The ITO, Ward-6(1),, Surat v. The Catholic Church Mandal,

ITA 2917/AHD/2008 | 2005-2006
Pronouncement Date: 30-12-2010 | Result: Dismissed

Appeal Details

RSA Number 291720514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 2917/AHD/2008
Duration Of Justice 2 year(s) 4 month(s) 19 day(s)
Appellant The ITO, Ward-6(1),, Surat
Respondent The Catholic Church Mandal,
Appeal Type Income Tax Appeal
Pronouncement Date 30-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 30-12-2010
Date Of Final Hearing 14-12-2010
Next Hearing Date 14-12-2010
Assessment Year 2005-2006
Appeal Filed On 11-08-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI BHAVNESH SAINI JUDICIAL MEMBER AND D.C. AGRAWAL ACCOUNTANT MEMBER) ITA.NO.2714/AHD/2008 [ASSTT. YEAR : 2005-2006] CATHOLIC CHURCH MANDAL POST : KIKAKUI TAL.: SONGADH DIST: SURAT. VS. ITO WARD-6(1) SURAT. ITA.NO.2917AHD/2008 [ASSTT. YEAR : 2005-2006] ITO WARD-6(1) SURAT. VS. CATHOLIC CHURCH MANDAL POST : KIKAKUI TAL.: SONGADH DIST: SURAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.K. PATEL REVENUE BY : SHRI K. MADHUSUDAN O R D E R D.C. AGRAWAL ACCOUNTANT MEMBER : THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSESSEE AND OTHER BY TH E REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-IV SURAT D ATED 10.6.2008 ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UN DER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. IN THE ASSESSEES APPEAL THE FOLLOWING GROUNDS A RE RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS LAW ON THE SUBJECT THE L.DCIT(A) HAS ERRED IN CONF IRMING THE ADDITION OF RS.22 42 385/- ON ACCOUNT OF DONATION R ECEIVED NOT TOWARDS CORPUS THUS DISALLOWING EXEMPTION U/S.11(2) OF THE IT ACT 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS LAW ON THE SUBJECT THE LD. CIT(A) HAS ERRED IN CON FIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.4 72 126/- ON AC COUNT OF ITA.NO.2714 AND 2917/AHD/2008 -2- DISALLOWANCE OF EXEMPTION U/S.11(2) OF THE IT ACT A ND TREATED AS ALLEGED INCOME OF THE ASSESSEE. 3. IT IS THEREFORE PRAYED THAT THE ABOVE ADDITION M AY E PLEASE BE DELETED AS LEARNED MEMBERS OF THE TRIBUNAL MAY DEEM IT PROPER. WHILE THE GROUNDS RAISED BY THE REVENUE IN THEIR AP PEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.48 80 421/- MADE BY THE AO ON ACCOUNT OF DONATIONS WHICH ARE NOT A PART OF THE CORPUS OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. SINCE THE GROUNDS RAISED BY THE TWO PARTIES ARE INT ER-RELATED THE APPEALS ARE TAKEN TOGETHER FOR THE SAKE OF CONVENIENCE. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN AO P AND HAS BEEN GRANTED REGISTRATION UNDER SECTION 12AA OF THE ACT. THE AS SESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-2006 AT NIL INC OME. HOWEVER THE AO TOOK UP THE CASE FOR SCRUTINY. 4. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED DONATION OF RS.89 19 482/- DU RING THIS YEAR. IT HAS HOWEVER SHOWN ONLY DONATION OF RS.6 36 639/- IN THE RETURN. THE DONATION AMOUNTING TO RS.83 82 843/- RECEIVED AS FOREIGN CON TRIBUTION FUND DURING THE YEAR WAS NOT SHOWN AS INCOME OF THE TRUST. IT WAS SHOWN ONLY IN SCHEDULE-II EARMARKED FOR OTHER FUNDS. FROM THE LETTER RECEIVE D FROM SOME OF THE DONORS THE AO NOTICED THAT THE FUNDS WERE RECEIVED FOR THE PURPOSE OF EDUCATION COMMUNITY HEALTH WOMEN EMPOWERMENT WELFARE OF TRI BAL RURAL DEVELOPMENT ETC. THE ASSESSEE TRUST CLAIMED THAT FOREIGN CONTRI BUTION WERE CLAIMED WITH THE SPECIAL DIRECTIONS FROM THE DONORS TO USE THESE FUN DS FOR THE PURPOSE AS MENTIONED BY THEM IN THEIR LETTERS AND THEREFORE THE TRUST HAD CLAIMED THAT SUCH CONTRIBUTION WILL NOT FORM PART OF THE TOTAL I NCOME AS PER SECTION 11(1)(D). ITA.NO.2714 AND 2917/AHD/2008 -3- THE AO DID NOT AGREE WITH THESE PROPOSITIONS. ACCO RDING TO HIM THERE IS NO SPECIFIC DIRECTION FROM THE DONORS THAT THE DONATIO NS WERE FOR CORPUS OF THE TRUST. HE THEREFORE DECLINED TO ACCEPT THE CLAIM O F THE ASSESSEE THAT THE ENTIRE CONTRIBUTION OF RS.83 82 843/- WOULD NOT FORM PART OF THE TOTAL INCOME AS PER THE SECTION 11(1)(D). HOWEVER HE NOTICED THAT THE ASSESSEE HAD ACTUALLY INCURRED AN EXPENDITURE OF RS.35 02 422/- OUT OF TH E ABOVE FOREIGN CONTRIBUTION FOR THE PURPOSE OF CHARITABLE WORK LEAVING A SUM OF RS.48 80 421/- WHICH WAS TREATED BY HIM AS INCOME OF THE ASSESSEE-TRUST. 5. THE LEARNED CIT(A) REFERRED TO THE DECISION OF T HE ITAT AHMEDABAD BENCHES IN THE CASE OF SANTKABIR SABHANI GADI IN IT A NO.1063/AHD/1989 AND HELD THAT WHERE THE AMOUNT IS SPENT FOR CONSTRUCTI ON OF THE BUILDING IT WOULD QUALIFY FOR DEDUCTION. HE HOWEVER AGREED WITH THE VIEW OF THE AO THAT SUCH CONTRIBUTION CANNOT BE TAKEN OUT OF THE TOTAL INCOM E OF THE TRUST AS THERE IS NO SPECIFIC DIRECTION THAT THESE DONATIONS ARE FOR THE CORPUS OF THE TRUST. BUT SINCE PART OF THE DONATIONS HAS BEEN SPENT ON THE OBJECTS OF THE TRUST AND PART OF THE EXPENDITURE HAS BEEN SPENT FOR CONSTRUCTION OF THE BUILDING THEN BOTH OF THEM WOULD QUALIFY FOR DEDUCTION FROM THE TOTAL INCOME. IN OTHER WORDS EVEN IF ENTIRE FOREIGN CONTRIBUTION IS TREATED AS INCOME OF THE TRUST WITHOUT GRANTING ANY EXCLUSION BY VIRTUE OF SECTION 11(1)(D) STILL THEN DEDUCTION HAS TO BE ALLOWED TO THE ASSESSEE-TRUST ON ACCOUNT OF APPLICA TION OF THE FUND FOR CHARITABLE PURPOSE AND FURTHER ON ACCOUNT OF EXPEND ITURE ON CONSTRUCTION OF THE BUILDING WHICH WOULD ALSO BE TREATED AS APPLICATIO N OF INCOME OF THE TRUST DURING THE YEAR. THE LEARNED CIT(A) NOTICED THAT A SUM OF RS.29 15 629/- HAS BEEN FURTHER UTILISED FOR CREATION OF THE CAPITAL A SSET IN WATERSHED PROJECT. THE TOTAL FUND RECEIVED FOR THE PURPOSE WAS RS.31 35 08 5/-. AFTER REWORKING VARIOUS EXPENSES WERE TREATED AS THE EXPENDITURE AP PLIED FOR THE CHARITABLE PURPOSE. ACCORDINGLY THE LEARNED CIT(A) WORKED OU T TOTAL INCOME OF THE TRUST AT RS.22 42 385/- AS UNDER: ITA.NO.2714 AND 2917/AHD/2008 -4- I HAVE CONSIDERED THE SUBMISSIONS AND HAVE PERUSE D THE COPIES OF THE DECISIONS FILED BY THE LD. AR. IT IS SEEN THAT THE APPELLANT HAD RECEIVED TOTAL FOREIGN DONATIONS OF RS.83 82 843/- OUT OF WHICH A SUM OF RS.39 24 553/- WAS UTILISED DURING THE YEAR. IT IS ALSO A FACT THAT T HE LETTERS TOWARDS THE CORPUS OF THE TRUST AND IF ONE GOES STRICTLY BY THE LANGUAGE OF THE SECTION-11(1)(D) OF THE ACT IT IS ONLY CONTRIBUTION WHICH ARE WITH A SPECI FIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST WHICH WOULD BE EXEMPT UNDER THE SAID SECTION HOWEVER IT IS ALSO TRUE THAT THE CORPUS O F THE TRUST HAS TO BE UTILIZED ONLY AND EXCLUSIVELY FOR THE CREATION OF A CAPITAL ASSETS AND CANNOT BE USED FOR REVENUE EXPENDITURE. AS PER THE DECISION OF HON'BLE ITAT AHMEDABAD IN THE CASE OF SANTKABIR SAHBANI GADI. (SUPRA) THE AMOUNTS SPENT FOR CONSTRUCTION OF BUILDING WHICH WOULD FORM PART OF THE CAPITAL OF TH E TRUST WOULD QUALIFY AS HAVING BEEN DONATED TOWARDS THE CORPUS OF THE TRUST . GOING BY THE DEFINITION THE APPELLANT TRUST HAS SPENT THE AMOUNT FOR CREATI NG CAPITAL ASSETS ALTHOUGH THERE WAS NO SPECIFIC DIRECTIONS FROM THE DONOR THA T THE CONTRIBUTION WAS TOWARDS THE CORPUS OF THE FUND. THE HON'BLE ITAT B ANGALORE IN ST. ANN'S HOME 13 TTJ 185 RELIED UPON BY THE ID. AR HAVE A LSO HELD THAT THE CONTRIBUTION RECEIVED FOR THE CONSTRUCTION OF THE B UILDING WOULD CONSTITUTE CORPUS OF THE TRUST. IN THE INSTANT CASE ALSO THE A PPELLANT HAS UNDERTAKEN TWO PROJECTS ONE FOR INTEGRATED DEVELOPMENT PROGRAMME AND OTHER WATERSHED PLAN BOTH OF WHICH ARE FOR CREATION OF CAPITAL ASSE TS AND THEREFORE WOULD FORM CORPUS OF THE TRUST. THEREFORE IRRESPECTIVE OF THE FACT THAT THE DONORS LETTERS DO NOT SPECIFICALLY MENTIONED THAT THE DONATION WAS TO WARDS THE CORPUS OF THE TRUST CAPITAL ASSETS WHICH WERE CREATED OR INVESTM ENT IN SUCH CAPITAL ASSETS WOULD BE ALLOWABLE AS CORPUS OF THE TRUST FROM OUT OF THE TOTAL DONATION RECEIVED. IT IS SEEN THAT THE TOTAL INCOME AS PER C OMPUTATION IS RS.16 92 300/- AND THE TOTAL DONATION RECEIPTS ARE RS.83 82 843/- AND THE AMOUNT ALLOWED BY THE AO AS HAVING BEEN UTILIZED IS RS.44 68 751/- WH ICH LEAVES A BALANCE OF RS.56 06 392/-. OUT OF THIS A SUM OF RS.29 15 629/ - HAS BEEN UTILIZED FOR CREATION OF CAPITAL ASSETS IN WATERSHED PROJECT WHI CH IS 93% OF RS.31 35 085/- WHICH WAS THE FOREIGN CONTRIBUTION IN THE FORM OF T HE DONATION RECEIVED FOR WATERSHED PROJECT (TOTAL BUDGET FOR WATERSHED PROJE CTS WAS RS.78 42 002/- OUT OF WHICH EXPENDITURE TOWARDS CAPITAL ASSETS WORKS O UT TO RS.72 85 474/- WHICH WOULD BE 93%.). IN THE CASE OF CONSTRUCTION PROJECT FOR TRIBAL WELFARE THE ENTIRE AMOUNT OF DONATIONS RECEIVED AT RS.6 08 106/ - IS FOR CREATION OF CAPITAL ASSETS. THEREFORE THE BALANCE AMOUNT WHICH HAS NOT BEEN UTILIZED FOR CREATION OF CAPITAL ASSETS WOULD NOT BE FOR THE PURPOSE OF C ORPUS OF THE TRUST. THE SAID AMOUNT WORKS OUT TO RS.20 82 657/- ONLY. THE INCOME AS PER COMPUTATION OF INCOME AND DONATION INCOME AS WORKED OUT BY THE AO ON PAGE-13 OF THE ASSESSMENT ORDER IS RS.16 92 300/- TO WHICH THE ABO VE AMOUNT OF RS.2082657/- WHICH IS NOT FOR THE CORPUS OF THE TRUST IS TO BE A DDED. THIS WORKS OUT TO RS.37 74 957/-. THE APPELLANT IS ENTITLED TO DEDUC TION OF 15% OF THE SAID AMOUNT WHICH COMES TO RS.5 66 243/-. A FURTHER DED UCTION OF AMOUNT APPLIED TOWARDS THE OBJECTS OF THE TRUST AS COMPARED BY THE AO AT RS.9 66 329/- IS TO BE ALLOWED O THE APPELLANT. IN VIEW OF THIS THE T OTAL INCOME OF THE TRUST WOULD WORK OUT TO RS.22 42 385/-. ITA.NO.2714 AND 2917/AHD/2008 -5- 6. WE HAVE HEARD LEARNED AR AND THE LEARNED DR. IN OUR CONSIDERED VIEW THERE IS NO NEED FOR INTERFERENCE IN THE ORDER PASS ED BY THE LEARNED CIT(A). REASONS ARE THAT ONCE THERE IS NO SPECIFIC DIRECTIO N BY THE DONORS TO TREAT THE DONATIONS AS FOR THE CORPUS OF THE TRUST THEY CANN OT BE TAKEN OUT OF TOTAL INCOME OF THE ASSESSEE-TRUST. HOWEVER THE LEARNED AO AS WELL AS LEARNED CIT(A) HAVE GIVEN A FINDING THAT THE FUNDS RECEIVED AS FOREIGN CONTRIBUTION HAVE BEEN PARTLY UTILIZED FOR CHARITABLE PURPOSE AND PARTLY UTILIZED FOR CREATION OF CAPITAL ASSET. THE OBJECTION OF THE LEARNED DR IS THAT ONCE THERE IS NO SPECIFIC DIRECTION FROM THE DONORS TO KEEP THE DONATIONS FOR THE CORPUS OF THE TRUST THEY HAVE TO BE TREATED AS INCOME AND NO DEDUCTION THEREFROM CAN BE ALLOWED PARTLY IN RESPECT OF THE EXPENDITURE INCURRED ON CAPITAL PROJECT. IN OUR CONSIDERED VIEW THIS PROPOSITION OF THE LEARNED DR IS NOT ACCEPTABLE. T HE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS RADHASWAMI SATSANG SABHA (ALL) 25 ITR 472 HELD THAT APPLIED DOES NO T NECESSARY MEAN SPENT. SIMILAR VIEW WAS EXPRESSED BY HONBLE ANDHRA PRADES H HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS NIZAMS CHARITABLE TRUST (TRUSTEES OF H.E.H.) (AP) 131 ITR 497 (AP). THE HONBLE MADR AS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS KANNIKA PARAM ESWARI DEVASTHANAM AND CHARITIES 133 ITR779 HELD THAT THE APPLICATION CAN BE ON CAPITAL PURPOSE ALSO. AS FAR AS OBJECTS OF THE TRUSTS ARE CONCERNED THE APPLICATION OF THE AMOUNT CAN BE FOR REVENUE OR CAPITAL PURPOSE. SO LONG AS THE EXPENDITURE IS INCURRED OUT OF THE INCOME EARNED BY THE TRUST EVEN IF SUCH EXPENDITURE IS FOR CAPITAL PURPOSES ON THE OBJECTS OF THE TRUST THE INCOME WO ULD BE EXEMPT. HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF IN COME-TAX VS INSTITUTE OF BANKING (BOM) 264 ITR 110 HELD THAT THE CAPITAL E XPENDITURE ON ACQUISITION OF ASSET IS ALLOWABLE AS DEDUCTION. WE THEREFORE D O NOT FIND ANY MERIT IN THE ARGUMENTS RAISED BY THE REVENUE AND ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA.NO.2714 AND 2917/AHD/2008 -6- 7. SO FAR AS THE ASSESSEES APPEAL IS CONCERNED WE NOTICE THAT NO MATERIAL IS PUT UP BEFORE US SO AS TO SHOW THAT THE ASSESSEE HAS SPENT OR APPLIED MORE THAN WHAT HAS BEEN FOUND BY THE LEARNED CIT(A). AC CORDINGLY THERE BEING NO DEFECT IN THE FINDING OF THE LEARNED CIT(A) WE DECL INE TO INTERFERE. 8. SECOND GROUND RAISED BY THE ASSESSEE CANNOT BE A DJUDICATED BECAUSE IT WAS NOT PRESSED BY THE ASSESSEE BEFORE THE LEARNED CIT(A). ACCORDINGLY WE ALSO DO NOT FIND ANY MERIT IN THE APPEAL FILED BY T HE ASSESSEE. 9. IN RESULT BOTH THE APPEALS OF THE ASSESSEE AS W ELL AS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH DECEMBER 2010. SD/- SD/- (BHAVNESH SAINI ) JUDICIAL MEMBER (D.C. AGRAWAL) ACCOUNTANT MEMBER PLACE : AHMEDABAD DATE : 30-12-2010 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD