M/s Ursuline Franciscan Congregation , Mangalore V. The Income Tax Officer (Exemption) Ward-1 , Mangalore

ITA 1039/BANG/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8000 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-08-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHEETHAL R BORKAR
• Keywords: Capital asset; Charitable institution; Set aside
• Section: 201; 11(1A); 139(1); 13; 11

Judgement Text

ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.1039/BANG/2017 ASSESSMENT YEAR: 2012- 13 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE SOMARPANN DECLARALAKATTE MANGALORE PAN NO : AAATU0491M VS. ITO (E) WARD-1 MANGALORE APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETHAL R. BORKAR, A.R. RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 05.08.2021 DATE OF PRONOUNCEMENT : 23.08.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 13.3.2017 PASSED BY LD. CIT(A) MANGALORE AND IT REL ATES TO ASSESSMENT YEAR 2012-13. THE GROUNDS OF APPEAL AND ADDITIONAL GROUNDS OF APPEAL URGED BY THE ASSESSEE READ AS UND ER: 1. THE CIT (APPEALS) ERRED IN NOT TREATING THE FIXED D EPOSITS AMOUNTING TO RS.1,47,42,765/- KEPT AS DEPOSIT IN STATE BANK OF I NDIA THOUGH AS ACCUMULATION FOR APPLICATION OF INCOME AS PROVIDED UNDER SECTION 11(2) OF THE ACT THOUGH THE SAID AMOUNTS OF FIXED DEPOSITS W ERE CLAIMED AS ACCUMULATION FOR APPLICATION OF INCOME IN THE RETUR N OF INCOME FILED ON 25.09.2012 UNDER SECTION 139(4A) OF THE ACT. ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 2 OF 9 2. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THAT TH E NOTICE OF ACCUMULATION FOR APPLICATION OF INCOME VIDE THE RETURN OF INCOME FILED FORMED SUFFICIENT COMPLIANCE WITH THE PROVISIONS OF SECTION 11(2)(A) OF THE ACT. 3. THE LEARNED CIT (APPEALS) ERRED IN NOT TREATING THE FIXED DEPOSITS AMOUNTING TO RS.1,47,42,765/- KEPT AS DEPOSIT IN STATE BANK O F INDIA AS ACCUMULATION FOR APPLICATION OF INCOME AS PROVIDED UNDER THE PROVISI ONS OF SECTION 11(2)(B) READ WITH SECTION 11(5) OF THE ACT, THOUGH THE SAID DEPOSITS WERE FROM THE INCOME OF THE TRUST FOR USE OF THE OBJECTS OF THE T RUST. 4. THE LEARNED CIT (APPEALS) ERRED IN NOT DELETING THE ADDITION OF FIXED DEPOSITS MADE BY THE AO AS NOT AMOUNTING TO ACCUMUL ATION FOR APPLICATION OF INCOME AS PROVIDED UNDER SECTION 11(2)(B) READ W ITH SECTION 11(5) OF THE ACT THOUGH IN THE SCRUTINY ASSESSMENT FOR AY 20 11-12 SUCH FIXED DEPOSITS WERE TREATED AS ACCUMULATION FOR APPLICATI ON OF INCOME. ADDITIONAL GROUND OF APPEAL: THE CIT(A) ERRED IN NOT TREATING THE INVESTMENT MAD E IN FIXED DEPOSITS AS APPLICATION OF INCOME FOR THE PURPOSES OF SECTION 1 1(1)(A) OF THE ACT, EVEN THOUGH THE MEMORANDUM OF TRUST OF THE APPELLANT CON TAINED CLAUSES PROVIDING FOR SUCH INVESTMENT IN FIXED DEPOSITS AND ALSO THE FUNDS FROM THE SAME WERE UTILIZED TOWARDS THE OBJECTS OF THE APPEL LANT-TRUST. 2. THE ABOVE SAID GROUNDS GIVE RISE TO FOLLOWING TWO ISSUES:- (A) REJECTION OF CLAIM TO ALLOW DEDUCTION OF FIXED DEPOSITS AS APPLICATION OF INCOME U/S 11(1)(A) OF THE ACT. (B) REJECTION OF CLAIM FOR ACCUMULATION OF INCOME U/S 11(2) OF THE ACT. 3. THE ASSESSEE IS A CHARITABLE TRUST. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSED CLAIMED A SUM OF RS.2,3 8,20,119/- AS APPLICATION OF INCOME TOWARDS ACQUISITION OF ASSETS . THE BREAKUP OF THE ABOVE SAID AMOUNT IS GIVEN BELOW: ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 3 OF 9 FIXED ASSETS AS PER FA SCHEDULE - RS. 90,7 7,354/- INCREASE IN FIXED DEPOSITS - RS.1,47,42,765 /- ---------------------- RS.2,38,20,119 ============== THE AO HELD THAT THE INCREASE IN FIXED DEPOSITS C ANNOT BE CONSIDERED AS APPLICATION OF INCOME AS IT IS A MERE ADMINISTRATIVE ACTIVITY OF CONVERTING THE LIQUID FUNDS INTO FIXED DEPOSITS. ACCORDINGLY, HE REJECTED THE CLAIM OF APPLICATION O F INCOME IN RESPECT OF INCREASE IN FIXED DEPOSITS. THE SAME WA S ALSO CONFIRMED BY LD. CIT(A). 4. THE FIRST ISSUE RELATES TO THE SAID REJECTIO N TO ALLOW THE AMOUNT OF FIXED DEPOSIT AS APPLICATION OF INCOME U/S 11(1) (A) OF THE ACT. THE CONTENTION OF THE ASSESSEE BEFORE THE TAX AUTHORITI ES AS WELL AS BEFORE US IS AS FOLLOWS: A) THE WORD APPLIED USED IN SECTION 11 OF THE ACT DO ES NOT NECESSARILY MEAN SPENT. EVEN IF THE AMOUNT HAS B EEN EARMARKED AND ALLOCATED FOR THE PURPOSE OF THE INST ITUTION, IT MAY BE DEEMED TO HAVE BEEN APPLIED FOR ITS PURPOSES . (CIT VS. RADHASWAMI SAATSANG SABHA 25 ITR 472). B) THE WORD APPLIED IS WIDER IN MERIT THAN THE WORD SPENT. THE MONEY OR AMOUNT WILL NOT GO OUT IRRETRIEVABLY W HEN IT IS APPLIED TO A PURPOSE. C) THE DEPOSIT MADE IN A BANK IS TREATED AS CAPITAL AS SET FOR THE PURPOSE OF SECTION 11(1A) OF THE ACT. HENCE, THE C APITAL ASSET INCLUDES DEPOSITS OR INVESTMENTS IN THE LINE OF OBJ ECTS OF THE TRUST. D) SECTION 11(5) OF THE ACT RECOGNISES DEPOSITS WITH P UBLIC SECTOR COMPANIES AS ONE OF THE MODE OF INVESTMENTS. THIS ONLY SHOWS ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 4 OF 9 THAT AN INVESTMENT OR DEPOSIT IN A PUBLIC SECTOR CO MPANY IS FIRSTLY AN ASSET AND SECONDLY A CAPITAL ASSET AND T HIRDLY A PERMITTED CAPITAL ASSET UNDER THE SPECIAL LAW RELAT ING TO ADJUSTMENT OF CHARITABLE OR PUBLIC RELIGIOUS TRUSTS . 5. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. THE ASSESSEE HAS CLAIMED DEDUCTION OF INVESTMENT MADE I N FIXED DEPOSITS AS A DEDUCTION U/S 11(1)(A) OF THE ACT. A PERUSAL OF SECTION 11(1)(A) WOULD SHOW THAT THE INCOME DERIVED FROM PR OPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURP OSES IN INDIA IS EXEMPT U/S 11(1)(A) OF THE ACT . HENCE, IN ORDER TO CLAIM EXEMPTION U/S 11(1)(A) OF THE ACT, INCOME SHOULD HA VE BEEN APPLIED FOR A CHARITABLE PURPOSE FOR WHICH THE TRUST WAS ES TABLISHED. 