M/s Orissa Forstry Sector Development Society, Bhubaneswar v. ITO, Bhubaneswar

ITA 465/CTK/2010 | 2007-2008
Pronouncement Date: 21-01-2011

Appeal Details

RSA Number 46522114 RSA 2010
Assessee PAN AAAAO0926C
Bench Cuttack
Appeal Number ITA 465/CTK/2010
Duration Of Justice 23 day(s)
Appellant M/s Orissa Forstry Sector Development Society, Bhubaneswar
Respondent ITO, Bhubaneswar
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 21-01-2011
Assessment Year 2007-2008
Appeal Filed On 29-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK () BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 465/CTK/2010 / ASSESSMENT YEAR 2007 - 08 M/S.ORISSA FORESTRY SECTOR DEVELOPMENT SOCIETY SEMINAR BLOCK NEAR GATE CHOWK GHATIKIA BHUBANESWAR 751 003 PAN: AAAAO 0926 C - - - VERSUS - INCOME - TAX OFFICER WARD 2(2) BHUBANESWAR ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI S.C.BHADRA/BIBEK MOHANTY ARS / FOR THE RESPONDENT: / SHRI S.K.DASH DR / ORD ER . . SHRI K.K.GUPTA ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE BEING WHOLLY OWNED GOVERNMENT OF ORISSA UNDERTAKING REGISTERED AS A SOCIETY AGITATES ACTION OF THE AUTHORITIES BELOW CONFIRMING DISALLOWANCE AND ADDITIO NS INASMUCH AS THE ASSESSING OFFICER HAS DISALLOWED CERTAIN EXPENSES THOUGH NOT CLAIMED WERE APPEALED AGAINST BEFORE THE LEARNED CIT(A) WERE ENHANCED BUT ON ACCOUNT OF AN ENTIRELY DIFFERENT IDEOLOGY WHEN THE GRANT - IN - AID CREDITED IN THE EXPENDITURE ACCOUN T WAS TO BE SUBJECTED TO TAX AS THE ASSESSEE HAD FILED RETURN CLAIMING EXEMPTION U/S.11 AND HAD NOT SOUGHT REGISTRATION U/S.12AA OF THE INCOME - TAX ACT 1961. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE APPELLANT SOCIETY HAD BEEN CREATED AS PER THE RESOLUTION DATED.14.06.2006 OF FOREST AND ENVIRONMENT DEPARTMENT GOVERNMENT OF ORISSA AND IS AN AUTONOMOUS ORGANIZATION UNDER THE ADMINISTRATIVE CONTROL OF THE GOVERNMENT OF ORISSA / I.T.A.NO. 465/CTK/2010 2 FOREST & ENVIRONMENT DEPARTMENT. IT HAS ITS AIMS AND OBJECTS TO IMPLEMENT ORISSA FORESTRY SECTOR DEVELOPMENT PROJECT FOR IMPROVING ENVIRONMENT THROUGH RESTORATION OF FOREST AND ALLEVIATE POVERTY BY IMPROVING THE INCOME LEVEL OF THE VILLAGERS THROUGH SUSTAINABLE FOREST MANAGEMENT AND COMMUNITY DEVELOPMENT PROGRAMME. A LOAN AGREEMENT WAS EXECUTED FOR ORISSA FORESTRY SECTOR DEVELOPMENT PROJECT BETWEEN JAPAN BANK FOR INTERNATIONAL CO - OPERATION AND PRESIDENT OF INDIA ON 31ST MARCH 2006 WHEREIN IT WAS AGREED THAT THE BANK AGREED TO LEND THE BORROWER AN AMOUNT NOT EXCEEDING THIRTEEN BILLION NINE HUNDRED THIRTY SEVEN MILLION JAPANESE YEN (13 937 000 000) ( 559.70 CRORES) AS PRINCIPAL FOR THE IMPLEMENTATION OF THE ORISSA FORESTRY SECTOR DEVELOPMENT PROJECT DESCRIBED IN SCHEDULE - I ATTACHED THERETO ON THE TERMS AND CONDITIONS SET FORTH IN THE LOAN AGREEMENT AND IN ACCORDANCE WITH THE RELEVANT LAWS AND REGULAT IONS OF JAPAN PROVIDED HOWEVER THAT