Appeal Details
Counselvise Citation
[2017] 123 COUNSELVISE.COM (IT) 2822 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 8 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
08-02-2017
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
02-11-2016
Assessment Year
2009-2010
Appeal Filed On
04-06-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.1031/KOL/2013 & C.O.NO.69/KOL/2013 (A/O ITA NO.1031/KOL/2013) ASSESSMENT YEAR:2009-10 ITO(E)-II, 5 TH FLOOR, 10B, MIDDLETON ROW, KOLKATA-700 071 FUTURE EDUCATION & RESEARCH TRUST, 17C, MANDEVILLE GARDENS, KOLKATA-19 [ PAN NO.AAATF 0951 B ] / V/S . / V/S . FUTURE EDUCATION AND RESEARCH TRUST NIMPHOOL, 17C, MANDEVILLE GARDENS, BALLYGUNGE, KOLKTA-19 ITO(E)-II, KOLKATA, 10B, MIDDLETON ROW, 5 TH FLOOR, KOLKATA-71 /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI MIRAJ D SHAH, AR /BY REVENUE SHRI M.K. BISWAS, JCIT-DR /DATE OF HEARING 23-12-2016 /DATE OF PRONOUNCEMENT 08-02-2017 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL AS WELL AS CROSS OBJECTION (CO) FILED B Y THE REVENUE AND ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF IN COME TAX (APPEALS)-JALPAIGURI DATED 08.03.2013. ASSESSMENT WAS FRAMED BY ITO (EXE MP.)-II, KOLKATA U/S 143(3)/II ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 2 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) VIDE HER ORDER DATED 26.12.2011 FOR ASSESSMENT YEAR 2009-10. SHRI M.K. BISWAS, LD. DEPARTMENTAL REPRESENTATIVE R EPRESENTED ON BEHALF OF REVENUE AND SHRI MIRAJ D SHAH, LD. ADVOCATE APPEARED ON BEH ALF OF ASSESSEE. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO.1031/KO L/2013 . 2. REVENUE HAS RAISED FOLLOWING GROUNDS, WHICH REPR ODUCED BELOW:- 1. THAT THE LD. CIT(A), JALPAIGURI HAS ERRED IN FA CTS AND IN LAW IN HOLDING THAT FUNDS PROVIDED BY THE ASSESSEE TRUST FOR SETTL ING THE PROPOSED BANK LOAN OF THE TRUSTEE AND HIS WIFE DID NOT ATTRACT THE PROVIS IONS OF SECTION 13(1)(C). LD. CIT(A)/JALPAIGURI HAD OVERLOOKED THE FACT THAT FUND S PROVIDED BY THE ASSESSEE TRUST FOR SETTLING THE PERSONAL BANK LOAN OF THE TR USTEE AND HIS WIFE DID NOT CARRY ANY INTEREST AND THE FOREGOING OF INTEREST BY THE T RUST CERTAINLY AMOUNTED TO BENEFIT TO THE TRUSTEE AND HIS SPOUSE U/S. 13(1)(C) . 2. LD. CIT(A), JALPAIGURI HAS ERRED IN LAW IN ADMIT TING ADDITIONAL EVIDENCE UNDER CLAUSE (C) AND (D) OF THE RULE 46(1) OF THE I T RULES WITHOUT GRANTING ADEQUATE OPPORTUNITY TO THE AO FOR REBUTTAL. LD. CI T(A), JALPAIGURI HAD BEEN MISLED BY THE ASSESSEE VIDE THEIR FRESH SUBMISSIONS WHICH WAS TOTALLY IN CONTRARY TO THE MATERIALS ON RECORD. DURING THE COU RSE OF PROCEEDINGS U/S. 143(3), THE ASSESSEE VIDE ITS LETTER DATED 20.12.20 11 STATED THAT THE LOAN PAID TO THE TRUSTEES WIFE FROM THE GENERAL FUND OF THE TRU ST WAS FOR THE SPECIFIC PURPOSE OF HIGHER STUDIES, ENRICHMENT OF VARIOUS STUDY PROG RAMMES, CONTINUED FULL TIME INVOLVEMENT ETC. HOWEVER, THE FATS REPRESENTED BEFO RE THE LD. CIT(A) WAS TOTALLY TO THE CONTRARY WHERE THE ASSESSEE CHANGED ITS EARLIER STATEMENT AND CLAIMED THAT THE FUND WAS UTILIZED FOR SETTLING THE PERSONAL BANK LOAN OF THE TRUSTEE AND HIS WIFE. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A)/JALPAIGURI HAD ERRED IN PLACING HIS RELIANCE ON THE ASSESSEES CONTENTION THAT THE ISSUE RAISED BY THE AO IN THE A SSESSMENT ORDER HAD BEEN EXAMINED BY THE HIGHER AUTHORITIES I.E. JDIT(E), DI T(E), AND CCIT-III, KOLKATA BEFORE GRANTING EXEMPTION U/S. 10(23C)(VI). THE FAC T OF THE MATTER IS THAT THE ISSUE OF PRIVATE BENEFIT BEING DERIVED BY THE TRUST EES WIFE WAS NOT THE MATTER OF CONSIDERATION WHILE PROCEEDING THE APPLICATION U /S. 10(23C)(VI). THE ONLY TWO ISSUES CONSIDERED DURING THE PROCEEDINGS U/S. 1 0(23C) WERE WHETHER THE ASSESSEE EXISTS (I) SOLELY FOR EDUCATION AND (II) N OT FOR PROFIT. 4. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A)/JALPAIGURI HAD ERRED IN ACCEPTING THE ASSESSEES CONTENTION TH AT THE DIT(EXEMPTIONS), KOLKATA HAS NOT CANCELLED THE REGISTRATION OF THE A SSESSEE U/S. 12AA(3) IN SPITE OF RECEIVING A PROPOSAL TO THAT EFFECT FROM THE AO; THE CORRECT STATUS IN THIS MATTER IS THAT THE PROCEEDINGS U/S. 12AA(3) ARE STI LL IN PROGRESS. ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 3 3. THE COMMON ISSUE RAISED BY REVENUE IN THIS APPEA L IS THAT LD. CIT(A) ERRED IN GRANTING EXEMPTION TO THE ASSESSEE UNDER SECTION 11 OF THE ACT IN SPITE OF THE FACT THE CONDITIONS FOR EXEMPTIONS WERE NOT COMPLIED BY THE ASSESSEE. 