NEW DELHI, JAN 27, 2012: THE issues before the Bench are - Whether when a charitable body pledges its FDRs to enable two other registered societies to obtain loan from a bank, such activity results in violation of Sec 13(1)(c) and Whether when assessee fails to utilise certain grants, this amounts And the verdict goes against the Revenue.
Facts of the case
The respondent is a society, which is registered u/s 12A and Section 80G. It undertakes activities relating to research, development and dissemination of (i) Technologies for fulfillment of basic needs of rural households (ii) Solutions for regeneration of natural resources and the environment and (iii) Community based institution strengthening methods to improve access to for the poor. These activities include projects on development of alternatives like low cost building material, smoke free cook stoves, water supply and purification, sanitation, organic farming, adaptation to climate change and issue based awareness creation programmes. The assessee had FDRs of Rs.12,00,000/-, which were placed as collateral security for allowing credit facility to two societies. These two societies were also carrying on charitable work. As per the findings recorded by the tribunal, some members of the management committee of the respondent society and these two societies were common. The tribunal recorded that interest on the FDRs was paid to the respondent and on maturity date, the pledged FDRs were encashed and the principal amount along with interest was paid to the respondent.
On Appeal before the HC, the counsel for the Revenue submitted that the order of the Tribunal raised substantial question of law as the respondent had pledged the FDRs with a bank in order to enable some other societies to obtain loan from a bank. He submitted that this had resulted in violation of Section 13(1) (c) (ii) r/w Section 13(3) and Explanation 3 (ii). Secondly, the respondent had not utilized the grants and a sum of Rs.16,92,50,496/- and Rs.24,42,82,067/- had remained unspent as on 31st March, 2006 and 31st March 2007 respectively.
Held that,
The respondent is a society, which is registered u/s 12A and Section 80G. It undertakes activities relating to research, development and dissemination of (i) Technologies for fulfillment of basic needs of rural households (ii) Solutions for regeneration of natural resources and the environment and (iii) Community based institution strengthening methods to improve access to for the poor. These activities include projects on development of alternatives like low cost building material, smoke free cook stoves, water supply and purification, sanitation, organic farming, adaptation to climate change and issue based awareness creation programmes. The assessee had FDRs of Rs.12,00,000/-, which were placed as collateral security for allowing credit facility to two societies. These two societies were also carrying on charitable work. As per the findings recorded by the tribunal, some members of the management committee of the respondent society and these two societies were common. The tribunal recorded that interest on the FDRs was paid to the respondent and on maturity date, the pledged FDRs were encashed and the principal amount along with interest was paid to the respondent.
On Appeal before the HC, the counsel for the Revenue submitted that the order of the Tribunal raised substantial question of law as the respondent had pledged the FDRs with a bank in order to enable some other societies to obtain loan from a bank. He submitted that this had resulted in violation of Section 13(1) (c) (ii) r/w Section 13(3) and Explanation 3 (ii). Secondly, the respondent had not utilized the grants and a sum of Rs.16,92,50,496/- and Rs.24,42,82,067/- had remained unspent as on 31st March, 2006 and 31st March 2007 respectively.
Held that,
++ for violation of Section 13(1)(c)(ii), requirements of Section 13(3) have to be satisfied. Section 13(3) defines a person, who is treated as having indirect or direct benefit which results in violation of Section 13(1)(c)(ii). Learned counsel for the appellant has relied upon Explanation 3(ii). The counsel for the Revenue was asked to point out whether the AO has recorded any finding that the persons in control of the management of the three societies had, at any point of time, not less than 20% shares in the profits of such concern. He has not been able to point out any such finding in the order passed by the AO. This being the position, invocation of Section 13(1) (c) (ii) has to fail and is accordingly rejected;
++ with regard to the second contention, the findings recorded by the tribunal are that the assessee had received grants for specific purposes/projects from the government, non-government, foreign institutions etc. These grants were to be spent as per the terms and conditions of the project grant. The amount, which remained unspent at the end of the year, got spilled over to the next year and was treated as unspent grant. The CIT (A) while deleting the said addition had observed that in case of voluntary contribution, the appellant is free to use the money as per its will and neither have to render the account of the same to the donor nor the same is monitored by the donor. The said amount becomes income of the appellant and has to be used for charitable purposes as per its objects. However, in case of specific tied up grants, money is received for specific purposes and is to be utilized for the same.In view of the aforesaid factual position, the tribunal has upheld the order passed by the CIT (A) and has not accepted the appeal filed by the Revenue. In view of the aforesaid factual position, this Court not inclined to entertain the present appeals on the second aspect.
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