The Little Tradition, New Delhi vs Assessee

ITA No.2550/Del/2008 Assessment Year: 2002-03 ITA No. 1920/Del/2011 Assessment year: 2003-04

The Little Tradition, Vs. ADIT, A-708, Anand Lok, Trust Circle-IV, Mayur Vihar, Phase-I, New Delhi. New Delhi. (PAN: AAATT5526G) (Appellant) (Respondent)

Revenue by: Shri P. Damkaunajma, Sr. DR Assessee by: S/Shri K. Sampath & R. Raja Kumar, ARs

Date of hearing : 20 .01.2015 Date of pronouncement: .03.2015

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER The assessee has questioned First Appellate Order on the following

grounds:

Ground in ITA No.2550/Del/2008 ( A.Y. 2002-03) :

1. The learned Assessing Officer has erred in disallowing the entire expenses of rs.28,15,520.68 on the basis of 'Application of Income' and not an expenditure.

2. The learned Assessing Officer has not allowed the expenses which are allowed for a normal association of persons also.

2 3. The learned Assessing Officer has erred in not allowing the expenses incurred for basic accounting matter of Auditing of Rs.15,750.00.

4. The learned Assessing Officer has erred in disallowing the depreciation as per the Income-tax Act, 1961 to the tune of Rs.42,641.30, which is bad in law and fact.

5. The learned Assessing Officer has erred in enhancing the taxable income without any valid reasons.

ITA No. 1920/Del/2011 (A.Y. 2003-04): 2. The assessee has questioned following action of the authorities below:

i) in determining the deficit at Rs.1,73,140 as against returned deficit of Rs.12,28,708;

ii) in denying exemption claimed under section 11 and 12 of the Income-tax Act, 1961 by wrongly invoking the section 13(1)(c) of the Act;

iii) in allowing salary expenses only at Rs.1,70,000 as against expenditure claimed at Rs.7,23,733

3. At the outset of hearing, the Learned AR submitted that in the above

assessment years i.e. 2002-03 and 2003-04, the Assessing Officer has denied

the claimed expenditure following its assessment order in this regard for the

assessment year 2001-02 treating the whole of the amount of the grant

received from Ford Foundation as income of the assessee and computing the 3

income erroneously. He pointed out that in the assessment year 2001-02, the

ITAT in the appeal preferred by the assessee numbered as ITA No.

4542/Del/2004 vide order dated 221.10.2013 has set aside the matter to the

file of the Assessing Officer to compute the income of the assessee in terms

of the decisions of in the cases of Nirmal Education Society, 71 ITD 152

(Hyd.), Society for Integrated Development in urban and rural areas - 90

ITD 493. The ITAT has directed the Assessing Officer to recomputed the

income of the assessee de novo in accordance with law after giving

opportunity to the assessee. The ITAT had also held that when future income

is considered in this year on receipt basis, then the likely expenditure to be

incurred corresponding to this receipt in the future years is also to be

provided and allowed. Matching principle has to be followed. The Learned

AR referred the contents of para Nos. 5 of the assessment order for both the

assessment years under consideration wherein the Assessing Officer

following its order for assessment year 2001-02 has denied the claimed

expenditure. No other issue raised in the above grounds has been pressed.

4. The Learned Sr. DR has placed reliance on the orders of the

authorities below.

5. Having gone through the orders of the authorities below as well as the

order dated 21.10.2013 of the ITAT rectifying its earlier order dated 4

30.4.2008 vide MA No.66/Del/2012 for the assessment year 2001-02. We

find that the ITAT has decided an identical issue as under:

"6. Coming to the issue as to whether the mistake apparent on

record has crept into the order of the Tribunal on the issue of

mode of computation of income, i.e. category (B), we find that the

argument of the assessee was that when deduction is denied u/s

11, 12 and 13 of the Act to an assessee then the income of the

assessee has to be determined by applying the correct Accounting

Principles, and that the entire receipt cannot be treated as

income. These substantive arguments were not considered by the

Bench.

7. The Hyderabad "B" Bench of the Tribunal in the case of

Society for Integrated Development in Urban and Rural Areas

(Sidur) vs. DCIT, 90 ITD 493 held as follows.

"24. Coming to the second limb of the argument of the learned counsel for the assessee that the entire receipts cannot be taxed, we find that the issue is covered by the judgment of this Bench in Nirmal Agricultural Society's case (supra). In that case, it has been held (as per head note) as under:-

"The assessee had not been granted registration u/s 12A, as the Commissioner 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 option but to complete the 5

assessments in the status of AOP also closing his eyes towards section 11 and section 13. To that extent, the Assessing Officer was right as he had acted only according to will of law.

But as far as the contents of the assessments were concerned, even when the assessee had been assessed as AOP and 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 was concerned, construction of houses, reclamation of land , etc. were part of its regular activities. Houses were built on the land of poor agriculturists. The assessee-society had no legal title or right over the land or houses of those villagers/agriculturists who were the beneficiaries. The purpose and activity of the assessee-society was to engage in such charitable activities. Whatever amount had been spent on those programmes/projects it was spent in the usual course of carrying on its acclaimed hold that the amounts spent by the assessee in constructing houses or reclaiming land were capital expenditure. As far as the assessee was concerned, those expenses were revenue expenses. The assessee had 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. had to be allowed as deduction in the computation of income. The grants received from foreign donor were for specific purposes. The grants which were for specific purposes did not belong to the assessee society, such grants did not form corpus of the assessee or its income. Those grants were not donations to the assessee so as to bring them under the purview of section 12. Voluntary contributions covered by section 12 are those contributions freely available to the assessee without any stipulation, which the 6

assessee can utilize towards its objectives according to its own discretion and judgement. Tied-up grants for a specified purpose would only mean that the assessee which was a voluntary organization, had agreed to act as a trustee of a special fund granted by donor with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In the instant case, the assessee was acting as an independent trustee for that grant, just as same trustee could act as a trustee of more than one trust. Tied up amounts need not, therefore, be treated as amounts which were required to be considered for assessment for ascertaining the amount expended or the amount to be accumulated. The assessee should have actually credited the grant in the personal account of the donor and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing 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 the donor, could be treated as income of the assessee, if the donor did not insist for the repayment of the balance amount.

Therefore, the Assessing Officer was to be directed to re-do the assessment on 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 expenses-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 nonrefundable 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."

7 25. Honourable Rajasthan High Court in the case of Sukhdeo Charity Estate (supra), held as follows (as per head note) :--

"It was for the specific purpose of implementation of the water supply scheme that the request for contribution had been made by the assessee trust and it was in response to that request that the amount had been given by the Calcutta trust. It was clear that the intention of the donor and the donee was to treat the money as capital to be spent for the water supply scheme. The fact that the amount had not been paid over to the State Government and was kept unutilised in the account of the assessee-trust was not relevant. The amount could not be said to be "income" and could not be included as part of the assessable income of the trust under the provisions of section 12(2)."

In yet another judgment in the case of Sukhdeo Charity Estates vs. ITO, 192 ITR 615 (Raj.) the Honourable Rajasthan High Court held as follows (as per head note) :--

"The intention of the donor-trust as well as the donee-trust was to treat the money as capital to be spent for the Ladnu Water Supply Scheme. It was of no significance whether the amount had since been paid to the State government or kept in the account of the said scheme by the assessee-trust. The amount of Rs. 70,000 did not constitute income of the petitioner. The reassessment proceedings were not valid and were liable to be quashed."

This Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for assessment year 1998-99, in its order dated 25-6-2002 to which one of us was a party was inclined to uphold the view of the Commissioner (Appeals) in that case by holding in para 15 of that order as follows :

"Though we find considerable force in the other argument of the assessee's counsel i.e. the income should be computed on commercial principles, as we have held that the assessee-society is eligible for exemption under section 11 of the Act and we have also held that the objects of the society were of charitable nature within the meaning of section 2(15) of the Act, and as we have further held that there is no violation, whatsoever of the provisions of section 13(1)(c) and (d) of the Income-tax Act, 1961, the other grounds of the assessee need not be gone into, as it would be of academic interest only."

The Revenue has not brought to our notice any judgment from any High Court which has dealt at length on this issue and which is in 8

its favour. It is also not clear whether the Revenue has accepted or gone on appeal against the judgment of this Bench in the case of Nirmal Agricultural Society(supra)." (Emphasis ours).

8. The Assessing Officer is required to follow the well settled

Principles of computation of income mentioned in the above

decision. As these arguments of the assessee and the case laws

cited on the issue of computation of total income had not been

considered in the order of the Tribunal dt. 30.4.2008, we are of

the considered opinion that a mistake apparent on record has

crept into the order of the Tribunal. Hence the order is rectified as

follows:-

"The A.O. is directed to compute the income of the assessee in terms of the following decisions.

* Nirmal Education Society, 71 ITD 152 (Hyd.) * Society for Integrated Development in Urban & Rural Areas, 90 ITD 493.

The A.O. is directed to recompute the income of the assessee de

novo in accordance with law after giving opportunity to the

assessee. When future income is considered in this year on receipt

basis, then the likely expenditure to be incurred corresponding to

this receipt in the future years is also to be provided and allowed.

Matching Principle has to be followed. Tied up grants should be

removed from the computation. Doctrine of overriding title etc. 9

should be considered. The intention and specific directions of the

donor have to be considered to know the nature of receipt. In the

result, the appeal of the assessee is set aside and allowed for

statistical purposes."

6. Respectfully following the above decision on an identical issue, we

set aside the matter to the file of the Assessing Officer to compute the

income of the assessee for the assessment years 2002-03 and 2003-04 afresh

in view of the above direction of the ITAT after affording proper

opportunity of being heard to the assessee. The related grounds are

accordingly allowed for statistical purposes.

7. In result, the appeals are allowed for statistical purposes.

Decision pronounced in the open court on 19 .03.2015

Sd/- Sd/-

( B.C. MEENA ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 19 /03/2015 Mohan Lal 10

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR

Date Draft dictated on computer 18.03.2015 Draft placed before author 19.03.2015 Draft proposed & placed before the second member

Draft discussed/approved by Second Member.

Approved Draft comes to the Sr.PS/PS 20.03.2015 Kept for pronouncement on 19.03.2015 File sent to the Bench Clerk 20.03.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order. 11