4. THE FACTS IN BRIEF ARE THAT ASSESSEE IN THE PRES ENT CASE IS A TRUST AND ENGAGED IN EDUCATIONAL ACTIVITIES. IN THE YEAR UNDER CONSIDERA TION, ASSESSEE HAS SHOWN ADVANCE GIVEN TO DR. M. GHOSH BEING WIFE OF THE TRUSTEE FOR 3.19 CRORES IN ITS BALANCE SHEET AS ON 31 ST MARCH 2009 AS DETAILED UNDER:- DATE OF LOAN LOAN AMOUNT (RS) CHEQUE NO. AXIS BANK UTILIZATION AMOUNT (RS) PURPOSE UTILIZED FOR 1.1.08 60,00,000 (OP BAL) 55,86,000 ADVANCE FOR FLAT IN ALIPORE 30.6.08 50,00,000 143326 45,12,000 -DO- 06.07.08 1,10,000 14332 1,07,18,352 LOAN REPAYMENT FOR MANDEVILLE GARDENS FLAT 21.08.08 92,00,000 164126 91,77,689 -DO- 21.01.09 7,00,000 7,00,000 PURCHASE OF LAND AT SHANTI NIKETAN TOTAL 3,19,000 164134 3,06,94,041 OUT OF RS.3.19 CRORES A SUM OF 60 LACS WAS GIVEN IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. 2008-09. ACCORDING TO THE AO T HERE WAS VIOLATION OF THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT WHICH PR OHIBITS THE EXEMPTION IN THE CASE WHERE THE INCOME OF THE TRUST ENSURES OR APPLI ES FOR BENEFIT OF THE PERSONS AS SPECIFIED UNDER SECTION 13(3)(D) OF THE ACT. AS M. GHOSH BEING THE WIFE OF THE TRUSTEE IS THE SPECIFIED PERSON AND ACCORDINGLY AN EXPLANATION WAS CALLED FOR FROM THE ASSESSEE. THE ASSESSEE IN COMPLIANCE THERE TO SUBMITTED THAT THE SAID LOAN WAS GIVEN TEMPORARILY FOR THE SPECIFIC PURPOSE OF HIGHER STUDY. HOWEVER, AO DISREGARDED THE CLAIM OF ASSESSEE AND HELD THAT THE EXEMPTION U/S. 11 OF THE ACT IS NOT AVAILABLE TO THE ASSESSEE AS IT HAS CONT RAVENED THE PROVISION OF SEC. 13(1)(C) OF THE ACT. ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 4 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE CHALLENGED THE ASSESSMENT PROCEEDINGS ON TECHNICAL GROUNDS AS DETAILED UNDER :- I) THE AO HAS CONCLUDED THE ENTIRE INCOME TAX PROC EEDINGS IN TWO HEARINGS ONLY. AS SUCH NO OPPORTUNITY WAS GIVEN TO ASSESSEE TO EXPLAIN THE UTILIZATION OF FUND WHICH WAS SHOWN AS LOAN GIV EN TO DR. M. GHOSH IN ITS BALANCE SHEET. II) A SUM OF 60 LACS WAS ADVANCED IN THE IMMEDIATE PRECEDING ASS ESSMENT YEAR 2008-09 WHICH WAS HELD FOR THE PURPOSE OF SOCI ETY BY THE AO IN HER ORDER U/S. 143(3) OF THE ACT. III) THE ASSESSEE ALSO SUBMITTED THAT EXEMPTION U/ S 11 OF THE ACT WAS GIVEN TO ASSESSEE IN THE EARLIER AND SUCCEEDING ASSESSMEN T YEARS IN SIMILAR FACTS & CIRCUMSTANCES. THEREFORE, ASSESSEE WAS ENTI TLED FOR EXEMPTION/DEDUCTION OF THE ADVANCE PROVIDED BY ASSE SSEE ON THE PRINCIPLE OF CONSISTENCY. IV) THE AO HAS DISALLOWED THE EXEMPTION UNDER SECTI ON 11 OF THE ACT JUST ON THE BASIS OF LOAN PROVIDED TO THE WIFE OF THE TR USTEE WITHOUT CHECKING THE UTILIZATION OF THE LOAN GIVEN BY THE ASSESSEE. THE ASSESSEE BEFORE THE LD. CIT(A) ON MERITS SUBMIT TED AS UNDER : A) THE ADVANCE WAS GIVEN TO DR. M GHOSH TO BUY PROP ERTY AT ALIPORE, KOLKATA ON BEHALF OF TRUST IN THE IMMEDIATE PRECEDI NG AY 2008-09 FOR RS. 60 LACS AND SIMILARLY, ANOTHER ADVANCE PAYMENT WAS MADE IN THE YEAR UNDER CONSIDERATION FOR 50 LACS TO BUY THE SAME PROPERTY AT ALIPORE, KOLKATA. HOWEVER, THE PROPERTY DEAL GOT CA NCELLED AND ADVANCE MONEY WAS RETURNED BACK TO ASSESSEE IN AY 2011-12. THE DEAL OF THE PROPERTY WAS SCRAPPED AS THE ALIPORE PROPERTY WAS N OT MEETING THE NORMS OF AICTE. B) SIMILARLY, AN AMOUNT OF 2.20 CRORES WAS GIVEN TO DR. M GHOSH FOR THE REPAYMENT OF HOUSING LOAN FROM AXIS BANK. IN FACT A SSESSEE HAD TO CLEAR THE HOUSING LOAN AVAILED BY M. GHOSH FOR THE PURPOS E OF MORTGAGING THE PROPERTY WITH THE BANK IN ORDER TO AVAIL THE TERM L OAN OF 13 CRORES FOR THE PURPOSE OF EDUCATIONAL ACTIVITIES OF TRUST AS I T WAS ONE OF THE ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 5 CONDITION IN THE SANCTION LETTER ISSUED BY THE AXIS BANK. THE PROPERTY ON WHICH HOUSING LOAN WAS AVAILED BY ASSESSEE HAS BEEN GIVEN ON RENT FREE BASIS TO ASSESSEE FOR THE USE OF ITS REGISTERED OFF ICE. C) SIMILARLY, 7 LACS WAS ALSO ADVANCED TO DR. M. GHOSH FOR THE PU RCHASE OF PLOT OF LAND ON BEHALF OF TRUSTEE AT SHANTI NIKE TAN. HOWEVER M. GHOSH UTILIZED SUCH ADVANCE OF 7 LAKH FOR ARRANGING LONG TERM LEASE TO ASSESSEE ON RENT FREE BASIS FOR THE PURPOSE OF EDUC ATIONAL ACTIVITIES. THE COPY OF THE LEASE DEED WAS ALSO FILED BY THE ASSESS EE. AS SUCH, ASSESSEE SUBMITTED THAT ALL THE ADVANCE OF 3.19 CRORES WAS UTILIZED SOLELY FOR THE PURPOSE OF TRUSTS ACTIVITIES AND NO BENEFIT DI RECTLY OR INDIRECTLY WAS DERIVED BY TRUSTEE. THE ASSESSEE ALSO SUBMITTED THAT ON SIMILAR SET OF FACTS THE LD. DIT(E) HAS GIVEN EXEMPTION U/S. 10(23C) OF THE ACT. THE AO PROPOSED FOR THE CANCELLATION OF EXEMPTION CERTIFICATE U/S. 12A OF THE ACT BUT SAME WAS NOT CANCELLED BY LD. DIT(E) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF AS SESSEE. LD. CIT(A) ACCORDINGLY DELETED THE ADDITION MADE BY AO BY OBSERVING AS UND ER:- 5.1 IT IS SEEN THAT THE ORDER U/S. 143(3) ASSESSIN G THE INCOME AT RS.7,77,91,639 AGAINST THE RETURNED INCOME OF NIL THEREBY CREATIN G A DEMAND OF RS.351,54,330 HAS BEEN PASSED IN HURRY IN A SUMMARY MANNER IN JUST ONE HEARING. WHATEVER WAS ASKED TO BE SUBMITTED BY THE ASSESSEE HAS BEEN SUBMITTED AND THE AO HAS NOT MENTIONED WHETHER THER E WAS ANY NON- COMPLIANCE OF THE NOTICES US. 142(1)/143(2) OR WHET HER THE ASSESSEE FAILED IN FURNISHING ANY INFORMATION/DETAILS AS CALLED FOR BY HER. THE AO HAS NOT MENTIONED ANY DIRECT OR INDIRECT BENEFIT THAT HAS A CCRUED TO DR M GHOSH, WIFE OF MAIN TRUSTEE, BY THE CUMULATIVE ADVANCE OF RS.3. 