Paramasiva Naidu Muthuvelrau Educational Trust, CHENNAI V. DCIT, CHENNAI

CO 60/CHNY/2013

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3942 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 3 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SRIDHAR
• Assessee Lawyers: R V AROON PRASAD JCITD R
• Keywords: Gift; Depreciation; Charitable institution; Maximum Marginal Rate; Notional interest; Benefit of exemption
• Section: 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . , ! '#$ % , BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A.NO.2005/CHNY/2012 & C.O. NO.60/CHNY/2013 ASSESSMENT YEAR : 2009-10 DEPUTY DIRECTOR OF INCOME-TAX (EXEMTPIONS)-III, AYAKAR BHAVAN ANNEXE BUILDING, III FLOOR, CHENNAI-34. VS. M/S.PARAMASIVA NAIDU MUTHUVEL RAJ EDUCATION TRUST , BLOCK-V, MUGAPPAIR, CHENNAI600 050. [PAN AAATP 4092 M ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : MR.R.V.AROON PRASAD, JCIT,D.R /RESPONDENT BY : MR.S.SRIDHAR, ADVOCATE / DATE OF HEARING : 09 - 0 7 - 201 8 !'# / DATE OF PRONOUNCEMENT : 09 - 0 7 - 201 8 ) / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER ITA NO.2005/CHNY/2012 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, CHENNAI IN ITA NO.373/2011-12 DATED 10.07.2012 FOR THE ASSESSMENT ITA NO.2005/CHNY/2012 CO NO.60/CHNY/2013 :- 2 -: YEAR 2009-10 AND C.O NO.60/CHNY/2013 IS A CROSS-OB JECTION FILED BY THE ASSESSEE. 2. MR.AROON PRASAD REPRESENTED ON BEHALF OF THE REVENUE AND MR.S.SRIDHAR REPRESENTED ON BEHALF OF THE ASSESSEE. 3. AT THE TIME OF HEARING, IT WAS SUBMITTED BY LD. A.R THAT THE ISSUE IN THE CROSS OBJECTIONS WAS IN RESPECT OF CLA IMING OF DEPRECIATION, ASSESSEE BEING A CHARITABLE TRUST REG ISTERED/S.12AA OF THE ACT. IT WAS A SUBMISSION THAT THE ISSUE OF DEPRECIA TION WAS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT-III, PUNE VS. RAJASTHAN & GUJARATI CHARITABLE F OUNDATION POONA REPORTED IN (2018)402 ITR 441(SC). 4. IN REPLY, THE LD.D.R VEHEMENTLY SUPPORTED THE O RDERS OF THE LD. ASSESSING OFFICER AND THE LD.CIT(A) ON THIS ISS UE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS IT IS NOTICED THAT THE ISSUE OF DEPRECIA TION IN RESPECT OF CHARITABLE TRUST IS SQUARELY COVERED BY THE DECISIO N OF THE APEX COURT IN THE CASE OF RAJASTHAN & GUJARATI CHARITABLE FOUN DATION POONA REFERRED TO SUPRA, THE LD. ASSESSING OFFICER IS DIR ECTED TO ALLOW THE ASSESSEES CLAIM OF DEPRECIATION. ACCORDINGLY, CRO SS OBJECTIONS FILED BY THE ASSESSEE ON THIS ISSUE STANDS ALLOWED. ITA NO.2005/CHNY/2012 CO NO.60/CHNY/2013 :- 3 -: 6. IN RESPECT OF REVENUES APPEAL, IT WAS SUBMITTE D BY LD.D.R THAT THE ASSESSEE IS A CHARITABLE TRUST REGISTERED U/S.12AA OF THE ACT. IT WAS A SUBMISSION