WHEN THE CUMULATIVE TOTAL OF DISBURSEMENTS UNDER THE LOAN AGREEMENT REACHES THE SAID LIMIT THE BANK SHALL MAKE NO FURTHER DISBURSEMENT. KEEPING AN EYE WITH THE ABOVE THE FOREST AND ENVIRONMENT DEPARTMENT IN ITS GAZET TE THROUGH RESOLUTION DTD.L4TH JUNE 2006 PUBLISHED FOR THE CONSTITUTION OF ORISSA FORESTRY SECTOR DEVELOPMENT SOCIETY FOR ORISSA FORESTRY SECTOR DEVELOPMENT PROJECT. AND ACCORDINGLY THE APPELLANT SOCIETY WAS REGISTERED UNDER THE SOCIETIES REGISTRATION ACT . 1860 ON 5 TH JULY 2006 ITS MEMBERS BEING SENIOR GOVERNMENT OFFICIALS. THE APPELLANT SOCIETY HAS BEEN FORMED BY THE STATE GOVERNMENT TO IMPLEMENT THE ORISSA FORESTRY SECTOR DEVELOPMENT PROJECT ITS SOURCE OF RECEIPT AND ACTIVITIES BEING RESTRICTED TO THAT OF THE STATE GOVERNMENT AND ITS MANDATED ASSIGNMENT RESPECTIVELY. FOR THE IMPLEMENTATION OF THE PROJECT SPREAD OVER A PERIOD OF SIX YEARS (2006 - 07 TO 2012 - 13 ) THE TOTAL PROJECT COST HAS BEEN WORKED OUT AT 659.80 CRORES; OF WHICH 559.70 CRORES HAS BEEN AGREED TO BE CONTRIBUTED BY THE JBIC AS / I.T.A.NO. 465/CTK/2010 3 LONG TERM LOW INTEREST BEARING LOAN AND BALANCE AMOUNT BY THE GOVERNMENT TOWARDS ADMINISTRATIVE EXPENSES SINCE GOVERNMENT OFFICIALS WERE INVOLVED. THE OBJECTIVE BEHIND BORROWING FORMATION OF SOCIETY UNDER ITS CONTROL ETC CAN BROADLY BE ANALYZED AS FOLLOWS: RESTORATION OF DEGRADED FORESTS COASTAL PLANTATION. BIO - DIVERSITY MANAGEMENT COMMUNITY I TRIBAL DEVELOPMENT ETC. WITH THE PROJECT OUTPUT AIMED AT AFFORESTATION OF DEGRADED FORESTS PROVIDING ALTERNATIVE SUSTAINABLE LIVELIHOOD TO THE POORS LIVING AROUND FOREST. CONTROLLING TIDE WATER AND CYCLONE THROUGH PLANTATION OF MANGROVES AND CASUARINA TREES CREATION OF NATIONAL WEALTH IN FORM OF FOREST AND CLEAN ENVIRONMENT. FO R THIS PURPOSES THE GOVERNMENT RELEASES FUND TO THE APPELLANT SOCIETY BASED ON BUDGETARY REQUIREMENT APPROVED BY THE HIGH POWER COMMITTEE CHAIRED BY THE CHIEF SECRETARY OF THE STATE. FOR IMPLEMENTING THE PROJECT ALSO THROUGH GOVERNING BODY PMU DMU AND F MU GOVERNMENT OFFICIALS STARTING FROM THE RANK OF ADDITIONAL CHIEF SECRETARY - CUM - AGRICULTURAL PRODUCTION COMMISSIONER PRINCIPAL SECRETARY DEPARTMENT OF FOREST AND ENVIRONMENT TO THE RANK OF RANGERS AND FORESTERS ARE INVOLVED. THE SOCIETY VOLUNTARILY FIL ED ITS RETURN OF INCOME FOR THE YEAR UNDER APPEAL ON 30TH OCTOBER 2007 BEFORE THE INCOME TAX AUTHORITIES DISCLOSING TOTAL INCOME OF NIL BY CLAIMING EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT 1961 IN ANTICIPATION OF 12AA REGISTRATION. IN RESPONSE TO NOTICE FOR SCRUTINY THE APPELLANT SOCIETY APPEARED THROUGH AUTHORISED REPRESENTATIVE AND CLARIFIED ON VARIOUS QUERIES / I.T.A.NO. 465/CTK/2010 4 AND THE LEARNED ASSESSING OFFICER WAS APPARENTLY SATISFIED ON THE SUBMISSIONS. HE ADDED SURPLUS APPEARING IN INCOME & EXPENDITURE ACCO UNT TO THE TUNE OF 1901768.00 SINCE THE SOCIETY WAS NOT GRANTED REGISTRATION UNDER