19 CRORES SPREAD OVER TWO YEAR. THE AO HAS NEVER ASKED FOR THE UTILIZATION OF THIS ADVANCE BY DR M GHOSH. THE SUBMISSIONS OF THE ASSESSEE WERE FORWARD ED TO AO FOR COMMENTS. THE AO VIDE LETTER DATED 11-2-2013 RECEIVED ON 25-2 -2013 HAS STATED THAT SOME OF THE SUBMISSIONS BEFORE THE UNDERSIGNED ARE AT VA RIANCE WITH THE INITIAL SUBMISSIONS MADE BEFORE HER DURING THE ASSESSMENT P ROCEEDINGS. THEREFORE, SHE INDICATED TO OBTAIN SOME FURTHER CLARIFICATIONS IN THOSE MATTES BEFORE SUBMITTING HER COMMENT. AND AS SHE IS EXTREMELY BUS Y IN COMPLETION OF TIME- BARRING CASES, A TIME TILL 15-4-2013 WAS REQUESTED FOR SUBMISSION OF REPORT/COMMENT. IN VIEW OF THE FACT THAT THE ASSESS MENT WAS COMPLETED IN A SINGLE HEARING AND THE ASSESSEE WAS NOT ASKED TO SU BMIT DETAILS FOR EXPLAINING THE DEPOSITED OF RS.3.19 CRORE WITH ONE DIRECTOR OF THE TRUST WHO ALSO HAPPENS TO BE THE WIFE OF THE MAIN TRUSTEE, I HOLD THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCTION OF EVIDENCE BEFORE THE AO AND FURTHER HOLD ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 6 THAT THE ASSESSEE WAS NOT GIVEN THE SUFFICIENT OPPO RTUNITY TO ADDUCE EVIDENCE RELEVANT TO THE GROUND OF APPEAL. THE CASE OF THE A SSESSEE FALLS IN THE CONDITIONS MENTIONED IN RULE 46(A(1)(C & D). AFTER GIVING A REASONABLE OPPORTUNITY TO THE AO AS PER THE REQUIREMENTS OF RU LE 46A(3), THE SUBMISSIONS OF THE ASSESSEE BEFORE THE UNDERSIGNED DURING THE A PPELLATE PROCEEDINGS ARE ADMITTED. 5.2 THE ASSESSEE HAS SUBMITTED THE DETAILS OF END-U SE OF THE FUNDS PLACED AT THE DISPOSAL OF DR M GHOSH. THE DETAILS OF END-USE OF T HESE FUNDS WERE THERE BEFORE THE COMPLETION OF ASSESSMENT I.E. 26 TH DECEMBER 2011. BUT AS THE AO DID NOT ASK FOR THE DETAILS OF THE UTILIZATION OF THE F UNDS WITH DR M GHOSH, THE ASSESSEE COULD NOT FURNISH THE SAME. IT IS SEEN THA T ALL THE FUNDS PLACED AT THE DISPOSAL OF DR M GHOSH WERE USED FOR THE CHARITABLE PURPOSES OF THE TRUST. THE PAYMENTS WERE ROUTED THROUGH DR M GHOSH BECAUSE OF PRACTICAL REASONS; THE REASONS BEING THE SELLERS OF PROPERTY WERE EITHER R ELUCTANT TO SELL PROPERTY TO TRUST OR USED TO INFLATE PRICES IF PURCHASED IN THE NAME OF TRUST. IN ONE CASE, AS THE DEAL COULD NOT MATERIALIZE, THE ENTIRE AMOUNT W AS DEPOSITED BACK TO THE TRUST. IN OTHER CASE OF PURCHASE OF A PLOT OF LAND AT SHANTI NIKETAN, THE LAND HAS BEEN HANDED OVER TO TRUST VIDE A LONG TERM LEASE RE NT-FREE TO THE TRUST. IN THE CASE OF PROPERTY AT MANDEVILLE GARDEN WHICH IS USED AS THE REGISTERED OFFICE OF THE TRUST, THE PAYMENT OF RS.1.98 CRORES FOR RETIRI NG THE EXISTING HOUSING LOAN FOR AVAILING THE TERM LOAN OF RS.13 CRORES ROUTED THROUGH DR M GHOSH BECAUSE SHE IS ONE OF THE CO-BORROWERS OF THE HOUSING LOAN. FOR STARTING A NEW COLLEGE AT GARIA, THE LOAN WAS REQUIRED. THE BANK WILL REQU IRE COLLATERAL SECURITY WHICH SHOULD BE UNENCUMBERED. THE PROPERTY AT MANDE VILLE GARDEN WHICH IS USED AS THE REGISTERED OFFICE OF THE TRUST WAS ENCU MBERED BY AN OUTSTANDING HOUSING LOAN OF RS.1.98 CRORES. THERE WERE FOLLOWIN G OPTIONS FOR RETIRING THIS HOUSING LOAN FOR AVAILING THE TERM LOAN OF RS.13 CR ORES FROM AXIS BANK. I. MR. SILAJIT GHOSH AND DR M GHOSH BORROWED RS.1.9 8 CRORES FROM SOME OTHER PERSON, PAY TO AXIS BANK FOR RETIRING TH IS LOAN AND START CHARGING RENT FROM THE TRUST FOR USE OF THIS BUILDI NG AS REGISTERED OFFICE. THIS RENT WOULD BE MORE THAN THE EMI FOR REPAYMENT OF LOAN OF R.1.98 CRORES TAKEN TO RETIRE THE HOUSING LOAN. II. THE TRUST ADVANCES AS LOAN OF RS.1.98 CRORES DR M GHOSH FOR RETIRING THE HOUSING LOAN FROM AXIS BANK AND CONTINUES USING THE PROPERTY WITHOUT PAYMENT OF ANY RENT. THE ASSESSEE TRUST AND THE TRUSTEES HAVE CHOSEN THE BETTER OF THESE TWO OPTIONS IN THE INTEREST OF THE OBJECTIVES OF THE TRUST. THE TRUST CONTINUOUS USING THE PROPERTY WITHOUT PAYING ANY RENT BY PAYING ONLY A P ART OF THE COST OF THE PROPERTY; THAT TOO AS LOAN TO DR M GHOSH. THUS, IT IS SEEN THAT DR M GHOSH, WHO IS A DIRECTOR IN THE TRUST AND ALSO THE WIFE OF THE MAIN TRUSTEE, HAS NOT DERIVED BENEFITS BY ROUTING THE TRANSACTIONS THROUG H HER. THE ONLY DIFFERENCE BY TRUST REPAYING THE HOUSING LOAN OF RS.1.98 CRORES O N DR M GOSH TO AXIS BANK ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 7 FOR TAKING A TERM LOAN OF RS.13 CRORES IS THAT NOW DR M GHOSH HAS TO REPAY THIS LOAN TO THE TRUST INSTEAD OF TO THE AXIS BANK. THER EFORE, THERE IS NO VIOLATION OF SECTION 13(1)(C) ALTHOUGH DR M GHOSH IS A PERSON CO VERED UNDER SECTION 13(3)(D). 5.3 THESE FACTS HAVE BEEN EXAMINED BY CCIT-KOL-III WHILE ACCORDING APPROVAL TO THE ASSESSEE UNDER SECTION 10(23C)(VI). THIS APP ROVAL WAS GRANTED AFTER THE REPORT OF DDIT(E), JDIIT(E) AND DIT(E). THIS APPROV AL WAS GRANTED BEFORE THE AO COMPLETED THE ASSESSMENT U/S. 143(3). 5.4 AFTER THE COMPLETION OF ASSESSMENT, THE AO MADE A PROPOSAL TO DIT(E) FOR CANCELLATION OF REGISTRATION U/S. 12A. THE DIT(E) A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DID NOT CANCEL THE REGI STRATION. 5.5 IT IS FURTHER SEEN THAT ON SAME SET OF CIRCUMST ANCES, THE ASSESSEE WAS ALLOWED EXEMPTION U/S. 11 IN IMMEDIATELY PRECEDING AS WELL AS SUCCEEDING AYS. 5.6 IN VIEW OF THE ABOVE, THE ORDER OF AO IS ANNULL ED U/S. 251(1)(A) AND THE APPEAL OF THE ASSESSEE IS ALLOWED. AGGRIEVED BY THIS, REVENUE HAS COME UP IN APPEAL BE FORE US. 8. BEFORE US LD. DR SUBMITTED THAT ASSESSEE HAD PUR CHASED A PROPERTY IN ALIPORE AREA FOR 2,25,60,000/- VIDE INDENTURE OF CONVEYANCE DATED 2 3.09.2009. THE RELEVANT DETAILS OF THE PURCHASE OF ALIPORE PROPERTY IS PLAC ED ON PAGES 3 TO 44 OF THE PAPER BOOK. FURTHER THE SAID PROPERTY WAS SOLD FOR A CONS IDERATION OF 2.50 CRORES AS EVIDENT FROM THE INDENTURE OF CONVEYANCE DATED 18.02.2011. DR. M GHOSH ON SUCH SALE- PURCHASE OF SUCH PROPERTY EARNED PROFIT OF 24.40 LACS WHICH WAS NOT OFFERED TO TAX BY THE ASSESSEE. THEREFORE ASSESSEE IS NOT ENTITLED FO R EXEMPTION U/S 11 OF THE ACT. 8.1 WITH REGARD TO THE ADVANCE GIVEN TO THE WIFE OF TRUSTEE FOR RS. 2.02 CRORES, THE LD. DR SUBMITTED THAT THERE WAS NO SUCH PRE-CONDITI ON MENTIONED IN SANCTION LETTER OF LOAN OF AXIS BANK FOR 13 CRORES TO MORTGAGE THE TRUSTEE FLAT THAT THE AS SESSEE HAS TO REPAY THE HOUSING LOAN WHICH WAS TAKEN BY TRUSTEE. FINALLY THE LD. DR VEHEMENTLY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR ACCEPTED THE ARGUMENTS OF ASSESSEE THAT DR. M GHOSH EARNED AN INCOME OF 24.40 LAKH WHEREIN THE FUND OF ASSESSEE WAS INVOLVE D. LD. AR FURTHER SUBMITTED THAT THE ADDITION OF EXEMPTION CA N BE DENIED TO ASSESSEE U/S. 11 OF THE ACT TO THE EXTENT OF THE AMOUNT OF PROFIT/BENEF IT DERIVED BY DR. M GHOSH. LD. AR ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 8 FURTHER SUBMITTED THAT ALL OTHER ADVANCE GIVEN TO D R. M. GHOSH WAS UTILIZED FOR THE PURPOSE OF THE SOCIETY. THE LD. AR SUPPORTED THE OR DER OF LD. CIT(A). 9. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH PARTIES AND PERUSED THE MATERIALS AVAILABLE. THE ISSUE IN THE INSTANT CASE RELATES TO THE ADVANCE GIVEN BY ASSESSEE TO THE WIFE OF TRUSTEE, THEREBY VIOLATING THE PROVISION OF SEC. 13(1) OF THE ACT. THE AO OBSERVED THAT THE ASSESSEE HAS GIVEN VARIOUS AMOUNT S IN THE SHAPE OF LOAN TO THE WIFE OF TRUSTEE. THEREFORE, ASSESSEE IS NOT ENTITLED FOR CLAIMING EXEMPTION U/S 11 OF THE ACT. ACCORDINGLY, THE EXEMPTION CLAIMED BY ASSESSEE WAS DECLINED AND DEMAND OF TAX WAS RAISED. HOWEVER, LD. CIT(A) OPINED THAT THE TRUSTEE DERIVED NO BENEFIT FROM THE TRUST EITHER DIRECTLY OR INDIRECTLY AND THEREFORE, ASSESS EE IS ENTITLED FOR EXEMPTION U/S. 11 OF THE ACT. 9.1 ADMITTEDLY, THE LOAN WAS PROVIDED BY THE ASSESS EE TO DR. M GHOSH IN THE IMMEDIATE PRECEDING AY 2008-09 AND IN THE YEAR UNDE R CONSIDERATION FOR RS. 60 LACS AND RS.50LACS RESPECTIVELY FOR SOME PROPERTY LOCATE D AT ALIPORE, KOLKATA. FIRST, WE DEAL WITH THE LOAN AMOUNT PROVIDED TO DR. M GHOSH I N THE IMMEDIATE PRECEDING AY 2008-09 FOR 60 LACS AND 50 LACS IN THE YEAR UNDER CONSIDERATION FOR THE PURCHASE OF THE PROPERTY AT ALIPORE. ON EXAMINATION OF THE ORDE R OF AUTHORITIES BELOW AND OTHER RELEVANT RECORDS, WE FIND THAT FLAT WAS PURCHASED A T ALIPORE IN THE FINANCIAL YEAR 2009- 10 ON 23.09.2009 WHICH WAS REGISTERED IN THE NAME O F TRUSTEE AND HIS WIFE. THE TOTAL COST OF FLAT PURCHASED WAS FOR 2,25,60,000/- AS EVIDENT FROM THE INDENTURE OF CONVEYANCE WHICH IS PLACED ON PAGE 7 OF THE PAPER BOOK. FURTHER, THE SAME WAS SOLD IN THE FINANCIAL YEAR 20010-11 DATED 08.02.2011 FOR 2.50 CRORES AS EVIDENT FROM THE INDENTURE OF CONVEYANCE WHICH IS PLACED ON RECORD. THUS THE BENEFIT OF 24.40 LACS WAS DERIVED BY THE TRUSTEE AND HIS WIFE ON THE SALE -PURCHASE OF ALIPORE PROPERTY. ADMITTEDLY, ASSESSEE MADE INVESTMENT OF 1.10 CRORES IN THE PURCHASE OF THE SAID PROPERTY LOCATED AT ALIPORE. THEREFORE, IN OUR CONS IDERED VIEW, THE ASSESSEE IS ENTITLED FOR THE SHARE OF PROFIT TO THE EXTENT OF ITS INVEST MENT I.E. 24.40 LACS X 1.10 CRORES DIVIDE BY 2.25 CRORES = 11.93 LACS. SO THIS AMOUNT OF PROFIT HAS TO BE TAXED UNDER THE IT ACT AS THE PROVISION OF SEC.13(1) OF THE ACT AS THE PROVISIONS HAS BEEN CONTRAVENED TO THIS EXTENT ON THE BASIS OF AVAILABL E FACTS & CIRCUMSTANCES. WE ALSO ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 9 FIND THAT THERE