6. THE CONTENTION OF THE ASSESSEE IS THAT THE WOR D APPLIED DOES NOT NECESSARILY MEAN SPENT. HOWEVER, IT IS THE D UTY OF THE ASSESSEE TO SHOW THAT THE AMOUNT HAS ACTUALLY BEEN ALLOCATED TO OR EARMARKED FOR A CHARITABLE PURPOSE IN CONSONANCE WI TH THE OBJECTS OF THE TRUST, EVEN THOUGH THE ACTUAL PAYMENT MAY BE MADE LATER. WE FIND SUPPORT FOR THIS PROPOSITION IN THE CASE OF CIT VS. NIZAMS TRUST 131 ITR 497. FOR EXAMPLE, A TRUST MAY PURCHA SE A VEHICLE BEFORE THE END OF THE FINANCIAL YEAR, BUT ACTUAL PA YMENT BE MADE SUBSEQUENTLY. IN THIS EXAMPLE, IF THE TRUST EARMA RKS OR ALLOCATE ITS FUNDS TOWARDS PAYMENT OF VEHICLE COST, IT MAY BE CO NSIDERED AS HAVING BEEN APPLIED. 7. IN THE INSTANT CASE, THE ASSESSEE HAS NOT SHO WN THAT THE AMOUNT KEPT IN FIXED DEPOSITS HAVE BEEN ALLOCATED T O OR EARMARKED FOR A CHARITABLE PURPOSE IN ACCORDANCE WITH THE OBJ ECTS OF THE TRUST. THE ASSESSEE IS MAKING ONLY A GENERAL STATEMENT THA T IT SHOULD BE ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 5 OF 9 CONSIDERED AS APPLIED. HENCE, IN OUR VIEW, THE A SSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11(1)(A) OF THE ACT IN R ESPECT OF DEPOSITS MADE IN THE BANKS. 8. THE ASSESSEE HAS ALSO PLACED RELIANCE ON SECTIO N 11(1A) AND SECTION 11(5) OF THE ACT. WE HAVE GONE THROUGH THO SE SECTIONS OF THE ACT. SECTION 11(1A) IS CONCERNED WITH THE CAPI TAL GAINS ARISING ON SALE OF A CAPITAL ASSET AND ITS REINVESTMENT FOR THE PURPOSE OF AVAILING EXEMPTION, I.E., CONVERSION OF ONE CAPITAL ASSET INTO ANOTHER CAPITAL ASSET. SEC. 11(5) PRESCRIBES MODE OF MAKIN G INVESTMENTS. IN OUR VIEW, THOSE PROVISIONS WILL NOT SUPPORT THE CLAIM OF THE ASSESSEE, SINCE THE DEDUCTION HAS BEEN CLAIMED U/S 11(1)(A) OF THE ACT, AS PER WHICH THE INCOME HAS TO BE APPLIED FOR CHARITABLE PURPOSES. IN ANY CASE, REFERENCE TO THE OTHER SECT IONS, WHICH HAVE BEEN ENACTED FOR SOME OTHER PURPOSE, MAY NOT BE APP ROPRIATE. ACCORDINGLY, WE REJECT THESE CONTENTIONS OF THE ASS ESSEE. IN VIEW OF THE ABOVE SAID DISCUSSIONS, WE CONFIRM THE ORDER PA SSED BY LD. CIT(A) ON THIS ISSUE. 9. THE NEXT ISSUE CONTESTED BY THE ASSESSEE IS THA T THE TAX AUTHORITIES HAVE NOT ACCEPTED APPLICATION MADE IN F ORM NO.10 FOR ACCUMULATION OF FUNDS U/S 11(2) OF THE ACT. BEFORE THE A.O., THE ASSESSEE FILED FORM NO.10 AND RESOLUTION (BOTH DATE D 29.3.2012) REQUESTING HIM TO PERMIT ACCUMULATION OF INCOME U/S 11(2) OF THE ACT, VIDE ITS LETTER DATED 23.3.2015. THE ASSESSEE FILED THE ABOVE SAID FORMS FOR THE FIRST TIME BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, INSTEAD