Income Tax Appellate Tribunal - Hyderabad
Nirmal Agricultural Society vs Income-Tax Officer on 28 December, 1998
ORDER
O. K. Narayanan, Accountant Member
1. These two appeals are filed by Nirmal Agricultural Society, Padamati Yaleru Anantpur District, a registered society formed for undertaking charitable activities among agriculturists. The appeals are for the assessment years 1982-83 and 1983-84. The society has returned a net loss of Rs. 3,643 for the assessment year 1982-83 and net income of Rs. 13,500 for the next year, viz, 1983-84. While completing the assessment, the Assessing Officer determined an income of Rs. 41,714 for the assessment year 1982-83 and Rs. 76,200 for the assessment year 1,983-84. The assessments have been confirmed in first appeal by the Dy. CIT(A), Hyderabad, in her order dated 9-7-1993 passed in appeal No. IT/ATP/3 & 4/90-91. It is against the dismissal order of the Dy. CIT(A) that the assessee has come in second appeal before the Tribunal.
2. When the proceeding was called for hearing, nobody appeared for the assessee in spite of notice. But, the assessee has already filed paper-book in which the assessee has appealed to the Tribunal to decide the appeals on the facts and materials of case as available on record in the circumstances, we heard Shri Sai Prasad Sastri, the learned Departmental Representative for the revenue and proceed to dispose the appeals ex parte.
3. As part of the charitable activities, the assessee-society has been giving aid to poor agriculturists for house construction and land reclamation, etc. The society has also engaged in propagating literacy and education among the villagers through its non-formal education programme. The society used to get foreign aid also for financing its activities. During the previous years relevant to the impugned assessment years, the assessee had received specified tied-up grants from a foreign donor, viz, tread for the World. The assessee had to utilise the grant in the manner suggested by the donor within a period of three years. If the grant was not spent in the said period, that unspent money had to be returned to the donor.
4. The assessee had not applied for registration under section 12A in time. The application was filed belatedly. The Commissioner rejected the application on the ground of delay. As the assessee has not been granted registration, the Assessing Officer found that the assessee was not entitled for the reliefs specified under sections 11 and 13. Therefore, the Assessing Officer completed the assessments in the status of AOP.
5. While completing the assessments, the Assessing Officer treated the grant received from Bread for the World as donation/income and brought it to assessment. On the expenses side he allowed only revenue expenses but has not allowed the amounts spent by the assessee by way of construction of houses, reclamation of land, etc. That is why, the Assessing Officer could make out the assessments on taxable incomes of Rs. 41,714 for the assessment year 1982-83 and Rs. 76,200 for the assessment year 1983-84.
6. The contentions raised by the assessee are that grant received from Bread for the World could not be treated as income of the assessee as the grant was tied-up with conditions and specifications, that unspent balance, if any, had to be returned to the donor, that the amounts spent for construction of houses, land reclamation, etc., have to be allowed as deductible expenditure and, therefore, the assessed income and tax demanded have no basis and justification.
7. The Departmental Representative, on the other hand, contended that the assessee had no registration under section 12A and, therefore, the Assessing Officer had no other go but to complete the assessments on the above lines and no question of exemption could have been considered by the Assessing Officer as the assessee was not entitled for the benefits of section 11 and section 13.
8. We considered the matter in detail. The assessee has not been granted registration under section 12A, as the CIT, Guntur, 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 go but to complete the assessments in the status of AOP and also closing his eyes towards section 11 and section 13. To that extent, we are in agreement with the Assessing Officer, as he has acted only according to will of law.
9. But as far as the contents of the assessments are concerned, we find much force in the contentions advanced by the assessee. Even when the assessee has been assessed as AOP 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 is concerned, construction of houses, reclamation of land, etc., are part of its regular activities. Houses are built on the land of poor agriculturists. The assessee-society has no legal title or right over the land or houses of those villagers/agriculturists who are the beneficiaries. The purpose and activity of the assessee-society is to engage in such charitable activities. Whatever amount has been spent on those programmes/projects, they were spent in the usual course of carrying on its acclaimed objects. Therefore, there is no basis whatsoever, factual or legal, to hold that the amounts spent by the assessee in constructing houses or reclaiming land are capital expenditure. As far as the assessee is concerned, those expenses are revenue expenses. The assessee has 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., has to be allowed as deduction in the computation of income.
10. The grants received from Bread for the World were for specific purposes. The grants which are for specific purposes do not belong to the assessee-society. Such grants do not form corpus of the assessee or its income. Those grants are not donations to the assessee so as to bring them under the purview of section 12 of the Act. Voluntary contributions covered by section 12 are those contributions freely available to the assessee without any stipulation which the assessee could 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 is a voluntary Organisation, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled or integrated with the assessee's normal 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 se of the donor. That incoming and outgo in 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 Assessing Officer 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 spent under the tied-up programmes directed by the donor also will be taken out of the computation of income from the expense-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.
13. In the result, the appeals filed by the assessee are allowed to the extent indicated above.