India Heritage Foundation, Bangalore V. DDIT, Bangalore

ITA 146/BANG/2012

• Counselvise Citation: 14621114 RSA 2012
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-06-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITIDR
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Capital asset; Revision of order; Charitable institution; Opportunity of being heard; Retrospective amendment; Cost of acquisition; Assessment record; Capital expenditure
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.146/BANG/2012 ASSESSMENT YEAR : 2009-10 INDIA HERITAGE FOUNDATION, GOKULAM COMPLEX, 8 TH MILE, KANAKAPURA ROAD, DODDAKALLASANDRA, BANGALORE 560 062. PAN : AAATI 4481M VS. THE DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS), CIRCLE 17(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANIAN, C.A. RESPONDENT BY : SHRI S.K. AMBASTHA, CIT-I(DR) DATE OF HEARING : 22.06.2012 DATE OF PRONOUNCEMENT : 29.06.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 19.12.2011 OF DIRECTOR OF INCOME-TAX (EXEMPTION), B ANGALORE, (DIT) PASSED U/S.263 OF THE ACT RELATING TO AY 2009-10. 2. THE ASSESSEE IS A CHARITABLE INSTITUTION REGISTE RED U/S.12A OF THE INCOME TAX ACT, 1961 (THE ACT). FOR AY 2009-10, THE ASSESSEE FILED A ITA NO.146/BANG/12 PAGE 2 OF 17 RETURN OF INCOME DECLARING NIL INCOME. BY AN ORDER DATED 18.3.2011 PASSED U/S.143(3) OF THE ACT, THE AO ACCEPTED THE INCOME SO RETURNED BY THE ASSESSEE. 3. THE DIT IN EXERCISE OF HIS POWERS U/S.263 OF THE ACT PERUSED THE ASSESSMENT RECORDS OF THE ASSESSEE FOR AY 2009-10 A ND WAS OF THE VIEW THAT THE ORDER OF THE AO DT.18.3.2011 PASSED U/S.14 3(3) OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THE DIT NOTICED THAT THE ASSESSEE TRUST WAS ENGAGED IN CONSTRUCTION BUSINESS AND REAL ESTATE ACTIVITIES AND ITS TOTAL TURNOVER WAS TO THE TUNE OF RS.194.24 CRORES AND HAD EARNED A PROFIT OF RS.57.38 CRORES. THE AS SESSEE TRUST HAD CLAIMED EXEMPTION U/S.80-IB(10) OF THE ACT IN RESPE CT OF THE AFORESAID PROFITS. THE AO HAD ALLOWED THE SAME. ACCORDING T O DIT, CHARITABLE TRUSTS ARE NOT ELIGIBLE FOR DEDUCTION U/S.80-IB(10) OF THE ACT AND THEREFORE THE ACTION OF THE AO IN ALLOWING THE AFORESAID CLAIM OF THE ASSESSEE WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. ACCORDINGLY A SHOW CAUSE NOTICE DATED 18.10.2011 WAS ISSUED BY TH E DIT PROPOSING REVISION OF THE ORDER OF THE AO U/S. 263 OF THE AC T. 4. THE ASSESSEE BY REPLY DATED 21.11.2011 SUBMITTE D THAT: (A) THE AO WHILE COMPLETING THE ASSESSMENT U/S.143(3) O F THE ACT HAD APPLIED HIS MIND TO THE CLAIM OF THE ASSESSEE FOR D EDUCTION U/S.80- IB(10) OF THE ACT AND THEREAFTER ALLOWED THE CLAIM OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE VIEW TAKEN BY THE AO WA S A POSSIBLE VIEW AND IN EXERCISE OF POWERS U/S.263 OF THE ACT, THE D IT CANNOT SUBSTITUTE HIS VIEW. IN THIS REGARD, THE ASSESSEE RELIED ON T HE DECISION OF THE ITA NO.146/BANG/12 PAGE 3 OF 17 HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUST RIAL CO. LTD. VS. CIT 243 ITR 83 (SC). (B) ALTERNATIVELY, THE ASSESSEE SUBMITTED THAT IT WAS E NTITLED TO CARRY FORWARD AND SET OFF THE DEFICIT INCURRED IN EARLIER YEARS AGAINST THE INCOME OF THE CURRENT YEAR, IN THAT EVENT THERE WOU LD BE NO INCOME WHICH CAN BE BROUGHT TO CHARGE. IN THIS REGARD THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF SRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL VS. CIT 211 ITR 2 93 (GUJ) AND THE HONBLE MADRAS HIGH COURT IN THE CASE OF GOVINDU NA ICKER ESTATE VS. ADIT 248 ITR 368 (MAD). (C) THE ASSESSEE ALSO SUBMITTED THAT IF THE SET OFF AS AFORESAID IS ALSO HELD TO BE NOT PERMISSIBLE THEN THE INCOME DERIVED FROM DEV ELOPING PROPERTY WHICH BECOMES CHARGEABLE TO TAX HAS TO BE DETERMINE D IN THE MANNER LAID DOWN IN THE ACT. IF INCOME IS SO COMPUTED THE N THE ASSESSEE HAS TO BE ALLOWED DEDUCTION U/S.80-IB(10) OF THE ACT. IN THIS REGARD THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF CIT VS. HARIPRASAD & CO. 99 ITR 118 (SC) WH EREIN IT WAS HELD THAT TOTAL INCOME HAS TO BE COMPUTED IN THE MANNER LAID DOWN IN THE ACT. THE ASSESSEE THUS SUBMITTED THAT A CHARITABLE TRUST WOULD ALSO BE ENTITLED TO DEDUCTION U/S.80-IB(10) OF THE ACT. 5. THE DIT HOWEVER DID NOT AGREE WITH THE CONTENTIO NS PUT FORTH ON BEHALF OF THE ASSESSEE. HE HELD THAT THE AO WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF THE ACT DID NOT MAKE PROPE R ENQUIRIES TO VERIFY ITA NO.146/BANG/12 PAGE 4 OF 17 THE DETAILS FILED AND GIVE A SPECIFIC FINDING AS TO WHETHER THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S.80-IB(10) OF THE ACT AND WHETHER THE ASSESSEE HAS APPLIED ITS INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES AS PER THE PROVISIONS OF SEC.11 OF THE ACT. HE THEREFORE HELD THAT THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF T HE REVENUE. 6. WITH REGARD TO THE ALTERNATIVE CONTENTION OF THE ASSESSEE REGARDING SET OFF THE EARLIER YEARS DEFICIT AGAINST THE CURR ENT YEARS INCOME, THE DIT HELD THAT THERE WAS NO CARRY FORWARD OF DEFICIT CLA IMED OR ALLOWED BY THE AO IN THE EARLIER YEARS. THE DIT ALSO HELD THAT THE P ROVISIONS OF SEC.70, 71 AND 72 OF THE ACT ARE NOT APPLICABLE TO THE INCOME COMPUTED U/S.11 OF THE ACT. 7. WITH REGARD TO THE CONTENTION OF THE ASSESSEE TH AT ONCE THE CHARACTER OF INCOME DOES NOT FALL WITHIN THE AMBIT OF SEC.11 OF THE ACT THE SAID INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT AND IF SO COMPUTED, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S.80- IB(10) OF THE ACT, THE DIT HELD THAT INCOME AS FAR AS IT RELATES TO INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR C HARITABLE OR RELIGIOUS PURPOSES IS CONCERNED IS NOT EQUIVALENT TO TOTAL IN COME UNDER THE ACT AND THEREFORE SEC.14 PROVIDING FOR DIFFERENT HEADS OF I NCOME AND TOTAL INCOME AND CHAPTER VIA ARE NOT APPLICABLE WHILE COMPUTING INCOME U/S.11 OF THE ACT. IN THIS REGARD THE DIT ALSO REFERRED TO A CIR CULAR OF CBDT VIZ., CIRCULAR NO.5 LXX-6 DATED 19.6.1968 WHEREIN IT HAS BEEN EXPL AINED AS FOLLOWS: IT WOULD BE INCORRECT TO ASSIGN TO THE WORD INCOM E USED IN SECTION 11(1)(A), THE SAME MEANING AS HAS BEEN SPEC IFICALLY ASSIGNED TO THE EXPRESSION TOTAL INCOME VIDE SECT ION 2(45). ITA NO.146/BANG/12 PAGE 5 OF 17 IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TR UST, ITS INCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1). THE PERMITTED ACCUMULATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCO ME. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY , INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WO RD INCOME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATION S THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. THE AMOUNT S SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT OF T HE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LES S THAN 75 PERCENT OF THE LATTER, IF THE TRUST IS TO GET THE F ULL BENEFIT OF THE EXEMPTION UNDER SECTION 11(1). 8. THE DIT WAS OF THE VIEW THAT THE METHOD OF COMPU TING INCOME OF A CHARITABLE TRUST IS DIFFERENT FROM THAT FOLLOWED IN THE CASE OF OTHER ASSESSES, IN THAT, IT IS THE COMMERCIAL CONCEPT OF INCOME WHI CH IS TO BE CONSIDERED AND NOT THE INCOME AS COMPUTED UNDER THE VARIOUS HE ADS OF INCOME AS SPECIFIED IN SECTION 14. IN OTHER WORDS, THE INCOM E FOR THE PURPOSE OF SECTION 11 IS THE INCOME AS PER THE ACCOUNTS OF THE TRUST. IT MEANS THE INCOME IN THE COMMERCIAL SENSE, WITHOUT REFERENCE T O THE HEADS OF INCOME SPECIFIED IN SECTION 14, I.E., THE BOOK INCOME AND NOT THE TOTAL INCOME AS DEFINED IN SEC.2(45). THEREFORE IN COMPUTING THE I NCOME OF THE TRUST, THE INCOME ARISING FROM PROPERTY HELD UNDER TRUST FOR P UBLIC CHARITABLE OR RELIGIOUS PURPOSES IS TO BE FIRST COMPUTED AND THER EAFTER, THE AMOUNT APPLIED FOR CHARITABLE PURPOSE IS DETERMINED. THE DIT IN SUPPORT OF THE ABOVE CONCLUSION RELIED ON THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF DIT( E) VS. GIRIDHARILAL SHEWNARAIN TANTIA TRUST 1 99 ITR 215 (CAL) . THE FACTS OF THE AFORESAID CASE WERE THE ASSESSE E WAS A TRUST. ITA NO.146/BANG/12 PAGE 6 OF 17 THE ASSESSING OFFICER REJECTED THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 80T OF THE INCOME-TAX ACT, 1961. SECTION 80 T PROVIDED THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE NOT BEING A COMPANY INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' R ELATING TO CAPITAL ASSETS OTHER THAN SHORT-TERM CAPITAL ASSETS, A STR AIGHT DEDUCTION TO THE EXTENT OF THE PRESCRIBED PERCENTAGE OF SUCH GAINS FROM THE TOTAL INCOME ITSELF SHALL BE ALLOWED. THE FIRST RS. 5,000 OF TH E LONG-TERM CAPITAL GAINS IS NOT LIABLE TO ANY TAX AND HAS TO BE EXCLUDED FROM THE AMOUNT OF LONG-TERM CAPITAL GAINS AND, ON THE BALANCE, THE RELIEF IS A LLOWABLE AT THE PRESCRIBED PERCENTAGE. THE TRIBUNAL ALLOWED THE CLAIM OF THE A SSESSEE FOR DEDUCTION U/S.80T OF THE ACT. THE QUESTION BEFORE THE HONBL E HIGH COURT WAS AS TO 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE PROPER INTERPRETATION OF SECTION 11 OF THE I NCOME-TAX ACT, 1961, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE CAPITAL GAIN AMOUNTING TO RS. 2,91,644 IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 T OF THE INCOME-TAX ACT, 1961? THE HONBLE CALCUTTA HIGH COURT HELD THAT UNDER S ECTION 11 OF THE INCOME-TAX ACT, 1961, INCOME DERIVED FROM PROPERTY HELD UNDER TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES IS EXEMPT FROM INC OME-TAX TO THE EXTENT SUCH INCOME IS ACTUALLY APPLIED TO SUCH PURPOSES DU RING THE PREVIOUS YEAR ITSELF OR WITHIN THE THREE MONTHS NEXT FOLLOWING. A S 'INCOME' INCLUDES 'CAPITAL GAINS', A CHARITABLE OR RELIGIOUS TRUST WO ULD FORFEIT EXEMPTION FROM INCOME-TAX IN RESPECT OF ITS INCOME BY WAY OF CAPIT AL GAINS UNLESS SUCH INCOME IS ALSO APPLIED FOR THE PURPOSES OF THE TRUS T DURING THE STIPULATED PERIOD. BY SUB-SECTION (1A), IT HAS BEEN PROVIDED T HAT, IN A CASE WHERE A CAPITAL ASSET BEING PROPERTY HELD UNDER TRUST FOR C HARITABLE OR RELIGIOUS ITA NO.146/BANG/12 PAGE 7 OF 17 PURPOSES IS TRANSFERRED AND THE WHOLE OR ANY PART O F THE NET CONSIDERATION FOR THE TRANSFER (I.E., FULL VALUE OF CONSIDERATION AS REDUCED BY THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER) IS UTILISED FOR ACQUIRING ANOTHER CAPITAL ASSET TO BE HELD AS PART OF THE CORPUS OF THE TRUST, THE CAPITAL GAIN ARISING FROM THE TRANSFER WILL BE REGARDED AS HAVING BEEN APPLIED TO CHARITABLE OR RE LIGIOUS PURPOSES. WHERE THE WHOLE OF SUCH NET CONSIDERATION IS UTILISED IN ACQUIRING THE NEW CAPITAL ASSET, THE ENTIRE AMOUNT OF THE CAPITAL GAIN WILL B E REGARDED AS HAVING BEEN APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES WHILE, IN A CASE WHERE ONLY A PART OF THE NET CONSIDERATION IS UTILISED FOR ACQUI RING THE NEW CAPITAL ASSET, SO MUCH OF SUCH CAPITAL GAINS AS IS EQUAL TO THE AM OUNT, IF ANY, BY WHICH THE AMOUNT SO UTILISED EXCEEDS THE AGGREGATE OF THE COST OF ACQUISITION OF THE CAPITAL ASSET TRANSFERRED AND THE COST OF ANY I MPROVEMENTS MADE TO SUCH ASSET, WILL BE REGARDED AS HAVING BEEN APPLIED TO SUCH PURPOSES . FROM A COMBINED READING OF SECTIONS 11(1)(A), 11(1) (B) AND SECTION 11(1A), IT IS CLEAR THAT THE INCOME OF A TRUST INCL UDING CAPITAL GAINS IS TREATED ON A SEPARATE FOOTING AND THE ASSESSEE-TRUS T HAS TO FULFIL THE CONDITIONS LAID DOWN THEREIN FOR THE PURPOSE OF AVA ILING OF EXEMPTIONS FROM TAXATION. THE INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES CANNOT, THEREFORE, BE EQUATED WITH THE INCOME WHICH IS COMPUTED UNDER THE GENERAL PROV ISIONS OF THE ACT IN RESPECT OF OTHER ASSESSEES WHO ARE NOT ENTIT LED TO THE BENEFIT OF THE AFORESAID PROVISIONS. IN A CASE WHERE AN ASSESS EE-TRUST HAS INCOME FROM DIFFERENT SOURCES AND HAS APPLIED SUCH INCOME AND A PART OF SUCH INCOME COMES WITHIN THE AMBIT OF TAXAT ION, IT WILL NOT BE ITA NO.146/BANG/12 PAGE 8 OF 17 POSSIBLE TO EARMARK ANY PART OF SUCH INCOME TO A PA RTICULAR HEAD. THEREFORE, THE QUESTION OF ALLOWING ANY STATUTORY D EDUCTIONS AS CONTEMPLATED BY THE DIFFERENT PROVISIONS OF THE ACT DEALING WITH DIFFERENT HEADS OF INCOME IN COMPUTING THE INCOME ACCUMULATED WILL NOT ARISE WHEN THE TRUST LOSES THE BENEFIT OF ACCUMULATION. HENCE, A CHARITABLE TRUST IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80T IN RESPECT OF ITS LONG-TERM CAPITAL GAINS. 9. THE DIT THEREFORE CONCLUDED THAT THE ORDER OF TH E AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THE AO WAS ACCORDINGLY SET ASIDE. THE AO WAS DIRECTED TO PASS A FRESH ASS ESSMENT ORDER WITH A DIRECTION NOT TO ALLOW DEDUCTION U/S.80-IB(10) OF T HE ACT BUT CONSIDER ALL OTHER ASPECTS AND RE-DO ASSESSMENT IN ACCORDANCE WI TH LAW AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10. AGGRIEVED BY THE ORDER OF THE DIT, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS: 1. THAT THE ORDER OF THE LEARNED DIRECTOR OF INCO ME TAX (EXEMPTION) IN SO FAR IT IS PREJUDICIAL TO THE INTE RESTS OF THE APPELLANT, IS BAD AND ERRONEOUS IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THAT THE LEARNED DIRECTOR OF INCOME TAX (EXEMPT IONS) ERRED IN LAW AND ON FACTS IN INVOKING JURISDICTION U/S 263 OF THE ACT EVEN THOUGH THE ASSESSMENT ORDER IS NOT ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3. THAT THE LEARNED DIRECTOR OF INCOME TAX (EXEMPT IONS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE LEARN ED ASSESSING OFFICER HAS NOT APPLIED HIS MIND IN ALLOWING THE DE DUCTION U/S 801B(L0) OF THE ACT. ITA NO.146/BANG/12 PAGE 9 OF 17 4. THAT THE LEARNED DIRECTOR OF INCOME TAX (EXEMPT IONS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE APPEL LANT IS NOT ENTITLED TO THE DEDUCTION U/S 801B(10) OF THE ACT. 5. THAT THE LEARNED DIRECTOR OF INCOME TAX (EXEMPT IONS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE TOTAL INCOME OF AN INSTITUTION ELIGIBLE FOR EXEMPTION U/S 11 OF THE AC T IS NOT REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT IF EXEMPTION IS DENIED FOR ANY REASON. 6. THAT THE LEARNED DIRECTOR OF INCOME TAX (EXEMPT IONS) ERRED IN NOT ALLOWING THE SET-OFF OF DEFICIT INCURR ED IN THE EARLIER YEARS. EACH OF THE ABOVE GROUNDS IS WITHOUT PREJUDICE TO O NE ANOTHER AND THE APPELLANT CRAVES LEAVE OF THE LEARNED COMMI SSIONER INCOME TAX, BANGALORE TO ADD, DELETE, AMEND OR OTHE RWISE MODIFY ONE OR MORE OF THE ABOVE GROUNDS EITHER BEFO RE OR AT THE TIME OF HEARING OF THIS APPEAL. 11. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DIT WAS NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT THE AO W HILE ALLOWING THE DEDUCTION U/S.80-IB(10) OF THE ACT DID NOT MAKE ANY ENQUIRIES. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE FACT THAT TH E ASSESSEE, IN THE COURSE OF ASSESSMENT PROCEEDINGS, FILED DETAILS REGARDING BUILT UP AREA OF FLATS, BREAK UP OF WIP ETC. THE ORDER OF THE AO, THOUGH I T DOES NOT REFER TO THE ENQUIRIES MADE BY HIM, CANNOT BE TERMED AS ERRONEOU S FOR WANT OF MAKING ENQUIRIES. IN THIS REGARD RELIANCE WAS PLACED ON T HE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF EON TECHNOLOGIES 343 ITR 242 (DEL) WHEREIN THE HONBLE DELHI HIGH COURT HAS LAID DOWN THAT THERE IS A DIFFERENCE BETWEEN LACK OF ENQUIRY AND ADEQUACY OF ENQUIRY AND THAT IT IS ONLY WHEN THERE IS NO ENQUIRY THAT JURISDICTION U/S .263 OF THE ACT CAN BE INVOKED. IT WAS ARGUED THAT THE AO AFTER DUE ENQUI RY HAS TAKEN A POSSIBLE VIEW IN ALLOWING DEDUCTION U/S.80-IB(10) OF THE ACT AND THE DIT CANNOT ITA NO.146/BANG/12 PAGE 10 OF 17 REVISE THE AOS ORDER BECAUSE HE HAS TAKEN A DIFFER ENT VIEW WITH REGARD TO ALLOWABILITY OF DEDUCTION U/S.80-IB(10) OF THE ACT. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF MALABAR INDUSTRIAL CO. (SUPRA). 12. IT WAS SUBMITTED THAT IF FOR ANY REASON ANY INC OME OF A CHARITABLE TRUST IS NOT ENTITLED TO EXEMPTION U/S.11 OF THE AC T, THEN THE SAID INCOME HAS TO BE ASSESSED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. IN THIS REGARD IT WAS ARGUED THAT SEC.4 IS THE CHARGING SECTION UN DER THE ACT AND THE CHARGE THEREUNDER IS ON THE TOTAL INCOME OF AN ASSE SSEE. SEC.2(45) OF THE ACT DEFINES TOTAL INCOME TO MEAN THE TOTAL INCOME C OMPUTED IN THE MANNER LAID DOWN UNDER THE ACT. THEREFORE INCOME OF THE A SSESSEE HAS TO BE COMPUTED IN THE MANNER LAID DOWN IN THE ACT AND IF SO COMPUTED THE ASSESSEE SHOULD BE ALLOWED DEDUCTION U/S.80-IB(10) OF THE ACT. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF HARPRASAD & CO. LTD. VS. CIT 99 ITR 118 (SC) WHEREIN IT WAS OBSERVED AT PAGE 125 AS FOLLOWS: ALTHOUGH SECTION 6 CLASSIFIES INCOME UNDER SIX HEA DS, THE MAIN CHARGING PROVISION IS SECTION 3 WHICH LEVIES INCOM E-TAX, AS ONLY ONE TAX, ON THE 'TOTAL INCOME' OF THE ASSESSEE AS DEFINED IN SECTION 2(15). AN INCOME IN ORDER TO COME WITHIN TH E PURVIEW OF THAT DEFINITION MUST SATISFY TWO CONDITIONS. FIRSTL Y, IT MUST COMPRISE THE 'TOTAL AMOUNT OF INCOME, PROFITS AND G AINS REFERRED TO IN SECTION 4(1)'. SECONDLY, IT MUST BE 'COMPUTE D IN THE MANNER LAID DOWN IN THE ACT'. IF EITHER OF THESE C ONDITIONS FAILS, THE INCOME WILL NOT BE A PART OF THE TOTAL INCOME T HAT CAN BE BROUGHT TO CHARGE. 13. BASED ON THE ABOVE OBSERVATIONS IT WAS ARGUED T HAT IN ORDER TO BE ASSESSED TO TAX, IT IS NECESSARY THAT THE INCOME SH OULD BE CLASSIFIED UNDER ITA NO.146/BANG/12 PAGE 11 OF 17 VARIOUS HEADS UNDER CHAPTER IV, AGGREGATED IN ACCOR DANCE WITH CHAPTER VI, DEDUCTION PERMISSIBLE UNDER CHAPTER VIA BE GIVE N AND THE RESULTANT FIGURE BE TAKEN AS TOTAL INCOME WHICH CAN BE BROUGH T TO TAX. IT WAS ARGUED THAT THE CBDT CIRCULAR AND THE DECISION OF THE HON BLE CALCUTTA HIGH COURT RELIED UPON BY THE DIT ARE CONTRARY TO THE LAW PROP OUNDED BY THE HONBLE SUPREME COURT. IT WAS ALSO SUBMITTED THAT THE QUES TION OF DETERMINING COMMERCIAL PROFITS IS ONLY FOR THE PURPOSE OF DETER MINING THE AMOUNT OF INCOME TO BE APPLIED AND THAT WHICH CAN BE ACCUMULA TED AND FOR NO OTHER PURPOSE. IT WAS SUBMITTED THAT SEC.11 IS NOT A SEP ARATE CODE FOR COMPUTATION OF INCOME OF A CHARITABLE TRUST, AS IS SOUGHT TO BE MADE OUT BY THE REVENUE. 14. ON THE ASPECT OF SET OFF OF THE EARLIER YEARS DEFICIT AGAINST THE SURPLUS OF THE PRESENT YEAR, THE SAME SUBMISSIONS M ADE BEFORE THE DIT WERE REITERATED. 15. THE LEARNED DR STRESSED ON THE POINT THAT A CHA RITABLE TRUST HAS TO APPLY ITS INCOME FOR CHARITABLE PURPOSE TO BE ENTIT LED TO CLAIM EXEMPTION U/S.11 OF THE ACT. HIS SUBMISSION WAS THAT A TRUST OR A CHARITABLE OR RELIGIOUS INSTITUTION CANNOT REFUSE TO APPLY INCOME WHICH IS EXEMPT U/S.80- IB(10) OF THE ACT FOR NON-CHARITABLE PURPOSE. ACCO RDING TO HIM, IF SUCH A COURSE IS PERMITTED, THEN THE VERY PURPOSE OF ALLOW ING EXEMPTION TO A CHARITABLE TRUST OR INSTITUTION U/S.11 WILL GET FRU STRATED. HIS SUBMISSION WAS THAT EXEMPTION IS ALLOWED ONLY BECAUSE THE TRUST OR CHARITABLE INSTITUTION PERFORMS OBJECTS WHICH A WELFARE STATE SHOULD PERFO RM. IF THE TRUST OR CHARITABLE INSTITUTION APPLIES ITS INCOME FOR PURPO SES WHICH ARE NOT CHARITABLE, IT SHOULD NOT GET THE BENEFIT OF EXEMPT ION UNDER ANY OTHER ITA NO.146/BANG/12 PAGE 12 OF 17 PROVISION OF THE ACT. IN ALL OTHER RESPECTS, THE R EASONING GIVEN BY THE DIT IN THE IMPUGNED ORDER WERE REITERATED. 16. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE FACT THAT AFTER THE PASSING OF THE IMPUGNED ORDER OF THE DIT, THE FINANCE ACT, 2012 HAS INSERTED SUB-SECTION (8) TO SEC.13 OF THE ACT WITH RETROSPECTIVE EFFECT FROM 1.4.2000. THE SAID PROVISION READS AS FOLLOWS: (8) NOTHING CONTAINED IN SECTION 11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE ANY INCOME FROM THE TOTAL INCOME O F THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF, IF THE PROV ISIONS OF THE FIRST PROVISO TO CLAUSE (15) OF SECTION 2 BECOME APPLICAB LE IN THE CASE OF SUCH PERSON IN THE SAID PREVIOUS YEAR. 17. SEC.2(15) DEFINES CHARITABLE PURPOSE AND IT REA DS AS FOLLOWS: (15) CHARITABLE PURPOSE INCLUDES RELIEF OF THE P OOR, EDUCATION, MEDICAL RELIEF, PRESERVATION OF ENVIRONMENT (INCLUD ING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTERE ST, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY : PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT O F GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, I F IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY; 18. THE FIRST PROVISO WAS INSERTED BY THE FINANCE A CT, 2008, W.E.F. 1-4- 2009. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT IN AY 2009-10, THE ACTIVITY OF CONSTRUCTION OF BUILDING AND SALE W AS IN THE NATURE OF TRADE, BUSINESS, COMMERCE FOR CONSIDERATION AND THEREFORE THE INCOME FROM THE SAID ACTIVITY WILL STAND EXCLUDED FROM THE PROVISIO NS OF SEC.11 OF THE ACT, IN ITA NO.146/BANG/12 PAGE 13 OF 17 VIEW OF SEC.13(8) OF THE ACT. HIS SUBMISSION WAS T HAT IF SEC.11 IS EXCLUDED, THEN THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THERE FORE THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80-IB(10) OF THE ACT HAS TO BE ALLOWED. IN OTHER WORDS, THE SUBMISSION WAS THAT IN VIEW OF THE PROVI SIONS OF SEC.13(8) OF THE ACT, THE DECISION OF THE HONBLE CALCUTTA HIGH COUR T IN THE CASE OF GIRIDHARILAL SHEWNARAIN TANTIA TRUST (SUPRA) WILL NO LONGER HOLD GOOD IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE . 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE E XERCISE OF JURISDICTION UNDER 263 OF THE ACT BY THE DIT WAS BA SED ON THE REASON THAT THE AO WHILE COMPLETING THE ORIGINAL ASSESSMENT DID NOT MAKE ENQUIRIES REGARDING ELIGIBILITY OF DEDUCTION U/S.80-IB (10) O F THE ACT AND AS TO WHETHER THE DEDUCTION U/S.80-IB(10) OF THE ACT WOULD AMOUNT TO APPLICATION OF INCOME SO AS TO BE ELIGIBLE FOR DEDUCTION U/S.11 OF THE ACT. THE SECOND REASON IS THAT IN RESPECT OF A CHARITABLE TRUST OR INSTITUTION DEDUCTION U/S.80- IB(10) OF THE ACT CANNOT BE ALLOWED BECAUSE INCOME, AS FAR AS IT RELATES TO INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLL Y FOR CHARITABLE OR RELIGIOUS PURPOSES IS CONCERNED, IS NOT EQUIVALENT TO TOTAL INCOME UNDER THE ACT AND THEREFORE SEC.14 PROVIDING FOR DIFFERENT HE ADS OF INCOME AND TOTAL INCOME AND CHAPTER VIA ARE NOT APPLICABLE WHILE COM PUTING INCOME U/S.11 OF THE ACT. BOTH THE ABOVE REASONS BOIL DOWN TO TH E QUESTION AS TO HOW INCOME HAS TO BE COMPUTED IN THE CASE OF A CHARITAB LE TRUST OR INSTITUTION WHICH CLAIMS EXEMPTION U/S.11 OF THE ACT. THE CASE OF THE DIT IS BASED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF GIRIDHARILAL SHEWNARAIN TANTIA TRUST (SUPRA) IN WHICH IT HAS BEEN HELD TO CLAIM ITA NO.146/BANG/12 PAGE 14 OF 17 EXEMPTION U/S.11 OF THE ACT, INCOME, WHATEVER BE TH E HEAD UNDER WHICH IT IS TO BE CONSIDERED UNDER THE ACT, HAS TO BE APPLIE D FOR CHARITABLE PURPOSES. THEREFORE THE HEAD OF INCOME OR EXEMPTIO N ALLOWED WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, WOULD NOT APPLY. THE INCOME WHICH IS IN DISPUTE IS A SUM OF RS.57,39,68,569/- WHICH IS THE PROFIT DERIVED FROM DEVELOPING A HOUSING PRO JECT BY THE ASSESSEE WHICH WAS CLAIMED AS DEDUCTION WHILE COMPUTING TOTA L INCOME IN VIEW OF PROVISIONS OF SEC.80-IB(10) OF THE ACT. 20. THERE CAN BE NO SERIOUS DISPUTE THAT THE AO HAD ACCEPTED THE CLAIM OF THE ASSESSEE TO DEDUCTION U/S.80-IB(10) OF THE A CT. THE ASSESSEE HAD FILED DETAILS BEFORE THE AO IN THE COURSE OF ASSESS MENT PROCEEDINGS U/S.143(3) OF THE ACT. THE AO IN THE ORDER OF ASSE SSMENT U/S.143(3) OF THE ACT HAS NOT DISCUSSED ANYTHING REGARDING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80-IB(10) OF THE ACT, BUT HAS ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80-IB(10) OF THE ACT. T HE ADEQUACY OF ENQUIRY DONE BY THE AO CANNOT BE THE BASIS TO CONCLUDE THAT HIS ORDER WAS ERRONEOUS. THE DECISION OF THE HONBLE DELHI HIGH COURT REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THE CASE OF EON TECHNOLOGIES ( SUPRA ) SUPPORT THE PLEA OF THE ASSESSEE. THE EXERCISE OF JURISDICTION U/S. 263 OF THE ACT ON THE GROUND OF LACK OF ENQUIRY REGARDING ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION U/S.80-IB(10) OF THE ACT CANNOT THERE FORE BE UPHELD. 21. THE OTHER REASON FOR EXERCISE OF JURISDICTION U /S.263 OF THE ACT IS WITH REGARD TO THE NON-VERIFICATION BY THE AO AS TO WHET HER THE INCOME HAS BEEN APPLIED FOR CHARITABLE PURPOSE, BECAUSE U/S.11 WHAT IS EXEMPT IS INCOME ITA NO.146/BANG/12 PAGE 15 OF 17 DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR C HARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APP LIED TO SUCH PURPOSES IN INDIA. IN THE LIGHT OF THE HONBLE CALCUTTA HIG H COURT DECISION IN THE CASE OF IN THE CASE OF GIRIDHARILAL SHEWNARAIN TANTIA TRUST (SUPRA) , IT WAS INCUMBENT ON THE PART OF THE AO TO EXAMINE THE APPL ICATION OF INCOME FROM THE HOUSING PROJECT FOR CHARITABLE PURPOSE TO THE E XTENT NECESSARY TO ALLOW DEDUCTION U/S.11 OF THE ACT. TO THIS EXTENT, THE A O OUGHT TO HAVE MADE ENQUIRIES AND FAILURE TO DO SO WOULD RENDER THE ORD ER OF THE AO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. TH E FURTHER CONCLUSION OF THE DIT BASED ON THE AFORESAID DECISION THAT THE ASSESS EE WOULD NOT BE ENTITLED TO DEDUCTION U/S.80-IB(10) OF THE ACT AND THAT THE AO SHOULD EXAMINE THE CLAIM FOR EXEMPTION U/S.11 OF THE ACT I N THE LIGHT OF THE FACT WHETHER THE ASSESSEE HAS APPLIED INCOME FOR CHARIT ABLE PURPOSE IS ALSO CORRECT. 22. IN THE NORMAL CIRCUMSTANCES, THE ABOVE CONCLUSI ON WOULD BE SUFFICIENT DECISION IN THE APPEAL BUT THE STATUTORY AMENDMENT BY INSERTION OF SEC.13(8) TO THE ACT W.R.E.F. 1-4-2009, IN OUR VIEW , WILL HAVE A BEARING ON THE ABOVE CONCLUSION. WE THEREFORE PROCEED TO DEAL WITH THOSE PROVISIONS AND AS TO WHETHER THOSE PROVISIONS WILL HAVE A BEAR ING ON THE CONCLUSIONS ARRIVED AT BY THE DIT IN THE ORDER U/S.263 OF THE A CT. SEC.13 OF THE ACT HAS THE FOLLOWING HEADING SECTION 11 NOT TO APPLY IN C ERTAIN CASES. SUB- SECTION (8) TO SECTION 13 INTRODUCED W.R.E.F. 1-4-2 009 READS AS FOLLOWS: (8) NOTHING CONTAINED IN SECTION 11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE ANY INCOME FROM THE TOTAL INCOME O F THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF, IF THE PROVI SIONS OF THE FIRST PROVISO TO CLAUSE (15) OF SECTION 2 BECOME APPLICAB LE IN THE CASE OF SUCH PERSON IN THE SAID PREVIOUS YEAR. ITA NO.146/BANG/12 PAGE 16 OF 17 23. THE ABOVE PROVISIONS ARE APPLICABLE FOR AY 2009 -10. THE ASSESSEES CLAIM FOR DEDUCTION U/S.80-IB(10) OF THE ACT FOR AY 2009-10, IN SO FAR AS IT RELATES TO THE PROFIT DERIVED FROM DEV ELOPING HOUSING PROJECT, CANNOT BE REGARDED AS INCOME OF A CHARITABLE TRUST OR INSTITUTION WITHIN THE MEANING OF SEC.11(1)(A) OF THE ACT, BECAUSE CARRYIN G ON OF THE HOUSING PROJECT WAS NOT A CHARITABLE PURPOSE EVEN IN AY 200 9-10 IN VIEW OF THE FIRST PROVISO TO SECTION 2(15) OF THE ACT. THE INCOME FR OM DEVELOPING HOUSING PROJECT BY VIRTUE OF THE PROVISIONS OF SEC.13(8) OF THE ACT WOULD BECOME PART OF THE TOTAL INCOME UNDER THE ACT. IN THE LIG HT OF THE AFORESAID RETROSPECTIVE AMENDMENT TO THE LAW, APPLICATION OF THE INCOME FOR CHARITABLE PURPOSE BECOMES IRRELEVANT. IN OTHER WO RDS, THE INCOME DERIVED FROM BUSINESS CANNOT BE CONSIDERED AS INCOME DERIVE D FROM PROPERTY HELD FOR CHARITABLE PURPOSE. IN OTHER WORDS, IT WOULD N O LONGER BE INCOME WITHIN THE MEANING OF SECTION 11(1)(A) OF THE ACT. THE SA ID INCOME WILL FORM PART OF THE TOTAL INCOME UNDER THE ACT. IF THAT BE SO, THEN THE ASSESSEES INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PR OVISIONS OF THE ACT. IF SO COMPUTED, THE ASSESSEE WOULD BE ENTITLED TO D EDUCTION U/S.80-IB(10) OF THE ACT, WHICH AS WE HAVE ALREADY SEEN, HAS BEEN ALLOWED BY THE AO AFTER DUE APPLICATION OF MIND IN THE ORDER U/S.143( 3) OF THE ACT. THE DECISION OF THE HONBLE CALCUTTA HIGH COURT AND THE CBDT CIRCULAR REFERRED TO IN THE ORDER U/S.263 OF THE ACT, WOULD NOT APPLY TO THE INCOME FROM DEVELOPING HOUSING PROJECT IN VIEW OF THE STATUTORY AMENDMENT REFERRED TO ABOVE. IN THAT VIEW OF THE MATTER, WE ARE OF THE V IEW THAT THE ORDER U/S.263 ITA NO.146/BANG/12 PAGE 17 OF 17 OF THE ACT CANNOT BE SUSTAINED. WE THEREFORE QUASH THE ORDER U/S.263 AND ALLOW THE APPEAL OF THE ASSESSEE. 24. IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JUNE, 2012. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN ) VICE PRESIDENT JUDICIAL MEMBER BANGALORE, DATED, THE 29 TH JUNE , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.