THAT IN THE COURSE OF ASSESSMEN T , IT IS NOTICED THAT THE ASSESSEE HAD GIVEN GIFTS TO ANOTHER TRUST UNDER THE NAME OF M/S.PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST. IT WA S A SUBMISSION THAT TWO TYPES OF GIFTS WERE GIVEN, ONE GIFT WAS IM MOVABLE PROPERTY, AND THE SECOND ONE WAS A AMOUNT OF ` 86,44,540/-. IT WAS A SUBMISSION THAT M/S.PMR BANGARU SUBBAMMAL EDUCATION AL TRUST WAS NOT REGISTERED U/S.12AA OF THE ACT DURING RELEVANT ASSESSMENT YEAR. IT WAS A SUBMISSION THAT CONSEQUENTLY THE LD. ASSESSIN G OFFICER HAD DENIED THE ASSESSEE THE BENEFIT OF EXEMPTION U/S.11 OF THE ACT IN RESPECT OF VIOLATION MADE UNDER SECTIONS 13(1)(C) A ND 13(1)(D) OF THE ACT. IT WAS A SUBMISSION THAT ADVERTISEMENT EXPENS ES IN RESPECT OF POLITICAL ADVERTISEMENT HAD ALSO BEEN MADE BY THE A SSESSEE IN THE NEWSPAPERS. IT WAS A SUBMISSION THAT THE ELECTRICIT Y BILL OF THE MANAGING TRUSTEES, ONE MR.MB NAMBIAR HAD ALSO BEEN PAID BY THE ASSESSEE-TRUST. IT WAS A SUBMISSION THAT PERSONAL EXPENSES OF THE TRUSTEES, AND THEIR FAMILY MEMBERS HAD BEEN INCURRE D BY THE ASSESSEE TRUST. IT WAS A SUBMISSION THAT ON APPEAL, LD.CIT(A ) HAD HELD THAT THE GIFT OF 6.5 ACRES OF LAND BY THE ASSESSEE-TRUST TO M/S.PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST HAD BEEN REVERSED BY CA NCELLATION OF THE GIFT DEED IN SUBSEQUENT YEAR AND M/S.PMR BANGARU SU BBAMMAL ITA NO.2005/CHNY/2012 CO NO.60/CHNY/2013 :- 4 -: EDUCATIONAL TRUST WAS ALSO HAVING SIMILAR OBJECTS O F THE ASSESSEE TRUST, CONSEQUENTLY, THERE WAS NO VIOLATION OF PROVISIONS OF THE SECTIONS 13(1)(C) AND 13(1)(D) OF THE ACT. IN REGARD TO THE PAYMENT OF ELECTRICITY BILLS, THE LD.CIT(A) HAD HELD THAT THE AMOUNTS ARE VERY SMALL AND INSIGNIFICANT COMPARED TO THE TOTAL VOLUME OF T RANSACTIONS AND HENCE, IT CANNOT BE VIEWED AS VIOLATION OF SEC.13(1 )(C) OF THE ACT. IN REGARD TO ADVERTISEMENT IN RESPECT OF POLITICAL PAR TIES, THE LD.CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE EX PENDITURE WAS NOT A POLITICAL DONATION OR POLITICAL ADVERTISEMENT, BU T AN ADVERTISEMENT OF THE INSTITUTION IN THE NEWSPAPER DINAKARAN ON TH E OCCASION OF VISIT OF A POLITICAL LEADER. IN CONSEQUENT, IT CANNOT BE SAI D TO BE VIOLATION OF SECTIONS 13(1)(C) AND 13(1)(D) OF THE ACT. IT WAS A SUBMISSION THAT THE ORDER OF THE CIT(APPEALS) BEING CLEARLY IN VIO LATION OF PROVISIONS OF THE SECTIONS 13(1)(C) AND 13(1)(D) OF THE ACT. IT W AS A SUBMISSION THAT THE SAME WAS LIABLE TO REVERSED ON THIS ISSUE AND A SSESSEE DENIED THE BENEFIT OF EXEMPTION U/S.11 OF THE ACT. 7. IN REPLY, LD.A.R VEHEMENTLY SUPPORTED THE ORDER OF LD.CIT(A). THE LD.A.R PLACED BEFORE US A COPY OF DECISION OF T HE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. FR.MULL ERS CHARITABLE INSTITUTIONS REPORTED IN [2014] 363 ITR 230(KARNATA KA) WHEREIN IT HAD BEEN HELD THAT ONLY INCOME FROM INVESTMENT OR DEPOS IT WHICH HAS BEEN MADE IN VIOLATION OF SEC.11(5) OF THE ACT IS LIABLE TO BE TAXED AND THE ITA NO.2005/CHNY/2012 CO NO.60/CHNY/2013 :- 5 -: VIOLATION U/S.13(1)(D) OF THE ACT DOES NOT TANTAMOU NT TO DENIAL OF EXEMPTION U/S.11 ON TOTAL INCOME OF ASSESSEE-TRUST . THE LD.A.R ALSO PLACED RELIANCE UPON THE JUDGMENET OF HONBLE MADRA S HIGH COURT IN THE CASE OF CIT VS. WORKING WOMENS FORUM REPORTED IN [2014] 365 ITR 353(MAD.) WHEREIN IT HAD BEEN HELD THAT THE TRI BUNAL WAS JUSTIFIED IN HOLDING THAT IN CASE OF A TRUST REGISTERED U/S.1 2AA OF THE ACT, ONLY SUCH PART OF INCOME WHICH IS VIOLATIVE OF SEC.13(1) (D) OF THE ACT CAN BE BROUGHT TO TAX AT MAXIMUM MARGINAL RATE AND ENTIRET Y OF INCOME CANNOT BE DENIED EXEMPTION U/S.11 OF THE ACT. IT WAS A SUBMISSION THAT THE LAND HAD BEEN RETURNED BY CANCELLING THE GIFT DEEDS AND IN RESPECT OF THE LOANS, WHICH HAD BEEN GIVEN THE MAXI MUM THAT COULD BE DISALLOWED WAS THE NOTIONAL INTEREST, IN VIEW OF T HE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. WORKING WO MENS FORUM REPORTED TO SUPRA. IT WAS A FURTHER SUBMISSION THA T PERUSAL OF THE CALCULATION OF THE EXEMPTION AS GIVEN IN PAGE-17 OF THE ORDER OF THE CIT(APPEALS) WOULD SHOW THAT THE ACTUAL APPLICATIO N DURING THE YEAR BEING MUCH HIGHER, THE DISALLOWANCE, IF ANY WOULD N OT MAKE ANY DENT IN SO FAR AS IT WOULD FALL WITHIN THE 15% EXEMPTION AVAILABLE TO THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT IT IS AN UNDIS PUTED FACT THAT ELECTRICITY BILL IN RESPECT OF TRUSTEE HAS BEEN PAI D BY THE ASSESSEE-TRUST. ITA NO.2005/CHNY/2012 CO NO.60/CHNY/2013 :- 6 -: THAT IT IS TOO SMALL AMOUNT COMPARED TO TOTAL TRANS ACTIONS OF THE ASSESSEE IS NOT THE ISSUE, AS FAR AS THE PROVISIONS OF THE SECTION 13 ARE CONCERNED. IT IS ALSO AN UNDISPUTED FACT THAT DURI NG RELEVANT ASSESSMENT YEAR, THE LAND HAD BEEN MADE AVAILABLE T O M/S.PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST, WHICH IS A TRU ST THAT DOES NOT HAVE REGISTRATION U/S.12AA OF THE ACT. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE TRUST HAS GIVEN LOANS, WHICH ARE INTEREST FREE TO M/S.PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST, THAT T HE OBJECTS OF THE ASSESSEE-TRUST AND THAT OF M/S.PMR BANGARU SUBB AMMAL EDUCATIONAL TRUST ARE IDENTICAL, WOULD NOT MAKE M/S .PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST AS HAVING REGISTRATION U/S.12AA OF THE ACT. M/S.PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST M UST ON ITS OWN INDEPENDENT STATUS CLAIM AND HAVE THE REGISTRATION U/S.12AA OF THE ACT. IN THE ABSENCE OF SUCH REGISTRATION, DEALING WITH SUCH AN UNREGISTERED TRUST WOULD AFFECT THE EXEMPTION AVAIL ABLE TO THE ASSESSEE. A PERUSAL OF PROVISIONS OF THE SECTION 13 (2) OF THE ACT SHOWS THAT WITHOUT PREJUDICE TO THE PROVISIONS IN CLAUSE (C) & (D) OF SUB- SECTION (1) OF SECTION 13, THE INCOME OF THE PROPER TY OF THE TRUST IS DEEMED TO HAVE BEEN USED FOR THE BENEFIT OF A PERSO N REFERRED TO IN SUB-SECTION (3), IN CLAUSE (G), IF ANY INCOME OR TH E PROPERTY OF THE TRUST OR INSTITUTION IS DIVERTED DURING THE PREVIOU S YEAR IN FAVOUR OF ANY PERSON REFERRED TO IN SUB-SECTION(3) (REGARDING EL ECTRICITY BILL ITA NO.2005/CHNY/2012 CO NO.60/CHNY/2013 :- 7 -: PAYMENT) AND IN CLAUSE (H), IF ANY FUNDS OF THE TRU ST OR INSTITUTION ARE, OR CONTINUE TO REMAIN, INVESTED FOR ANY PERIOD DURI NG THE PREVIOUS YEAR ------ IN WHICH A PERSON REFERRED TO SUB-SECTION(3) HAS SUBSTANTIAL INTEREST ( THE LOAN GIVEN TO M/S.PMR BANGARU SUBBAM MAL EDUCATIONAL TRUST WHERE THE MANAGING TRUSTEE IS AN INTERESTED P ERSON WITH SUBSTANTIAL INTEREST) AND CLAUSE (B), IF ANY LAND --- OF THE TRUST OR INSTITUTION ---- FOR ANY PERIOD DURING THE PREVIOUS YEAR WITHOUT ADEQUATE RENT OR OTHER COMPENSATION (REGARDING GIFT ING OF THE LAND, WHICH HAS SUBSEQUENTLY BEEN CANCELLED, TO M/S.PMR B ANGARU SUBBAMMAL EDUCATIONAL TRUST WHERE THE MANAGING TRUS TEE OF THE TRUST IS AN INTERESTED PERSON WITH SUBSTANTIAL INTEREST) IN SUCH CASES, WHERE VIOLATION OF SUB-SECTION (2) OF SECTION 13 TAKES PL ACE THE BENEFIT, DIRECTLY OR INDIRECTLY, TO ANY PERSON REFERRED TO S UB-SECTION(3) OF SECTION 13, THEN THE FIRST PROVISIONS OF SECTION 13 (1) CLEARLY STATES THAT NOTHING CONTAINED IN SECTION 11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF, WHICH CLEARLY SHOWS THAT PROVISION S OF THE SECTION-11 AND SECTION-12 ARE NO MORE AVAILABLE IN SUCH CASES. THIS BEING SO, WE ARE OF THE VIEW THAT THE LD. ASSESSING OFFICER WAS RIGHT IN DENYING THE BENEFIT OF SECTION-11 IN RESPECT OF THE INCOME OF A SSESSEE AS THERE HAS BEEN VIOLATION OF THE PROVISIONS OF THE SECTIONS 13 (1)(C) AND 13(1)(D) READ WITH SECTION 13(2) OF THE ACT. IN THE CIRCUMST ANCES, THE ORDER OF ITA NO.2005/CHNY/2012 CO NO.60/CHNY/2013 :- 8 -: THE CIT(APPEALS) ON THIS ISSUE STANDS REVERSED AND THE ORDER OF THE LD. ASSESSING OFFICER IS RESTORED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 09 TH JULY, 2018, AT CHENNAI. SD/ - SD/ - ( $% . '(') ) ( ABRAHAM P GEORGE) ! / ACCOUNTANT MEMBER ( % ) (GEORGE MATHAN) * ! / JUDICIAL MEMBER + / CHENNAI ,- / DATED: 09 TH JULY, 2018. K S SUNDARAM . / 01 2 1' / COPY TO: 1 . / APPELLANT 3. . . 3 () / CIT(A) 5. 156 78 / DR 2. / RESPONDENT 4. . . 3 / CIT 6. 69) : / GF