SECTION 12A OF THE INCOME TAX ACT 1961. HE ALSO MADE DISALLOWANCE OF EXPENSES AMOUNTING TO 1001235.00 UNDER SECTION 40(A)(IA) FOR NON - DEDUCTION OF TAX AT SOURCE AND ADDED 50 000.00 AS OT HER INCOME. THE LEARNED CIT(A) TOOK COGNIZANCE OF THE VARIOUS ISSUES BEFORE HIM WHICH INTER ALIA CONSIDERED THE NON - REGISTRATION OF THE SOCIETY UNDER THE PROVISIONS OF SECTION 12A. THE AMOUNT OF 12 CRORES SHOWN AS GRANT - IN - AID IN CREDIT SIDE OF THE INCOM E AND EXPENDITURE WAS TO BE UTILIZED IN ACCORDANCE WITH THE OBJECTS OF THE SOCIETY WHICH WAS CREATED AFTER THE AID AT LOW RATE OF INTEREST WAS ENTERED INTO BETWEEN THE JAPAN BANK FOR INTERNATIONAL CO - OPERATION AND THE PRESIDENT OF INDIA HAD BEEN DOCUMENTED ALLOCATING THE FUND OF THE ORISSA GOVERNMENT WHO ARE TO PARTICIPATE IN THE SAME AS PER THE OBJECTS OF THE SOCIETY. THE ONLY QUESTION THEREFORE THE LEARNED CIT(A) EMBROILED HIMSELF WAS WHETHER THE AMOUNT OF LOAN DISBURSED TO THE ORISSA GOVERNMENT THROUGH THE COFFERS OF THE PRESIDENT OF INDIA WAS A VOLUNTARY CONTRIBUTION AS NOTED IN SECTION 2(24)(IIA) TO BE CONSIDERED EXEMPTION U/S.10 OF THE I.T.ACT 1961. THE LEARNED CIT(A) THEREAFTER PROCEEDED TO CONSIDER THE NON - GRANT OF REGISTRATION FOR CLAIMING EXEMPTI ON U/S.11 WHEN AFTER HAVING FOUND NO SPECIFIC CLAIM TO THAT SCORE PROCEEDED TO CONSIDER THE GRANT - IN - AID OF 12 CRORES IN THE IMPUGNED ASSESSMENT YEAR WHETHER COULD BE SUBJECTED TO TAX AS INCOME IN THE HANDS OF THE ASSESSEE IRRESPECTIVE OF THE FACT THAT IT NEITHER HAD CLAIMED EXEMPTION U/S.11 NOR SOUGHT REGISTRATION U/S.12AA. THEREAFTER HE PROCEEDED TO ANALYZE T HE OBJECTS OF THE SOCIETY VIS - - VIS AN OBJECT WHICH CAN BE PURSUED IN SUCH CASE WHICH JUDICIAL PRONOUNCEMENTS THAT HE NOTED IN HIS ORDER. HE CONFIRMED THE ADDITION TO BE TAXED BEING THE AMOUNT OF GRANT - IN - AID OF 12 / I.T.A.NO. 465/CTK/2010 5 CRORES AND ON THE AMOUNT OF INTEREST BE ING INTEREST ON FIXED DEPOSITS AMOUNTING TO 19 20 650. 3. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENT SUBMITTED THAT BOTH THE AUTHORITIES HAVE CONTRAVENED THE VERY FINDING OF FACTS BY EACH OTHER AS CAN BE PERUSED IN THEIR ORDERS THE ASS ESSING OFFICER DETERMINES EARNING OF INTEREST IS THE MAIN BUSINESS OF THE SOCIETY AND THE LEARNED CIT(A) ON THE OTHER HAND ENHANCED THE INCOME TO THE EXTENT OF CONSIDERING THE GRANT - IN - AID RECEIVED FROM GOVERNMENT OF ORISSA AS INCOME OF THE SOCIETY WHICH R EMAINED WITH THE SOCIETY FOR A PARTICULAR PURPOSE INDICATING THAT THE INCOME AND EXPENDITURE ACCOUNT WAS SPECIFICALLY DRAWN TO INDICATE THE UTILISATION OF THE FUND IRRESPECTIVE OF THE ASSESSEE CLAIMING EXEMPTION U/S.11 OR HAVING BEEN DENIED REGISTRATION U /S.12A. THE ASSESSEE HAD ACTUALLY FILED THE RETURN FOR CLAIMING REFUND OF TAX DEDUCTED AT SOURCE ON THE INTEREST INCOME INSOFAR AS IRRESPECTIVE OF THE STATUS OF THE ASSESSEE THE TAX DEDUCTED AT SOURCE COULD NOT BE GIVEN A CREDIT AGAINST DISALLOWANCE SO CON SIDERED BY THE ASSESSING OFFICER TOTALING 29 53 000 WHICH WAS OTHERWISE VIEWED BY THE LEARNED CIT(A) AS THE VERY GRANT - IN - AID TO BE TAXED IN THE HANDS OF THE ASSESSEE BEING A LEGAL ENTITY AND HAVING DEVIATED ON THE PORTION OF THE FUND BY THE ORISSA GOVERNMENT TO A NEW ENTITY ESTABLISHED FOR A S PECIFIC PURPOSE AND FOR A SPECIFIC PERIOD. 4. MEANWHILE HE PREFERRED TO POINT OUT THE OBJECTION OF THE LEARNED DR SEEKING APPROVAL FROM THE HIGH POWER COMMITTEE ON DISPUTES ON THIS SCORE BY STATING THAT THE ASSESSEE IS WHOLLY OWNED UNDERTAKING OF GOVERNME NT OF ORISSA WOULD NOT HAVE APPEALED IF IT HAD NOT APPROVED ITSELF FOR PURSUING THE / I.T.A.NO. 465/CTK/2010 6 SAME WHEN THE CHIEF SECRETARY OF THE GOVERNMENT OF ORISSA IS NECESSARILY A PART OF THE COMMITTEE ON DISPUTES IF ANY. HE SUBMITTED THAT THE HONBLE APEX COURT WAS APPRISED OF THE SITUATION WHE THER THE STATE GOVERNMENT UNDERTAKING S ARE TO FORM A COMMITTEE ON DISPUTES WHO ARE TO GET REDRESSAL OF THEIR APPEALS UNDER THE INCOME - TAX AT AND OTHER CENTRAL TAXATION MAT T ERS WHICH MAY KINDLY BE CONSIDERED IN SO FAR AS THIS APPEAL BY T HE GOVERNMENT OF ORISSA UNDERTAKING IS BY A SOCIETY WHOSE GOVERNING MEMBERS ARE NECESSARILY A PART OF COMMITTEE ON DISPUTES IF AT ALL BROUGHT INTO EXISTENCE AND THAT DISCRETION BE LEFT TO THE JUDGMENT OF THE BENCH. 5. HE SUBMITTED A PAPER BOOK WHICH INTER ALIA EXPLAINED VARIOUS FACTS SUPPORTED BY DOCUMENTS AS MENTIONED ABOVE. HE HAS ALSO NOTED THAT THE UTILISATION OF THE FUND SO DIVERTED HAVE BEEN SPECIFICALLY SPENT FOR THE PURPOSE WHICH THEY HAVE BEEN DISBURSED. HE ALSO SUBMITTED THAT THE ACCOUNTS OF THE SOCIETY ARE SUBJECT TO VERIFICATION BY THE REPRESENTATIVE OF JAPAN BANK FOR INTERNATIONAL CO - OPERATION CAG AND T HE AG OF THE STATE. THE AUDITOR HAS CERTIFIED THE UTLISATION IN THE FORM OF INCOME AND EXPENDITURE ACCOUNT AND HAS INDICATED THE AMOUNT OF SURP LUS REMAINING UNUTILIZED AS UNSPENT GRANT - IN - AID WHICH IN NO CIRCUMSTANCES CAN BE CONSIDERED AS S EED CAPITAL TO FORM PART OF THE CORPUS AS VISUALIZED BY THE LEARNED ASSESSING OFFICER OR THE LEARNED CIT(A). HE SUBMITTED THAT BOTH THE AUTHORITIES HAVE FOUND IN FAULT IN THE DISBURSEMENT OF GRANT - IN - AID IN ACCORDANCE WITH THE GAZETTE D OBJECTS OF THE SOCIETY WHOLLY FORMED BY THE GOVERNMENT OF ORISSA BY ITS REPRESENTATIVE IN THE VARIOUS OFFICES INCLUDING THAT OF THE CHIEF SECRETARY TO THE GOVERNMENT OF ORISSA. I N ANY CASE HE SUBMITTED THAT THE VARIOUS ACQUISITIONS OF ASSETS AND EXPENSES ARE SUBJECT TO VERIFICATION BY THE GOVERNMENT AUDITORS THEREFORE / I.T.A.NO. 465/CTK/2010 7 COULD NOT BE CONSIDERED AS NOT INCURRED FOR THE OBJECTS OF THE SOCIETY WHICH HAS BEEN MISINTERPRETED AS NOT UTILI ZED FOR THE PURPOSE OF ASSESSEES ACTIVITIES. 6. CONCLUDING HIS ARGUMENT HE SUBMITTED THAT BOTH THE LOWER AUTHORITIES HAVE SUPPLEMENTED EACH OTHERS OBSERVATION WITH RESPECT TO THE CLAIM OF THE ASSESSEE BY LEANING THE ISSUE IN ASSESSEES FAVOUR ON FACTS IN SO FAR AS HAVING ACCEPTED THAT THE GRANT - IN - AID WAS RECEIVED FROM THE GOVERNMENT AND WAS LYING IN THE BANK WHICH EARNED INTEREST UNDER NO CIRCUMSTANCE COULD BE CONSIDERED AS TAXABLE IN THE HANDS OF THE ASSESSEE WHEN THE GIVER AND TAKER ARE BOTH THE SAM E NAMELY THE GOVERNMENT OF ORISSA. THE LEARNED CIT(A) THEREFORE RELYING ON ASSESSEES DENIAL TO EXEMPTION U/S.11 OR NON - REGISTRATION U/S.12A HAS ONLY RESULTED IN CRYSTALIZING THE ISSUE IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT THE ASSESSING OFFICER WAS APPRISED THAT GRANT - IN - AID WAS NOT THE INCOME TO BE CONSIDERED FOR TAXABILITY AND ONLY THE EXCESS OF INCOME OVER EXPENDITURE COULD BE TAXED WHICH HE TAXED BY MAKING DISALLOWANCE AND NOTING THAT THE TOTAL AMOUNT TAXABLE IN THE HANDS OF THE ASSESSEE COULD BE ONLY 29.53 LAKHS. AS AGAINST THIS THE LEARNED CIT(A) DID AWAY WITH THE UTILISATION AND SOUGHT TO TAX THE VERY GRANT - IN - AID HOLDING THAT THE GRANT - IN - AID WAS TAXABLE IN VIEW OF THE ASSESSEE NOT RECEIVING VOLUNTARY CONTRIBUTION AS INSCRIBED IN SECTION 2( 24)(IIA). FOR THIS PURPOSES HE RELIED ON THE DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF NIRMAL AGRICULTURAL SOCIETY WHEN UNDER IDENTICAL CIRCUMSTANCES THE GRANTS EARMARKED FOR A PARTICULAR PURPOSE BEING IN ACCORDANCE WITH THE CHARITABLE PURPOSE HAS PROPOUNDED BY THE GOVERNMENT OF INDIA AND THE GOVERNMENT OF ORISSA MAY NOT BE FORMING PART OF CORPUS OF THE ASSESSEE WHICH IS ONLY ACTING AS AN INDEPENDENT TRUSTEE TO / I.T.A.NO. 465/CTK/2010 8 THE GRANT TO BE TAXED IN THE HANDS OF THE ASSESSEE. HE HAS FURNISHED THE COPIES OF JUDICIAL PRONOUNCEMENTS IN THE CASE OF SUKHDEO CHARITY ESTATE V. CIT (149 ITR 470) WHEREIN UNDER SIMILAR CIRCUMSTANCES FUNDS RECEIVED TO CARRY ON THE ACTIVITIES OF THE ASSESSEE TRUST COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE BY APPLYING THE PROVISIO NS OF SECTION 12(2) AND IN THE CASE OF LITTLE TRADITION V. DEPUTY DIRECTOR OF INCOME - TAX (EXEMPTION ) [2009] 119 ITD 127 (DELHI) AN UNCONDITIONAL SANCTION IN GRANT - IN - AID CANNOT BE CONSIDERED FOR THE STIPULATION THAT 75% THEREOF OUGHT TO HAVE BEEN SPENT PRI OR TO CONSIDERING THE EXCESS FOR TAXATION IRRESPECTIVE OF ASSESSEE CLAIMING EXEMPTION U/S.11 OR IN THE STATUS OF THE AOP. HE POINTED OUT THAT THE APPELLANT ASSESSEE HAD NOT EXERCISED ANY OPTION AS VISUALIZED BY THE AUTHORITIES BELOW THEREFORE CLEARLY INDIC ATED THAT THE GRANT - IN - AID RECEIVED FROM THE GOVERNMENT WAS VOLUNTARY BEING SUBJECT TO CERTAIN CONDITIONS WAS NOT TO BE EQUATED WITH THE TAX AUTHORITIES DETERMINING THAT THE SAME WAS RECEIVED AS A MATTER ON CONSIDERATION TO BE TAXED AS INCOME. ALL THE DOCU MENTS RIGHT FROM THE JAPAN BANK FOR INTERNATIONAL CO - OPERATION AND THE PRESIDENT OF INDIA WAS ALLOCATED TO THE ORISSA GOVERNMENT IN ACCORDANCE WITH THE SAME AND WAS DULY NOTIFIED BY THE GAZETTE PUBLICATION. 