The ITO, Thiruvalla V. M/s Gospel for Asia, Thiruvalla

ITA 163/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81427 (ITAT-COCHIN)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-11-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 12A; 12AA

Judgement Text

1 ITA NO. 162 & 163/COCH/2014 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 162/COCH/2014 (ASSESSMENT YEAR 2010-11) ITO, WD.1 VS M/S BELIEVERS CHURCH INDIA THIRUVALLA ST. THOMAS NAGAR KUTTAPPUZHA PO THIRUVALLA 689 103 PAN : AAATB4723D (APPELLANT) (RESPONDENT) I.T.A NO. 163/COCH/2014 (ASSESSMENT YEAR 2010-11) ITO, WD.1 VS M/S GOSPEL FOR ASIA THIRUVALLA MANJADI PO THIRUVALLA 689 103 PAN : AAATT0907G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M ANIL KUMAR, DR RESPONDENT BY : SHRI M.S. VENKITACHALAM DATE OF HEARING : 12-11-2014 DATE OF PRONOUNCEMENT : 12-12-2014 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAIN ST THE RESPECTIVE ORDERS OF THE CIT(A), THIRUVNANTHAPURAM BOTH DATED 16-01-2014 FOR THE 2 ITA NO. 162 & 163/COCH/2014 ASSESSMENT YEAR 2010-11 IN RESPECT OF TWO INDEPENDE NT ASSESSEES. SINCE COMMON ISSUE ARISES FOR CONSIDERATION, WE HEARD BOT H THE APPEALS TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. SHRI M ANIL KUMAR, THE LD.DR SUBMITTED THAT BOTH THE ASSESSEES ARE REGISTERED AS CHARITABLE TRUST U/S 12AA OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER FOUND THAT BOT H THE ASSESSEES HAVE GIVEN LOAN TO OTHER TRUSTS FROM THE UNUTILISED PORT ION OF THE INCOME WHICH EXCEEDED MORE THAN 15%. REFERRING TO SECTION 13(1) (D)(I) OF THE ACT, THE LD.DR SUBMITTED THAT THE ASSESSEE TRUST INVESTED IT S FUNDS IN THE FORM / MODE OTHERWISE THAN PRESCRIBED IN SECTION 11(5) OF THE ACT. THEREFORE, ACCORDING TO THE LD.DR, THERE WAS VIOLATION OF SECT ION 11(2) R.W.S. 13(2)(D) OF THE ACT. ACCORDING TO THE LD.DR, THE ASSESSEE I S NOT ENTITLED FOR ANY EXEMPTION. THE LD.DR PLACED HIS RELIANCE ON THE JU DGMENT OF THE ALLAHABAD HIGH COURT IN CIT VS AUDH EDUCATIONAL SOC IETY (2011) 15 TAXMANN.COM 235 (ALL.). 3. ON THE CONTRARY, SHRI VENKITACHALAM, THE LD.REPR ESENTATIVE FOR THE ASSESSEE SUBMITTED THAT BOTH THE ASSESSEES ADVANCED FUNDS TO OTHER REGISTERED TRUSTS WHICH HAVE SIMILAR OBJECTS. ACCO RDING TO THE LD.REPRESENTATIVE, THE ASSESSEE ADVANCED FUNDS TO B CMET FOR CONSTRUCTION OF HOSPITAL BUILDING. BCMET IS ALSO A REGISTERED T RUST U/S 12AA OF THE ACT. 3 ITA NO. 162 & 163/COCH/2014 THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT CARMEL EDUCATION TRUST ALSO A REGISTERED CHARITABLE TRUST U/S 12A OF THE ACT WAS GIVEN FUNDS BY THE ASSESSEE TO CARRY OUT THEIR CHARITABLE ACTIVITIES. ACCORDING TO THE LD.REPRESENTATIVE, WHEN THE FUNDS WERE ADVANCED TO OTHER SIMILARLY PLACED CHARITABLE TRUSTS, AMOUNTS TO APPLICATION OF INCOME ; THEREFORE, THE PROVISIONS OF SECTION 11(2) ARE NOT APPLICABLE. TH E LD.REPRESENTATIVE FURTHER SUBMITTED THAT ADVANCING MONEY TO SIMILARLY PLACED CHARITABLE TRUSTS DOES NOT AMOUNT TO INVESTMENT OR DEPOSIT. THEREFOR E, THERE IS NO VIOLATION OF SECTION 11(5) OF THE ACT ALSO. THE LD.REPRESEN TATIVE PLACED HIS RELIANCE ON THE JUDGMENT OF THE DELHI HIGH COURT IN DIRECTOR OF INCOME TAX (EXEMPTION) VS. ACME EDUCATIONAL SOCIETY (2010) 326 ITR 146 (DEL) AND SUBMITTED THAT WHEN A REGISTERED SOCIETY ADVANCED A LOAN TO ANOTHER REGISTERED SOCIETY WITH SIMILAR OBJECTS, THERE IS N O VIOLATION OF SECTION 13(1)(D) R.W.S. 11(5) OF THE ACT. THE LD.REPRESENT ATIVE HAS ALSO PLACED RELIANCE ON THE DECISION OF THE LUCKNOW BENCH OF TH IS TRIBUNAL IN KANPUR SUBHASH SHIKSHA SAMITI VS DY.CIT (2011) 11 ITR (TRI B) 23 (LUCK). THE LD.REPRESENTATIVE SUBMITTED THAT WHEN THE FUNDS OF THE ASSESSEE TRUST WAS ADVANCED TO ANOTHER TRUST WHICH WAS REGISTERED U/S 12AA WITH SIMILAR OBJECTS, THE SAME CANNOT BE CONSIDERED TO BE AN INV ESTMENT OR LOAN. THEREFORE, THERE IS NO VIOLATION OF SECTION 13(1)(D ) OF THE ACT. 4 ITA NO. 162 & 163/COCH/2014 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NO T IN DISPUTE THAT SUBSTANTIAL INCOME OF THE ASSESSEE TRUST WAS NOT US ED BY BOTH THE ASSESSEES FOR THE PURPOSES FOR WHICH THEY WERE FORM ED. WHEN SUBSTANTIAL PORTION OF THE AMOUNT WAS NOT USED FOR THE PURPOSE FOR WHICH THE TRUST WAS ESTABLISHED, WHETHER THE ASSESSEE TRUSTS ARE ENTITL ED FOR EXEMPTION U/S 11 OF THE ACT? SECTION 11(1) OF THE INCOME-TAX ACT CL EARLY SAYS THAT THE INCOME DERIVED BY A TRUST FROM THE PROPERTY HELD UN DER TRUST IS EXEMPTED AND CANNOT BE INCLUDED IN THE TOTAL INCOME OF THE P REVIOUS YEAR WHERE SUCH INCOME IS APPLIED FOR CHARITABLE PURPOSE IN INDIA, WHERE SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION OF CHARITA BLE PURPOSE TO THE EXTENT TO WHICH THE INCOME WAS ACCUMULATED OR SET APART IS NOT IN EXCESS OF 15% OF THE INCOME FROM THE SAID PROPERTY HELD UNDER TRU ST. THEREFORE, THE ASSESSEE IS UNDER LEGAL OBLIGATION TO APPLY THE INC OME TO THE EXTENT OF 85% FOR CHARITABLE PURPOSE OR RELIGIOUS PURPOSE FOR WHI CH THE TRUST WAS ESTABLISHED. SECTION 11(1) OF THE INCOME-TAX ACT E NABLES THE CHARITABLE / RELIGIOUS TRUST TO ACCUMULATE OR SET APART ONLY 15% OF THE INCOME. 5. WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIO NS OF SECTION 11(2) OF THE ACT. SECTION 11(2) OF THE INCOME-TAX ACT PR OVIDES FOR AN EXCEPTIONAL CIRCUMSTANCE UNDER WHICH 85% OF THE INCOME HELD UND ER TRUST IS NOT APPLIED FOR CHARITABLE PURPOSE DURING THE YEAR IN W HICH THE SAME WAS 5 ITA NO. 162 & 163/COCH/2014 RECEIVED. IN CASE THE CHARITABLE TRUST COULD NOT A PPLY ITS INCOME TO THE EXTENT OF 85%, A NOTICE SHALL BE GIVEN TO THE ASSES SING OFFICER IN THE PRESCRIBED MANNER INDICATING THE PURPOSE FOR WHICH THE INCOME IS ACCUMULATED OR SET APART AND THE PERIOD FOR WHICH S UCH INCOME IS SO ACCUMULATED OR SET APART. SUCH AMOUNT HAS TO BE DE POSITED IN THE MANNER AND FORM AS PROVIDED IN SECTION 11(5) OF THE INCOME -TAX ACT. EXPLANATION TO SECTION 11(2) AND SECTION 11(3) OF THE INCOME-TA X ACT MAKES EXCEPTION TO SECTION 11(2) OF THE ACT. FOR THE PURPOSE OF CO NVENIENCE, EXPLANATION TO SECTION 11(2) AND THE PROVISIONS OF SECTION 11(3) A RE REPRODUCED HEREUNDER: (2) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX PROVIDED XXXXXXXXXXXXXXXXXXXXXXXXXXX PROVIDED FURTHER XXXXXXXXXXXXXXXXXXXXX EXPLANATION.- ANY AMOUNT CREDITED OR PAID, OUT OF I NCOME REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECT ION (1), READ WITH EXPLANATION TO THAT SUB-SECTION, WHICH IS NOT APPLIED, BUT IS ACCUMULATED OR SET APART, TO ANY TRUST OR INSTIT UTION REGISTER2ED UNDER SECTION 12AA OR TO ANY FUND OR IN STITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTIT UTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO I N SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CL AUSE (VIA) OF CLAUSE (23C) OF SECTION 10, SHALL NOT BE TREATED AS APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES, EIT HER DURING THE PERIOD OF ACCUMULATION OR THEREAFTER. (3) ANY INCOME REFERRED TO IN SUB-SECTION (2) WHICH 6 ITA NO. 162 & 163/COCH/2014 (A) IS APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES AS AFORESAID OR CEASES TO BE ACCUMULATED OR SET APART FOR APPLICATION THERETO, O R (B) CEASES TO REMAIN INVESTED OR DEPOSITED IN ANY O F THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5), OR (C) IS NOT UTILIZED FOR THE PURPOSE FOR WHICH IT IS SO ACCUMULATED OR SET APART DURING THE PERIOD REFERRED TO IN CLAUSE (A) OF THAT SUB-SECTION OR IN THE YEAR IMMEDIATELY FOLLOWING THE EXPIRY THEREOF, (D) IS CREDITED OR PAID TO ANY TRUST OR INSTITUTION REGISTERED UNDER SECTION 12AA OR TO ANY FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CLAUSE (VI A) OF CLAUSE (23C) OF SECTION 10. SHALL BE DEEMED TO BE THE INCOME OF SUCH PERSON OF THE PREVIOUS YEAR IN WHICH IT IS SO APPLIED OR CEASES T O BE SO ACCUMULATED OR SET APART OR CEASES TO REMAIN SO INV ESTED OR DEPOSITED OR CREDITED OR PAID OR, AS THE CASE MAY B E, OF THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE EXPIRY OF T HE PERIOD AFORESAID. 6. EXPLANATION TO SECTION 11(2) AND CLAUSE (D) OF S ECTION 11(3) INSERTED BY FINANCE ACT, 2002 WITH EFFECT FROM 01-04-2003 SA YS THAT INCOME WHICH WAS ACCUMULATED AS PROVIDED IN SECTION 11(2) IF CRE DITED OR PAID TO ANOTHER TRUST OR INSTITUTION REGISTERED U/S 12AA OR APPROVE D U/S 10(23C) SHALL BE 7 ITA NO. 162 & 163/COCH/2014 DEEMED TO BE THE INCOME OF SUCH PERSON OF THE PREVI OUS YEAR IN WHICH SUCH CREDIT WAS MADE OR PAID AS THE CASE MAY BE. S ECTION 11(3A) EMPOWERS THE ASSESSING OFFICER TO ALLOW THE TRUST T O APPLY THE INCOME SO ACCUMULATED FOR OTHER CHARITABLE OR RELIGIOUS PURPO SE OTHER THAN THE ONE FOR WHICH THE SAME WAS ACCUMULATED OR SET APART. HOWEV ER, PROVISO TO SECTION 11(3A) MANDATES THAT THE ASSESSING OFFICER SHALL NOT ALLOW THE APPLICATION OF INCOME BY WAY OF PAYMENT OR CREDIT F OR THE PURPOSES REFERRED TO IN CLAUSE (D) OF SUB SECTION (3) OF SECTION 11 O F THE ACT. THEREFORE, IN VIEW OF THE LATEST DEVELOPMENT OF LAW WITH EFFECT F ROM 01-04-2003 IF THE INCOME IS PAID OR CREDITED TO ANOTHER TRUST OR INST ITUTION EVEN THOUGH THEY ARE REGISTERED U/S 12AA OR APPROVED U/S 10(23C) OF THE ACT, THE SAME HAS TO BE TREATED AS INCOME OF THE ASSESSEE. 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF T HE DELHI HIGH COURT IN ACME EDUCATIONAL SOCIETY (SUPRA). THE ASS ESSMENT YEAR INVOLVED IN THE CASE BEFORE THE DELHI HIGH COURT IS ASSESSME NT YEAR 2005-06. THE ASSESSEE TRUST BEFORE THE DELHI HIGH COURT GAVE A L OAN OF RS.90,50,000 TO ANOTHER EDUCATIONAL SOCIETY, WHOSE PRESIDENT WAS BR OTHER OF THE ASSESSEE SOCIETYS PRESIDENT BEFORE THE DELHI HIGH COURT. T HE DEPARTMENT CONTENDED THAT THERE WAS A VIOLATION OF SECTION 11( 1)(D) R.W.S. 11(5) OF THE ACT SINCE THE AMOUNT WAS ADVANCED TO ANOTHER SOCIET Y. THE DELHI HIGH COURT FOUND THAT THE ADVANCE OF RS.90,50,000 TO NAV BHARAT EDUCATION 8 ITA NO. 162 & 163/COCH/2014 SOCIETY CANNOT BE CONSTRUED AS INVESTMENT OR DEPOSI T, THEREFORE, SUCH ADVANCE DOES NOT VIOLATE SECTION 11(1)(D) R.W.S. 11 (5) OF THE INCOME-TAX ACT SINCE THE SAME CANNOT BE TREATED EITHER AS INVE STMENT OR AS DEPOSIT. APPARENTLY, THE PROVISIONS OF EXPLANATION TO SECTIO N 11(2) AND SECTION 11(3)(D) WHICH WAS INSERTED BY FINANCE ACT, 2002 WI TH EFFECT FROM 01-04- 2003 WAS NOT BROUGHT TO THE NOTICE OF THE DELHI HIG H COURT, THEREFORE, THE DELHI HIGH COURT HAD NO OCCASION TO CONSIDER THE IM PLICATIONS OF EXPLANATION TO SECTION 11(2) AND SECTION 11(3)(D) O F THE ACT. SIMILARLY, THE ATTENTION OF THE LUCKNOW BENCH OF THIS TRIBUNAL WAS NOT DRAWN TO THE PROVISIONS OF EXPLANATION TO SECTION 11(2) AND SECT ION 11(3)(D) OF THE ACT IN THE CASE OF KANPUR SUBHASH SHIKSHA SAMITI (SUPRA). THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDG MENT OF THE DELHI HIGH COURT IN ACME EDUCATION SOCIETY (SUPRA) AND THE DEC ISION OF THE LUCKNOW BENCH OF THIS TRIBUNAL IN KANPUR SUBHASH SHIKSHA SA MITI (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THIS CASE. 8. BOTH THE AUTHORITIES BELOW HAVE FAILED TO CONSID ER THE PROVISIONS OF EXPLANATION TO SECTION 11(2) AND SECTION 11(3)(D) O F THE ACT. THE ASSESSING OFFICER PROCEEDED ON THE FOOTING THAT THE RE WAS A VIOLATION OF SECTION 11(5) OF THE ACT SINCE THE INCOME OF THE AS SESSEE WAS NOT DEPOSITED IN THE FORM AND MODE PRESCRIBED IN SECTIO N 11(5) OF THE ACT. THE CIT(A), HOWEVER, PROCEEDED ON THE PRESUMPTION THAT ADVANCING MONEY TO 9 ITA NO. 162 & 163/COCH/2014 OTHER CHARITABLE INSTITUTION DOES NOT AMOUNT TO INV ESTMENT OR DEPOSIT. THE FACT THAT THE PAYMENT OR CREDIT TO OTHER TRUST IS P ROHIBITED BY EXPLANATION TO SECTION 11(2) AND SECTION 11(3)(D) WAS NOT CONSIDER ED BY BOTH THE AUTHORITIES BELOW. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED IN THE LIGHT OF THE LAW BROUGHT IN THE STATUTE BOOK BY FINANCE ACT, 2002 WITH EFFECT FROM 2003 INSERTING EXPLANATION TO SECTION 11(2) AND SECTION 11(3)(D) O F THE ACT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT BY REMANDING BACK THE MATTER, THE ASSESSEE ALSO WOULD GET AN OPPORTUNITY TO EXPLAIN T HE IMPLICATION OF THE PROVISIONS OF EXPLANATION TO SECTION 11(2) AND SECT ION 11(3)(D) AS INSERTED BY FINANCE ACT, 2002 WITH EFFECT FROM 01-04-2003 BE FORE THE ASSESSING OFFICER. THEREFORE, IN THE INTEREST OF JUSTICE, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECO NSIDERED BY THE ASSESSING OFFICER IN THE LIGHT OF THE PROVISIONS OF EXPLANATION TO SECTION 11(2) AND SECTION 11(3)(D) OF THE ACT AS INTRODUCED BY FINANCE ACT, 2002 WITH EFFECT FROM 01-04-2003. ACCORDINGLY, THE ORDE RS OF THE AUTHORITIES BELOW ARE SET ASIDE IN BOTH THE APPEALS AND THE ISS UE OF EXEMPTION U/S 11 IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFIC ER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF T HE EXPLANATION TO SECTION 11(2) AND PROVISION OF SECTION 11(3)(D) OF THE ACT, AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 10 ITA NO. 162 & 163/COCH/2014 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DECEMBER, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 12 TH DECEMBER, 2014 PK/- COPY TO: 1. ITO, WD.1, THIRUVALLA 2. M/S BELIEVERS CHURCH INDIA, ST. THOMAS NAGAR, TH IRUVALLA / M/S GOSPEL FOR ASIA, MANJALI PO, THIRUVALLA 3. THE COMMISSIONER OF INCOME-TAX, THIRUVALLA 4. THE COMMISSIONER OF INCOME-TAX(A), THIRUVNANDTHA PURAM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH