Charitable Organisation Should spend grant As Per Terms And Conditions, not on whims and fancies: ITAT
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the assessee is not free to use the funds voluntarily as per its own whims and fancies and that the same has to be spent as per the terms and conditions of the grant.The two-member bench of Yogesh Kumar U.S. (Judicial Member) and Shamim Yahya (Technical Member) has observed that the grants are given specifically...
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the assessee is not free to use the funds voluntarily as per its own whims and fancies and that the same has to be spent as per the terms and conditions of the grant.
The two-member bench of Yogesh Kumar U.S. (Judicial Member) and Shamim Yahya (Technical Member) has observed that the grants are given specifically for participation in a particular event held abroad. The grant approval includes a condition that a separate account for the projects has to be maintained. The assessee has utilised the funds as per the terms and conditions of the grant. The grants are not to be utilised for any other purpose than for which they are issued and also that the execution of the project is not to be entrusted to any other organisation. Further, the up-spent grant along with 10% interest from the date of release of the fund has to be reimbursed by the government.
The respondent/assessee earned income from government grants, financial income, participation charges, specialised fairs, trade contributions, membership admission and subscription fees, and other income. The return of income for Assessment Year 2012-13 was filed, declaring total income at NIL after claiming application of income as per Sections 11 and 12 of the Income Tax Act.
The return was processed under section 143(1) of the Income Tax Act, the case was selected for scrutiny and the notices were issued to the assessee. The assessee has participated in the assessment proceedings through its representative. During the assessment proceedings, it has been noticed that, as per the balance sheet, the assessee has incurred expenses in foreign currency outside India under the head "Expenses on Specialised Fairs and Buyer-Seller Meet Abroad" amounting to Rs. 3,24,65,367.
The A.O opined that as per Section 11(1) of the Income Tax Act, income applied on activities outside India is not liable for exemption unless the charitable organisation happens to be a trust created before 01/04/1952 or engaged in the promotion of international welfare in which India has an interest and the Central Board of Direct Taxes has granted the exemption by general or special order. Therefore, the expenses incurred by the assessee have been disallowed and passed assessment order by computing taxable income as against the NIL return of income.
The assessee preferred an appeal before the CIT (A), and the CIT(A) has deleted the addition made by the AO.
The ITAT observed that voluntary contributions covered by Section 12 are those contributions freely available to the assessee without any stipulation, which the assessee can utilise towards his objectives according to his own discretion and judgement. The tide-up grants for a specific purpose would only mean that the assessee, which was a voluntary organisation, had agreed to act as a trustee of a special fund granted by the donor, with the result that it need not be pooled or integrated with the assessee's normal income or corpus.
"We do not find any legal infirmity or error in the order of the CIT(A) in deleting the addition made by the A.O. and we find no merit in the grounds of appeal of the Revenue," the ITAT said.
Case Title: ITO (E) Versus Sports Good Export Promotion Council
Citation: I.T.A. No. 225/DEL/2018 (A.Y 2012-13)
Date: 23.09.2022
Counsel For Petitioner: Advocate Rano Jain
Counsel For Respondent: Sr. D. R. Sumit Kumar Verma