7. THE LEARNED DR SUBMITTED THAT THE ASSESSEE IS TRYING TO CLAIM JUSTIFICATIO NTO THE ERRORS COMMITTED BY IT BY INDICATING THAT THE GRANT - IN - AID WAS INCOME WHICH IT OUGHT TO HAVE RENDERED FOR ASSESSMENT EITHER AFTER GETTING I TSELF REGISTERED U/S.12A AND ON FILING THE RETURN SEEKING EXEMPTION U/S.11. THE AUTHORITIES BELOW THEREFORE ARE WITHIN THEIR JURISDICTION TO BRING OUT THE CLARITY OF FACT INSOFAR AS THE ASSESSING OFFICER WHO HAVING OBSERVED THAT THE ASSESSEES OBJECT WAS NOT CHARITABLE OR COMPLYING TO THE CLAIM FOR REGISTRATION U/S.12A SOUGHT TO TAX EXPENSES WHICH ARE NOT ALLOWABLE AS PER / I.T.A.NO. 465/CTK/2010 9 THE PROVISIONS OF THE ACT. THE LEARNED CIT(A) ON THE OTHER HAND AFTER HAVING CONSIDERED VARIOUS FACTS AS REITERATED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE TRIBUNAL DEEMED IT FIT TO TAX THE GRANT - IN - AID WHICH WAS SHOWN IN THE RECEIPTS AND PAYMENTS ACCOUNT AND THE UNUTILIZED PORTION AMOUNTING TO APPROXIMATELY 8 CRORES WAS SHOWN AS UNSPENT GRANT - IN - AID COULD NOT BY ANY STRETCH OF IMAGINATION BE TAXED IN THE SUBSEQUENT YEAR. THE INTEREST INCOME BEING ON FUNDS DEPOSITED IN THE BANK THEREFORE WAS LEGITIMATELY TAXED BY THE LEARNED ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT YEAR WHICH MAY BE CONSIDERED. THE LEARNED COUNSELS INSISTENCE THAT IRRESPECTIVE OF THE STATUS OF THE ASSESSEE NOT CLAIMING EXEMPTION U/S.11 OR FOREGOING THE REGISTRATION U/S.12A DOES NOT DILUTE THE FACT INSOFAR AS THE GOVERNMENT OF ORISSA HAVING RECEIVED THE FUNDS WAS TO INDICATE WHETHER THE FUNDS RECEIVED FROM JAPAN BANK FOR INTERNATIONAL CO - OPERATION WERE ULTIMATELY BE UTILIZED IN A CCORDANCE WITH THE EXPENDITURES INCURRED TO BE ALLOWABLE FOR SUCH SPECIFIC PURPOSES UNDER THE PROVISIONS OF THE I./T.ACT 1961.THE LEARNED CIT(A) THEREFORE ON THE FINDING OF FACT DISTINGUISHED AS THE CASE - LAWS CITED BY THE LEARNED COUNSEL WERE ALSO BEFORE THE LEARNED CIT(A) TO HOLD THAT THE SAME COULD BE CONSIDERED HAD THE ASSESSEE CLAIMED REGISTRATION/S.12A WHETHER COULD BE IDENTIFIED AS VOLUNTARY CONTRIBUTION UNDER THE PROVISIONS OF SECTION 2(24)(IIA). HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELO W FOR HIS PART SUBMISSIONS. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS AND CIRCUMSTANCES WE ARE INCLINED TO HOLD THAT THE AUTHORITIES BELOW HAVE MISINTERPRETED NOTICING THE AS SESSEES TRANSACTIONS ADVERSELY TO THE DETRIMENT OF THE ASSESSEE WHEN IT HAS BEEN CATEGORICALLY ESTABLISHED BEYOND DOUBT THAT THE FUNDS SANCTIONED / I.T.A.NO. 465/CTK/2010 10 BY THE PRESIDENT OF INDIA ON AID PROVIDED BY JAPAN BANK FOR INTERNATIONAL CO - OPERATION WAS TO BE IDENTIFIED AND EARMARKED FOR THE GOVERNMENT OF ORISSA WHICH ACT BY THE GOVERNMENT OF ORISSA WAS TO ESTABLISH A SOCIETY FOR THE SPECIFIC PURPOSES TO BE CARRIED OUT FOR THE RECEIPT OF THE GRANT - IN - AID. IT IS VERY CLEAR THEREFORE THAT THE GRANT CAME FIRST AND THE SOCIET Y WAS REGISTERED LATER FOR THE SPECIFIC PURPOSE FOR UTILISATION OF THE SAID GRANT. THE GIVER AND TAKER COULD NOT BE THE SAME PERSON FOR TAXATION. THE AUTHORITIES BELOW HAVE NOT IDENTIFIED THE INCOME PORTION EITHER BY DISALLOWING EXPENDITURE WHICH WAS IN FA CT THE UTILISATION OF THE GRANT - IN - AID RECEIVED IN ACCORDANCE WITH THE PROVISIONS OF THE OBJECT CLAUSES DULY GAZETTE D AND NOTIFIED BY THE GOVERNMENT OF ORISSA AND THE ACQUISITION OF ASSETS ON WHICH VARIOUS EXPENDITURES HAVE BEEN INCURRED WAS NOT PART AND P ARCEL OF THE GRANT - IN - AID LEAVING THE RESIDUAL OF UNUTILIZED GRANT DURING THE IMPUGNED YEAR THEREFORE COULD BE TAXED IN THE YEAR OF RECEIPT ONLY. THE ASSESSEE HAD NOT APPLIED FOR REGISTRATION U/S.12A ON TIME AND THE RETURN WAS FILED CLAIMING EXEMPTION U/S. 11 WHICH THE ASSESSING OFFICER OBSERVED AS NOT AVAILABLE TO THE ASSESSEE. THE LEARNED CIT(A) IMPOUNDED THE GRANT RECEIVED AS DONATION INCOME TO BE TAXED BY ENHANCING NOT WHAT THE ASSESSING OFFICER HAS DETERMINED BUT ENTIRELY ON DIFFERENT PROPOSITION. THE F UNDS HAVE BEEN PARKED IN THE BANK IN THE FORM OF FIXED DEPOSITS TO BE UTILISED AS AND WHEN TIME APPROACHES WHICH THE LEARNED CIT(A) HAS HELD AS INCOME INCIDENTAL TO THE ASSESSEE RECEIV ING GRANT - IN - AID FOR TAXATION. CONFINING OURSELVES TO THE BONE CONTENTION IN THE MIND OF THE AUTHORITIES BELOW OF THE ASSESSEE HAVING NOT SOUGHT EXEMPTION U/S.12A WE ARE INCLINED TO ADJUDICATE ON THE OBSERVATION OF THE ASSESSING OFFICER AND CIT(A) SIMULTANEOUSLY WHICH ONLY WOULD CLARIFY THE FACT S INSTEAD OF THEIR COMBINED NOTINGS . EVEN WHEN THE ASSESSEE IS TO BE ASSESSED AS AOP CAN HE BE DEPRIVED OF SECTION 11 BENEFITS TH E ASSESSING OFFICER W OULD ASSESS / I.T.A.NO. 465/CTK/2010 11 ONLY NET INCOME OF THE ASSESSEE AND NOT GROSS RECEIPTS WHICH THE LEARNED CIT(A) PROPOSED BY T OTALLY FOREGOING THE CLAIM OF UTILISATION OF THE GRANT IN ACCORDANCE WITH THE OBJECTS OF THE SOCIETY AND ON THE DIRECTION TO THE DONER OF THE GRANT. THE ASSESSEE HAD BEEN CARRYING OUT THE ACTIVITIES OF FOREST DEVELOPMENT AND COSTAL AFFORESTATION ACTIVITIES . THE GOVERNMENT WAS EMPOWERED TO NOMINATE THE MEMBERS OF THE SOCIETY WHO ARE EX - OFFICIO SENIOR OFFICERS OF THE GOVERNMENT OF ORIS SA AND THEREFORE APPROVED TO PROCEED AGAINST THE ASSESSMENT SO FRAMED WAS IN ITSELF GRANT HAVING BEEN AUTHORISED BY THE ASSES SEE SOCIETY BY ITS CHIEF SECRETARY TO THE GOVERNMENT OF ORISSA. THE FUNDS AND ASSISTANCE HAVE COME FROM THE GOVERNMENT AND THEREFORE OWN FUNDS CANNOT BE TAXED AS INCOME OF THE OWNER. AMENDMENTS TO LAW COULD BE DONE ONLY BY THE APPROVAL OF THE GOVERNMENT AN D THEREFORE THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SOCIETY EXISTED INDEPENDENT OF THE GOVERNMENT CONTROL WAS PURELY OUT OF CONTEXT. THE SANCTION BY THE HONBLE PRESIDENT OF INDIA FOR DISTRIBUTION BY GOVERNMENT OF ORISSA INVOLVES VARIOUS AUTHORITIES TO IMPLEMENT THE OBJECTS OF THE ASSESSEE WAS AFTER INCURRING EXPENDITURE AS APPROVED BY JAPAN BANK FOR INTERNATIONAL CO - OPERATION AND GOVERNMENT OF ORISSA. WITH SO MANY STIPULATIONS FOR THE UTILISATION THEREFORE EVEN THE INTEREST WAS SOUGHT TO BE CONSIDERE D AS GRANT - IN - AID AVAILABLE TO THE ASSESSEE FOR UTILISATION OF ITS OBJECTS KNOWING FULLY WELL THAT THE GOVERNMENT OF ORISSA WAS ANSWERABLE TO THE CAG AND AG OF ORISSA ON BEHALF OF THE PRESIDENT OF INDIA. THE LEARNED CIT(A) THEREFORE MISPLACED THE FACTS BY APPLYING THE VARIOUS JUDICIAL PRONOUNCEMENT WHICH WE ARE INCLINED TO HOLD HAVE BEEN PROPERLY DEALT WITH BY SUBMISSIONS OF THE LEARNED COUNSEL BEFORE US AND IT WILL BE A FUTILE EXERCISE TO RECAPITULATE THE SAME AT THIS JUNCTURE ONCE THE CONFUSION UPHOLD ING THE SAME IS TOTALLY DONE AWAY WITH. / I.T.A.NO. 465/CTK/2010 12 9. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE SOCIETY IRRESPECTIVE OF FAILING REGISTRATION/S.12A WHETHER COULD BE TAXED ON THE GRANT - IN - AID SO RECEIVED FROM THE GOVERNMENT OF ORISSA COULD BE SUBJECT ED TO THE INCOME - TAX APPEARS TO BE A FAR - FETCHED EXERCISE BY THE LEARNED CIT(A) IN SO FAR AS FUNDS OF AN AUTHORITY CANNOT BE TAXED I N ACCORDANCE WITH AN ACT TO TAX EXPENDITURE WHICH THE LEARNED CIT(A) APPEARS TO HAVE APPLIED. SIMILARLY THE INTEREST EARNED ON BANK DEPOSITS BEING PART OF GRANT - IN - AID HAS BEEN EARMARKED BY THE GOVERNMENT OF ORISSA AS PART OF THE LOAN DISBURSEMENT IN ACCORDANCE WITH THE GAZETTE NOTIFICATION THEREFORE HAS BEEN IDENTIFIED TO BE REPAID CANNOT BE TAXED IN THE IMPUGNED ASSESSMENT YE AR. IN VIEW THEREOF THE INCOME SO ENHANCED TO 12 90 20 652 UNDER THE PROVISIONS OF SECTION 251(2) OF THE I.T.ACT 1961 IS DIRECTED TO BE DELETED AND EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER UNDER VARIOUS PROVISIONS AND CONTENTION AS NOTED BY HIM O N ACCOUNT OF ASSESSEE NOT SEEKING REGISTRATION U/S.12A IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME - TAX ACT 1961 IS DIRECTED TO BE DELETED IN SO FAR AS IT HAS BEEN SUBMITTED THAT THE SOCIETY HAS APPLIED REGISTRATION U/S.12A WHICH APPLICATION IS PENDING WITH THE COMMISSIONER OF INCOME TAX IS TO BE PERSUADED WITH IN ACCORDANCE WITH HIS DIRECTION. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 21 ST JANUARY 2011 SD/ - SD/ - ( . . . ) ( K.S.S.PRASAD RAO) JUDICIAL MEMBER (. . ) (K.K.GUPTA) ACCO UNTANT MEMBER. () DATE: 21 ST JANUARY 2011 ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY. / I.T.A.NO. 465/CTK/2010 13 - COPY OF THE ORDER FORWARDED TO: 1. / THE APPELLANT : M/S. ORISSA FORESTRY SECTOR DEVELOPMENT SOCIETY SEMINAR BLOCK NEAR GATE CHOWK GHATIKIA BHUBANESWAR 751 003 2 / THE RESPONDENT: INCOME - TAX OFFICER WARD 2(2) BHUBANESWAR 3. / THE CIT 4. ()/ THE CIT(A) 5. / DR CUTTACK BENCH 6. GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY