations or contributions received by the assessee in funds were in the nature of tied up grants. It was explained that the assessee was only keeping asides funds for specific activities which were carried on continuous basis from one financial year to another and these funds were made up of internal accumulation, receipt from sponsors, members etc. The details of funds and sum utilized submitted before the learned Commissioner of Income- tax(Appeals) is as under: Amount in Rupees Name of the Fund Opening Received Transfer Total Spent Balance Balance during the from Income during the year & Expd. a/c year Clean Air & 58,33,153 25,00,000 83,33,153 20,99,150 62,34,003 Vehicular Emission Fund 56,72,235 9,55,151 25,00,000 91,27,386 33,16,502 58,10,884 Road Safety & Traffic Management Fund Automotive 274,89,459 21,275,573 15,000,000 6,37,65,032 33,311,709 30,453,323 Research fund Total 3,89,94,847 2,22,30,724 2,00,00,000 8,12,25,571 3,87,27,361 4,24,98,210 5. The assessee submitted that amount received in funds during the year was Rs. 2,22,30,724/- whereas amount spent was Rs. 3,87,27,361/-. It was claimed that whatever was received during the year was entirely spent. Before the ld Commissioner of Income Tax(Appeals), the assessee also submitted details of grant received from the government agencies as under:
5 ITA No. 1743/Del/2012 AY: 2008-09
Amount in Rupees Opening Received Transfer from Total Spent during Balance Name of the Balance during the Income & the year Fund year Expd. a/c Other Grants 1,44,00,000 1,44,00,000 1,43,93,000 7,000 Use of Hydrogen.... One Day 7,50,000 7,50,000 7,50,000 - Conclave... VDA Indo- 126,383 3,71,551 4,97,934 German Symposium Total 126,383 1,55,21,551 1,51,50,000 1,56,40,934 7,000
It was submitted by the assessee that the grants received from government and other agencies was also spent entirely during the year itself. The assessee further contended that computation of income and application was to be made as per the provisions of the Income Tax Act and not whether the entries of the same are reflected in the accounts or not, as laid down by the Hon’ble Supreme Court in the case of Kadar Nath Jute Manufacturing Company Limited Vs. CIT, 82 ITR 363 (SC). It was further contended that the assessee was following the computation on consistent and regular basis. The learned Commissioner of Income-tax(Appeals), however, upheld that the grants received by the assessee were in the nature of the tied-up grants and, therefore, following the decision of Commissioner of Income-tax(Appeals) in the case of ‘Society for Development Alternatives’ (supra), sustained the action of the Assessing Officer in excluding the grants received in funds as well as from Govt. agencies from the purview of application of income in terms of section 11 of the Act. Aggrieved, the assessee is in appeal before the Tribunal. 7. In ground No. 1 to 4 of the appeal, the assessee has challenged the addition of Rs. 39,15,750/- made by the AO and sustained by learned Commissioner of Income-tax(Appeals) holding that the grants/reimbursement for specific project received from various agencies including government were
6 ITA No. 1743/Del/2012 AY: 2008-09 tied grants and, therefore, such receipt and application thereof was excluded for determining income derived and its application. 7.1 Addressing the grounds raised, the ld. Authorized Representative of the assessee drawn our attention towards pages 21 and 22 of the paper book, which are income and expenditure account and balance sheet respectively in respect of the year under consideration. The Ld. AR submitted that in the case of the assessee, there were two streams of income. First stream of income of Rs. 6,14,55,432/- was from subscription from annual membership, statistical services, realization on disbursement of technical literature etc, interest received, receipt from Auto Expo, Seminar and Conference etc. which were shown on income side of the income and expenditure account and corresponding various expenses on employee remuneration, seminar and conference, operative and administrative expenses, expenses towards Auto Expo were recorded on expenditure side of the income and expenditure account. He further submitted that during the year amount of Rs. 20 lakh was transferred from income and expenditure account into funds for clean Air and Vehicular Emission Fund, Road Safety and Traffic Management Fund and Automotive Research Fund, Rs. 7.5 lakh were transferred toward corpus fund, under the income and expenditure account and the assessee recorded excess of income of Rs. 91,32,509/- over expenditure during the year. The Ld. AR further drawing our attention to the schedule 4 to 8 of the Balance Sheet, enclosed as pages 23 and 24 of the paper book, submitted that the second stream of income was from grants/reimbursement received from various members, agencies including government towards specific project which were recorded directly in funds maintained for that purpose and application of income out of those funds was also recorded in those respective funds and the closing balance of the funds was transferred to the balance sheet. He further submitted that for the purpose of application of income as per provisions of section 11 of the Act , income from grants/reimbursement and its applications recorded in respective funds was
7 ITA No. 1743/Del/2012 AY: 2008-09 added to income and application recorded in income and expenditure account. He further submitted that the Assessing Officer was not correct in holding that grants/reimbursement received by the assessee was tied-up grants and, therefore, not voluntary donations or contributions and accordingly excluded from taking into account while computing application of income in terms of section 11 of the Act. The Ld. AR submitted a chart of grants/reimbursement received under various funds and specific grants received from government and other agencies. He also drawn our attention to memorandum of understanding among Ministry of New and Renewable Energy, Indian Oil Corporation Limited and the assessee, for carrying out the project namely “use of hydrogen (up to 30%) as fuel blended with compressed natural gas in internal combustion engine at pages 32 to 42 of paper book and copy of cheque of Rs. 1,44,00,000/- issued to the assessee by the Ministry of New and Renewable Energy, enclosed at pages 43 of the paper book and submitted that it was a joint project, which was to be executed in collaboration with Indian oil Corporation and the assessee was responsible for disbursement of funds, tracking progress, reporting and providing other technical support for the projects and therefore the grant was not a tied up grant. Similarly he drawn our attention towards pages 45 to 50 of the paper book and submitted that grants received from Ministry of Heavy Industries and Public Enterprises was utilized towards organizing Indo German symposium. In support of his contention, the learned Authorized Representative relied on the followings: (i) decision of the Bombay High Court in the case of CIT versus Gem and Jewellery Export Promotion Council: 13 taxmann 13 (ii) decision of Delhi Tribunal in the case of Little Tradition versus DDIT (E): 119 ITD and 127 (iii) decision of the Madras Tribunal in the case of ACIT versus Balaji Educational and Charitable Public Trust. 7.2 The learned CIT (DR), on the other hand, relied on the findings of the authority below.
8 ITA No. 1743/Del/2012 AY: 2008-09 7.3 We have heard the rival submissions and perused the material on record including the orders of the authorities below. We find that other than the income received under the income and expenditure, there are two types of contributions have been received by the assessee during the year under consideration. The first category of contributions received are under the three funds, which are, namely, Clean Air and Vehicular Emission Fund, Road Safety and Traffic Management Fund and Automotive Research fund. In these funds, the assessee has also transferred income from the income and expenditure account. The second category of contribution is in nature of grants received from government and other similar agencies for conducting specific projects. Now, the issue in dispute before us is whether the contributions or grants received under these funds are tied up grants or say the grants received are not voluntary contribution, and therefore same are not part of income of the assessee. The section 12(1) of the Act has specified any voluntary contribution received by a trust wholly for charitable or religious purposes or by an institution established wholly for such purposes other than the contributions received with a specific direction that same shall form part of the corpus, shall for the purpose of section 11 be deemed as income of the trust or institution. So, if the contributions received by the assessee are not voluntary and not with the specific direction to shall form part of the corpus, then those contributions will not be in the nature of the income of the trust and therefore same cannot be considered for application of the income under section 11 of the Act. 7.4 As regard to the contributions received and credited by the assessee in three funds mentioned above, we find from the paper book and other submissions made during the hearing that during the year under consideration, in Clear Air and Vehicular Emission Fund, no contribution was received from other persons and there was transfer of Rs. 25 lakh from the income and expenditure account only. In the Road Safety and Traffic Management fund, the assessee received contribution of Rs. 95,51,51/-and transferred Rs. 25 lakh from
9 ITA No. 1743/Del/2012 AY: 2008-09 the income and expenditure. Similarly, under the automotive research fund, the assessee received contribution of Rs. 2,12,75,573/- and transferred Rs. 15 Lacs from the income and expenditure. The learned Authorized Representative submitted a copy of letter from Director, Corporate Affairs of Mercedes-Benz, letter from Indian Council for Research on International Economic Relations, letter from Ministry of Urban Development, letter from Senior General Manager, Tata group, letter from Senior HR, Officer of Mundra Port and special economic zone Ltd. From the letters of the persons who provided contribution to the assessee, we find that no conditions of any kind were attached with the contribution, though the contribution were given for promotion of particular activities, thus such contributions cannot be termed as involuntarily contribution. 