Commissioner Of Income Tax, Panchkula v. M/S State Urban Development Society

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 19.10.2011 ITA No. 210 of 2011 Commissioner of Income Tax, Panchkula...Appellant Versus M/s State Urban Development Society CORAM:HON'BLE MR. JUSTICE HEMANT GUPTAHON’BLE MR. JUSTICE G.S. SANDHAWALIA Present:Mr. Tejinder K. Joshi, Advocate for appellant. HEMANT GUPTA, J. Revenue is in appeal aggrieved against the order dated30.7.2010 passed by Income Appellate Tribunal, Chandigarh (for short the‘Tribunal’) whereby the appeal filed by the revenue was dismissed and thecross appeal filed by he assessee was allowed. The assessee is a societyformed by Government of Haryana as per the regulations of Government ofIndia for implementation and monitoring of Poverty EradicationProgrammes in the urban area of Haryana. The assessee-society receives thescheme money from Government of India and distributes to every district ofHaryana through District Urban Development Agency headed by DeputyCommissioner/Additional Commissioner of each district. Certain amountfrom the Scheme money is utilized for administrative & office expenses.The assessee was disbursing money under two Schemes i.e. SJSRY andNSDP. The Assessing Officer assessed the income of the assessee @Rs. 9,00,80,992/- inter alia, hold that the essential conditions of Section 11 and 12 of the Income Tax Act, 1961 (for short the ‘Act’) have not beenfulfilled by the assessee and amount not disbursed. The assessee follows the system of accounting whereby anyamount remaining not disbursed at the end of financial year is shown asopening balance scheme money to be utilized in the next financial year. TheAssessing Officer found that the percentage of income used for charitablepurposes is less than 85% and that the essential conditions of Section 11 and12 of the Act have not been fulfilled by the assessee. Thus, the AssessingOfficer finalized the assessment. In appeal, the Commissioner of Income Tax (Appeals),Panchkula granted relief to the assessee in respect of interest exemptionfrom Section 11 of the Act, the amount disbursable due to imposition ofmodel code of conduct. While upholding the order of the Assessing Officerthat the gross amount received from the Central and State Governments forthe purpose of disbursement to district authorities as income of the Society. Aggrieved against the order passed by Commissioner ofIncome Tax (Appeals) dated 27.10.2008, Tribunal dismissed the revenues’appeal and allowed the appeal filed by assessee. The Tribunal held that the Society is acting as a nodal agencyreceiving grant from Government of India and State Governments anddistributes to district authorities for implementation of various Schemes ofGovernment of Indian and supervising the execution of Schemes. It has nodiscretion to utilize the amount as per own requirements. It also found thatin case of non utilization at the close of the Scheme, the funds are to berefunded along with interest to the Government of India and StateGovernments. The grants received by the assessee do not belong to theassessee-Society. The grants do not form corpus of the asseesee nor it is income of the assessee under Section 11 of the Act. Such grants are not thedonations or voluntary contributions under Section 12 of the Act. Thus, thegrants received by the assessee should not be considered either as income orfor ascertaining the amount expanded or amount to be accumulated.Provisions of Section 11 and 12 of the Act are not applicable for grantsreceived by the assessee under the Schemes It further held that the assesseeis statutorily required to file its intention of expanding the accumulatedfunds in future by way of Form No. 10. income of the assessee under Section 11 of the Act. Such grants are not thedonations or voluntary contributions under Section 12 of the Act. Thus, thegrants received by the assessee should not be considered either as income orfor ascertaining the amount expanded or amount to be accumulated.Provisions of Section 11 and 12 of the Act are not applicable for grantsreceived by the assessee under the Schemes It further held that the assesseeis statutorily required to file its intention of expanding the accumulatedfunds in future by way of Form No. 10. The argument that the assessee has shown the entire amount asits income in the profit and loss account as not determinative of nature asthe mere entries in the books of account do not decide the nature of receiptand its taxability. The Tribunal also held that even if the amount is notdisbursed due to imposition of model code of conduct by the ElectionCommission, the surplus at the end of the year cannot be included as incomeunder Sections 11 and 12 of the Act. If the grant is not includable as incomethe surplus at the end of the year remaining unspent is not of any relevance.In respect of the Bank interest, the Tribunal found that the assessee has tokeep funds in separate accounts and such interest is treated as part of thegrants under respective Schemes to which said funds relate. Hence, with thesaid findings, the orders of the Assessing Officer and Commissioner ofIncome Tax (Appeals) was set aside. Learned counsel for the appellant vehemently argued that theSociety itself has reflected the grants received from Central and StateGovernments as income. Therefore, it is not open to the assessee to take astand that such grants are not the income. The said aspect has beenconsidered by the Tribunal, wherein, it has been held that reflection in theprofit and loss account towards the income is not determinative. The entries in the books of account do not decide the nature of receipts. Since, thegrants have been received by the assessee for disbursement and keeping inview the fact that the same cannot be utilized for any other purpose such asdistribution for the poverty in furtherance to the object of the Schemes, itcannot be treated as income of the assessee. As per the finding of factrecorded by the Tribunal, no substantial question of law arises in the presentpetition. Dismissed. (HEMANT GUPTA)JUDGE 19.10.2011preeti (G.S. SANDHAWALIA) JUDGE