1998 (12) TMI 106 - AT - Income Tax

Delayed s12A charity registration and tied-up donor grants: assessed as AOP; beneficiary housing spend allowed as revenue deduction.

Registration under s 12A was unavailable because the CIT refused to condone the assessee's long delay in applying; accordingly, the AO was legally bound ... Denial of registration u/s 12A - application filed belatedly - status of AOP - entitlement for the reliefs specified under sections 11 and 13 - Charitable And Religious Trust - Voluntary Contributions - HELD THAT:- The assessee has not been granted registration under section 12A, as the Commissioner of Income-tax, 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. 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. 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. 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 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 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. Thus, we direct the Assessing Officer to redo the assessments in the following lines : 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. 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. 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. 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. In the result, the appeals filed by the assessee are allowed Issues involved: Assessment of income u/s 12A, treatment of grants received, eligibility for tax exemptions u/s 11 and 13.Assessment of income u/s 12A: The appellant, a registered society engaged in charitable activities, filed appeals for assessment years 1982-83 and 1983-84 after the Assessing Officer determined higher incomes than reported. The Commissioner rejected the belated application for registration u/s 12A, leading to assessments as an AOP without considering exemptions u/s 11 and 13.Treatment of grants received: The society received tied-up grants from a foreign donor, Bread for the World, with specific conditions and a requirement to return unspent funds. The Assessing Officer treated these grants as income, disallowing expenses for construction and land reclamation, resulting in increased taxable incomes.Eligibility for tax exemptions u/s 11 and 13: The appellant argued that the grants should not be considered income due to their specific purpose and the nature of the society's activities. The Tribunal agreed, directing the Assessing Officer to exclude the tied-up grants and related expenses from income computation, while allowing deductions for expenses related to charitable activities.Conclusion: The Tribunal allowed the appeals, emphasizing that the tied-up grants should not be treated as income, and expenses for charitable activities must be considered as deductible revenue expenses. The Assessing Officer was directed to revise the assessments accordingly, ensuring a fair treatment of the appellant's financial transactions.