OF FILING THE SAME ALONG WITH RETURN OF INCOME. THE A.O., BY PLACING RELIANCE ON THE CIRCULAR NO.273 DATED 3.6.1980 ISSUED BY CBDT, OBSERVED THAT ONLY CIT IS EMPOWERED TO CONDONE THE DELAY IN FILING FORM NO.10 AND THEREFORE THE A.O. CANNOT CONDONE THE DELAY. FURTHER, THE A. O. NOTICED THAT ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 6 OF 9 THE FORM NO.10 AND RESOLUTION FILED ALONG WITH THE LETTER DATED 23.3.2015 ARE DATED 29.3.2012 AND HENCE HE DOUBTED THE GENUINENESS OF FORM NO.10 AND RESOLUTION DATED 29.3 .2012. ACCORDINGLY, HE REFUSED TO ENTERTAIN THE FORM NO.10 AND RESOLUTION. THE LD. CIT ALSO CONFIRMED THE SAME. 10. BEFORE US, THE LD. A.R. PLACED RELIANCE ON T HE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CI T VS. NAGPUR HOTEL OWNERS ASSOCIATION (2001) 247 ITR 201 AND ALS O THE DECISION RENDERED BY HONBLE ANDHRA PRADESH & TELENGANA HIGH COURT IN THE CASE OF SAMAJA SEVA NIDHI VS. ACIT (2015) 376 ITR 5 07. SHE SUBMITTED THAT THE HONBLE ANDHRA PRADESH & TELENGA NA HIGH COURT, IN THE ABOVE SAID CASE, HAS HELD THAT WHERE THE CHARITABLE TRUST HAD ACCUMULATED CERTAIN AMOUNT AND FURNISHED INFORMATION IN THAT REGARD AFTER LAST DATE OF FILING RETURN OF INCOME BUT BEFORE THE DATE OF COMPLETION OF THE ASSESSMENT, IT WAS ENTITL ED TO BENEFIT OF ACCUMULATION U/S 11(2) OF THE ACT. 11. WE HEARD LD D.R ON THIS ISSUE AND PERUSED T HE RECORD. WE NOTICE THAT THE HONBLE SUPREME COURT HAS OBSERVED AS UNDER IN THE CASE OF NAGPUR HOTEL OWNERS ASSOCIATION (SUPRA) :- IT IS ABUNDANTLY CLEAR FROM THE WORDINGS OF SUB-SE CTION (2) OF SECTION 11 THAT IT IS MANDATORY FOR THE PERSON CLAIMING THE B ENEFIT OF SECTION 11 TO INTIMATE TO THE ASSESSING AUTHORITY THE PARTICULARS REQUIRED, UNDER RULE 17 IN FORM NO.10 OF THE ACT. IF DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DOES NOT HAVE THE NECESSARY INFOR MATION, QUESTION OF EXCLUDING SUCH INCOME FROM ASSESSMENT DOES NOT ARIS E AT ALL. AS A MATTER OF FACT, THIS BENEFIT OF EXCLUDING THIS PARTICULAR PAR T OF THE INCOME FROM THE NET OF TAXATION ARISES FROM SECTION 11 AND IS SUBJECTED TO THE CONDITIONS SPECIFIED THEREIN. THEREFORE, IT IS NECESSARY THAT THE ASSESSING AUTHORITY ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 7 OF 9 MUST HAVE THIS INFORMATION AT THE TIME HE COMPLETES THE ASSESSMENT. IN THE ABSENCE OF ANY SUCH INFORMATION, IT WILL NOT BE POS SIBLE FOR THE ASSESSING AUTHORITY TO GIVE THE ASSESSEE THE BENEFIT OF SUCH EXCLUSION AND ONCE THE ASSESSMENT IS SO COMPLETED, IN OUR OPINION, IT WOUL D BE FUTILE TO FIND FAULT WITH THE ASSESSING AUTHORITY FOR HAVING INCLUDED SU CH INCOME IN THE ASSESSABLE INCOME OF THE ASSESSEE. THEREFORE, EVEN ASSUMING THAT THERE IS NO VALID LIMITATION PRESCRIBED UNDER THE ACT AND TH E RULES EVEN THEN, IN OUR OPINION, IT IS REASONABLE TO PRESUME THAT THE INTIM ATION REQUIRED UNDER SECTION 11 HAS TO BE FURNISHED BEFORE THE ASSESSING AUTHORITY COMPLETES THE CONCERNED ASSESSMENT BECAUSE SUCH REQ UIREMENT IS MANDATORY AND WITHOUT THE PARTICULARS OF THIS INCOM E THE ASSESSING AUTHORITY CANNOT ENTERTAIN THE CLAIM OF THE ASSESSE E UNDER SECTION 11 OF THE ACT, THEREFORE, COMPLIANCE OF THE REQUIREMENT OF TH E ACT WILL HAVE TO BE ANY TIME BEFORE THE ASSESSMENT PROCEEDINGS. HENCE IT HAS BEEN HELD IN MANY CASES THAT THE FORM NO.10 COULD BE FILED BEFORE COMPLETION OF ASSESSMENT PROCEEDING. 12. HOWEVER, INCOME TAX ACT HAS BEEN AMENDED NO W AND WE NOTICE THAT THE TIME LIMIT FOR FURNISHING FORM NO.1 0 HAS BEEN PRESCRIBED IN SECTION 11(2)(C) OF THE ACT BY FINANC E ACT, 2015 W.E.F. 1.4.2016. HENCE THE AMENDMENT SHALL TAKE EFFECT FR OM AY 2016-17 ONLY. IT IS PERTINENT TO NOTE THAT RULE 17(2) OF THE INCOME TAX RULES AS AMENDED FROM 1.4.2016 AND ALSO EARLIER RULE 17 P RESCRIBED THAT THE FORM NO.10 SHALL BE FURNISHED BEFORE THE EXPIRY OF TIME LIMIT U/S 139(1) FOR FURNISHING RETURN OF INCOME. WE NOT ICE THAT THE CHANDIGARH BENCH OF TRIBUNAL HAS HELD IN THE CASE O F INFRASTRUCTURE DEVELOPMENT FUND VS DCIT (ITA NO.220 /CHD/2020 DATED 24.08.2020) THAT THE AMENDMENT HAS BEEN BROUG HT INTO THE INCOME TAX ACT WITH EFFECT FROM 1.4.2016 AND HENCE IT WILL APPLY ONLY FROM AY 2016-17. THE TRIBUNAL DID NOT GIVE MU CH CREDENCE TO ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 8 OF 9 THE TIME LIMIT PRESCRIBED IN THE INCOME TAX RULES E ARLIER, SINCE THERE WAS NO CORRESPONDING CONDITION PRESCRIBED IN THE SU BSTANTIVE LAW. 13. THE YEAR UNDER CONSIDERATION BEING ASSESSMEN T YEAR 2012-13, THE AMENDED PROVISIONS WILL NOT BE APPLICABLE TO TH E ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE AO HAS ONLY DOUB TED THE DATE OF FORM NO.10, BUT THE UNDISPUTED FACT REMAINS THAT TH E FORM NO.10 AND RESOLUTION HAVE BEEN FILED BEFORE HIM DURING TH E COURSE OF ASSESSMENT PROCEEDING ITSELF, I.E., BEFORE COMPLETI ON OF THE ASSESSMENT. 14. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE AO SHOULD HAVE ENTERTAINED FORM NO.10 AND RESOLUTION FILED BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CI T(A) ON THIS ISSUE AND RESTORE THIS ISSUE TO THE FILE OF THE A.O . WITH A DIRECTION TO CONSIDER FORM NO.10 AND RESOLUTION FILED BY THE ASS ESSEE AND EXAMINE THE CLAIM OF THE ASSESSEE U/S 11(2) OF THE ACT IN ACCORDANCE WITH LAW. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUG, 2021. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 23 RD AUG, 2021. VG/SPS ITA NO.1039/BANG/2017 M/S. URSULINE FRANCISCAN CONGREGATION GENERALATE, MANGALORE PAGE 9 OF 9 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.