Income Tax Appellate Tribunal - Hyderabad
Nice Foundation, Hyderabad vs Department Of Income Tax on 6 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 2039/HYD/2011
Assessment Year : 2007-08
Nice Foundation, ... Appellant
Hyderabad.
(PAN - AAATN9395H)
Vs.
Dy. Director of Income-tax(Exemption)-I, ... Respondent
Hyderabad.
ITA No. 268/HYD/2012
Assessment Year : 2007-08
Dy. Director of Income-tax(Exemption)-I, ... Appellant
Hyderabad.
Nice Foundation, ... Respondent
Hyderabad.
(PAN - AAATN9395H)
Assessee by : Mr. M.S. Rao
Revenue by : Mr. A.V. Raghuram
Date of Hearing : 06/08/2012
Date of Pronouncement : 08/08/2012
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
These cross appeals filed by the assessee are directed against the order of the CIT(A), Guntur, passed on 10/06/2011 for the assessment year 2007-08.
2ITA NO. 2039/Hyd/11 & 268/Hyd/12 M/s Nice Foundation ITA NO. 2039/Hyd/2011 - appeal by the assessee
2. Brief facts of the case are that the assessee trust was established on 06/02/2002 and was registered u/s 12A of the IT Act on 21/11/2004 w.e.f. 01/04/2007 to 31/03/2010 and the benefit of condonation of delay was not granted to the assessee. Aggrieved, the assessee filed appeal before the ITAT, Hyderabad, and the ITAT, had directed the DIT (Exemptions) to consider the petitions of the assessee praying for condonation of delay from 01/04/2002, vide order dt. 30/04/2008 and the matter is pending for disposal before DIT(Exemptions), Hyderabad till date.
3. Before the CIT(A), the assessee filed written submissions, wherein it was stated as under:-
"Ours is a trust and is registered u/s 12A from 01/04/2008. The ITAT, Hyderabad, vide their order dt. 30/04/2008 directed the DIT(E) to consider our application for condonation of delay in seeking registration from 01/04/2002 and the same is pending before the DIT(E). In view of limitation under the provisions of sec. 12AA, the registration should be deemed to have been granted from 01/04/2002, since no order is passed on the order of ITAT, dt. 01/04/2008, till date. Be that as it may, we submit that if the registration is granted by DIT(E), the order of demand for this assessment year will not survive, since the same is passed denying exemption u/s 11.
Without prejudice to the above, we submit that the AO has not examined whether the receipts of Rs. 1,57,30,604/- be treated as revenue receipts. It is settled law that when deduction u/s 11 is not being allowed the income is to be computed applying commercial principles. When the receipts are seen applying commercial principles it will be clear that donations from other trust cannot be revenue receipt but will be capital receipt. Therefore, the AO ought not to have taxed the income. The details of receipts are as under:-
School Health programme, Hyderabad -Rs.37,46,630/- School Health Programme, Udaipur - Rs. 27,52,742/- Nice Institute Project - Rs. 92,21,834/-3
ITA NO. 2039/Hyd/11 & 268/Hyd/12 M/s Nice Foundation We submit that these amounts were received from Naandi Foundation another public charitable trust which is engaged in Children's education and health programmes. They wanted this trust to take care of School Children Health Programme and accordingly granted these sums with specific direction as to the purpose for which it should be applied. In such circumstances these receipts cannot be come our revenue receipt and our income. Of these receipts, the amount of Rs. 92,21,834/- is received towards executing the Nice Institute project which include construction of building and providing other infrastructure facilities. This amount was received in March 2006 and hence the same could not be applied for the purpose for which it was given. The major part of surplus that remained of Rs. 95,42,908/- is from this amount only. In this regard we invite kind attention of the Hon'ble CIT(A) to the following decision wherein, it was held that even of registration u/s 12A is not available tied up grants cannot be taxed as income.
71 ITD 152 Hyderabad ITAT, in the case of Nirmal • Agricultural Society.
• 90 ITD 493 Hyderabad ITAT, in the case of society for integrated development in urban & rural areas. In view of the above decisions, we submit that the taxing the surplus which is nothing but tied up grant from Naandi Foundation towards the Nice project for construction of building and other infrastructure development."
4. After considering the submissions of the assessee, the CIT(A) held as under:-
"4.2.1 I have considered the submissions made by the appellant, gone through the order of the AO. It is seen from the records that the assessee trust has received donation of Rs. 1,57,21,206/- from Nandi Foundation during the year and has declared gross receipts of Rs. 1,57,30,604/- and arrived net income of Rs. 95,42,908/-, after claiming expenditure under several heads. As seen from the records, the assessee has not been granted registration u/s 12A for the AY 2007-08 and was granted registration w.e.f. 01/04/2007 onwards and hence, the assessee is not entitled to exemption u/s 11 of the Act as pointed out by the AO. In view of the above, since the assessee has not been granted registration u/s 12A for the relevant period i.e. AY 2007-08, the action of the AO in 4 ITA NO. 2039/Hyd/11 & 268/Hyd/12 M/s Nice Foundation rejecting the exemption claimed u/s 11 and bringing the surplus of income to tax is upheld."
5. Aggrieved by the order of the CIT(A, the assessee is in appeal before us raising the following grounds of appeal:-
"1. The order of the learned CIT(A) is erroneous both on facts and in law in s far as it is prejudicial to the assessee.
2. The learned CIT(A) erred in upholding the action of the AO in holding the receipts of the trust to be taxable.
3. The learned CIT(A) erred in not considering the submissions of the assessee that the receipts are tied up grants and therefore is not taxable in spite of citing of decisions in support of the same.
4. The learned CIT(A) further erred in not considering the submission that registration u/s 12A is deemed to have been granted since the DI(Exemption) has not passed orders u/s 12AA after the same is set aside to his file within the time stipulated in the Act and thereby erred in holding that the assessee trust is not entitled for deduction u/s 11."
6. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below.
7. Ground No.1 is general in nature.
8. Ground No. 4 regarding registration u/s 12A, is disposed of as under:-
9. In the case of society for the promotion of education adventure sport & conservation of environment Vs. CIT & Ors., [2008] 5 DTR (All.) 329, the Hon'ble Allahabad High Court held as under:-
"Charitable trust-Registration u/s 12A - Effect of non- passing of order within the time-limit- Taking the view that non-consideration of the registration application within the time fixed by s. 12AA(2) would result in deemed registration, may at the worst cause loss of some revenue or income-tax payable by the individual assessee - On the other hand, if a contrary view is taken, it would leave the 5 ITA NO. 2039/Hyd/11 & 268/Hyd/12 M/s Nice Foundation assessee totally at the mercy of the IT authorities inasmuch as the assessee has not been provided any remedy under the Act against non-decision - Moreover, the former view furthers the object and purpose of the statutory provision - Thus, the better interpretation would be to hold that the effect of non-consideration of the application for registration u/s 12A within the time fixed by s. 12AA(2) would be a deemed grant of registration.
10. In the case of Sardarilal Oberai Memorial Chartiable Trust Vs. ITO, 3 SOT 229 (Delhi), it has been held that the CIT(A) having passed no order of refusal within the time period of six months prescribed in section 12AA(2) of the Act, application u/s 12A for registration of trust shall be deemed to have been allowed.
11. In the case of Rev Father Trust Oscar Colasco Memorial Medical Association Vs. CIT, [2009] 31 SOT 1 (Mumbai), the Hon'ble Mumbai High Court held that as the CIT in the present case has failed to initiate the enquiry in time to complete the process of grant of registration within the stipulated period of six months and as the order has not been passed within the time- limit prescribed, the application is deemed to have been granted. The order of the CIT refusing the registration is a nullity and is quashed. The registration is deemed to have been granted to the assessee. CIT Vs. Sohan Lal Chhajan Mal [2009] 222 CTR (P&H) 190: [2008] 307 ITR 53 (P&H), Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust Vs. CIT [2007] 111 TTJ (Del)( (SB) 424: [2007] 17 SOT 281 (Del)(SB) and Dharma Sansthapak Sangh (Niyas) Vs. CIT [2008] 118 TTJ (Del) 823 followed.
12. In view of the ratio laid down in the above decisions, the effect of non-consideration of the application for registration u/s 6 ITA NO. 2039/Hyd/11 & 268/Hyd/12 M/s Nice Foundation 12A within the time fixed by section 12AA(2) would be a deemed grant of registration. Thus, ground No. 4 raised by the assessee is allowed
13. As regards Grounds Nos. 2 & 3 regarding receipt of grants, it is observed that the grants received by the assessee are from Nandi Foundation and are in the nature of tied-up grants to be used towards construction of Nice Institute Project. All the records relating to this have been produced by the assessee before the lower authorities. The Hyderabad ITAT has held in the case of Nirmal Agricultural Society (71 ITD 152) and Society for Integrated Development in Urban & Rural Areas (90 ITD 493) that tied-up grants, even if registration u/s 12A is not available, cannot be taxed as income. Following the above decisions of the ITAT Hyderabad, in the present case, we point out that registration u/s 12A is deemed, therefore, we decide the issue in favour of the assessee. Accordingly, ground Nos. 2 & 3 are allowed.
14. In the result, the appeal of the assessee is allowed.
ITA NO. 268/Hyd/12 - appeal by the revenue
15. Ground No. 1 is general in nature. Ground Nos. 2 & 3 are directed that the CIT(A) was not justified in deleting the disallowance of 20% of expenditure amounting to Rs. 12,37,538/- made in the assessment.
16. The Assessing Officer held that since the project is not completed and expenditure could not be bifurcated, hence 20% of 7 ITA NO. 2039/Hyd/11 & 268/Hyd/12 M/s Nice Foundation expenditure is treated as capital expenditure and added to the total income, which works out to Rs. 12,37,538/-
17. On appeal, the CIT(A) held as under:-
"4.2.2 In as much as disallowing 20% of expenditure treating it as capital expenditure is concerned, I believe that the Assessing Officer was not justified in taking such a decision. It is born by records that appellant foundation was constructing the building for Nice Institute Project for the health care of new born children out of the donations received during the year under consideration. When so much of expenditure was incurred for construction as to how the Assessing Officer has come to the conclusion that 20% of such expenditure pertains to capital nature and even when he is true as to why he was disallowing was not spelt out. Thus, in my considered opinion, this addition was purely adhoc in nature for which no basis is available. Any addition made without any basis or material or based on imagination cannot be sustained and it has to be deleted. In the circumstances, the Assessing Officer is directed to delete the same."
Aggrieved, the revenue is in appeal before us.
18. We have heard the arguments of both the parties and perused the record. We do not find infirmity in the order of the CIT(A) in deleting 20% of expenditure of Rs. 12,37,538/- made by the Assessing Officer treating the same as capital expenditure. The CIT(A) has rightly pointed out that the Assessing Officer was not correct in disallowing 20% of the expenditure on an adhoc basis. In the case of Shanker Trading Co. (P) Ltd. Vs ACIT 152 Taxman 49 with respect to adhoc disallowance, it was held by the Tribunal that the AO was not empowered to make any adhoc disallowance without pointing out defects in vouchers produced by the assessee and deleted the adhoc disallowance made by the AO. Accordingly, we uphold the order of the CIT(A) on this count and the grounds raised by the revenue in this regard are dismissed.
19. In the result, appeal of the revenue is dismissed.
8ITA NO. 2039/Hyd/11 & 268/Hyd/12 M/s Nice Foundation
20. To sum up, appeal of the assessee is allowed and the appeal of the revenue is dismissed.
Pronounced in the open court on 08/08/2012.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 8 th August, 2012
kv
Copy to:-
1) M/s Nice Foundation,
C/o S/Shri K. Vasantkumar & A.V. Raghuram Advocates, 610, 6 th Floor, Babukhan Estate, Basheerbagh, Hyderabad - 500 001.
2) The DDIT(E)-1, Aayakar Bhavan, Hyderabad
3) The CIT (A), Guntur
4) The CIT-III, Hyderabad
5) The Departmental Representative, I.T.A.T.,
Hyderabad