IS NO DISPUTE WITH REGARD TO AMOUNT OF 1.10 CRORES WHICH WAS FINANCED BY THE TRUST HAS COME BACK TO THE TRUST. T HEREFORE, THE AMOUNT OF PROFIT TO THE EXTENT OF 11.93 LACS HAS TO BE SUBJECT TO TAX IN THE RELEVANT YEAR IN WHICH THE PROFIT WAS DERIVED. AS SUCH, THE ASSESSEE WILL NOT BE ELIG IBLE FOR CLAIMING EXEMPTION U/S 11 OF THE ACT FOR THE AMOUNT OF PROFIT OF 11.93 LACS BUT THE ENTIRE EXEMPTION CLAIMED BY ASSESSEE CANNOT BE DENIED. IN THIS CONNECTION, WE R ELY IN CBDT CIRCULAR NO.387 DATED 06.07.1984, THE RELEVANT EXTRACT IS REPRODUCED BELO W:- IN THE PRESENT CONTEXT, PARAGRAPH 28 OF CIRCULAR N O. 387, DT. 6.7.1984, ISSUED BY THE CBDT, UNDER THE HEADING LEVY OF INCOME-TAX AT MAXIMUM MARGINAL RATE IN THE CASE OF CHARITABLE AND RELIGIOUS TRUSTS WHICH FORFEIT TAX EXEMPTION IS VERY RELEVANT. FOR OUR PURPOSE, PARAGRAPH 28.6 O F THE AFORESAID CIRCULAR IS RELEVANT, WHICH IS REPRODUCED AS FOLLOWS: WHERE SUCH A TRUST CONTRAVENES THE PROVISIONS OF S ECTION 13(1)(C) OR (D) OF THE ACT, THE MAXIMUM MARGINAL RATE OF INCOME-TAX WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH HAS FORFEITED EXEMPTI ON UNDER THE SAID PROVISIONS. WE ALSO FIND THE GUIDANCE AND SUPPORT FROM THE JUDG MENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. FR. MULLERS CHARIT ABLE INSTITUTIONS REPORTED IN 363 ITR 230. THE RELEVANT EXTRACT OF THE ORDER IS REPRO DUCED BELOW : 11. WITH REGARD TO SECOND AND THIRD SUBSTANTIAL QU ESTIONS OF LAW ARE CONCERNED, READING OF SECTION 13(L)(D) OF THE ACT M AKES IT CLEAR THAT IT IS ONLY THE INCOME FROM SUCH INVESTMENT OR DEPOSIT WHICH HA S BEEN MADE IN VIOLATION OF SECTION 11 (5) OF THE ACT THAT IS LIABLE TO BE T AXED AND THAT VIOLATION UNDER SECTION 13(L)(D) DOES NOT TANTAMOUNT TO DENIAL OF E XEMPTION UNDER SECTION 11 ON THE TOTAL INCOME OF THE ASSESSEE.AN IDENTICAL QU ESTION CAME BEFORE THE BOMBAY HIGHCOURT IN THE CASE REPORTED IN (2001) 249 ITR 533 (BOM) (SUPRA). THE QUESTION BEFORE THE BOMBAY HIGH COURT IS WHET HER VIOLATION OF SECTION 11(5) R/W SECTION 13(L)(D) BY THE ASSESSEE-TRUST AT TRACTS MAXIMUM MARGINAL RATE OF TAX ON THE ENTIRE INCOME OF THE TRUST? THE BOMBAY HIGH COURT HELD THAT IN CASE OF CONTRAVENTION OF SECTION 13(L)(D), MAXIM UM MARGINAL RATE OF TAX UNDER SECTION 164(2), PROVISO IS APPLICABLE ONLY TO THAT PART OF INCOME OF THE TRUST WHICH HAS FORFEITED EXEMPTION AND NOT THE ENT IRE INCOME. RELEVANT PARAGRAPH READS AS UNDER: SEC. 164(2) REFERS TO THE RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURP OSES. IF SUCH INCOME CONSISTS OF SEVERABLE PORTIONS, EXEMPT AS WELL AS TAXABLE, T HE PORTION WHICH IS EXEMPT IS TO BE LEFT OUT AND THE PORTION WHICH IS NOT EXEMPT IS CHARGED TO TAX AS IF IT IS THE INCOME OF AN AOP. THEREFORE, A PROVISO WAS INSERTED BY THE FINANCE ACT, 1984 ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 10 W.EF 1 ST APRIL 1985, UNDER WHICH IN CASES WHERE THE WHOLE O R ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER S. 11 OR S. 12 BECAUSE OF THE CONTRAVENTION OF S,13(L)(D), THE TAX SHALL BE CHARGED ON SUCH INC OME OR PART THEREOF, AS THE CASE MAY BE, AT THE MAXIMUM MARGINAL RATE. IN OTHER WORDS, ONLY THE NON- EXEMPT INCOME PORTION WOULD FAIL IN THE NET OF TAX AS IF IT WAS THE INCOME OF AN AOP. THE PHRASE RELEVANT INCOME OR PART OF THE REL EVANT INCOME IN THE PROVISO IS REQUIRED TO BE READ IN CONTRADISTINCTION TO THE PHRASE WHOLE INCOME UNDER S.161(1A). THIS IS ONLY BY WAY OF COMPARISON. UNDER S. 161(1 A), WHICH BEGINS WITH A NON OBSTANTE CLAUSE, IT IS PROVIDED T HAT WHERE ANY INCOME IN RESPECT OF WHICH A PERSON IS LIABLE AS A REPRESENTA TIVE ASSESSEE CONSISTS OF PROFITS OF BUSINESS, THE TAX SHALL BE CHARGED ON TH E WHOLE OF THE INCOME IN RESPECT OF WHICH SUCH PERSON IS SO LIABLE AT THE MA XIMUM MARGINAL RATE. THEREFORE, READING THE ABOVE TWO PHRASES SHOWS THAT THE LEGISLATURE HAS CLEARLY INDICATED ITS MIND IN THE PROVISO TO S. 164(2) WHEN IT CATEGORICALLY REFERS TO FORFEITURE OF EXEMPTION FOR BREACH OF S,13(L)(D), R ESULTING IN LEVY OF MAXIMUM MARGINAL RATE OF TAX ONLY TO THAT PART OF THE INCOM E WHICH HAS FOR FORFEITED EXEMPTION. IT DOES NOT REFER TO THE ENTIRE INCOME B EING SUBJECTED TO MAXIMUM MARGINAL RATE OF TAX. THIS INTERPRETATION IS ALSO S UPPORTED BY CIRCULAR NO.387, DT. 6 TH JULY, 1984. VIDE THE SAID CIRCULAR, IT HAS BEEN LA ID DOWN IN PARA 28,6 THAT WHERE A TRUST CONTRAVENES S,13(L)(D), THE MAXI MUM MARGINAL RATE OF INCOME-TAX WILL APPLY ONLY TO THAT PART OF THE INCO ME WHICH HAS FORFEITED EXEMPTION UNDER THE SAID PROVISION AND NOT TO THE E NTIRE INCOME. THERE IS A VITAL DIFFERENCE BETWEEN ELIGIBILITY FOR EXEMPTION AND WITHDRAWAL OF EXEMPTION/FORFEITURE OF EXEMPTION FOR CONTRAVENTION OF THE PROVISIONS OF LAW. THESE TWO CONCEPTS ARE DIFFERENT. THEY HAVE DIFFERE NT CONSEQUENCES. IN THE CIRCUMSTANCES, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT IN THE PRESENT CASE THE MAXIMUM MARGINAL RATE OF TAX WILL APPLY ONLY TO THE DIVIDED INCOME FROM SHARES HELD IN CONTRAVENTION OF S. 13(1 )(A) AND NOT TO THE ENTIRE INCOME. THEREFORE, INCOME OTHER THAN DIVIDEND INCOM E SHALL BE TAXED AT NORMAL RATE OF TAXATION UNDER THE ACT. A SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI HIGH COU RT IN A JUDGMENT REPORTED IN (2002) 253 ITR 593 (SUPRA).READING OF THE PROVIS O TO SECTION 142 IS VERY CLEAR THAT THE LEGISLATURE HAS CLEARLY CONTEMPLATED THAT IN A CASE, WHERE THE WHOLE OR PART OF THE RELEVANT INCOME IS NOT EXEMPTE D UNDER SECTION 11 BY VIRTUE OF VIOLATION OF SECTION 13(1)(D) OF THE ACT, TAX SH ALL BE LEVIED ON THE RELEVANT INCOME OR A PART OF THE RELEVANT INCOME AT THE MAXI MUM MARGINAL RATE. THE SAID ANALOGY IS APPLICABLE TO THE FACTS OF THE PRES ENT CASE. 12. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEWS E XPRESSED BY THE BOMBAY HIGH COURT AS WELL AS DELHI HIGH COURT FOR VIOLATIN G SECTION 11 (5) OF THE ACT AND THE ENTIRE INCOME OF THE RESPONDENT-TRUST CANNO T BE ASSESSED FOR THE TAX. ON THE IDENTICAL FACTS & CIRCUMSTANCES THE HONBLE HIGH COURT OF BOMBAY HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE IN THE CASE OF DIT(E) VS. SHETH MAFATLAL ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 11 GAGALBHAI FOUNDATION TRUST REPORTED IN 249 ITR 533. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW : 6. SEC. 164 DOES NOT CREATE A CHARGE ON THE INCOME OF A DISCRETIONARY TRUST. THE WORD CHARGE IN S. 164 MEANS LEVY. SEC. 164( 2) REFERS TO THE RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TR UST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. IF SUCH INCOME CONSISTS OF S EVERABLE PORTIONS, EXEMPT AS WELL AS TAXABLE, THE PORTION WHICH IS EXEMPT IS TO BE LEFT OUT AND THE PORTION WHICH IS NOT EXEMPT IS CHARGED TO TAX AS IF IT IS T HE INCOME OF AN AOP. THEREFORE, A PROVISO WAS INSERTED BY THE FINANCE AC T, 1984 W.E.F. 1ST APRIL, 1985, UNDER WHICH IN CASES WHERE THE WHOLE OR ANY P ART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER S. 11 OR S. 12 BECAUSE OF THE C ONTRAVENTION OF S. 13(1)(D), THEN THE TAX SHALL BE CHARGED ON SUCH INCOME OR PAR T THEREOF, AS THE CASE MAY BE, AT THE MAXIMUM MARGINAL RATE. IN OTHER WORDS, O NLY THE NON-EXEMPT INCOME PORTION WOULD FALL IN THE NET OF TAX AS IF IT WAS T HE INCOME OF AN AOP. SEC. 11(5) LAYS DOWN VARIOUS MODES OR FORMS IN WHICH A TRUST I S REQUIRED TO DEPLOY ITS FUNDS. SEC. 13(1) LAYS DOWN CASES IN WHICH S. 11 SH ALL NOT APPLY. UNDER S. 13(1)(D)(III), IT HAS BEEN LAID DOWN THAT ANY SHARE IN A COMPANY, NOT BEING A GOVERNMENT COMPANY, HELD BY THE TRUST AFTER 30TH NO V., 1983, SHALL RESULT IN FORFEITURE OF EXEMPTION. BY VIRTUE OF THE PROVISO ( IIA) IT HAS BEEN LAID DOWN THAT ANY ASSET WHICH DOES NOT FORM PART OF PERMISSIBLE I NVESTMENT UNDER S. 11(5) SHALL BE DISPOSED OF WITHIN ONE YEAR FROM THE END O F THE PREVIOUS YEAR IN WHICH SUCH ASSET IS ACQUIRED OR BY 31ST MARCH, 1993, WHIC HEVER IS LATER. IN THE PRESENT CASE, THE ASSESSEE WAS REQUIRED TO DISPOSE OF THE SHARES UNDER THE SAID PROVISO BY 31ST MARCH, 1993, SEE THE JUDGMENT OF TH IS COURT IN IT APPEAL NO. 81 OF 1999, DT, 14TH SEPT., 2000 [ REPORTED AS DIRECTOR OF IT (EXEMPTIONS) VS. SHARDABEN BHAGUBHAI MAFATLAL PUBLIC CHARITABLE TRUS T (2000) 164 CTR (BOM) 97 ]. THE SHARES HAVE NOT BEEN DISPOSED OF EVEN DURING THE ASSESSMENT YEAR IN QUESTION. NOW, UNDER S. 164(2), IT IS, INTER ALIA, LAID DOWN THAT IN THE CASE OF RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST FOR CHARITABLE PURPOSES, WHICH IS OF THE NATURE REFERRED TO IN S. 11(4A), TAX SHALL BE CHARGED ON SO MUCH OF THE RELEVANT INCOME AS IS NOT EXEMPT UNDER S. 11. SEC. 164(2) WAS REINTRODUCED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1989, W.E.F. 1ST APRIL, 1989. EARLIER IT WAS OMITTED BY THE DIRECT T AX LAWS (AMENDMENT) ACT, 1987. HOWEVER, THE LEGISLATURE INSERTED A PROVISO B Y THE FINANCE ACT, 1984, W.E.F. 1ST APRIL, 1985. BY THE SAID PROVISO, IT IS, INTER ALIA, LAID DOWN THAT WHERE WHOLE OR PART OF THE RELEVANT INCOME IS NOT EXEMPT BY VIRTUE OF S. 13(1)(D), TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF THE RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE. THE PHRASE RELEVANT INCOME OR PART OF THE RELEVANT INCOME IS REQUIRED TO BE READ IN CONTRADISTINCTION TO TH E PHRASE WHOLE INCOME UNDER S. 161(1A). THIS IS ONLY BY WAY OF COMPARIS ON. UNDER S. 161(1A), WHICH BEGINS WHICH A NON OBSTANTE CLAUSE, IT IS PROVIDED THAT WHERE ANY INCOME IN RESPECT OF WHICH A PERSON IS LIABLE A S A REPRESENTATIVE ASSESSEE CONSISTS OF PROFITS OF BUSINESS, THE TAX SHALL BE C HARGED ON THE WHOLE OF THE INCOME IN RESPECT OF WHICH SUCH PERSON IS SO LIABLE AT THE MAXIMUM MARGINAL RATE. THEREFORE, READING THE ABOVE IS SO LIABLE AT THE MAXIMUM MARGINAL RATE. ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 12 THEREFORE, READING THE ABOVE TWO PHRASES SHOWS THAT THE LEGISLATURE HAS CLEARLY INDICATED ITS MIND IN THE PROVISO TO S. 164(2) WHEN IT CATEGORICALLY REFERS TO FORFEITURE OF EXEMPTION FOR BREACH OF S. 13(1)(D), RESULTING IN LEVY OF MAXIMUM MARGINAL RATE OF TAX ONLY TO THAT PART OF THE INCOM E WHICH HAS FORFEITED EXEMPTION. IT DOES NOT REFER TO THE ENTIRE INCOME B EING SUBJECTED TO MAXIMUM MARGINAL RATE OF TAX. THIS INTERPRETATION OF OURS I S ALSO SUPPORTED BY CIRCULAR NO. 387, DT. 6TH JULY, 1984. VIDE THE SAID CIRCULAR , IT HAS BEEN LAID DOWN IN PARA 28.6 THAT WHERE A TRUST CONTRAVENES S. 13(1)(D ) OF THE ACT, THE MAXIMUM MARGINAL RATE OF INCOME-TAX WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH HAS FORFEITED EXEMPTION UNDER THE SAID PROVISION AN D NOT TO THE ENTIRE INCOME. WE MAY ALSO ADD THAT IN LAW THERE IS A VITAL DIFFER ENCE BETWEEN ELIGIBILITY FOR EXEMPTION AND WITHDRAWAL OF EXEMPTION/FORFEITURE OF EXEMPTION FOR CONTRAVENTION OF THE PROVISIONS OF LAW. THESE TWO C ONCEPTS ARE DIFFERENT. THEY HAVE DIFFERENT CONSEQUENCES. IT IS INTERESTING TO N OTE THAT ALTHOUGH THE LEGISLATURE WITHDREW S. 164(2) BY THE DIRECT TAX LA WS (AMENDMENT) ACT, 1987, WHICH PROVISION WAS REINTRODUCED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1989, THE LEGISLATURE DID NOT TOUCH THE PROVISO TO S. 164(2) WHICH HAS BEEN ON THE STATUTE BOOK RIGHT FROM 1ST APRIL 1985. THE SAI D PROVISO WAS INSERTED BY THE FINANCE ACT, 1984. THE PROVISO SPECIFICALLY REFERS TO VIOLATION OF S. 13(1)(D) AND ITS CONSEQUENCES. IN THE CIRCUMSTANCES, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT IN THE PRESENT CASE THE MAXIMUM M ARGINAL RATE OF TAX WILL APPLY ONLY TO THE DIVIDEND INCOME FROM SHARES IN MA FATLAL INDUSTRIES LTD. AND NOT TO THE ENTIRE INCOME. THEREFORE, INCOME OTHER T HAN DIVIDEND INCOME SHALL BE TAXED AT NORMAL RATE OF TAXATION UNDER THE ACT. 9.2 IN VIEW OF ABOVE WE FIND THAT IN THE EVENT OF T HE VIOLATION OF THE PROVISIONS OF SEC. 13(1)(C) OF THE ACT, THE AMOUNT OF BENEFIT APP LIED TO THE SPECIFIED PERSONS WILL NOT BE ELIGIBLE FOR THE EXEMPTION UNDER SECTION 11 OF THE ACT. THEREFORE, THE BENEFIT U/S 11 OF THE ACT TO THE EXTENT OF 11.93 LACS WILL NOT BE AVAILABLE TO THE ASSESSEE IN AY 2011-12. 9.3 NOW COMING TO THE AMOUNT ADVANCED BY ASSESSEE T O THE TRUSTEE FOR 2.02 CRORES FOR REPAYMENT OF LOAN OF AXIS BANK, WE FIND THAT SU CH REPAYMENT OF HOUSING LOAN WAS ONE OF THE PRE-CONDITION FOR THE LOAN OF RS. 13 CRO RES FOR THE ACTIVITIES OF THE TRUST IN THE SANCTIONED LETTER ISSUED BY THE AXIS BANK. THE COPY OF THE SANCTIONED LETTER IS PLACED ON PAGES 49 TO 58 OF THE PAPER BOOK. AS PER THE SANCTIONED LETTER WE ALSO FIND THAT THE TRUSTEES AND M. GHOSH HAS ALSO GIVEN PERSO NAL GUARANTEES TO THE BANK FOR LOAN OF RS. 13 CRORES FOR THE TRUST ACTIVITIES AS WELL. THE STATUS OF THE TRUST IS DIFFERENT THAN OF THE TRUSTEES BUT IN THE INSTANT CASE THE TRUSTEE S HAS STOOD AS PERSONAL GUARANTORS ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 13 WHICH SHOWS THAT THE TRUSTEES ARE ALSO EXPOSED TO T HE RISKS FOR THEIR OWN PROPERTIES. THEREFORE IT CANNOT BE INFERRED THAT THE TRUSTEES A RE GETTING ANY BENEFIT DIRECTLY OR INDIRECTLY FROM THE TRUST RATHER THEY (TRUSTEE AND HIS WIFE M. GHOSH) STAND AS GUARANTORS IN THEIR INDIVIDUAL CAPACITY. MOREOVER T HE PROPERTY MORTGAGED HAS BEEN USED AS REGISTERED OFFICE OF THE TRUST. INDEED THE AMOUNT HAS BEEN SHOWN IN THE BALANCE SHEET OF THE TRUST WHICH WILL BE REFUNDED BY THE TR USTEE AND HIS WIFE. SUCH LOAN HAS NOT BEEN WRITTEN OFF BY THE TRUST IN ITS BOOKS OF ACCOU NTS. AS SUCH WE FIND THAT THE TRUSTEE HAS NOT DERIVED ANY BENEFIT EITHER DIRECTLY OR INDI RECTLY. IT IS ALSO NOT IN DISPUTE THAT AMOUNT OF HOUSING LOAN WAS REPAID BY THE TRUST ON B EHALF OF THE TRUSTEE AND M. GHOSH AS IT WAS NECESSARY FOR AVAILING THE LOAN FOR THE E DUCATIONAL ACTIVITIES OF THE ASSESSEE. IN SOMEWHAT SIMILAR CIRCUMSTANCES THE HONBLE JURIS DICTIONAL CALCUTTA HIGH COURT WHERE THE QUESTION OF DEEMED DIVIDEND AS SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT WAS THERE BEFORE IT FOR ADJUDICATION AND IT WAS DEC IDED IN FAVOUR OF ASSESSEE IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT IN ITA NO. 219 OF 2003 . THE RELEVANT ISSUE AND THE FACTS BEFORE THE HONBLE HIGH COURT WERE AS UND ER: AFTER HEARING THE LEARNED COUNSEL FOR THE PARTIES AND AFTER GOING THROUGH THE AFORESAID PROVISIONS OF THE ACT, WE ARE OF THE OPIN ION THAT THE PHRASE BY WAY OF ADVANCE OR LOAN APPEARING IN SUB-SECTION (E) MUST BE CONSTRUED TO MEAN HTTP://WWW.ITATONLINE.ORG 13 THOSE ADVANCES OR LOAN S WHICH A SHARE HOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHARE HOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS B ENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHARE HOLDER, IN SUCH CASE, SU CH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, FOR GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO TH OSE CLASSES OF SHARE HOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2( 22) BUT NOT TO THE CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHARE HOLDER. IN THE CASE BEFOR E US, THE ASSESSEE PERMITTED HIS PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLI NG THE COMPANY TO TAKE THE BENEFIT OF LOAN AND IN SPITE OF REQUEST OF THE ASSE SSEE, THE COMPANY IS UNABLE TO RELEASE THE PROPERTY FROM THE MORTGAGE. IN SUCH A S ITUATION, FOR RETAINING THE BENEFIT OF LOAN AVAILED FROM VIJAYA BANK IF DECISIO N IS TAKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECISION IS NOT TO GIVE GRATUITOU S ADVANCE TO ITS SHARE HOLDER BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY . THE VIEW WE PROPOSE TO TAKE FINDS SUPPORT FROM THE TWO DECISIONS, ONE OF T HE BOMBAY HIGH COURT AND THE OTHER OF THE DELHI HIGH COURT RELIED UPON BY MR . KHAITAN AS INDICATED EARLIER. HTTP://WWW.ITATONLINE.ORG 14 WE, THEREFORE , FIND THAT THE AUTHORITIES ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 14 BELOW ERRED IN LAW IN TREATING THE ADVANCE GIVEN BY THE COMPANY TO THE ASSESSEE BY WAY OF COMPENSATION TO THE ASSESSEE FOR KEEPING HIS PROPERTY AS MORTGAGE ON BEHALF OF THE COMPANY TO REAP THE BENEF IT OF LOAN AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22) (E) OF THE ACT. WE, CONSEQUENTLY, SET ASIDE THE ORDER OF THE TRIBUNAL BELOW BY DIRECT ING THE ASSESSING OFFICER NOT TO TREAT THE ADVANCE OF RS.20,75,000/- AS A DEEMED DIVIDEND. THE APPEAL IS, THUS, ALLOWED BY ANSWERING THE POINT NO. II IN THE AFFIRMATIVE AND AGAINST THE REVENUE. IN FACT THE FACTS OF THE ABOVE CASE ARE NOT MATCHIN G DIRECTLY WITH THE INSTANT CASE BEFORE US BUT THE UNDERLYING PRINCIPLES CAN BE DRAW N WHICH PROHIBIT TO TREAT THE ADVANCE GIVEN BY THE ASSESSEE TO THE DIRECTORS AS D EEMED DIVIDEND IN THE AFORESAID FACTS & CIRCUMSTANCES. IN OUR VIEW SIMILAR PRINCIPL ES CAN ALSO BE APPLIED IN THE GIVEN FACTS & CIRCUMSTANCES OF THE CASE AND THEREFORE THE RE WILL BE NO DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT ON ACCOUNT OF TEMPORARY LOAN GIVEN TO THE TRUSTEE AND HIS WIFE AS PER THE PROVISIONS OF SECTION 13(1)(C) OF T HE ACT. IN VIEW OF ABOVE WE HOLD THERE IS NO CONTRAVENTION OF SECTION 13(1)(C) OF TH E ACT IN AFORESAID FACTS & CIRCUMSTANCES. 9.4 SIMILARLY FOR THE ADVANCE GIVEN BY THE ASSESSEE FOR RS. 7 LACS WE FIND THAT THE LD. DR HAS NOT BROUGHT ANYTHING ON RECORD AGAINST T HE FINDING OF LD. CIT(A). HENCE WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) ON THI S ISSUE. 9.5 WE ALSO FURTHER FIND THAT IN THE SIMILAR FACTS & CIRCUMSTANCES THE LD. CCIT HAS GRANTED THE REGISTRATION UNDER SECTION 10(23C) OF T HE ACT AND THE LD. DIT(E) ALSO GRANTED THE REGISTRATION UNDER SECTION 12AA OF THE ACT. IT IS ALSO IMPORTANT TO NOTE THAT THE LD. DIT(E) UNDER SECTION 264 OF THE ACT ALLOWED THE EXEMPTION UNDER SECTION 11 OF THE ACT FOR THE AY 2011-12 IN THE SIMILAR FACTS & C IRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE VIDE NO. DIT(E)/KOL/264/2014-15/1472 ORDER DATED 20.8.2014. IN THIS VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF CCIT-III AND T HE GROUND RAISED BY REVENUE IS DISMISSED. AO IS DIRECTED ACCORDINGLY. COMING TO ASSESSEES CO.NO.69/KOL/2013 . 10. GROUNDS RAISED BY ASSESSEE IN ITS CO ARE SUPPOR TIVE TO THE ORDER OF LD. CIT(A). LD. AR FOR THE ASSESSEE STATED THAT IF THE REVENUE S APPEAL WAS REJECTED THEN THE CO ITA NO.1031/KOL/2013 & CO. 69/KOL/2013 A.Y. 2009 -10 ITO(E)-II, KOL. VS. FUTURE EDUCATION & RESEARCH TRUST. PAGE 15 OF ASSESSEE WOULD BECOME INFRUCTUOUS BECAUSE IT WAS FILED TO SUPPORT THE ORDER OF LD. CIT(A). HENCE, WE HAVE ALREADY DISMISSED THE REVENU ES APPEAL, THEREFORE CO OF ASSESSEE BECOMES INFRUCTUOUS. 11. IN THE RESULT, ASSESSEES CO IS DISMISSED AS IN FRUCTUOUS. 12. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED AS WELL AS ASSESSEES CO IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN OPEN COURT ON 08/02/2017 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S #$% - 08/02/2017 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. / ASSESSEE-FUTURE EDUCATION & RESEARCH TRUST, NIMPHO OL, 10C, MANDEVILLE GARDENS, BALLYGU NGE, KOLKATA-19 2. /REVENUE-ITO(E)-II, 5 TH FLOOR, 10B, MIDDLETON ROW, KOLKATA-71 3. $$&' ( / CONCERNED CIT 4. ( - / CIT (A) 5. )*+ ,,&' , &' / DR, ITAT, KOLKATA 6. +-. / GUARD FILE. BY ORDER/ , /TRUE COPY/ / $ &',
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