Serum Institute Of India Research Foundation, Pune V. ITO, Wd 6(2), Pune,

ITA 1539/PUN/2008

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9703 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 01-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: S N INAMDAR
• Keywords: Gift; Charitable institution; Opportunity of being heard; Competent authority; Capital receipt; Capital expenditure
• Section: 6; 11

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1539/PN/2008 (ASSESSMENT YEAR 2005-06) SERUM INSTITUTE OF INDIA RESEARCH FOUNDATION, SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411 001. .. APPELLANT PAN NO. AAATS 8170P VS. INCOME TAX OFFICER, WARD-6(2), PMT COMMERCIAL BUILDING, SWARGATE, PUNE. .. RESPONDENT ASSESSEE BY : SRI S.N. INAMDAR DEPARTMENT BY : SRI S.K. SINGH DATE OF HEARING : 24-08-2012 DATE OF PRONOUNCEMENT : 12-09-2012 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 25-09- 2008 OF THE CIT(A)-II, PUNE RELATING TO ASSESSMENT YEAR 2005-06. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE INSTITUTION IS REGISTERED UNDER THE SOCIETIES REGISTRATION ACT ON 26-08-1977 AND AL SO UNDER THE BOMBAY PUBLIC TRUST ACT 1950 ON 19-10-1977. THE INSTITUTE HOWEVE R HAS NOT BEEN REGISTERED U/S.12A OF THE INCOME TAX ACT. FOR THE ASSESSMENT YEAR 2004-05 THE INCOME WAS CLAIMED AND ALLOWED AS EXEMPT U/S.10(21) OF THE INC OME TAX ACT AS APPROVAL U/S.35(1)(II) OF THE ACT WAS ON RECORD FOR THE PERI OD FROM 01-04-2001 TO 31-03- 2004. THE ASSESSEE FILED AN APPLICATION FOR APPROV AL U/S.35(1)(II) OF THE ACT BEFORE THE COMPETENT AUTHORITY BUT THE APPROVAL WAS NOT RE CEIVED TILL THE DATE OF ASSESSMENT ORDER. IT WAS HELD BY THE ASSESSING OFF ICER THAT SINCE NO CERTIFICATE U/S.35(1)(II) HAS BEEN FILED FOR THE YEAR UNDER CON SIDERATION THEREFORE THE INCOME 2 WAS NOT ENTITLED FOR EXEMPTION U/S.10(21) OF THE IN COME TAX ACT. THE AO CONSIDERED THE STATUS OF THE FOUNDATION AS AOP AND ADDED THE SURPLUS OF RS.3,70,22,567/- BY OBSERVING AS UNDER: 4.1 THE VERIFICATION OF FINAL A/C SHOWS THAT THERE WAS SURPLUS OF RS.70,22,567/- TO THE INCOME & EXPENDITURE A/C. AS ALSO AN AMOUNT OF RS.3 ,00,00,000/- HAS BEEN CREDITED TO THE TRUST FUND A/C IN THE BALANCE SHEET. BESIDES, NO CORRESPONDING ENTRY IS APPEARING AT THE ASSET SIDE IN THE BALANCE SHEET FOR UTILISATION OF THE SAID DONATION (CORPUS). THE NOTICE IN FORM 10 GIVEN ALONG WITH THE RETURN OF IN COME REFERS TO AN AMOUNT OF RS.25,75,90,362/- INCLUSIVE OF RS.22,05,67,785/- AC CUMULATED UPTO 31-03-2004, I.E.A.Y. 2004-05. APPREHENDING THE SAID STATUS AND HAVING N O SUBSTANTIAL ARGUMENTS AND EVIDENCE THE INCOME IS COMPUTED. AS SUCH THE NET A CCUMULATION FOR THE YEAR UNDER CONSIDERATION COMES TO RS.3,70,22,567/-. THE ASSES SEE AMONG OTHER DOCUMENTS PRODUCED A LIST OF INVESTMENT ELIGIBLE U/S.11(5) WHICH AGGRE GATES TO THE TUNE OF RS.2,10,82,1393/- BEING INVESTMENT MADE UPTO 31-03-2004 AND RS.2,36,7 8,7756/- BEING INVESTMENT UPTO 31- 03-2005. THUS THE ADDITION MADE ON THIS A/C DURING THE YEAR UNDER CONSIDERATION COMES TO RS.2,59,66,363/-. THE SAID INVESTMENT IS NOT UP TO THE MARK AND THERE IS SHORTFALL OF RS.1,10,56,204 (3,70,22,567/- - 2,59,66,363). THE YEAR UNDER ASSESSMENT HAS NOT BEEN NOTIFIED UNDER SECTION 35(1)(II) AS SUCH THE PROVIS ION OF SECTION 11(5) ARE NOT APPLICABLE FOR INVESTMENT IN ELIGIBLE SECURITIES AS DISCUSSED IN THE ABOVE PARA. THE DONATION RECEIVED DURING THE YEAR OF RS.3,00,00,000/- IS BEY OND THE PURVIEW OF SECTION 11(5). MOREOVER, NO UTILISATION FOR ACQUIRING ANY OF THE A SSET HAS BEEN MADE. THUS THE AMOUNT OF SAID DONATION IS HELD AS INCOME RECEIVED DURING THE YEAR TO THE AOP. 3. BEFORE THE CIT(A) THE ASSESSEE STRONGLY CHALLENG ED THE ORDER OF THE AO IN MAKING THE ADDITION OF RS.3,70,22,567/-. IT WAS SU BMITTED THAT THE ASSESSEE IS AN INSTITUTION DEDICATED FOR SCIENTIFIC RESEARCH AND T HE DEPARTMENT OF SCIENCE AND TECHNOLOGY HAS ALSO RECOGNISED THE FOUNDATION AS AN ENTITY ENGAGED IN SCIENTIFIC RESEARCH. IT WAS RECOGNISED AND NOTIFIED U/S.35(1) (II) SINCE 04-01-1980 AND IS ALSO ENTITLED FOR RELIEF U/S.10(21) OF THE INCOME TAX AC T. IT WAS SUBMITTED THAT LAST NOTIFICATION OF GOVERNMENT OF INDIA U/S.35(1)(II) W AS VALID UPTO 31-03-2004. IT WAS SUBMITTED THAT DURING THE IMPUGNED ASSESSMENT Y EAR AND TILL COMPLETION OF THE ASSESSMENT THE RENEWAL APPLICATION OF THE ASSESSEE FOR NOTIFICATION U/S.35(1)(II) FROM CBDT WAS AWAITED. IN THE ABSENCE OF ANY NOTIF ICATION BY CBDT U/S.35(1)(II) OF THE INCOME TAX ACT THE FOUNDATION WAS ASSESSED T O TAX WHEREIN THE CORPUS DONATION WAS TREATED AS TAXABLE INCOME. SINCE THE TRUST WAS NOT REGISTERED U/S.12A, THE AO HELD THAT PROVISIONS OF SECTION 11 IS NOT AP PLICABLE AND ACCORDINGLY MADE THE ADDITION. HOWEVER, SINCE THE DONATION WAS COND ITIONAL, I.E. TOWARDS THE CORPUS OF THE FOUNDATION, THEREFORE THE SAME IS A CAPITAL RECEIPT AND THE SAME IS NOT 3 TAXABLE. VARIOUS DECISION WERE ALSO CITED FOR THE PROPOSITION THAT ONLY NON CORPUS VOLUNTARY DONATIONS CAN BE TREATED AS INCOME AND CO RPUS DONATION CANNOT BE TAXED AS INCOME. 4. HOWEVER, THE LEARNED CIT(A) WAS ALSO NOT CONVINC ED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF T HE AO. WHILE DOING SO, HE NOTED THAT SINCE THE ASSESSEE FOUNDATION IS NOT REG ISTERED U/S.12A/12AA OF THE INCOME TAX ACT AND SINCE THE INSTITUTION DID NOT EN JOY THE STATUS OF SCIENTIFIC RESEARCH ORGANISATION DURING THE PREVIOUS YEAR AS C ONTEMPLATED IN SECTION 10(21) OF THE INCOME TAX ACT, THEREFORE, THE CLAIM OF THE ASS ESSEE CANNOT BE ACCEPTED. FURTHER, THE APPLICATION FOR APPROVAL U/S.35(1)(II) IS ALSO REJECTED BY THE CBDT. UNDER THESE CIRCUMSTANCES, THE CLAIM OF THE ASSESSE E THAT THE DONATION WAS NOT INCOME CANNOT BE ACCEPTED. DISTINGUISHING THE VARI OUS DECISIONS RELIED ON BY THE ASSESSEE THE LEARNED CIT(A) UPHELD THE ACTION OF TH E AO IN BRINGING TO TAX THE CORPUS DONATION OF RS.3 CRORES AS TAXABLE INCOME. HE ALSO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT 15% OF THE GROSS RE CEIPTS OF THE FOUNDATION AMOUNTING TO RS.35,65,359/- SHOULD BE REDUCED FROM THE GROSS RECEIPTS. FURTHER, HE UPHELD THE ACTION OF THE AO IN NOT REDUCING AN A MOUNT OF RS.8,42,461/- SPENT BY THE FOUNDATION AS CAPITAL EXPENDITURE FROM THE T AXABLE INCOME. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN : (A) HOLDING THAT THE CORPUS DONATION AMOUNTING TO R S.3,00,00,000/- IS TAXABLE INCOME OF THE RESEARCH FOUNDATION. (B) HOLDING THAT IN THE ABSENCE OF REGISTRATION U/S .12A, THERE IS NO RATIONALE IN ISOLATING CORPUS DONATION FROM THE PURVIEW OF IN COME DEFINED U/S.2(24) OF THE INCOME TAX ACT WHEN THE FOUNDATION WAS ASSESSED A S AN AOP. (C) NOT REDUCING 15% OF THE GROSS RECEIPTS OF THE F OUNDATION (WHICH IS ALSO REGISTERED UNDER THE BOMBAY CHARITABLE TRUST ACT) A MOUNTING TO RS.35,65,359/-. 4 (D) DISMISSING THE CONTENTIONS OF THE FOUNDATION TO CONSIDER INCURRENCE OF CAPITAL EXPENDITURE TO RS.8,42,461/- TOWARDS ITS OB JECT BY DENYING TO REDUCE THE SAME FROM ITS TAXABLE INCOME. (E) NOT HOLDING THAT IF AT A LATTER DATE THE FOUND ATION IS ELIGIBLE FOR CLAIMING RELIEF U/S.10(21) OF THE INCOME TAX ACT THEN, HIS O RDER WOULD BECOME NON-EST. 6. THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY CH ALLENGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE INSTITUTION WAS APPROVED BY SIRO ALL ALONG AND HAS ALWAYS RECEIVED APPROVAL U/S.35(1)(II ) UPTO ASST. 2004-05. THE ASSESSEE INSTITUTION APPLIED FOR APPROVAL U/S.35(1) (II) FOR THE A.Y. 2005-06 TO 2007- 08. IN THE MEANTIME, IT RECEIVED A CORPUS DONATION AGGREGATING TO RS.3 CRORES IN THE MONTH OF MARCH, 2005. HOWEVER, THE CBDT DENIED THE APPROVAL U/S.35(1)(II) FOR WHICH THE ASSESSEE CHALLENGED THE SAME BY WAY O F WRIT PETITION BEFORE THE HONBLE BOMBAY HIGH COURT ON 2012-2008 ON TWO GROUN DS : (A) CBDT WAS NOT A PRESCRIBED AUTHORITY AT ALL U/S. 35(1)(II) AND AN ORDER PASSED BY IT IS NOT VALID IN LAW; (B) ON MERITS, THE DENIAL OF APPROVAL WAS NOT JUST IFIED. HE SUBMITTED THAT THE HONBLE HIGH COURT VIDE ITS O RDER DATED 16-02-2009 SET ASIDE THE ORDER PASSED BY CBDT AND DIRECTED IT TO PASS A REASONED ORDER AND ALSO TO DEAL WITH THE ISSUE AS TO WHO IS THE PRESCRIBED AUTHORIT Y. HE SUBMITTED THAT THE CBDT VIDE ORDER DATED 29-07-2009 AGAIN HELD THAT THE ASS ESSEE FOUNDATION IS NOT A FIT CASE FOR GRANT OF APPROVAL UNDER THAT SECTION AND R EJECTED THE APPLICATION. HE SUBMITTED THAT AGAINST THIS ORDER OF THE CBDT THE A SSESSEE HAS FILED A WRIT PETITION BEFORE THE HONBLE HIGH COURT WHICH IS PENDING FOR FINAL HEARING. IN THE MEAN WHILE THE AO PASSED THE ORDER AND HELD THAT THE COR PUS DONATION OF RS.3 CRORES CONSTITUTE A REVENUE RECEIPT AND BROUGHT TO TAX THE SAME ON THE GROUND THAT APPROVAL U/S.35(1)(II) HAS NOT BEEN GRANTED WHICH H AS BEEN CONFIRMED BY THE CIT(A). 5 7. THE LEARNED COUNSEL FOR THE ASSESSEE MADE TWO FO LD SUBMISSIONS, I.E. (1) A CORPUS DONATION CAN NEVER CONSTITUTE INCOME PER SE AND (2) PROVISIONS OF SECTION 2(24)(IIA) DOES NOT APPLY AND ALSO THE PROVISIONS O F SECTION 12(2) DOES NOT APPLY SINCE THE FOUNDATION HAS NEVER APPLIED FOR NOR WAS REGISTERED U/S.12A OF THE INCOME TAX ACT. RELYING ON A NUMBER OF DECISIONS H E SUBMITTED THAT A DONATION TO THE CORPUS OF A TRUST CAN NEVER CONSTITUTE REVENUE RECEIPT BECAUSE IT IS IN THE NATURE OF A GIFT. FOR THIS PROPOSITION HE RELIED ON THE D ECISION OF HONBLE PATNA HIGH COURT IN THE CASE OF BIHAR STATE BOARD OF DIGAMBER JAIN RELIGIOUS TRUSTS REPORTED IN 187 ITR 295. REFERRING TO THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT VS. GROZ BECKERT SABOO LTD. REPORTED IN 116 ITR 125 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT EVEN A GIFT OF RAW MATERIAL SUBSEQUENTLY USED IN THE BUSINESS OF THE A SSESSEE IS NOT A REVENUE RECEIPT WHEN IT IS RECEIVED BUT IT IS ONLY A CAPITAL RECEIP T AS IT IS A GIFT. REFERRING TO THE CBDT CIRCULAR NO.158 DATED 27-12-1974 HE SUBMITTED THAT THE CBDT HAS CLARIFIED THAT GIFT DOES NOT CONSTITUTE INCOME RECE IPT AT ALL BUT IS A CAPITAL RECEIPT. HE ACCORDINGLY SUBMITTED THAT MERE REFUSAL OF APPRO VAL U/S.35(1)(II) PER SE CANNOT CONVERT A CAPITAL RECEIPT INTO A REVENUE RECEIPT. HE SUBMITTED THAT THE PROVISIONS OF SECTION 2(24)(IIA) DOES NOT IN TERM APPLY TO THE FA CTS OF THE CASE. IT APPLIES TO VOLUNTARY CONTRIBUTION RECEIVED BY AN INSTITUTION R EFERRED TO IN CLAUSE (21) OF SECTION (10). REFERRING TO PROVISIONS OF SECTION 1 0(21) HE SUBMITTED THAT IT REFERS TO A SCIENTIFIC RESEARCH INSTITUTION WHICH FOR THE TIM E BEING HAS BEEN APPROVED U/S.35(1)(II). IF IT IS NOT SO APPROVED, THEN NEIT HER SECTION 2(24)(IIA) NOR SECTION 10(21) CAN APPLY. IN SUCH A CASE THE ASSESSEE STAN DS AT PAR WITH ANY OTHER NORMAL ASSESSEE IN WHOSE CASE GIFT CANNOT BE TAXED AS INCO ME. 8. REFERRING TO THE PROVISIONS OF SECTION 12(1) HE SUBMITTED THAT FOR INVOKING THE SAME THE ASSESSEE HAS TO BE REGISTERED U/S.12A. HOWEVER, SINCE THE ASSESSEE HAS NEVER APPLIED FOR REGISTRATION U/S.12A, THEREFO RE, PROVISIONS OF SECTION 12(1) 6 CANNOT BE APPLICABLE. HE SUBMITTED THAT ALL THESE ASPECTS HAVE NOT BEEN CONSIDERED BY THE LOWER AUTHORITIES. THEREFORE, THE TRIBUNAL MAY DECIDE THE ISSUE. IN HIS ALTERNATE CONTENTION HE SUBMITTED THAT THE MATTER M AY BE RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 9. THE LEARNED DR ON THE OTHER HAND WHILE SUPPORTIN G THE ORDER OF THE CIT(A) SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE AO. HE SUBMITTED THAT SINCE A WRIT PETITION FILED BY TH E ASSESSEE IS PENDING BEFORE THE HONBLE HIGH COURT THE BENCH MAY GIVE SUITABLE DIRE CTION TO THE AO TO CONSIDER THE OUTCOME OF SUCH WRIT PETITION AS AND WHEN THE S AME IS RECEIVED. 10. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS REJ OINDER SUBMITTED THAT THE JUDGMENT OF THE HONBLE HIGH COURT WILL HAVE NO IMP ACT SINCE IF IT GRANTS APPROVAL U/S.35(1)(II) THEN THE CORPUS DONATION WILL BE EXEM PT FROM TAX. EVEN IF IT DOES NOT GRANT SUCH APPROVAL THEN ALSO THE AMOUNT CANNOT BE TAXED AS IT IS A GIFT AND NOT IN THE NATURE OF INCOME. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. WE FIND THE AO BROUGHT TO TAX THE CORPUS DONATION OF RS. 3 CRORES ON THE GROUND THAT APPROVAL U/S.35(1)(II) HAS NOT BEEN GRANTED TO THE ASSESSEE FOUNDATION AND THAT THE ASSESSEE HAS ALSO NOT BEEN REGISTERED U/S.12A OF TH E INCOME TAX ACT. THEREFORE, THE AO APART FROM BRINGING THE AMOUNT OF RS. 3 CROR ES TO TAX DID NOT REDUCE 15% OF THE GROSS RECEIPTS OF THE FOUNDATION. FURTHER T HE AO DID NOT CONSIDER THE INCURRENCE OF CAPITAL EXPENDITURE AMOUNTING TO RS.8 ,42,461/- TOWARDS ITS OBJECTS AND DID NOT REDUCE THE SAME FROM TAXABLE INCOME. T HE ORDER OF THE AO HAS BEEN UPHELD BY THE CIT(A). IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT EVEN IF APPROVAL U/S.35(1)(II) IS NOT GRANTED THEN ALSO THE AMOUNT CANNOT BE 7 BROUGHT TO TAX SINCE IT IS IN NATURE OF A GIFT AND SINCE THIS ASPECT HAS NOT BEEN CONSIDERED BY THE LOWER AUTHORITIES IN THE LIGHT OF THE VARIOUS DECISIONS CITED THEREFORE THE TRIBUNAL SHOULD DECIDE THE ISSUE OR R ESTORE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. WE FIND THE ALTERNATE C ONTENTION OF THE ASSESSEE IS MORE ACCEPTABLE SINCE THE LOWER AUTHORITIES HAVE NOT DEC IDED THE ISSUE FROM THE ANGLE OF GIFT. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT OF RS.3 CRORES RECEIVED AS CORPUS DONATION IS IN THE NATURE OF GIFT AND THEREFORE THE SAME IS NOT TAXABLE IN VI EW OF THE RATIO OF THE DECISIONS CITED (SUPRA). THE AO SHOULD ALSO KEEP IN MIND THE OUTCOME OF THE WRIT PETITION FILED BY THE ASSESSEE, IF AVAILABLE AT THE TIME OF PASSING THE ORDER. NEEDLESS TO SAY THE AO SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS THE 12 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 12 TH SEPTEMBER 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CCIT-II, PUNE 4. THE CIT(A)-II, PUNE 5. THE AO, ADDL. CIT, RANGE-6, PUNE 6. THE D.R, B PUNE BENCH 7. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE