Gulf Returnees Educational Society, CHENNAI V. ADIT, CHENNAI

ITA 1421/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95914 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 10-06-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Maximum Marginal Rate
• Section: 12AA; 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! , ' #$ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1421/MDS/2015 / ASSESSMENT YEAR : 2009-10 GULF RETURNEES EDUCATIONAL SOCIETY AA-70, FIRST FLOOR, 2 ND STREET IIIRD MAIN ROAD ANNA NAGAR WEST CHENNAI 600 040 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX (EXEMPTIONS)-III CHENNAI [PAN AAATG 2715 J] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SMT .PUSHYA SITARAMAN, SR.ADVOCATE SMT. J SREEVIDYA, ADVOCATE /RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT / DATE OF HEARING : 06 - 08 - 2015 / DATE OF PRONOUNCEMENT : 21 - 0 8 - 2015 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VII, CHENN AI, DATED 2.3.2015 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISALLOW ANCE OF EXEMPTION CLAIMED BY THE ASSESSEE U/S 11 OF THE A CT. ITA NO.1421/15 :- 2 -: 3. SMT. PUSHYA SITARAMAN, LD. SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A CHARITABLE INSTIT UTION REGISTERED U/S 12AA OF THE ACT. DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE FILED RETURN OF INCOME DISCLOSING INCOME OF ` 9,23,17,011/- AND CLAIMED EXEMPTION U/S 11 OF THE ACT. THE ASSESSING OFFICE R, HOWEVER, DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE-TRUST INCURRED EXPENDITURE ON ONE SHRI G. GEORGE, GENERAL SECRETARY OF THE TRUST WHO IS MANAGING THE AFFAIRS OF THE TRUST. ACCORDING TO THE LD. SENIOR COUNSEL, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER BY WAY OF A LETTER DATED 7.12 .2011 THAT THE FORMER GENERAL SECRETARY, SHRI G. GEORGE MISAPPROPR IATED THE FUNDS OF THE TRUST AND ACTION HAS ALREADY BEEN INITIATED AGA INST HIM. INSPITE OF THAT, THE ASSESSING OFFICER REJECTED THE CLAIM OF T HE ASSESSEE U/S 11 OF THE ACT AND COMPUTED THE TAXABLE INCOME OVER TH E EXPENDITURE AT ` 1,43,46,216/-. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A), BY PLACING RELIANCE ON THE JUDGMENT OF THE RAJASTHAN HIGH COURT IN DCIT VS COSMO METROPOLITAN EDUCATION SOCIETY, 244 ITR 494, AND TH E JUDGMENT OF THE BOMBAY HIGH COURT IN DIT(E) VS SHETH MAFATLAL GAGAL BHAI FOUNDATION TRUST, 249 ITR 533, FOUND THAT THE ASSESSEE INCURR ED EXPENDITURE ON ITA NO.1421/15 :- 3 -: THE GENERAL SECRETARY, THEREFORE, NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. 5. THE LD. SENIOR COUNSEL SUBMITTED THAT SHRI G. GEORG E, THE FORMER GENERAL SECRETARY OF THE ASSESSEE-TRUST MIS APPROPRIATED THE FUNDS, THEREFORE, A COMPLAINT WAS MADE TO THE COMMI SSIONER OF POLICE ON 10.8.2011, THE COPY OF WHICH IS AVAILABLE AT SCH EDULE K OF THE PAPER BOOK. THE LD. SENIOR COUNSEL FURTHER SUBMITT ED THAT AN FIR WAS REGISTERED BY THE POLICE AND THE INVESTIGATION IS P ENDING. REFERRING TO PAGES 25 & 26 OF THE PAPER BOOK, THE LD. SENIOR COU NSEL POINTED OUT THAT THE ASSESSEE-TRUST REMOVED THE ABOVE SAID SHR I G. GEORGE FROM THE PRIMARY MEMBERSHIP OF THE TRUST FOR THE GROSS F INANCIAL IRREGULARITIES COMMITTED BY HIM. ACTION HAS ALSO B EEN INITIATED TO RECOVER THE AMOUNT MISAPPROPRIATED BY HIM FROM THE TRUST. ACCORDING TO THE LD. SENIOR COUNSEL, IT IS NOT AN EXPENDITURE INCURRED BY THE TRUST ON SHRI G. GEORGE, BUT IT WAS FUNDS MISAPPROPRIATED BY SHRI GEORGE. REFERRING TO THE ORDER OF THE MADRAS HIGH COURT IN O.A NO.740 OF 2010 DATED 18.8.2010, THE LD. SENIOR COUNSEL SUBMITTED T HAT, IN FACT, THE ABOVE SAID SHRI G.GEORGE HAS DISTURBED THE FUNCTION ING OF THE TRUST ALONGWITH OTHERS, THEREFORE, THE ASSESSEE WAS CONS TRAINED TO MOVE THE HIGH COURT. THE HIGH COURT APPOINTED A RETIRED JUDGE OF THE MADRAS HIGH COURT TO CONDUCT THE ELECTION OF THE TR UST. THE LD. SENIOR COUNSEL FURTHER SUBMITTED THAT EVEN THOUGH THESE FA CTS WERE BROUGHT ITA NO.1421/15 :- 4 -: TO THE NOTICE OF THE CIT(A), HE SIMPLY PROCEEDED AS IF THE ASSESSEE- TRUST INCURRED EXPENDITURE ON SHRI G. GEORGE. ACCO RDING TO THE LD. SENIOR COUNSEL, NO EXPENDITURE WAS INCURRED ON SHRI G. GEORGE AND IN FACT, SHRI G. GEORGE MISAPPROPRIATED THE FUNDS OF T HE TRUST FOR WHICH ACTION HAS ALREADY BEEN INITIATED TO RECOVER THE AM OUNT AND CRIMINAL PROSECUTION IS ALSO PENDING INVESTIGATION. 6. THE LD. SENIOR COUNSEL PLACED HER RELIANCE ON THE J UDGMENT OF THE RAJASTHAN HIGH COURT IN DCIT VS COSMOPOLITAN EDUCATION SOCIETY(SUPRA). THE HIGH COURT FOUND THAT IF THERE WAS ANY MISUTILIZATION OR MISMANAGEMENT, ACTION COULD BE TA KEN AGAINST THE MEMBERS OF THE SOCIETY, BUT FROM THE RECORDS AND FACTS, IT IS NOT POSSIBLE TO SAY THAT ANY AMOUNT OF FUNDS OF THE SOC IETY WAS NOT UTILIZED FOR EDUCATIONAL PURPOSES. PLACING RELIANCE ON THE DECISION OF CUTTACK BENCH OF THIS TRIBUNAL IN BHUBANESWAR STOCK EXCHANG E VS ACIT [2005] 96 ITD 480, LD. SENIOR COUNSEL POINTED OUT THAT WHE N THE FUNDS WERE MISUTILIZED AND DIVERTED BY THE OFFICE BEARERS OF T HE TRUST, THE TRIBUNAL FOUND THAT THE ASSESSEE COULD NOT BE HELD RESPONSI BLE FOR THE ACTS OF ITS OFFICE BEARERS WHO COMMITTED DEFAULT IN THEIR P ERSONAL CAPACITY. THE TRIBUNAL FOUND THAT THERE WAS NO VIOLATION OF SECTI ONS 11 & 12 OF THE ACT. THE SENIOR COUNSEL BY PLACING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT VS WORKING WOMENS FORUM, 365 ITR 353, ITA NO.1421/15 :- 5 -: SUBMITTED THAT IF AT ALL THERE WAS ANY VIOLATION U/S 13(1) OF THE ACT, EXEMPTION COULD BE DENIED ONLY TO THE EXTENT OF INC OME WHICH WAS VIOLATIVE OF SEC. 13(1)AND NOT THE ENTIRE CLAIM OF EXEMPTION U/S 11 OF THE ACT. REFERRING TO THE CIRCULAR NO.387 DATED 6. 7.1984 ISSUED BY THE CBDT EXPLAINING THE PROVISIONS OF THE FINANCE ACT, 1984, THE SENIOR COUNSEL POINTED OUT THAT SO FAR AS THE PUBLIC AND R ELIGIOUS TRUSTS ARE CONCERNED, THE BUSINESS PROFITS ARE NOT EXEMPT FROM TAXATION UNLESS THE SAME COMES U/S 11(4A)(A) AND (B) OF THE ACT. THE CBDT FURTHER CLARIFIED THAT WHERE THE TRUST FULFILLS THE PROVISI ONS OF SEC. 13(1) OR 13(D), THE MAXIMUM MARGINAL RATE OF TAX WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH WAS FORFEITED EXEMPTION U/S 11. T HEREFORE, AT THE BEST, EXEMPTION COULD BE DENIED IN RESPECT OF THE I NCOME WHICH WAS MISAPPROPRIATED BY SHRI G. GEORGE, FORMER GENERAL S ECRETARY OF THE ASSESSEE-TRUST. 7. ON THE CONTRARY, SHRI A.V. SREEKANTH, LD. DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE INCURRE D EXPENDITURE ON SHRI G. GEORGE, THE FORMER GENERAL SECRETARY, WHO I S MANAGING THE AFFAIRS OF THE ASSESSEE-TRUST, THEREFORE, THE CIT( A) FOUND THAT THERE WAS CLEAR VIOLATION OF SEC. 13(1)(C) R.W. SEC. 13(3 )OF THE ACT. THE LD. DR SUBMITTED THAT HE IS PLACING RELIANCE ON THE OBS ERVATIONS MADE BY THE ASSESSING OFFICER AND THE CIT(A). ITA NO.1421/15 :- 6 -: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND T HAT THE ASSESSEE- TRUST INCURRED EXPENDITURE ON SHRI G. GEORGE, FORME R GENERAL SECRETARY WHO IS MANAGING THE AFFAIRS OF THE TRUST. IT IS NO T KNOWN ON WHAT ACCOUNT THE EXPENDITURE WAS INCURRED ON SHRI G. GEO RGE. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD THE NAT URE OF EXPENDITURE INCURRED BY ASSESSEE ON SHRI G. GEORGE. THE CIT(A) ALSO PROCEEDED AS IF THE ASSESSEE-TRUST INCURRED EXPENDITURE WHICH W AS IN VIOLATION OF SEC. 13(1) R.W.S 13(3) OF THE ACT. THE CIT(A) HAS ALSO NOT BROUGHT ON RECORD THE NATURE OF EXPENDITURE INCURRED BY THE A SSESSEE ON SHRI G. GEORGE. FROM THE COPY OF THE COMPLAINT TO THE COMM ISSIONER OF POLICE DATED 10.8.2011, IT APPEARS THAT SHRI G. GEORGE AND SMT. ANNAMMA GEORGE INVOLVED IN FRAUDULENT TRANSACTIONS BY MAKIN G PERSONAL PAYMENTS, PERSONAL LOANS FROM BANKS, PURCHASING ASS ETS, VEHICLE ETC BY UTILIZING THE FUNDS OF THE ASSESSEE-TRUST. NOW THE ASSESSEE CONTENDED BEFORE THIS TRIBUNAL THAT FIRST INFORMATI ON REPORT WAS REGISTERED BY THE POLICE AND INVESTIGATION IS GOING ON. BY A RESOLUTION DATED 3.9.1998, THE ASSESSEE-TRUST TERMINATED SHRI G. GEORGE FROM THE MEMBERSHIP AND ALSO DECIDED TO PROCEED LEGALLY TO RECOVER THE AMOUNT WHICH WAS MISAPPROPRIATED BY HIM. BY WAY OF INTERIM ORDER IN O.A.NO.740 OF 2010 DATED 18.8.2010, THE HIGH COURT APPOINTED A ITA NO.1421/15 :- 7 -: RETIRED JUDGE OF THE MADRAS HIGH COURT TO CONDUCT T HE ELECTION FOR THE TRUST. WHEN THE ASSESSEE CATEGORICALLY MAKES A S TATEMENT BY FILING DOCUMENTARY EVIDENCE THAT SHRI G.GEORGE, WAS A SECR ETARY, BUT CONTINUED AS GENERAL SECRETARY BY FRAUDULENT MEANS AND INVOLVED HIMSELF IN MISAPPROPRIATION OF FUNDS IN A DUBIOUS M ANNER, THESE FACTUAL SITUATIONS WERE NOT CONSIDERED BY ANY OF THE AUTHOR ITIES BELOW. THE AUTHORITIES BELOW PROCEEDED AS IF THE ASSESSEE-TRUS T INCURRED EXPENDITURE ON SHRI G. GEORGE. THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT WHEN THE ASSESSEE-TRUST MAKES A CLAIM THAT THE SECRETARY, SHRI G. GEORGE MISAPPROPRIATED THE FUNDS OF THE ASSESSEE- TRUST IN A DUBIOUS MANNER AND HE WAS TERMINATED FRO M THE MEMBERSHIP AND LEGAL ACTION HAS BEEN TAKEN TO RECOV ER THE AMOUNT AND CRIMINAL PROSECUTION IS ALSO PENDING, THIS TRI BUNAL IS OF THE CONSIDERED OPINION THAT THE AUTHORITIES BELOW ARE B OUND TO EXAMINE THE CLAIM OF THE ASSESSEE AND FIND OUT WHETHER IT IS A MISAPPROPRIATION OF FUNDS OR EXPENDITURE INCURRED BY THE ASSESSEE O N THE SECRETARY, SHRI G. GEORGE. WITHOUT EXAMINING THIS BASIC CLAIM OF THE ASSESSEE, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A SSESSING OFFICER DENYING EXEMPTION U/S 11 AS IF THERE WAS A VIOLATI ON OF SEC. 13(1)(C) R.W.S 13(3) OF THE ACT. THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT IF THE FUNDS WERE MISAPPROPRIATED AND LEGAL ACTIONS WERE INITIATED TO RECOVER THE AMOUNT FROM SHRI G. GEORGE AND CRIMINAL PROSECUTION IS ITA NO.1421/15 :- 8 -: ALSO INITIATED, THEN IT CANNOT BE SAID THAT THE AS SESSEE-TRUST INCURRED EXPENDITURE ON SHRI G. GEORGE. MERELY BECAUSE AN OF FICE BEARER IS MISAPPROPRIATED THE FUNDS IN A DUBIOUS MANNER BY MI SUSING HIS POSITION IN THE TRUST THAT CANNOT GO AGAINST THE A SSESSEE ESPECIALLY WHEN LEGAL ACTIONS WERE TAKEN TO RECOVER THE AMOUNT AND CRIMINAL PROSECUTION IS ALSO INITIATED. SINCE THE FACTS WER E NOT EXAMINED BY THE LOWER AUTHORITIES, THIS TRIBUNAL IS OF THE CONSIDE RED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFF ICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ENTIRE ISSUE OF CLAIM OF EXEMPTION U/S 11 OF THE ACT IS REMITTED B ACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXA MINE THE MATERIAL AVAILABLE ON RECORD AND FIND OUT WHETHER IT IS AN E XPENDITURE INCURRED BY THE ASSESSEE ON SHRI G. GEORGE OR THE FUNDS WER E MISAPPROPRIATED BY SHRI G. GEORGE AS CONTENDED BY THE ASSESSEE BEF ORE THIS TRIBUNAL. THEREAFTER, THE ASSESSING OFFICER SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY OF H EARING TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ITA NO.1421/15 :- 9 -: ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OF AUGUST, 2015, AT CHENNAI. SD/- SD/- ( ! ) (CHANDRA POOJARI) ' / ACCOUNTANT MEMBER ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 21 ST AUGUST, 2015 RD %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 4. ' + / CIT 2. / RESPONDENT 5. ),-' . / DR 3. ' +'/! / CIT(A) 6. -0'1 / GF