7.5 The second type of contributions received by the assessee are from government agencies for organizing specific event or carrying out a specific studies. During the year the assessee received contribution of Rs. 1,55,21,551/- of this kind from Ministry of Non-conventional and Renewable Energy and Ministry of Heavy Industry and Public Enterprises, Government of India. It can be seen from the table of contributions received and spent during the year that almost entire contributions received was spent towards the object by the assessee leaving a small amount of Rs. 7000/- only. From the Memorandum of Understanding among the Ministry of Non-conventional and Renewable Energy, Indian Oil Corporation and the assessee, we find that it contained various terms and conditions for monitoring that the funds are utilized properly and not misused. Similarly, the grants released by Ministry of Heavy Industries and Public Enterprises for organizing Indo German Symposium contained the condition of following general principle of Government Finance Rules (GFRs) and submitting of detailed report on the activities undertaken and benefits accrued to the industry. These conditions have been set out by the donor to ensure that the funds are not mis-utilized or utilized for the objective other than
10 ITA No. 1743/Del/2012 AY: 2008-09 for which same were given. The assessee is engaged in varied kinds of activities and if the contributions received for a specific activity are invested or utilized in those activities and reports are provided to the donor showing that the contributions are invested in those very activities, the contributions cannot lose its voluntarily nature. In the case of CIT versus Gem and Jewellery Export Promotion Council (supra) grants were received by the assessee with certain terms and conditions like, to keep the funds in any specified bank, surrender the un-spent amount to the Government, the assets acquired out of grant would not be disposed without prior sanction of the Government etc. and the Revenue contested that grants in aid were not in the nature of voluntary contributions for the purpose of section 12(1) of the Act. However, the Hon’ble High Court in Para 7 of the judgment held as under: “7. It is difficult to see how any of the conditions attached to the grantor facts in the instant case, the voluntary nature of the contribution. The conditions referred to above and relied upon by the Ld. counsel of the revenue are merely intended to see the amounts are properly utilised. The conditions did not ,therefore, detract from the voluntarily nature of the grant.” 7.6 Similarly, the Delhi Tribunal in the case of Little Tradition vs. DDIT (E) (supra) has analyzed the definition of the ‘voluntary’ and after considering decisions of various Courts concluded that the contribution without asking for any favour in return for the grants cannot be termed as not voluntary. The relevant part of the decision is reproduced as under: “8. The expression "voluntary" generally carries with it two significances. One is that the contribution is not legally enforceable and the second is that the contribution must be made without any consideration therefor. According to Halsbury, C., in Savoy v. Art Union[1896] A.C. 305, "voluntary contribution" may mean (i) that the contributions are not compulsory or (ii) that they are without consideration. Thus the voluntary contribution is the money gifted to the institution gratuitously without any expectation of return or privilege. 8.1 In Society of Writers to the Signet v. CIR [1886] 2 TC 257, it was observed : "The words ‘voluntary contribution’ mean money gifted, given gratuitously without consideration and do not mean money paid willingly without any compulsion." 8.2 In Russel Institution v. Vestry of St. Giles 3 E. & B. 416, it was said :
11 ITA No. 1743/Del/2012 AY: 2008-09 "Voluntary contribution does not mean annual subscription (or entrance fees) paid for values received or expected to be received by the party paying, but means a gift made from disinterested motives for the benefit of others." 8.3 Hon’ble Bombay High court in the case of Trustees of Shri Kot Hindu Stree Mandal v. CIT [1994] 209 ITR 3961 has held the membership fee or subscription paid by a member can never be considered as gratuitous payments by the member to the society or as a payment without any consideration. Such payments cannot be characterized as ‘voluntary contributions’ within the meaning of that expression in section 12. 8.4 In the case of Gem & Jewellery Export Promotion Council (supra) where grants in aid were made by the Government to provide certain institutions with sufficient funds to carry on their charitable activities. The institutions or associations to which the grant was made have no right to ask for the grant. It was solely within the discretion of the Government to make grants to the institutions of charitable in nature. The Government did not expect any return for the grants given by it to such institutions. There was nothing which was required to be done by the institution for the Government which could be considered as a consi-deration for the grant. Under such conditions Hon’ble High Court held that conditions imposed by the Government to the grants were merely intended to see that the amounts were properly utilized and did not detract from the voluntary nature of the grant. There was no element of any consideration anywhere for the grant. Therefore, the grants in aid were voluntary contributions within the meaning of section 12(1) of the Act. 9. Voluntary contributions are different in nature than the corpus donations. The Income-tax Act, 1961 has not given the definition of the word "corpus". According to the Oxford Dictionary "corpus" means "capital sum originally lent or invested". According to Webster’s Dictionary it means "the principal of a fund or a estate as distinct from income or interest". According to Osborn’s Concise law Dictionary it means "The capital of a fund as contrasted with income." The corpus donations are given with the specific direction of the donor. Corpus donations are made for specific purposes specified by the donor. Section 12 of Income-tax Act refers to a specific direction by a donor. As such, the option, whether a donation would be for the corpus or not, lies with the donor, and not the donee trust. If there is no specific direction charactering a donation for the corpus, it may be deemed to be a voluntary one, even though the receiving trust treats it as a corpus one. Hon’ble M.P. High Court in the case of Balmik Prasad Ram Piyare Brahmin v. State of M.P. AIR 1959 MP 407 observed that where a certain amount was collected by private initiative for a specific purpose, though insufficient and meager for the cause of collection, it could not be utilized for purpose other than what the donors intended unless their consent was obtained. It was further held that the funds should have been deposited with the Panchayat. The Sarpanch would be a trustee of the funds would be liable for breach of trust if he misappropriate them. 10. If the facts of the case before us are examined in the light of above judicial pronouncements we find that the Fort Foundation had not asked for any favour in return for the grants provided by it to the assessee. The conditions stipulated in the letter were to see and ensure that the funds were utilized by the assessee for the purposes for which the funds were sanctioned. The contention of the assessee that the funds were not voluntary contribution is not supported by any evidence. The letter of sanction of grant issued by the Ford Foundation does not specify anywhere that the funds were given as
12 ITA No. 1743/Del/2012 AY: 2008-09 corpus funds. The sanction letter has also not specified or stipulated any condition according to which the funds were to be utilized proportionately in the period of 24 months. It is the assessee who has according to its convenience allotted funds in the period of two years. Therefore, the funds were granted voluntarily for carrying out charitable objects of the assessee. Under these circumstances and in view of various judicial pronouncement regarding the meaning of terms ‘voluntary contributions’; and ‘corpus’ the grants given by the Ford Foundation were voluntary contribution given for the charitable objects of the assessee. Accordingly the authorities below were justified in treating the funds as voluntary contributions.”
7.7 Similarly, the Madras Tribunal in the case of ACIT Vs. Balaji Educational and Charitable Public Trust (supra) held that the expression voluntary contribution is used in the Act to highlight the principle of non- compulsion in the matter of participating in charitable activities and to underline the gratuitous nature of donation and charitable activities. 7.8 Thus, respectfully following the above decisions in background of the facts of the assessee, we are of the opinion that grants received by the assessee from the governments and the contributions received directly into various funds maintained by the assessee are in the nature of voluntary contributions as defined under section 12(1) of the Act and the Assessing Officer is directed to consider these contributions and grants as income of the assessee and expenditure incurred out of the said income as application of income in terms of section 11 of the Act. Accordingly, the grounds of the appeal are allowed. 8. In ground No. 5 the assessee has challenged the interest charged under section 234D of the Act despite the refund of Rs. 7,61,900/- was due to the assessee. 8.1 We find that the assessee has already been allowed relief in earlier grounds and therefore the issue of chargeability of interest under section 234D has been rendered merely academic. Even otherwise, the interest under section 234D is not chargeable, if the refund has not been released to the assessee and which is a matter of verification by the Assessing Officer. Therefore, we hold that though in the case of the assessee there will not be any interest under section
13 ITA No. 1743/Del/2012 AY: 2008-09 234D of the Act in view of the relief allowed by us, but even if interest is chargeable under section 234D of the Act , the assessee will be liable only when the refund is granted to the assessee and no interest is chargeable, when no refund was granted to the assessee. We, therefore, direct the Assessing Officer to verify the facts and compute the interest in accordance to law. The ground of the appeal is accordingly allowed. 9. In the result, appeal of the assessee is allowed. The decision is pronounced in the open court on 17th May, 2016.
Sd/- Sd/- (I.C. SUDHIR) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 17th May, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi