DDIT, V. Karnataka State Muslim Federation,

ITA 123/BANG/2014

• Counselvise Citation: 12321114 RSA 2014
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-10-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 24-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRA SAD
• Assessee Lawyers: C R NULVI
• Keywords: Charitable institution
• Section: 143(3); 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T . A. NO. 123 /BANG/20 1 4 (ASSESSMENT YEAR : 20 10 - 11 ) DY. DIRECTOR OF INCOME TAX (E), CIRCLE 17(1), BANGA LORE - 560 016 . APPELLANT. VS. KARNATAKA STATE MUSLIM FEDERATION, NO.22/1, ARABIC COLLEGE POST, NAGAWARA, BANGALORE - 45 . .. RESPONDENT. APPELLANT BY : DR. K. SHANKAR PRASAD, JCIT (D.R) R E SPONDENT BY : SHRI C.R. NULVI, C.A. DATE OF H EARING : 13.10.2014. DATE OF P RONOUNCEMENT : 31.10 .201 4 . O R D E R PER SHRI JASON P. BOAZ , A.M . : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), MYSORE DT.4.9.2013 FOR ASSE SSMENT YEAR 2010 - 11. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THE ASSESSEE, A TRUST REGISTERED UNDER SECTION 12AA OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS 'THE ACT') AND OPERATING IN THE FIELD OF EDUCATION, FILED ITS R ETURN OF INCOME FOR ASSESSMENT YEAR 2010 - 11 ON 29.9.2010 DECLARING NIL INCOME, CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT. THE RETURN WAS PROCESSED UNDER 2 IT A NO. 123 /BANG/201 4 SECTION 143(1) OF THE ACT AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WA S COMPLETED UNDER SECTION 143(3) OF THE ACT BY ORDER DT.15.3.2013, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.83,60,640 IN VIEW OF THE ASSESSING OFFICER HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO BE GIVEN EXEMPTION UNDER SECTION 11 OF THE AC T ON THE INVESTMENT MADE BY THE ASSESSEE IN THE PURCHASE OF A MERCEDES BENZ CAR FOR RS.83,60,640 AND ACCORDINGLY THE INVESTMENT THEREIN WA S NOT ALLOWED AS APPLICATION OF INCOME. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2010 - 11 DT. 15.3.2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS), MYSORE. THE LEARNED CIT (APPEALS) DISPOSED OF THE MATTER BY ORDER DT.4.9.2013, ALLOWING THE ASSESSEE'S APPEAL. 3.1 REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), MYSORE DT.4 .9.2013 AND IS NOW IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUNDS : - 1. THE ASSESSEE HAS PURCHASED A LUXURY MERCEDES BENZ CAR AS A NECESSITY. THE ASSESSING OFFICER DISALLOWED THE SAME BY NOTING THAT THIS WAS NOT IN THE SPIRIT OF CHARITY. T HE APPELLANT HAS QUOTED SOME CASE LAWS AND SUBMITTED THAT THE ASSESSING OFFICER CANNOT DECIDE THE CIRCUMSTANCES IN WHICH EXPENDITURE IS INCURRED. BASED ON THE APPELLANT S SUBMISSIONS AND THE RESOLUTION OF THE GOVERNING COUNCIL OF THE APPELLANT, THE LEARNED CIT (APPEALS) HAS ALLOWED THE APPEAL. 2. THE ORDER OF THE CIT (APPEALS) V ORDER IS NOT ACCEPTABLE. 3. WHENEVER THE ASSESSEE IS CLAIMING EXEMPTION UNDER SECTION 11, IT IS PERTINENT TH A T, THE ASSESSING OFFICER CONSIDERS ALL EXPENDITURES IN THE VIEW POINT OF NECESSITY AND WHETHER THE EXPENDITURE IS IN THE SPIRIT OF CHARITY. ALL THESE INSTITUTIONS CLAIM EXEMPTION OF INCOME ON THE BASIS OF BEING CHARITABLE AND NOT BECAUSE THEY RUN COMMERCIALLY. IN THE CASE OF A COMMERCIALLY RUN BUSINESS, THE EXPENDITUR E IS CHECKED ONLY FOR ITS GENUINENESS, BUT IN THE CASE OF CHARITABLE INSTITUTIONS APPLICATION OF INCOME IS ALSO CHECKED FOR ITS NECESSITY. THE ASSESSEE CANNOT CLAIM 3 IT A NO. 123 /BANG/201 4 THAT EXPENDITURE ON LUXURIOUS CARS IS NECESSITY AS THAT WOULD INDIRECTLY LEAD TO LESSER IN COME BEING APPLIED FOR CHARITABLE PURPOSES. 3.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED (SUPRA) , WHICH IS ON THE SOLITARY ISSUE OF DISPUTE IN THIS APPEAL, REGARDING THE EXPENDITURE INCURRED IN THE PURCHASE OF MERCEDES BENZ CAR FOR RS.83,60,640. HE PLACED RELIAN CE ON THE FINDING OF THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT; I.E. THAT THE ASSESSEE IS NOT ENTITLED TO BE GIVEN EXEMPTION UNDER SECTION 11 OF THE ACT ON THE INVESTMENT IN THE PURCHASE OF A MERCEDES BENZ CAR AMOUNTING TO RS.83,60,640 AND THEREFORE THIS INVESTMENT IS NOT TO BE ALLOWED AS APPLICATION OF INCOME. 3.3 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED CIT (APPEALS), ALLOWING THE ASSESSEE'S A PPEAL ; HOLDING THAT THERE IS NO VIOLATION OF THE PROVISIONS OF SECTION 11 OF THE ACT BY THE ASSESSEE AND THE QUANTUM OF EXPENDITURE INCURRED FOR PURCHASE OF THE CAR HAS NO BEARING IN THE MATTER. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE REITERATED T HE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEALS). ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE, THE ASSESSEE TRUST PURCHASED A MERCEDES BENZ CAR IN THE NAME OF THE CHAIRMAN, H.K.B.K. COLLEGE OF ENGINEERING WHICH IS RUN BY THE ASSESSEE TRUST. FO R THIS PURPOSE, IT IS SUBMITTED THAT THE GOVERNING COUNCIL OF THE HKBK COLLEGE OF ENGINEERING, WHO ARE ALSO THE TRUSTEES OF THE ASSESSEE TRUST, PASSED A SPECIAL RESOLUTION ON 30.9.2009 TO PURCHASE OF A MERCEDES BENZ S 320 CDI MODEL DIESEL VEHICLE. IT IS F URTHER SUBMITTED THAT THIS 4 IT A NO. 123 /BANG/201 4 RESOLUTION ALSO CONTAINED THE EXPLICIT PURPOSE AND NECESSITY FOR THE PURCHASE AND USE OF THE CAR, I.E. FOR PROVISION OF THE FACILITY OF THE USE OF THIS CAR TO THE TOP EXECUTIVES OF PREMIER COMPANIES LIKE INFOSYS TECHNOLOGIES LTD. , W IPRO , SONATA SOFTWARE, NORTON, TANGENT INDIA CORPORATION, MICROSOFT, SASKEN COMMUNICATION TECHNOLOGIES, SEIMENS, TECH MAHINDRA, INDIAN ARMY, INDIAN AIR FORCE, INDIAN NAVY, ETC. TO VISIT THEIR COLLEGES FOR CAMPUS INTERVIEWS AND PLACEMENTS; AND THEREBY BE NEFITING THE EMPLOYMENT PROSPECTS OF THEIR STUDENTS AS WELL AS THE IMAGE OF THE COLLEGES. ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE, A PERUSAL OF THE ORDER OF ASSESSMENT CLEARLY BRINGS OUT THE FACT THAT THE ASSESSING OFFICER HAS NOT QUESTIONED TH E GENUINITY OF THE TRANSACTION OF PURCHASE OF THE CAR, OR ESTABLISHED VIOLATION BY THE ASSESSEE OF THE PROVISIONS OF SECTION 13 AND 11 OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT THE ASSESSING OFFICER HAS ONLY QUESTIONED THE NECESSITY O F THE QUANTUM OF EXPENDITURE INCURRED AND THE QUALITY OF THE CAR PURCHASED; WHICH HE CONTENDS HAS NO BEARING ON THE ISSUE AND THEREFORE THE REVENUE S APPEAL HAVING NO MERIT OUGHT TO BE DISMISSED. 3.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREF ULLY CONSIDERED THE MATERIAL ON RECORD. THE ONLY ISSUE OF DISPUTE BEFORE US IS WHETHER THE PURCHASE OF A MERCEDES BENZ CAR FOR RS.83,60,640 BY THE ASSESSEE TRUST IS IN VIOLATION OF THE PROVISIONS OF SECTION 11 OF THE ACT AS ALLEGED BY REVENUE. 5 IT A NO. 123 /BANG/201 4 3.4.2 THE ASSESSEE TRUST IS REGISTERED UNDER SECTION 12A OF THE ACT AND HAS CLAIMED EXEMPTION UNDER SECTION 11 OF THE ACT IN RESPECT OF ITS INCOME IN THE YEAR UNDER CONSIDERATION. IN ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE TRUST HAD PURCHASED A MERCEDES BENZ CAR FOR RS.83,60,640. THE ASSESSING OFFICER AFTER EXAMINING THE DETAILS OF PURCHASE OF THE CAR, QUESTIONED BOTH THE NECESSITY OF THE CAR FOR THE ASSESSEE S USE AND THE AMOUNT SPENT ON THE PURCHASE OF A LUXURIOUS CAR LIKE THE MERCEDES BENZ INSTEAD OF A CHEAPER CAR WHICH, IN HER OPINION, WOULD BE SUFFICIENT FOR THE ASSESSEE'S PURPOSES. IN THIS VIEW OF THE MATTER APPLICATION OF THE SAID INVESTMENT WAS NOT ALLOWED UNDER SECTION 11 OF THE ACT. 3.4.3 ON APPRECIATION OF THE FA CTS ON RECORD IN THE ORDER OF ASSESSMENT, ON THIS ISSUE, WE FIND THAT THE AS SESSING OFFICER HAS NOT MADE OUT ANY CASE THAT THE ASSESSEE HAS EITHER VIOLATED THE PROVISIONS OF SECTIONS 11 AND 13 OF THE ACT OR QUESTIONED THE GENUINENESS OF THE TRANSACTION TO JUSTIFY DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT TO THE ASSESSEE. THE ASSESSING OFFICER HAS MERELY QUESTIONED THE NECESSITY OF SUCH EXPENDITURE FOR THE PURPOSES OF THE TRUST AND THE QU ANTUM OF SUCH EXPENDITURE BEING MADE ON A LUXURY CAR INSTEAD OF A CHEAPER ONE. IT IS SEEN THAT THE PURCHASE OF THE MERCEDES S - 320 CDI MODEL DIESEL VEHICLE HAS BEEN APPROVED BY A SPECIAL RESOLUTION OF THE ASSESSEE TRUST ON 30.9.2009. THE PURPOSE OF THE PURCHASE STATED THEREIN WAS FOR AFFORDING THE FACILITY OF CAR S USE TO THE TOP EXECUTIVES OF REPUTED COMPANIES LIKE 6 IT A NO. 123 /BANG/201 4 INFOSYS TECHNOLOGIES LTD., WIPRO LTD., NORTON, MICROSOFT, TECH MAHINDRA, SEIMENS, ETC. FOR CONDUCTING CAMPUS INTERVIEWS OF ITS STUDENTS IN ORDER TO ENABL E THEM TO IMPROVE THEIR PROSPECTS FOR PROCURING GO OD JOBS AND CAMPUS PLACEMENTS. THIS STATED PURPOSE, IN OUR CONSIDERED VIEW, WOULD BE SUFFICIENT TO JUSTIFY THE FACT THAT THE PURCHASE OF THIS CAR WOULD BE BENEFICIAL BOTH TO THE IMAGE OF COLLEGES RUN BY THE ASSESSEE TRUST AND BENEFIT THE EMPLOYMENT PROSPE CTS OF STUDENTS STUDYING THERE. THE ASSESSING OFFICER S EMPHASIS ON THE QUANTUM INVOLVED; I.E. THAT THE ASSESSEE TRUST OUGHT TO HAVE PURCHASED A CHEAPER CAR, WHICH WOULD HAVE BEEN SUFFICIENT FOR THE ASSESSEE , DOES NOT DENY THE ASSESSEE'S REQUIREMENT OF A CAR . I N OUR VIEW, THE QUANTUM OF EXPENDITURE HAS NO BEARING IN THE MATTER WHATSOEVER AND EVEN LESS FOR DENYING THE ASSESSEE APPLICATION OF THE INVESTMENT IN THE SAID CAR AS APPLICATION OF ITS INCOME AND EXEMPTION UNDER SECTION 11 OF THE ACT. FINDING THE REVENUE S APPEAL BEREFT OF ANY MERIT, WE DISMISS THE GROUNDS AT S.NOS.1 TO 3 RAISED BY REVENUE. 5. IN THE RESULT, REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2014. SD/ - SD/ - ( P. MADHAVI DEVI ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP 7 IT A NO. 123 /BANG/201 4 COPY TO : 1. APPELLANT 2. RESPO NDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE