Sera Foundation, New Delhi V. ITO (Exemption), New Delhi

ITA 1854/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65679 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 24-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRANJAN KAULI
• Keywords: Capital asset; Gift; Charitable institution; Earning of tax free income; Initiation of penalty proceedings
• Section: 234B; 80G; 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI U.B.S.BEDI, JUDICIAL MEMBER AND SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER I.T.A .NO.1854/DEL/2011 (ASSESSMENT YEAR-2006-07) SERA FOUNDATION, VS ITO (EXEMPTION), 1108, SURYA KIRAN BUILDING, TRUST WARD-I, 19, K.G.MARG, NEW DELHI NEW DELHI. PAN-AAATS1561L (APPELLANT) (RESPONDEN T) I.T.A .NO. 2697/DEL/2011 (ASSESSMENT YEAR-2006-07) ITO (EXEMPTION), VS SERA FOUNDATION, TRUST WARD-I, 1108, SURYA KIRAN BUILDING, NEW DELHI 19, K.G.MARG, NEW DELHI (APPELLANT) (RESPONDEN T) I.T.A .NO.1327/DEL/2012 (ASSESSMENT YEAR-2007-08) SERA FOUNDATION, VS ITO (EXEMPTION), 1108, SURYA KIRAN BUILDING, TRUST WARD-I, 19, K.G.MARG, NEW D ELHI NEW DELHI. (APPELLANT) (RESPONDEN T) APPELLANT BY: SH. V.P.GUPTA & SH. BASANT KUMAR, A DV. RESPONDENT BY: SH. NIRANJAN KAULI, CIT DR ORDER PER S.V.MEHROTRA, AM THIS APPEAL FILED ON 19-04-2012 BY THE ASSESSEE IS AGAINST THE ORDER DATED 15-03-2011 OF THE LD. CIT(A), NEW DELHI FOR A Y 2006-07. 2. THE ASSESSEE IS A CHARITABLE INSTITUTION FORMED UNDER THE SOCIETIES REGISTRATION ACT, 1860 VIDE ITS MEMORANDUM OF ASSOC IATION DATED 08.08.1966. THE ASSESSEE TRUST IS REGISTERED U/S 12A OF THE INC OME TAX ACT, I.T.A .NO.1854 & 2697 & 1327/DEL/2011 2 1961 VIDE ORDER NO. DIT(E)/12A/2005-06/S-657628 DAT ED 09.08.2006. THE TRUST IS ALSO A NOTIFIED TRUST U/S 80G OF THE INCOM E TAX ACT, 1961 VIDE ORDER NO. DIT(E)/2005-06/S-65/1052 DATED 09.08.2006 VALID FOR THE PERIOD 03.05.2006 TO 31.03.2008. THE ASSESSEE TRUST HAD F ILED ITS RETURN OF INCOME FOR AY 2006-07 DECLARING NIL INCOME. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED SHARES OF MAWANA SUGAR LT D. AND SIEL LTD. THROUGH ENTERPRISE TRUST AND THE SAME HAD BEEN TRAN SFERRED TO ASSESSEE TOWARDS HIS CORPUS FUND. THE ENTERPRISE TRUST HAD DONATED 1147110 EQUITY SHARES OF MAWANA SUGAR LTD. AND 201500 EQUITY SHARE S OF SIEL LTD. ON 13.04.2005. THE ASSESSING OFFICER NOTED THAT THE MARKET VALUE OF EQUITY SHARES OF MAWANA SUGAR LTD. ON THE DATE OF TRANSFER WAS RS.68.40 PER SHARE AND PF SIEL LTD. WAS AT RS. 31/- PER SHARE. THE T OTAL VALUE OF THESE SHARES AGGREGATED TO RS. 8,47,08,824/-. 3. THE ASSESSEE HAD TAKEN THE SHARES AT RS. NIL IN THE BALANCE SHEET BECAUSE THE SHARES HAD BEEN RECEIVED AS CORPUS DONA TION. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAD SOLD 308500 EQUITY SHARES OF MAWANA SUGAR LTD. AND 9837 EQUITY SHARES OF SIEL LT D FOR WHICH THE TRUST HAD RECEIVED A SUM OF RS. 3,65,36,184/- AND THE AMO UNT SO RECEIVED WAS CREDITED TO BALANCE SHEET AS CORPUS FUND. THE ASSE SSING OFFICER ISSUED FOLLOWING SHOW CAUSE NOTICE DATED 16.12.2008 :- YOU HAVE RECEIVED SHARES FROM MAWANA SUGAR LTD., S IEL LTD. AS CORPUS DONATION. PLEASE FURNISH THE MARKET VALUE OF I.T.A .NO.1854 & 2697 & 1327/DEL/2011 3 SHARES ON THE DATE OF DONATION RECEIVED ALONG WITH EVIDENCE TO JUSTIFY SUCH VALUE. AS PER SECTION 2(24) OF THE INCOME TAX ACT, 1961, ANY VOLUNTARY DONATION RECEIVED BY A CHARITABLE OR RELI GIOUS INSTITUTION OR TRUST IS AN INCOME. PLEASE SHOW CAU SE WHY THE MARKET VALUE OF SHARES SHOULD NOT BE TREATED AS INC OME IN THIS YEAR AND ASSESSED ACCORDINGLY. YOU HAVE CLAIMED SHARES TO HAVE BEEN RECEIVED AS C ORPUS DONATION. IN VIEW OF VIOLATION OF SECTION 11 & 13( 1)(D), YOUR INCOME IS NOT EXEMPT. UNDER THESE CIRCUMSTANCES, P LEASE EXPLAIN WHY DONATION OF SHARES SHOULD BE TREATED AS CORPUS DONATION UNDER SECTION 11(1)(D) OF THE INCOME TAX A CT, 1961. 4. AFTER CONSIDERING THE ASSESSEES SUBMISSION, THE ASSESSING OFFICER OBSERVED AS UNDER :- WHEN THE ASSESSEE RECEIVED SHARES OF THE ABOVE COMPANIES IT WAS TREATED BY TRUST AS CORPUS WITH SP ECIFIC DIRECTION AT NIL VALUE, BUT AT THE SAME TIME WHEN T HE SAME ARE SOLD THE ASSESSEE CREDITED CORPUS FUND ACCOUNT AND OUT OF THAT CORPUS FUND FURTHER DONATION WAS GIVEN TO OTHER CHA RITABLE TRUST. THUS THE ASSESSEE HAS MISUSED THE CORPUS FUND BY VI RTUE OF MISAPPLICATION OF CORPUS FUND TO GIVE DONATION TO O THER CHARITABLE TRUST. IN SPITE OF REPEATED REQUEST VIDE ORDER SHEET ENTR Y DATED 10.12.2008, 16.12.2008 & 26.12.2008 THE ASSESSEE HA D NOT PRODUCED THE MINUTES OF BOOK IN ORIGINAL TO PROVE T HAT WHETHER THE ABOVE AMOUNT IS GENERAL DONATION OR CORPUS FUND . 5. THE ASSESSING OFFICER MADE AN ADDITION OF RS. 8, 47,08,824/-, TREATING THE CORPUS DONATION AS GENERAL DONATION IN THE CURR ENT YEAR FOR THE FOLLOWING REASONS:- (I) THE ASSESSEE WAS GIVEN REGISTRATION U/S 12A SUBJECT TO FOLLOWING ADDITIONS :- (A) ACCORDINGLY REGISTRATION U/S 12A R.W.S 12AA IS HEREBY GRANTED WITH EFFECT FROM 03.05.2006 SUBJECT TO THE I.T.A .NO.1854 & 2697 & 1327/DEL/2011 4 SATISFACTION OF THE FOLLOWING CONDITIONS AND ENTERE D AT S.NO. 628 OF THE REGISTER MAINTAINED IN THIS OFFICE . THE ONE OF THE CONDITIONS VIDE ITEM NO. (VII) IS REPRODUCED AS UNDER :- NO ASSET SHALL BE TRANSFERRED WITHOUT THE KNOWLEDGE OF THE UNDERSIGNED TO ANYONE, INCLUDING T O ANY TRUST/SOCIETY/NON-PROFIT COMPANY. SINCE THE ASSESSEE HAD SOLD SHARES IN CURRENT YEAR AND IN 2007-08 WITHOUT THE PERMISSION OF DIT(EXEMPTION), T HEREFORE, HE TREATED THE ENTIRE MARKET VALUE OF SHARES AS ASS ESSEES INCOME. (II) IN AY 2008-09, THE ASSESSEE HAD FURTHER CLAIMED DON ATION OUT OF CORPUS OF RS. 1,50,36,000/-. HE POINTED OUT THA T ASSESSEE HAD RECEIVED CORPUS FOR SPECIFIC PURPOSE, THEREFORE , IT COULD NOT UTILIZE SAME FOR FURTHER DONATION. THEREFORE, HE D ENIED ASSESSEES CLAIM OF DEDUCTION U/S 11(1)(D). (III) THE ASSESSEE HAD MISUSED THE FUNDS BY GIVING A COLO URFUL DEVICE TO AVOID THE TAX. (IV) THE ASSESSEE CANNOT BE ALLOWED THE CREDIT OF DONATI ON MADE AGAINST THIS CORPUS DONATION. (V) THE ASSESSING OFFICER RELIED ON THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD. VS . COMMERCIAL TAX OFFICER. 154 ITR 148 (SC) (1985). 6. BEFORE THE LD. CIT(A), IT WAS, INTER ALIA, SUBMI TTED THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEES FOUNDATION IN-C OMPLIANCE TO PROVISO (IIA) TO SECTION 13(1)(D) OF THE INCOME TAX ACT, 1961, SO LD 308500 SHARES OF MAWANA SUGAR LTD. AND 9837 SHARES OF SIEL LIMITED A ND SALES CONSIDERATION HAD BEEN TRANSFERRED TO THE CORPUS FUND. REMAINING SHARES WERE SOLD DURING THE NEXT FINANCIAL YEAR AND THE CONSIDERATION WAS C REDITED TO THE CORPUS FUND. IT WAS FURTHER SUBMITTED THAT COPY OF THE MINUTE BO OK OF ENTERPRISE LTD. AND SHERA FOUNDATION (ASSESSEE) WERE PRODUCED/SUBMITTED BEFORE THE ASSESSING OFFICER AS EVIDENCE TO THE EFFECT THAT CONTRIBUTION S RECEIVED IN THE FORM OF I.T.A .NO.1854 & 2697 & 1327/DEL/2011 5 SHARES WAS TOWARDS TO THE CORPUS OF THE ASSESSEE FO UNDATION VIDE LETTERS DATED 05.11.2008 AND 26.12.2008. IT WAS FURTHER SU BMITTED THAT ASSESSING OFFICER HAD ALSO RELIED ON CERTAIN FACTS OF SUBSEQU ENT YEARS WHICH COULD NOT BE TAKEN INTO CONSIDERATION IN ORDER TO DETERMINE T HE TAXABLE INCOME FOR THE YEAR UNDER APPEAL. IT WAS FURTHER STATED THAT MAKIN G OF FURTHER DONATIONS TO OTHER CHARITABLE SOCIETY IS ALSO IN FURTHERANCE TO THE OBJECT OF THE ASSESSEE SOCIETY AND, THEREFORE, IT COULD NOT RESULT IN VIOL ATION OF ANY OF THE PROVISIONS OF THE INCOME TAX ACT. 7. IT WAS ALSO BROUGHT TO THE NOTICE OF LD. CIT(A) THAT WHEN PROCEEDINGS FOR THIS ASSESSMENT WERE GOING ON BEFORE THE ASSESS ING OFFICER, PROCEEDINGS WERE ALSO GOING ON BEFORE THE DIRECTOR OF INCOME TA X (EXEMPTION) IN CONNECTION WITH APPROVAL/RENEWAL OF APPROVAL U/S 80 G OF THE ACT. THE DIT(EXEMPTION) HAD ALSO RAISED QUERIES SPECIFICALLY REGARDING THE DONATION MADE TO OTHER CHARITABLE INSTITUTIONS TOWARDS CORPU S OR SCHOLARSHIP FUNDS ETC. FOR THE REASON THAT THE DIT(EXEMPTION) WAS CONSIDER ING THE ACTIVITIES OF THE ASSESSEE UPTO THE DATE WHEN HE WAS GRANTING THE APP ROVAL. THE ASSESSEE TRUST HAD DULY EXPLAINED THE POSITION TO DIT(E) IN REGARD TO EACH OF THE DONATION MADE BY IT. AFTER CONSIDERING FULL FACTS AND CIRCUMSTANCES AND THE DONATION MADE BY IT TO OTHER CHARITABLE SOCIETIES, APPROVAL WAS GRANTED U/S 80G OF THE ACT BY DIT(E) VIDE HIS ORDER DATED 06.03 .2009. COPY OF LETTER RECEIVED FROM THE OFFICE OF DIT(E) HAD ALSO BEEN SU BMITTED IN ORDER TO I.T.A .NO.1854 & 2697 & 1327/DEL/2011 6 DEMONSTRATE OUT THAT THE SAME ISSUE HAD BEEN RAISED BY THE DIT(E) ALSO IN CONNECTION WITH THE APPROVAL U/S 80G OF THE ACT. T HUS, IT WAS CONTENDED THAT SINCE DIT(E) HAD ALSO CONSIDERED VALIDITY OF D ONATIONS MADE BY TRUST TO OTHER CHARITABLE INSTITUTIONS, THE ASSESSING OFFICE R WAS NOT CORRECT IN TAKING ADVERSE VIEW IN THE ORDER OF ASSESSMENT ON THE BASI S OF DONATION MADE BY IT IN SUBSEQUENT YEARS. THE ASSESSEE HAD ALSO RELIED UPON CERTAIN CASE LAWS TO THE EFFECT THAT DONATION COULD BE MADE BY A TRUST T O CORPUS OF OTHER TRUST AND SUCH DONATION COULD BE MADE OUT OF ITS CORPUS ALSO. AS REGARDS, OBSERVATIONS MADE BY THE ASSESSING OFFICER TO THE EFFECT THAT TH E APPROVAL OF DIT(E) HAD NOT BEEN TAKEN FOR THE DISPOSAL OF THE SHARES, IT W AS SUBMITTED THAT SINCE THE SHARES HAD TO BE DISPOSED OFF IN TERMS OF SPECIFIC PROVISIONS OF SECTION 13(1)(D) OF THE ACT, THERE WAS NO QUESTION SEEKING APPROVAL AS PROVIDED IN THE APPROVAL LETTER OF DIT(E). 8. FURTHER, IT WAS SUBMITTED THAT OBJECT AND THE PU RPOSE OF THE CONDITION PROVIDED IN THE REGISTRATION CERTIFICATE WAS THAT T HE TRUST SHOULD NOT DIVERT ITS ASSETS FOR NON-CHARITABLE PURPOSES WITHOUT KNOWLEDG E OF DIT(E). THE ASSESSEE FURTHER SUBMITTED THAT IF THIS CONDITION W AS TAKEN TO MEAN THAT NO ASSET OR FUND COULD BE GIVEN TO ANYBODY THEN IT WOU LD IMPLY THAT EVEN GENUINE ACTIVITIES CANNOT BE CARRIED OUT BY A CHARI TABLE INSTITUTIONS BY UTILIZING ITS CORPUS. I.T.A .NO.1854 & 2697 & 1327/DEL/2011 7 9. BEFORE LD. CIT(A), THE ASSESSEE HAD ALSO TAKEN A N ALTERNATE GROUND REGARDING ALLOWBILITY OF STATUTORY DEDUCTION OF 15% IN DETERMINATION OF TAXABLE INCOME. 10. LD. CIT(A) WHILE PARTLY ALLOWING THE ASSESSEES APPEAL, UPHELD THE AOS ORDER IN MAKING ADDITION OF RS. 8,47,08,824/- AND ALSO DENIED THE ASSESSEES CLAIM OF ACCUMULATION OF 15% OF INCOME O BSERVING THAT SINCE THE AO HAD DENIED THE CLAIM OF REGISTRATION U/S 12A OF THE INCOME TAX ACT, THE ASSESSEES CLAIM OF SECTION 11 DOES NOT STAND. 11. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER INCLUDING AMOUNT OF RS. 8,47,08,8 24/- IN THE TAXABLE INCOME, BEING THE VALUE OF SHARES RECEI VED BY THE APPELLANT AS CORPUS DONATION ON THE GROUND THAT THE APPELLANT HAD VIOLATED PROVISIONS OF SECTION 11 REA D WITH SECTION 13(1)(D) OF THE WITHOUT APPRECIATING THE CONTENTIONS OF THE APPELLANT, PARTICULARLY THAT OBS ERVATION OF THE ASSESSING OFFICER WERE VAGUE AND NO SPECIFIC VIOLATION WAS POINTED OUT BY HIM AND THE APPELLANT HAD FULLY COMPLIED WITH THE PROVISIONS OF THE ACT AND ACCORDINGLY, IT WAS ENTITLED FOR EXEMPTION UNDER SE CTION 11(1)(D) OF THE ACT IN RESPECT OF SALE PROCEEDS OF SHARES RECEIVED TOWARDS CORPUS. 2. THAT THE CIT(A) ERRED IN UPHOLDING THE OBSERVATION OF THE ASSESSING OFFICER THAT APPELLANT HAD RECEIVED SHARE S TOWARDS CORPUS FOR SPECIFIC PURPOSE AND THE APPELLA NT COULD NOT UTILIZED THE SAME FOR CONTRIBUTION TO OTH ER CHARITABLE TRUST IGNORING THE CONTENTION OF THE APP ELLANT AND DOCUMENTS ON RECORD THAT THERE WAS NO DIRECTION OF THE DONOR TO UTILIZE THE CONTRIBUTION FOR A SPECIFIC PU RPOSE AND THEREFORE, THE APPELLANT COULD UTILIZE THE FUND FOR GIVING DONATION TOWARDS CORPUS OF OTHER CHARITABLE INSTITU TION, I.T.A .NO.1854 & 2697 & 1327/DEL/2011 8 WHICH IS ALSO PART OF CHARITABLE ACTIVITY AS PER AC CEPTED LEGAL POSITION, EVEN IN THE CASE OF APPELLANT IN EA RLIER YEARS VIDE DECISION OF HON'BLE DELHI HIGH COURT REP ORTED IN 269 ITR 35. 3. THAT THE CIT(A) ERRED IN NOT DISCUSSING AND CONSIDE RING THE FACTS AND CONTENTIONS OF THE APPELLANT MADE BEF ORE HIM AND PARTICULARLY, THE CONTENTION THAT THE APPELLANT HAD FULLY COMPLIED WITH THE PROVISIONS OF LAW AND THE O RDER PASSED BY THE ASSESSING OFFICER DENYING EXEMPTION U /S 11(1)(D) ON THE BASIS OF UTILIZATION OF FUNDS FOR M AKING DONATIONS TO OTHER CHARITABLE INSTITUTIONS IN SUBSE QUENT YEARS WAS ILLEGAL, INCORRECT, UNJUSTIFIED, UNREASON ABLE AND UNWARRANTED. 4. THAT THE CIT(A) ALSO ERRED IN NOT APPRECIATING THAT DIRECTOR OF INCOME TAX (EXEMPTION) HAD ALREADY CONSIDERED THE FACTS OF THE CASE OF THE APPELLANT D URING THE COURSE OF PROCEEDINGS FOR APPROVAL UNDER SECTION 80 G OF THE ACT AND APPROVAL UNDER SECTION 80G HAD BEEN DUL Y GRANTED VIDE LETTER DATED 06.03.2009, THEREBY ACCEP TING FULL COMPLIANCE OF LAW BY THE APPELLANT AND THEREFO RE, THE ORDER OF THE ASSESSING OFFICER DATED 30.12.2008 TAK ING A VIEW THAT THE APPELLANT HAD VIOLATED PROVISIONS OF INCOME TAX ACT COULD NOT BE SUSTAINED. 5. THAT THE CIT(A) ERRED IN NOT EVEN ALLOWING STATUTOR Y DEDUCTION OF 15% OF THE AMOUNT OF INCOME DETERMINED BY A.O, WHICH IS AVAILABLE UNDER SECTION 11 OF THE ACT BY WRONGLY OBSERVING THAT THE A.O HAD DENIED THE CLAIM OF REGISTRATION U/S 12A OF THE ACT WITHOUT APPRECIATIN G THAT A.O HAS NO POWER TO WITHDRAW REGISTRATION GRANTED U /S 12A OF THE ACT BY THE DIT(E). 6. THAT THE CIT(A) ALSO ERRED IN NOT DISPOSING GROUND (F) OF GROUNDS OF APPEAL BEFORE HIM REGARDING PROVIDING OPPORTUNITY BY A.O TO THE APPELLANT FOR APPLYING TH E INCOME DETERMINED BY ASSESSING OFFICER WHICH OUGHT TO HAVE BEEN ALLOWED BY HIM IN VIEW OF HIS HOLDING TO THE EFFECT THAT CONTRIBUTION RECEIVED BY THE FOUNDATION WAS IN THE NATURE OF GENERAL CONTRIBUTION INSTEAD OF CONTR IBUTION TOWARDS CORPUS. 7. THAT THE CIT(A) ALSO ERRED IN UPHOLDING INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT IN THE CASE OF THE APPELLANT STATING THE SAME IS PREMA TURE. I.T.A .NO.1854 & 2697 & 1327/DEL/2011 9 8. THE APPELLANT COMPANY CRAVES LEAVE TO ALTER, AMEND, VARY AND/CR ADD ANY OF THE GROUNDS OF APPEAL AT ANY TIME HEREINAFTER. 12. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE LOWER REVENUE AUTHORITIES. LD. COUNSEL REFERRED TO PAGE 60 OF PAPER BOOK WHEREIN THE MINUTES OF BOARD OF TRUSTEES MEETING OF ENTERPRISE TRUST HELD ON 13.04.2005, ARE CONTAINED, TO DEMONSTRATE THAT E QUITY SHARES HELD BY THE ENTERPRISE TRUST AS INVESTMENTS WERE GIFTED TO SHRI RAM MEMORIAL FOUNDATION (SMF), THE ASSESSEE FOR ITS CORPUS AS UNDER :- INVESTMENT HELD IN NO. OF SHARES %AGE OF ISSUED CAP ITAL -MAWANA SUGARS LIMITED 11,47,110 2.7% -SIEL LIMITED 2,01,500 1.1% 13. LD. COUNSEL FURTHER REFERRED TO PAGE 23 OF PAPE R BOOK WHEREIN THE BALANCE SHEET OF ASSESSEES FOUNDATION, AS ON 31.03 .2006, IS CONTAINED, TO DEMONSTRATE THAT THE SHARES WERE TAKEN AT NIL VALUE IN THE BALANCE SHEET AND THE PART SALE PROCEEDS OF SHARES AMOUNTING TO RS. 3 ,65,36,184/- HAD BEEN CREDITED TO THE CORPUS FUND OF ASSESSEE TRUST. HE POINTED OUT THAT THIS WAS DONE IN VIEW OF THE PROVISIONS CONTAINED IN PROVISO (IIA) TO SECTION 13(1)(D), ACCORDING TO WHICH THE ASSESSEE WAS REQUIRED TO CON VERT THE SHARES INTO THE INVESTMENT OR DEPOSIT IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION 5 OF SECTION 11WITHIN ONE YEAR FROM THE END OF THE PR EVIOUS YEAR IN WHICH THE SHARES WERE ACQUIRED. LD. COUNSEL FURTHER, REFERRE D TO PAGE 25 OF PAPER I.T.A .NO.1854 & 2697 & 1327/DEL/2011 10 BOOK WHEREIN THE SCHEDULE TO BALANCE SHEET CONTAINI NG NOTES TO ACCOUNT IS CONTAINED IN WHICH THE ASSESSEE HAD MADE FOLLOWING DISCLOSURES REGARDING ITS ACCOUNTING POLICY:- DURING THE YEAR THE FOUNDATION RECEIVED A GIFT OF RS. 11,47,110 EQUITY SHARES OF MAWANA SUGARS LTD. A ND 02,01,500 EQUITY SHARES OF SIEL LTD. TOWARDS THE CO RPUS OF THE FOUNDATION. NO ENTRY HAS BEEN PASSED AT THE TIME O F RECEIPT OF THE GIFTED SHARES. THESE SHARES CAN NOT BE HELD BY THE FOUNDATION AND HAVE TO BE SOLD TO MAKE INVESTMENT T O MODES SPECIFIED U/S 11(5) OF THE ACT. SUM REALIZED ON SA LE OF SHARES IS TO BE CREDITED TO CORPUS FUND. ACCORDINGLY, SALE C ONSIDERATION OF 3,08,500 EQUITY SHARES OF MAWANA SUGARS LTD. AND 9, 837 EQUITY SHARES OF SIEL LTD. SOLD DURING THE YEAR HAVE CREDI TED TO THE CORPUS. 14. LD. COUNSEL FURTHER REFERRED TO PAGE 77 OF THE PAPER BOOK WHEREIN THE BALANCE SHEET AS ON 31.03.2007 IS CONTAINED, TO DEM ONSTRATE THAT SALE PROCEEDS OF SHARES WERE CREDITED TO CORPUS FUND AND THE CORPUS FUND BECAME RS. 8,74,81,291/-. LD. COUNSEL SUBMITTED THAT THIS WAS DONE BECAUSE AS PER PROVISO (IIA) TO SECTION 13(1)(D), THE SHARES HAD T O BE DISPOSED OFF PRIOR TO 31.03.2007. 15. LD. COUNSEL REFERRED TO PARA 5.1 PAGE 7 OF LD. CIT(A) ORDER AND POINTED OUT THAT THE OBSERVATIONS TO THE EFFECT THA T THE ASSESSEE HAD RECEIVED CORPUS WITH SPECIFIC PURPOSE, IS NOT CORRECT, AS IT IS EVIDENT FROM PAGE 60 OF THE PAPER BOOK. LD. COUNSEL FURTHER REFERRED TO PA GE 153 TO 154 OF PAPER BOOK WHEREIN ASSESSMENT ORDER FOR AY 2008-09 IS CON TAINED TO DEMONSTRATE I.T.A .NO.1854 & 2697 & 1327/DEL/2011 11 THAT AO HAD ACCEPTED THE ASSESSEES RETURN AT NIL I NCOME THOUGH THE DONATIONS TO OTHER CHARITABLE TRUSTS WERE MADE IN A YS 2008-09 AND 2009-10. 16. LD. COUNSEL RELIED ON FOLLOWING CASE LAWS:- 1) DIRECTOR OF INCOME TAX VS SHREE RADHA KRISHNAN CHAR ITABLE TRUST, 2011TIOL-315- HC-DEL-IT LD. COUNSEL RELIED ON THIS DECISION FOR THE PROPOSI TION THAT UNDER LAW, ASSESSEE COULD NOT HOLD SHARES BEYOND 31.03.2007 AS PER SECTION 13(1)(D). 2) SH. DWARKADHEESH CHARITABLE TRUST VS. ITO, 98 ITR 5 57 (ALL.) LD. COUNSEL RELIED ON THIS DECISION FOR THE PROPOSI TION THAT CORPUS DONATION IN FORM OF SHARES COULD BE RECEIVED AND AL SO THE PROPOSITION THAT WHEN A DONOR TRUST WHICH IS ITSELF A CHARITABL E AND RELIGIOUS TRUST DONATES ITS INCOME TO ANOTHER TRUST, THE PROVISIONS OF SECTION 11(1)(A) CAN BE SAID TO HAVE BEEN MET BY SUCH DONOR TRUST AN D THE DONOR TRUST CAN BE SAID TO HAVE APPLIED ITS INCOME FOR RELIGIOU S AND CHARITABLE PURPOSES WITH THE FACT THAT DONATION IS SUBJECTED T O ANY CONDITION THAT THE DONEE TRUST WHILE TREATED THE DONATIONS AS ITS CORPUS AND CAN ONLY UTILIZE THE ACCUMULATIVE INCOME FROM THE DONATED CO RPUS FOR RELIGIOUS AND CHARITABLE PURPOSES, AND THAT THE QUESTION WITH THE GIFTED INCOME IS TO BE UTILIZED BY THE DONEE TRUST FULLY FOR ITS CHARITABLE AND RELIGIOUS PURPOSE OR DONEE TRUST HAD TO KEEP A CORPUS OF THE DONATION AND HAD TO UTILIZE ONLY THE INCOME FROM ITS RELIGIOUS AND CHAR ITABLE PURPOSE, WOULD NOT MAKE THE SLIGHTEST DIFFERENCE SO FAR AS T HE ENTITLEMENT OF DONOR TRUST FOR EXEMPTION U/S 11(1) GOES. 17. LD. COUNSEL FURTHER REFERRED TO PAGE 18A WHEREI N INSTRUCTION NO 1132/CBDT DATED 05.01.1978, IS CONTAINED IN WHICH I T IS OBSERVED AS UNDER:- A QUESTION HAS BEEN RAISED REGARDING THE AVAILABIL ITY OF EXEMPTION IN THE HANDS OF CHARITABLE TRUSTS OF AMOU NTS PAID AS DONATIONS TO THE OTHER CHARITABLE TRUSTS. 2. THE ISSUE HAS BEEN CONSIDERED BY THE BOARD AND I T HAS BEEN DECIDED THAT AS THE LAW STANDS AT PRESENT THE PAYMENT OF A I.T.A .NO.1854 & 2697 & 1327/DEL/2011 12 SUM BY ONE CHARITABLE TRUST TO ANOTHER FOR UTILIZAT ION BY THE DONEE TRUST TOWARDS ITS CHARITABLE OBJECTS IS PROPE R APPLICATION OF INCOME FOR CHARITABLE PURPOSES ON THE HANDS OF THE DONOR TRUST, AND THE DONOR TRUST WILL NOT LOSE EXEMPTION UNDER S ECTION 11 OF THE DONATIONS DURING THE YEAR OF RECEIPT ITSELF. 18. LD. COUNSEL FURTHER REFERRED TO THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF DHARMA PRATISHTANAM VS ITO (1985), 11 I TD 40, DELHI, IN ORDER TO ADVANCE THE PROPOSITION THAT ANY AMOUNT RECEIVED TOWARDS CORPUS CAN BE SPENT FOR RUNNING EXPENSES AND IF SO SPENT IT DOES NOT LOOSE THE EXEMPTION FROM THE LEVY OF TAX. HE REFERRED TO PARA 8 OF TRI BUNALS ORDER WHICH IS REPRODUCED HERE UNDER :- THAT LEAVES US WITH THE QUESTION WHETHER ANY AMOUNT RECEIVED TOWARDS CORPUS CAN BE SPENT FOR RUN NING EXPENSES AND IF SO SPENT, WHETHER IT LOSES THE EXEM PTION FROM THE LEVY OF TAX. WE HAVE READ THE RELEVANT SE CTIONS CAREFULLY AND WE FIND NOTHING IN THOSE SECTIONS EVE N REMOTELY SUGGESTING THE ABOVE VIEW. SECTION 2(24)( IIA) WHEN IT PROVIDED THAT THE VOLUNTARY CONTRIBUTIONS S HOULD BE MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION, IN ORDER TH AT IT IS NOT TO BE TREATED AS INCOME, IT WAS LAYING EMPHASIS ON THE WISH, WILL AND DESIRE OF THE DONOR. THE DONOR MUST GRANT IT WITH A DIRECTION THAT IT SHALL FORM PART OF THE COR PUS. THE SECTION DID NOT EITHER BY IMPLICATION, OR OVERTLY O R OTHERWISE, ENJOIN UPON THE TRUST THAT THE TRUSTEE S HALL RETAIN IT FOR EVER AS CORPUS, EVEN IF WHEN AN OCCASION ARI SES THAT IN ORDER TO KEEP THE TRUST ALIVE AND TO PREVENT IT FROM FAILURE, IT SHOULD NOT SPEND ANY AMOUNT OUT OF IT. IF A DONOR DONATES MONEY WITH A SPECIFIC DIRECTION THAT IT SHALL FORM PART OF THE CORPUS, THE TRUSTEE IS EXPECTED TO HONOUR THE WISH OF THE DONOR. BUT IF THE TRUSTEE UTILIZES IT FOR A DIFFERENT PURPOSE, THEN IT IS A SIMPLE CASE OF BREA CH OF TRUST FOR WHICH DELINQUENCY, THE TRUSTEE CAN BY PROCEEDED AGAINST UNDER THE INDIAN TRUSTS ACT, 1882, OR OTHER APPROPRIATE LEGISLATION BUT THAT IS NOT TO SAY THAT FOR THE I.T.A .NO.1854 & 2697 & 1327/DEL/2011 13 MISBEHAVIOUR OF THE TRUSTEE, THE TRUST LOSES EXEMPT ION UNDER THE ACT. THIS KIND OF INFLEXIBILITY, AS CONT ENDED FOR BY THE REVENUE, IS DIFFICULT TO SEE OR COMPREHEND F ROM THE LANGUAGE OF SECTION 2(24)(IIA) OR SECTION 12. THE REQUIREMENT OF SECTION 2(24)(IIA) IS THAT THE VOLUN TARY CONTRIBUTION, WHEN RECEIVED, SHOULD CONTAIN A STIPU LATION THAT IT SHALL FORM PART OF CORPUS. THE TRUSTEE CAN NOT POSSIBLY INFLUENCE THE DONOR AT THAT TIME, EXCEPT T HAT THE TRUSTEE SHOULD ACT IN ACCORDANCE WITH THE CONFIDENC E REPOSED IN HIM BY THE DONOR. TAKE AN EXAMPLE, WHER E A MAKES A VOLUNTARY CONTRIBUTION OF RS. 1 LAKH TO A T RUST CREATED WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT HAS NO OTHER INCOME. THE OBJECT OF THE TRUST IS TO PROMOTE EDUCATION OR RELIEF OF POOR. HOW CAN THE TRUSTEE U TILIZE THIS MONEY WITHOUT BUYING THE BOOKS, IF IT IS FOR THE PU RPOSE OF EDUCATION, OR NECESSARY UTENSILS OR PROVISIONS, IF IT IS FOR PROVIDING RELIEF TO THE POOR BY WAY OF PROVIDING FO OD AND IF THE MONEY IS SPENT OUT OF THE DONATION OF RS. 1 LAK H FOR THE PURCHASE OF BOOKS, UTENSILS, ETC. WOULD IT MEAN T HAT THE SUM OF RS. 1 LAKH WOULD BECOME TAXABLE AS INCOME OF THE TRUST? WE DO NOT THINK THAT THIS IS THE OBJECT OF THE LEGISLATION. IN ANY CASE, THIS IS CONTRARY TO WHAT IS RECOMMENDED BY THE DIRECT TAXES ENQUIRY COMMITTEE, WHICH WAS ACCEPTED BY THE GOVERNMENT. WHAT IS EARMARKED FOR CORPUS IS NOT TO BE TREATED AS INCOME NOT BECAUSE IT IS SPENT FOR THE PURPOSE OF THE TRUST BU T BECAUSE THAT FORMS THE FUND OF THE TRUST. IT IS NOWHERE LA ID DOWN THAT THE FUNDS OF THE TRUST SHOULD NEVER BE SPENT F OR THE PURPOSES OF THE TRUST UNLESS IT IS A DIRECTION OF T HE DONOR THAT THE FUND SHALL BE INVESTED IN SUCH A WAY AS TO PRODUCE INCOME AND ONLY THE INCOME SHALL BE SPENT FOR THE P URPOSES OF THE TRUST. EVEN, SO IF A DEPARTURE IS MAKE BY T HE TRUSTEE IN THE IMPLEMENTATION OF THIS WISH OF THE DONOR, TH E TRUSTEE IS TO BE PENALIZED AND NOT THE TRUST. LOOKED AT F ROM ANY ANGLE, WE FIND IT DIFFICULT TO SUBSCRIBE TO THE VIE W SO FORCEFULLY PUT FORWARD BEFORE US BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND SO EXPLAINED IN THE ORDERS OF THE AUTHORITIES BELOW. 19. LD. COUNSEL FURTHER REFERRED TO THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF MAHILA SIDH NIRMAN YOJNA (1994) 50 ITD 472 WHEREIN IT HAS I.T.A .NO.1854 & 2697 & 1327/DEL/2011 14 BEEN HELD THAT CORPUS DONATIONS CAN BE UTILIZED FOR MEETING DAY TO DAY OBLIGATION. IN THIS CASE, TRIBUNAL HAS FOLLOWED TH E DECISION IN THE CASE OF DHARMA PRATISHTANAM (SUPRA). 20. LD. COUNSEL FURTHER RELIED ON THE DECISION OF H ONBLE DELHI HIGH COURT, IN HPS SOCIAL WELFARE FOUNDATION 329 ITR 310 (DEL.) FOR THE PROPOSITION THAT DONATIONS GIVEN TO CHARITABLE INST ITUTIONS DO NOT, IN ANY MANNER, IMPINGE UPON THE APPLICABILITY OF THE 11 A ND 12 OF THE INCOME TAX ACT. 21. LD. DR HAS FILED SYNOPSIS OF HIS ORAL SUBMISSIO NS WHICH IS REPRODUCED HERE UNDER :- 1. A RECEIVED SHARES OF MAWANA SUGAR LTD. AND SIEL LTD . TOWARDS CORPUS FUND. MARKET VALUE OF SHARES AS ON THE DATE OF TRANSFER ON 13.04.2005 WHEN THESE WERE RECEIVED AS VOLUNTARY CONTRIBUTION TOWARDS CORPUS FUND WAS RS. 8,47,08,82 4/-. IT WAS SUBMITTED BY THE ASSESSEE THAT TRANSFER ENTRY OF TH E SHARES WAS TAKEN AT NIL BECAUSE THE SHARES HAD BEEN RECEIVED A S CORPUS DONATION AT NIL VALUE. PART OF THESE SHARES WERE S OLD FOR RS. 3,65,36,184/- DURING THE AY 2006-07 AND THE REMAINI NG SHARES WERE SOLD FOR RS. 5,09,45,107/- DURING THE AY 2007- 08. 2. THE SALE OF SHARES THAT WERE RECEIVED WITH SPECIFIC DIRECTION TOWARDS THE CORPUS FUND IS A VIOLATION OF SEC 11(1) (D). PAGE 45 OF PAPER-BOOK CLEARLY SHOWS THAT THE FULLY PAID UP EQUITY SHARES WERE GIFTED FOR ITS CORPUS. BEING GIFTED FOR THE C ORPUS FUND, THE SHARES OUGHT TO BE KEPT UNTOUCHED. THE DONATED SHA RES TO THE CORPUS CANNOT BE TOUCHED BUT ONLY THE ACCRUING INCO ME THERE FROM CAN BE UTILIZED FOR THE PURPOSES OF TRUST. BY SELLING THE SHARES, THE ASSESSEE VIOLATED THE PROVISIONS OF SEC 11(1)(D). SALE OF SHARES HAS MADE THE CONTRIBUTION AN ORDINAR Y VOLUNTARY CONTRIBUTION WHICH IS TAXABLE AS PER SEC. 2(24)(IIA ). IN VIEW OF THE VIOLATION OF SEC 11(1)(D), THE VOLUNTARY CONTRI BUTION RECEIVED BY THE TRUST IS INCOME TAXABLE AS PER SECT ION 2(24)(IIA) UNDER THE INCOME TAX ACT, 1961. THEREFORE, THE A.O IS I.T.A .NO.1854 & 2697 & 1327/DEL/2011 15 JUSTIFIED IN ADDING THE CORPUS DONATION BY TREATING THE SAME AS GENERAL DONATION IN COMPUTATION OF INCOME IN PAGE 4 OF THE ORDER. 3. THE ASSESSEE HAS SOLD SHARES FEARING VIOLATION U/S 13(1)(D). BUT BY SELLING THE SHARES THE ASSESSEE HAS VIOLATED SEC . 11(1)(D) OF THE IT ACT. IN SEC 13(1) THE EXPRESSION USED IS N OTHING CONTAINED IN SECTION 11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF... THEREFORE, SECTION 13 WILL OPERATE SEPARATELY FROM THAT OF SEC 11 OR SEC 12. IT IS EV IDENT THAT SEC 11 DEALS WITH EXEMPT INCOME OF TRUSTS OR INSTITUTION A ND SEC. 12 DEALS WITH INCOME FROM TRUST OR INSTITUTIONS FROM C ONTRIBUTIONS. THEREFORE, BY USING THE EXPRESSION NOTHING CONTAIN ED IN SECTION 11 OR SECTION 12 IT IS MEANT THAT EVEN THE INCOMES SPECIFIED IN SEC. 11 AND SEC. 12, IF HAPPENS TO BE OF THE NATURE SPECIFIED IN SEC. 13, THE SAME SHALL BE TREATED AS TAXABLE INCOME AS PER SEC. 13. IN OTHER WORDS PROVISION OF SEC. 1 1 OR SEC. 12 SHALL APPLY INDEPENDENTLY AND VIOLATION OF ANY OF T HE CONDITIONS OF SEC. 11 OR SEC. 12 SHALL FACE THE CONSEQUENCES P ROVIDED IN THE SAID SECTION. CONSEQUENCES OF VIOLATION OF SEC 13 SHALL BE IN ADDITION TO THE CONSEQUENCES OF VIOLATION OF SEC 11 OR 12. 4. OUT OF THE SALE PROCEEDS OF SHARES, THE ASSESSEE HA D MADE, FURTHER DONATION. THEREFORE, THE CORPUS DONATION R ECEIVED WAS NOT TREATED FOR THE PURPOSE, IT WAS ORIGINALLY INTE NDED BY THE DONOR. BY SELLING THE CORPUS DONATION SHARES AND B Y MAKING FURTHER DONATION OUT OF IT, THE ASSESSEE HAS MISUSE D THE SAME, HAS VIOLATED SEC 11(1)(D) AND ADOPTED COLORABLE DEV ICE TO AVOID TAX. FROM THE SURROUNDING CIRCUMSTANCES IT IS EVID ENT THAT THE MOTIVE OF THE ENTIRE TRANSACTION IS TO A VOID THE T AX BY ADOPTING COLORABLE DEVICE. RELIANCE IS PLACED ON :- (I) MC DOWELL & CO. LTD. V. COMMERCIAL TAX OFFICER, (SC) 154 ITR 148 JUDGEMENT THE FOLLOWING JUDGEMENT OF THE COURT WAS DELIVERED BY REDDY, J: IN OUR VIEW, THE PROPER WAY TO CONSTRUE A TAXING ST ATUTE, WHILE CONSIDERING A DEVICE TO AVOID TAX, IS NOT TO ASK WHETHER THE PROVISIONS SHOULD BE CONSTRUED LITERALL Y OR LIBERALLY, NOR WHETHER THE TRANSACTION IS NOT UNREA L AND NOT PROHIBITED BY THE STATUTE, BUT WHETHER THE TRAN SACTION IS A DEVICE TO AVOID TAX, AND WHETHER THE TRANSACTI ON IS I.T.A .NO.1854 & 2697 & 1327/DEL/2011 16 SUCH THAT THE JUDICIAL PROCESS MAY ACCORD ITS APPRO VAL TO IT. IT IS NEITHER FAIR NOR DESIRABLE TO EXPECT THE LEGI SLATURE TO INTERVENE AND TAKE CARE OF EVERY DEVICE AND SCHEME TO AVOID TAXATION. IT IS UP TO THE COURT TO TAKE STOC K TO DETERMINE THE NATURE OF THE NEW AND SOPHISTICATED L EGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUA TION CREATED BY THE DEVICES COULD BE RELATED TO THE EXIS TING LEGISLATION WITH THE AID OF EMERGING TECHNIQUES O F INTERPRETATION WAS DONE IN RAMSAY, BURMA OIL AND DAWSON, TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDICIAL BENEDICTION. WE AGR EE WITH RANGANATH MISRA, J. THAT THE APPEAL SHOULD BE DISMI SSED. JUDGEMENT THE FOLLOWING JUDGMENT OF THE COURT WAS DELIVERED BY MISRA. J:- TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHI N THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERT AIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT O F TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RES ORTING TO SUBTERFUGES. (II) CIT VS DURGA PRASAD MARG 82 ITR 540 (SC) (III) SUMATI DAYAL VS CIT 214 ITR 804 (SC) 5. THE ASSESSEE HAS FURTHER SOLD THE SHARES WITHOUT TH E PERMISSION OF DIT(EXEMPTION), THEREBY VIOLATING THE CONDITIONS FOR REGISTRATION. THE CONDITION FOR REGISTRATION VIOLA TED BY THE ASSESSEE AS POINTED OUT BY THE A.O IN PAGE 4 OF THE ORDER IS THAT NO ASSET SHALL BE TRANSFERRED WITHOUT THE KNOWLEDGE OF THE DIT(EXEMPTION) TO ANYONE, INCLUDING TO ANY TRUST/SO CIETY/NON PROFIT COMPANY. THE VIOLATION BEING IN AY 2006-07, THE A.O IS JUSTIFIED IN ASSESSING THE ASSESSEE AS AOP IN AY 2 006-07. 6. FURTHER THE DECISION RELIED ON BY THE ASSESSEE ARE NOT APPLICABLE IN THE INSTANT CASE OF THE FOLLOWING REASONS:_ (I) DIT VS SHREE RADHA KRISHAN CHARITABLE TRUST ITA NO. 383 OF 2008 (HIGH COURT OF DELHI): NOT APPLICABLE I N THE INSTANT CASE BECAUSE THE DECISION RELATED TO TAXABI LITY OF CORPUS DONATION SHARES NOT DIVESTED WITHIN THE STIP ULATED PERIOD U/S 13. I.T.A .NO.1854 & 2697 & 1327/DEL/2011 17 (II) SRI DWARKADHEESH CHARITABLE TRUST VS ITO, 98 ITR 55 7 (ALLAHABAD HIGH COURT): NOT APPLICABLE IN THE INSTA NT CASE BECAUSE THE DECISION RELATES TO TAXABILITY OF VOLUNTARY CONTRIBUTION TOWARDS CORPUS OF TRUST. (III) CIT VS SHRI RAM MEMORIAL FOUNDATION 269 ITR 35 (DELHI HIGH COURT): NOT APPLICABLE IN THE INSTANT C ASE BECAUSE THE DECISION RELATES TO TAXABILITY OF DONAT ION BY DONOR TRUST TOWARDS THE CORPUS OF ANOTHER TRUST. (IV) INSTRUCTION NO. 1132/CBDT, DATED JANUARY 5, 1978: N OT APPLICABLE IN THE INSTANT CASE BECAUSE THE INSTRUC TION RELATES TO TAXABILITY OF GENERAL PAYMENT BY DONOR T RUST TO ANOTHER TRUST. (V) DHARMA PRATISHTHANAM VS ITO 1985-(011)-ITD-0040- TDEL; NOT APPLICABLE IN THE INSTANT CASE BECAUSE TH E DECISION RELATES TO USE OF CORPUS FUND FOR DAY-TO-D AY RUNNING EXPENSES OF THE TRUST. BUT IN THE INSTANT CASE THE ISSUE IS MISUSE OF CORPUS FUND TO AVOID TAX AS COLO RABLE DEVICE. (VI) MAHILA SIDH NIRMAN YOJNA VS INSPECTING ASSISTANT COMMISSIONER 1994-(050)-ITD-0472-TDEL: NOT APPLICABLE IN THE INSTANT CASE BECAUSE THE DECISION RELATES TO USE OF CORPUS FUND FOR DAY-TO-DAY RUNNING EXPENS ES OF THE TRUST. BUT IN THE INSTANT CASE THE ISSUES IS M ISUSE OF CORPUS FUND TO AVOID TAX AS COLORABLE DEVICE. (VII) CIT VS HPS SOCIAL WELFARE FOUNDATION ITA NO. 424 OF 2010 (DELHI HIGH COURT): NOT APPLICABLE IN THE INST ANT CASE BECAUSE THE DECISION RELATES TO TAXABILITY OF DONATION FOR PERSONAL BENEFITS OF DIRECTORS AND GENUINENESS OF DONATION. 7. FURTHER INSPITE OF REPEATED OPPORTUNITIES THE ORIGI NAL MINUTE BOOK OF BOARD OF TRUSTEES MEETING WAS NOT PRODUCED BEFORE THE A.O. ONLY EXTRACTS OF MINUTE BOOK WAS PRODUCED. I N THE ABSENCE OF ORIGINAL MINUTE BOOK THE GENUINENESS O T HE SAME IS NOT PROVED. 8. THE ASSESSEE HAS ALSO REFERRED TO THE ASSESSMENT MA DE IN AY 2008-09. HOWEVER, THE CORPUS DONATION BEING RECEIV ED IN THE AY 2006-07, THE ACTION OF THE A.O IN AY 2006-07 IS JUSTIFIED. I.T.A .NO.1854 & 2697 & 1327/DEL/2011 18 PETITIONER (NIRANJAN KOULI) DATED 23.07.2012 COMMISSIONER OF INCOME TA X (DR)-VII G-BENCH, ITAT, NEW DELHI 22. THE SUBMISSIONS OF LD. DR CAN BE SUMMED UP AS U NDER :- A) THE SALE OF SHARES THAT WERE RECEIVED WITH SPECIFIC DIRECTIONS TOWARDS THE CORPUS FUND IS A VIOLATION OF SECTION 1 1(1)(D). B) THE SALE OF SHARES HAD MADE THE CONTRIBUTION AN ORD INARY VOLUNTARY CONTRIBUTION WHICH IS TAXABLE AS PER SECT ION 2(24)IIA. C) SECTIONS 11, 12 AND 13 OPERATE INDEPENDENTLY AND V IOLATION OF ANY OF THE CONDITIONS OF SECTION 11 OR 12 SHALL FACE TH E CONSEQUENCES PROVIDED IN THE SAID SECTION. THE CONSEQUENCES OF VIOLATION OF SECTION 13 SHALL BE N ADDITION TO THE CONSEQUENCES OF VIOLATION OF SECTION 11 & 12. D) BY SELLING THE CORPUS DONATION WHARES AND BY MAKING FURTHER DONATIONS OUT OF IT, THE ASSESSEE HAD MISUSED THE S AME, FOLIATED SECTION 11(1)(D) AND ADOPTED COLORABLE DEVICE TO AV OID TAX. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED RECORDS OF THE CASE. THE DISPUTE IN THE PRESENT APPEALS IS TWIN FOLD. FIRSTLY, WHETHER THE ASSESSEE VIOLATED SECTION 11(1)(D) READ WITH SECTIO N 13(1)(D)(III) AND SECONDLY WHETHER THE SALE PROCEEDS OF SHARES RECEIV ED AS CORPUS DONATION, WHEN FURTHER GIVEN AS DONATION TO OTHER CHARITABLE TRUSTS TOWARDS CORPUS DONATION, VIOLATED THE PROVISION OF SECTION 11(1)(D ) INASMUCH AS THE CORPUS DONATION ASSUMED CHARACTER OF VOLUNTARY DONATIONS. 24. BEFORE WE PROCEED FURTHER, WE MAY CLARIFY THAT IN AY 2006-07, THE ASSESSING OFFICER HAS RECORDED HIS FINDINGS AFTER T AKING INTO CONSIDERATION, I.T.A .NO.1854 & 2697 & 1327/DEL/2011 19 THE ASSESSEES CONDUCT IN AY 2007-08 AND 2008-09. AT THE OUTSET, WE MAY OBSERVE THAT EACH YEAR IS TO BE CONSIDERED SEPARATE LY AND THE TAXABILITY OF VARIOUS RECEIPTS IS TO BE CONSIDERED ON THE BASIS O F FACTS OBTAINING IN THAT PARTICULAR YEAR. THEREFORE, WE WILL EXAMINE THE FA CTS IN EACH YEAR SEPARATELY. IN AY 2006-07, THE ASSESSEE RECEIVED 11,47,110 EQUI TY SHARES OF MAWANA SUGAR LIMITED AND 2,01,500 EQUITY SHARES OF SIEL LT D. FROM ENTERPRISE TRUST ON 13.04.2005. AS PER THE MINUTES BOOK, THE EXTRAC TS OF WHICH ARE CONTAINED AT PAGE 6 OF PAPER BOOK, IT IS EVIDENT THAT THE SHA RES WERE GIFTED TOWARDS CORPUS DONATION. THE DEPARTMENT HAS TAXED THE CORP US DONATION AS GENERAL DONATION BY HOLDING THAT ASSESSEE WAS ADOPTING COLO URABLE DEVICE. THE FIRST OBJECTION OF DEPARTMENT IS THAT SINCE ASSESSEE TRUS T COULD NOT HOLD INVESTMENT IN THE FORM OF SHARES IN VIEW OF SECTION 11(5), THE REFORE, IT SHOULD NOT HAVE ACCEPTED THESE SHARES. IN THIS REGARD, WE MAY FIRS T REFER TO CERTAIN PROVISIONS OF THE INDIAN TRUST ACT, 1882. SECTION 15 OF THE IN DIAN TRUST ACT, 1882 MANDATES TRUSTEE TO DEAL WITH THE TRUST PROPERTY AS CAREFULLY AS MAN OF ORDINARY PRUDENCE WILL DEAL WITH SUCH PROPERTY AS I F IT WERE HIS OWN. SECTION 20 OF THE INDIAN TRUST ACT, 1882 MANDATES A TRUSTEE TO INVEST THE MONEY IN THE SPECIFIED SECURITIES WHICH INCLUDES STOCK OR DE BENTURES OF COMPANIES. SECTION 23 OF THE INDIAN TRUST ACT, 1882 IMPOSES A LIABILITY ON A TRUSTEE FOR BREACH OF TRUST AND HE IS LIABLE TO MAKE GOOD LOSS WHICH THE TRUST PROPERTY SUSTAINS. SECTION 36 OF THE INDIAN TRUST ACT AUTHO RIZES A TRUSTEE TO DO ALL I.T.A .NO.1854 & 2697 & 1327/DEL/2011 20 SUCH ACTS WHICH ARE REASONABLE AND PROPER FOR THE R EALIZATION, PROTECTION OR BENEFIT OF THE TRUST PROPERTY. SECTION 40 OF THE I NDIAN TRUST ACT, 1882 GIVES POWER TO A TRUSTEE TO VARY INVESTMENTS AT HIS DIREC TION. SECTION 40 READS AS UNDER:- A TRUSTEE MAY AT HIS DIRECTION, CALL IN ANY TRUST PROPERTY INVESTED IN ANY SECURITY AND INVEST THE SAME ON ANY OF THE SECURITIES MENTIONED OR REFERRED TO IN SECTION 20, AND FROM TIME TO TIME VARY ANY SUCH INVESTMENTS FOR OTHERS O F THE SAME NATURE:- PROVIDED THAT, WHERE THERE IS A PERSON COMPETENT T O CONTRACT AND ENTITLED AT THE TIME OF RECEIVE THE IN COME OF THE TRUST-PROPERTY FOR HIS LIFE, OR FOR IN GREATER ESTA TE, NO SUCH CHANGE OF INVESTMENT SHALL BE MADE WITHOUT HIS CONS ENT IN WRITING. 25. A CONJOINT READING OF ALL THESE SECTIONS LEADS TO INESCAPABLE CONCLUSION THAT THE PRIMARY OBJECT OF THE TRUSTEES IS TO PROTECT THE INTEREST OF THE TRUST. IN ORDER TO DISCHARGE THIS RESPONSIBILI TY, THE TRUSTEES ARE ENTITLED TO TAKE APPROPRIATE DECISIONS IN THE INTEREST OF TRUST . IF THE REVENUES CONTENTION IS TO BE ACCEPTED THEN IT WOULD IMPLY THAT SINCE A CHARITABLE TRUST IS BOUND TO KEEP ITS INVESTMENTS IN THE SECURITIES SPECIFIED U/ S 11(5) THEN IT SHOULD NOT HAVE ACCEPTED THE SHARES. IN OUR OPINION, TOO MUCH DELIBERATION IS NOT REQUIRED TO REJECT THIS CONTENTION OF THE REVENUE. THEREFORE, THIS OBJECTION IS DEVOID OF ANY MERIT BECAUSE THERE IS NO RESTRICTION ON ACCEPTING SHARES BY A CHARITABLE INSTITUTION. THE ONLY RESTRICTION IS TO BE FOUND IN SECTION 13(1)(D) AS PER WHICH THE ASSESSEE CHARITABLE TRUST IS REQUI RED TO HOLD ITS INVESTMENTS I.T.A .NO.1854 & 2697 & 1327/DEL/2011 21 IN THE MODES AS PRESCRIBED U/S 11(5). THE PROVISO (IIA) TO SECTION 13(1)(D)(III) ENTITLES AN ASSESSEE TRUST TO HOLD TH E SHARES FOR A MAXIMUM PERIOD OF ONE YEAR BEFORE WHICH IT HAS TO BE CONVE RTED INTO THE MODES OF INVESTMENT AS PRESCRIBED IN SECTION 11(5). 26. THE RELEVANT PROVISIONS ARE REPRODUCED HEREUNDE R FOR READY REFERENCE:- SECTION 2 (24)INCOME INCLUDES- (I) .................. (II) .................. (IIA) VOLUNTARY CONTRIBUTIONS RECEIVED BY A TRUST C REATED WHOLLY OR PARTLY FOR CHARITABLE OR RELIGIOUS PURPOS ES OR BY AN INSTITUTION ESTABLISHED WHOLLY OR PARTLY FOR SUCH P URPOSES [OR BY AN ASSOCIATION OR INSTITUTION REFERRED TO IN CLAUSE (21) OR CLAUSE (23), OR BY A FUND OR TRUST OR INSTITUTION REFERRED TO IN SUB- CLAUSE (IV) OR SUB-CLAUSE (V) [OR BY ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION REFERRED TO IN SUB-CLAUSE ( IIIAD) OR SUB- CLAUSE(VI) OR BY ANY HOSPITAL OR OTHER INSTITUTION REFERRED TO IN SUB-CLAUSE (IIIAE) OR SUB-CLAUSE (VIA)] OF CLAUSE ( 23C) OF SECTION 10 [OR BY AN ELECTORAL TRUST]]. EXPLANATION-FOR THE PURPOSES OF THIS SUB-CLAUSE, T RUST INCLUDES ANY OTHER LEGAL OBLIGATION;] *************************************************** 11. (1) SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOM E- (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLL Y FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; A ND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART F OR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTEN T TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF [FIFTEEN] PER CENT OF THE INCOME FROM SUC H PROPERTY; I.T.A .NO.1854 & 2697 & 1327/DEL/2011 22 ********************************************** (D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF T HE CORPUS OF THE TRUST OR INSTITUTION. [EXPLANATION-FOR THE PURPOSES OF CLAUSES (A) AND (B )- (1) ......................... (2) IF, IN THE PREVIOUS YEAR, THE INCOME APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA FALLS SHORT OF [EIGH T-FIVE] PER CENT OF THE INCOME DERIVED DURING THAT YEAR FROM PROPERT Y HELD UNDER TRUST, OR, AS THE CASE MAY BE, HELD UNDER TRU ST IN PART, BY ANY AMOUNT- (I) FOR THE REASONS THAT THE WHOLE OR ANY PART OF THE INCOME HAS NOT BEEN RECEIVED DURING THAT YEAR, OR (II) FOR ANY OTHER REASON. THEN- (A) IN THE CASE REFERRED TO IN SUB-CLAUSE (I), SO M UCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING AS DOES NOT EXCEED THE S AID AMOUNT, AND (B) IN THE CASE REFERRED TO IN SUB-CLAUSE (II), SO MUCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE PREVIOUS YEAR IN WHI CH THE INCOME WAS DERIVED AS DOES NOT EXCEED THE SAID AMOU NT, MAY, AT THE OPTION OF THE PERSON IN RECEIPT OF THE INCOME (SUCH OPTION TO BE EXERCISED IN WRITING BEFORE THE EXPIRY OF THE TIME ALLOWED UNDER SUB-SECTION (1)[***]OF SECTION 139[***] FOR FURNISH ING THE RETURN OF INCOME) BE DEEMED TO BE INCOME APPLIED TO SUCH PURP OSES DURING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED; AND THE INCOME SO DEEMED TO HAVE BEEN APPLIED SHALL NOT BE TAKEN INTO ACCOUNT IN CALCULATING THE AMOUNT OF INCOME APPLIED TO SUCH PU RPOSES, IN THE CASE REFERRED TO IN SUB-CLAUSE (I), DURING THE PREV IOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING, AS THE CASE MAY BE, AND, IN THE CASE REF ERRED TO IN SUB- CLAUSE (II), DURING THE PREVIOUS YEAR IMMEDIATELY F OLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED.] 12. (1) ANY VOLUNTARY CONTRIBUTIONS RECEIVED BY A T RUST CREATED WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES OR BY A N INSTITUTION ESTABLISHED WHOLLY FOR SUCH PURPOSES (NOT BEING CON TRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE I.T.A .NO.1854 & 2697 & 1327/DEL/2011 23 TRUST OR INSTITUTION) SHALL FOR THE PURPOSES OF SEC TION 11 BE DEEMED TO BE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WH OLLY FOR CHARITABLE OR RELIGIOUS PURPOSES AND THE PROVISIONS OF THAT SECTION AND SECTION 13 SHALL APPLY ACCORDINGLY. *************************************************** ***** 13. (1) NOTHING CONTAINED IN SECTION 11 [OR SECTION 12] SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF T HE PREVIOUS YEAR OF THE PERSONS IN RECEIPT THEREOF- (A) ............................. (B) ............................. (C) ............................. (D) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOM E THEREOF, IF FOR ANY PERIOD DURING THE PREVIOUS YEAR - (I) .............................. (II) .............................. (III) ANY SHARES IN A COMPANY, OTHER THAN- (A) SHARES IN A PUBLIC SECTOR COMPANY; (B) SHARES PRESCRIBED AS A FORM OR MODE OF INVESTMENT UNDER CLAUSE (XII) OF SUB- SECTION (5) OF SECTION 11, ARE HELD BY THE TRUST OR INSTITUTION AFTER THE 30 TH DAY OF NOVEMBER, 1983: PROVIDED THAT NOTHING IN THIS CLAUSE SHALL APPLY I N RELATION TO- (I) .............................. (II) .............................. (IIA) ANY ASSET, NOT BEING AN INVESTMENT OR DEPOSIT IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11, WHERE SUCH ASSET IS NOT HELD BY THE TRU ST OR INSTITUTION, OTHERWISE THAN IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OF SECTION 11, AFTER T HE EXPIRY OF ONE YEAR FROM THE END OF THE PREVIOUS YEAR IN WH ICH SUCH ASSET IS ACQUIRED OR THE 31 ST DAY OF MARCH, [1993], WHICHEVER IS LATER. 27. IN VIEW OF AFOREMENTIONED PROVISIONS, WE ARE NO T INCLINED TO ACCEPT THE REVENUES CONTENTION THAT ASSESSEE HAD ADOPTED A COLORABLE DEVICE BY I.T.A .NO.1854 & 2697 & 1327/DEL/2011 24 FIRST ACCEPTING THE SHARES AND THEN SELLING THESE S HARES. THE ASSESSEES CONDUCT WAS WELL WITHIN STATUTORY PROVISIONS AND, T HEREFORE, CANNOT BE BRANDED AS COLRABLE DEVICE. THE TRUSTEE IS BOUND T O CONDUCT HIMSELF IN THE BEST INTEREST OF TRUST. THEREFORE, BOTH THE CONDUC TS VIZ RECEIVING THE SHARES AS A GIFT FROM THE PRIVATE TRUST TOWARDS ITS CORPUS AND ITS LIQUIDATION IN TERMS PROVISO (IIA) TO SUB-SECTION 13(1)(D)(III) WAS FULL Y JUSTIFIED. WE FAIL TO APPRECIATE HOW THE CONDUCT OF ASSESSEE TRUST WAS FO R THE PURPOSE OF TAX AVOIDANCE. LD. DR HAS SUBMITTED THAT BY SELLING TH E SHARES, THE ASSESSEE HAS VIOLATED SECTION 11(1)(D) OF THE INCOME TAX ACT. I N OUR OPINION, THIS ARGUMENT SUFFERS FROM THE BASIC FALLACY IN NOT RECO GNIZING THAT BY SELLING THE SHARES, THE ASSESSEE MERELY CONVERTED ONE FORM OF I NVESTMENT INTO ANOTHER VIZ. MONEY ONLY. THE ASSESSEE ONLY REALIZED THE MA RKET VALUE OF SHARES AND, THEREFORE, WE FAIL TO APPRECIATE HOW THERE WAS ANY VIOLATION OF SECTION 11(1)(D) PARTICULARLY WHEN THE DONOR, WHILE GIFTING THE SHARES AS CORPUS DONATION, NEVER IMPOSED ANY CONDITION THAT THE SHAR ES COULD NOT BE SOLD. ONLY THE FORM OF ASSET WAS CHANGED FROM SHARE TO CA SH BUT THE ORIGINAL CORPUS DONATION REMAINED AS IT IS IN THE HANDS OF T RUST. 28. LD. DR HAS FURTHER SUBMITTED THAT SECTION 13 OP ERATES INDEPENDENTLY OF SECTION 11 OR SECTION 12. WE ARE NOT INCLINED T O ACCEPT THIS ARGUMENT WHICH GOES AGAINST THE VERY SCHEME OF THE ACT ITSEL F. CHAPTER III OF INCOME TAX ACT DEALS WITH INCOMES WHICH DO NOT FORM PART O F TOTAL INCOME. SECTION I.T.A .NO.1854 & 2697 & 1327/DEL/2011 25 11 EXEMPTS INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES. THIS INCOME IS EXEMPT SUBJECT TO FULFILLMENT OF CON DITIONS PRESCRIBED IN THE SAID SECTION. SECTION 11(5) PRESCRIBES THE FORMS A ND MODES OF INVESTING OR DEPOSITING SURPLUS MONEY IN VARIOUS SECURITIES. IN CASE, THE ASSESSEE FAILS TO COMPLY WITH THE PROVISIONS OF SECTION 11(5) THEN IT WILL LOOSE THE BENEFITS OF SECTION 11(1). SECTION 12 EXEMPTS INCOME OF TRUST OR INSTITUTIONS FROM VOLUNTARY CONTRIBUTIONS WHICH ARE OTHERWISE TAXABLE AS COVERED BY DEFINITION OF INCOME U/S 2(24)(IIA). THESE VOLUNTARY CONTRI BUTIONS ARE DEEMED TO BE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLL Y FOR CHARITABLE OR RELIGIOUS PURPOSES AND THE PROVISIONS OF SECTION 11 AND 13 APPLY ACCORDINGLY. SECTION 13 PRIMARILY PRESCRIBES EXC EPTIONAL CIRCUMSTANCES IN WHICH THE PROVISIONS OF SECTION 11 OR 12 WILL NOT A PPLY. THEREFORE, ALL THESE SECTIONS HAVE TO BE READ TOGETHER AND THEY ARE IN T HE FORM OF ONE CODE AS THEY PRESCRIBE FOR SUBSTANTIVE AS WELL AS PROCEDURA L ASPECTS. IN AY 2006-07, NO OTHER ACTION WAS TAKEN AND, THEREFORE, IN ANY VI EW OF THE MATTER, RELYING ON SUBSEQUENT CONDUCT OF ASSESSEE, THE REVENUE AUTH ORITIES WERE NOT JUSTIFIED IN DRAWING AN INTERFERENCE THAT THERE WAS A VIOLATION OF SECTION 11(1)(D) AND IN HOLDING THAT THE CORPUS DONATION U/ S 11(1)(D) WAS VOLUNTARY DONATION AS CONTEMPLATED U/S 2(24)(IIA) OF INCOME T AX ACT. 29. ONE MORE OBJECTION OF THE DEPARTMENT IS THAT AS SESSEE SOLD SHARES WITHOUT OBTAINING PRIOR PERMISSION OF DIT(E) AS WAS REQUIRED IN TERMS OF I.T.A .NO.1854 & 2697 & 1327/DEL/2011 26 REGISTRATION GRANTED U/S 12A OF THE INCOME TAX ACT. THE SAID CLAUSE READS AS UNDER:- NO ASSET SHALL BE TRANSFERRED WITHOUT THE KNOWLEDG E OF THE UNDERSIGNED TO ANYONE, INCLUDING TO ANY TRUST/SOCIE TY/NON- PROFIT COMPANY ETC. 30. IN OUR OPINION, THIS OBJECTION IS NOT SUSTAINA BLE IN VIEW OF THE SPECIFIC PROVISIONS CONTAINED IN PROVISO (IIA) TO SECTION 13 (1)(D) WHICH REQUIRES A TRUST TO DISPOSE OFF ITS HOLDINGS IN THE FORM OF SH ARES WITHIN ONE YEAR FROM THE DATE OF ITS ACQUISITION. THERE CANNOT BE ANY ESTOPPEL AGAINST LAW. THE CONDITIONS PRESCRIBED IN THE REGISTRATION CERTIFICA TE ARE ONLY DIRECTORY IN NATURE FOR THE RELEVANT INFORMATION BEING SENT TO T HE DEPARTMENT BUT THESE CONDITIONS CANNOT OVERRIDE THE PROVISIONS OF THE AC T. 31. WE, THEREFORE, HOLD THAT THE ASSESSEE WAS ENTIT LED FOR EXEMPTION OF ITS INCOME U/S 11 IN AY 2006-07, AS THERE WAS NO VIOLAT ION OF SECTION 11(1)(D). NOW WE COME TO AY 2007-08 VIDE ITA NO.-1327/DEL/201 2. IN THIS YEAR, THE ASSESSEE FOUNDATION SOLD THE REMAINING SHARES I .E 8,38,600 SHARES OF MAWANA SUGAR LIMITED AND 1,96,636 SHARES OF SIEL LT D. NO OTHER ACT WAS DONE. THEREFORE, FOR THE REASONS GIVEN IN AY 2006-0 7, WE HOLD THAT THERE WAS NO VIOLATION OF PROVISIONS OF SECTION 11(1)(D) OF THE ACT. 32. AS NOTED EARLIER, THE ASSESSING OFFICER HAS PRI MARILY DENIED THE BENEFIT OF SECTION 11(1)(D) ON THE BASIS OF ASSESSE ES CONDUCT IN AYS 2008- I.T.A .NO.1854 & 2697 & 1327/DEL/2011 27 09 AND 2009-10. WE HAVE ALREADY HELD THAT THIS WAS NOT RELEVANT FOR AYS 2006-07 AND 2007-08. HOWEVER, SINCE ASSESSING OFFI CER HAS CONSIDERED THESE ACTS FOR DENYING BENEFIT OF SECTION 11(1)(D), WE PROCEED TO CONSIDER THE EFFECT OF SAME ON THE APPLICABILITY OF SECTION 11(1 )(D). THE ASSESSING OFFICER HAS OBSERVED IN THE ASSESSMENT ORDER THAT I N AY 2008-09, THE ASSESSEE HAD SHOWN AN EXPENDITURE FOR SCHOLARSHIP C ONTRIBUTION AMOUNTING TO RS. 1,98,28,750/- OUT OF THIS RS. 1,50,36,000/- WAS PAID OUT OF CORPUS. THE ASSESSEE HAD GIVEN CONTRIBUTION TOWARDS CORPUS TO MIT USA AND TO CHARAT RAM SHERA SCHOLARSHIP FUND. IT IS NOT DISPUT ED THAT BOTH WERE CHARITABLE INSTITUTIONS. THE OBJECTION OF DEPARTME NT IS THAT ASSESSEE COULD NOT UTILIZE CORPUS DONATION FOR GIVING DONATIONS TO OTHER CHARITABLE TRUST. THE CONTENTION IS THAT INCOME FROM THE CORPUS TRUST COULD BE UTILIZED TOWARDS THE OBJECTS OF CHARITABLE TRUST BUT THE CORPUS PER SE HAD TO BE KEPT INTACT. IN ORDER TO EXAMINE THIS PROPOSITION, IT IS NECESSARY TO CONSIDER AS TO WHAT IS MEANT BY CORPUS DONATION AND HOW IT IS CONSTITUTE D. IT IS PRIMARILY CAPITAL OF THE TRUST WHICH IS INITIALLY GIVEN BY THE SETTLO R OF THE TRUST AND IS NORMALLY REFLECTED IN THE FORM OF VARIOUS CAPITAL ASSETS GIV EN BY SETTLOR OF TRUST OR ACQUIRED FROM THE CAPITAL FUNDS. 33. AS PER SECTION 11(1)(A), 85% OF THE INCOME IS E SSENTIALLY TO BE APPLIED TOWARDS CHARITABLE ACTIVITY AND ASSESSEE CAN ACCUMU LATE NOT MORE THAN 15% OF THE INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES. I.T.A .NO.1854 & 2697 & 1327/DEL/2011 28 EXPLANATION (2) TO SECTION 11(2) PRESCRIBES CONDITI ONS SUBJECT TO WHICH THIS ACCUMULATION IS POSSIBLE. THESE AMOUNTS ALONG WITH OTHER CORPUS DONATIONS ALSO FORM PART OF CORPUS OF THE TRUST. THERE IS NO DISPUTE THAT INCOME OF THE CORPUS FUND COULD BE UTILIZED TOWARDS THE OBJECTS O F THE TRUST. THE ONLY OBJECTION IS THAT CORPUS COULD NOT BE DEPLETED. TH IS OBJECTION OF DEPARTMENT CANNOT BE SUSTAINED PARTICULARLY BECAUSE THE CONDIT IONS CONTEMPLATED U/S 11(1)(D) STAND SATISFIED WHEN A VOLUNTARY DONATION IS RECEIVED WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS O F THE TRUST. NO FURTHER CONDITION IS PRESCRIBED IN THE ACT ON UTILIZATION O F CORPUS FUND. IT MAY BE A CASE OF CASUS OMISSUS BUT THE COURT CANNOT FILL THI S GAP. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF TRIBUN AL IN THE CASE OF DHARMA PRATISTHANAM (SUPRA). THEREFORE, THE ASSESSEE WAS W ELL WITHIN ITS RIGHT TO UTILIZE THE CORPUS FUND FOR GIVING DONATION TOWARDS OTHER CORPUS FUNDS OF CHARITABLE INSTITUTIONS. 34. FURTHER, ASSESSEE HAS ALSO POINTED OUT THAT THE ASSESSEE FOUNDATION HAD FILED AN APPLICATION FOR RENEWAL OF APPROVAL OF U/S 80G OF THE ACT BEFORE THE DIT(E) VIDE ITS LETTER DATED 09.09.2008. THE ASSES SEE HAD DULY SUBMITTED THE COPIES OF THE ACCOUNTS OF FOUNDATION FOR THE AY 200 7-08 AND 2008-09. LD. DIT(E) AFTER FULLY EXAMINING THE ACCOUNTS, HAD RAIS ED QUERIES REGARDING THE CONTRIBUTIONS MADE TOWARDS SCHOLARSHIP AND ALSO IN RESPECT OF DONATION OF RS. 2,50,36,000/-. THE ASSESSEE HAD GIVEN ITS EXPL ANATION TO DIT(E). LD. I.T.A .NO.1854 & 2697 & 1327/DEL/2011 29 DIT(E) HAD ALSO CALLED FOR A REPORT FROM THE ASSESS ING OFFICER FOR GRANT OF REGISTRATION U/S 80G. AFTER CONSIDERING THE REPORT OF A.O, ADDITIONAL DIT(E) REQUIRED THE ASSESSEE FOUNDATION TO EXPLAIN WHY EXE MPTION SHOULD NOT BE DENIED. THE ASSESSEE FILED ITS SUBMISSIONS VIDE LE TTER DATED 05.02.2009. 35. AFTER CONSIDERING ALL THESE ASPECTS, LD. DIT(E ) GRANTED REGISTRATION U/S 80G. THEREFORE, THE CORPUS DONATION COULD NOT BE C ONSIDERED AS GENERAL DONATION IN AY 2006-07 AND 2007-08, MERELY ON THE G ROUND OF ITS UTILISATION IN AY 2008-09 FOR GIVING CORPUS DONATION TO OTHER C HARITABLE INSTITUTIONS. FURTHER, AS PER INSTRUCTION NO. 1132/CBDT DATED 05. 01.1978, IT HAS BEEN CLARIFIED THAT THE PAYMENT OF A SUM BY ONE CHARITAB LE TRUST TO ANOTHER FOR UTILIZATION BY THE DONEE TRUST TOWARDS ITS CHARITAB LE OBJECTS IS PROPER APPLICATION OF INCOME FOR CHARITABLE PURPOSES IN TH E HANDS OF THE DONOR TRUST, AND THE DONOR TRUST WILL NOT LOOSE EXEMPTION U/S 11 . IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT THE CO RPUS DONATION RECEIVED IN THE FORM OF SHARES IN AY 2006-07 AND A Y 2007-08 COULD NOT BE TREATED AS GENERAL DONATIONS. 36. NOW, WE COME TO DEPARTMENTS APPEAL VIDE ITA NO. 2697/DEL/2012 . BEFORE LD. CIT(A), THE ASSESSEE HAD, INTER ALIA, TA KEN FOLLOWING GROUNDS OF APPEAL:- GROUND (C): THAT THE ASSESSING OFFICER ERRED IN NO T GRANTING EXEMPTION IN RESPECT OF DIVIDEND INCOME OF RS. 9,99,636/- UNDER SECTION 10(34) AND 10(15) OF THE A CT WHILE I.T.A .NO.1854 & 2697 & 1327/DEL/2011 30 DETERMINING TAXABLE INCOME AND ALSO CHARGING INTERE ST U/S 234B OF THE ACT IN CASE OF THE APPELLANT. 37. LD. CIT(A HELD IN PARA 6 TO 6.1 OF HIS ORDER AT PAGE 9 AS UNDER:- 6. GROUND (C) OF THE APPEAL IS REGARDING NOT GRANT ING THE EXEMPTION IN RESPECT OF DIVIDEND INCOME OF RS. 9,99 ,636/- AND THE INTEREST OF RS. 1,60,940/- ON UTI TAX FREE BONDS AG GREGATING TO RS. 11,60,575/-. THE APPELLANT HAS STATED THAT ABO VE AMOUNTS OF INCOME WERE EXEMPT UNDER SECTIONS 10(34) AND 10(15) OF THE ACT. THE A.O, HOWEVER, IN THE ASSESSMENT ORDER HAS NOT G RANTED EXEMPTION IN RESPECT OF ABOVE AMOUNT OF INCOME. IN THIS REGARD THE APPELLANT HAS INVITED MY ATTENTION TO THE STATE MENT OF COMPUTATION OF TAXABLE INCOME SUBMITTED BEFORE THE A.O WHEREIN EXEMPTION HAD BEEN CLAIMED IN RESPECT OF ABOVE INCO ME. THE A.O, HOWEVER, HAS NOT ALLOWED THE EXEMPTION. THE A PPELLANT HAS SUBMITTED THAT ABOVE AMOUNTS OF INCOME ARE CLEARLY EXEMPT IN TERMS OF PROVISIONS OF SECTIONS 10(34) AND 10(15) O F THE INCOME TAX ACT AND, THEREFORE, THE A.O HAS WRONGLY NOT CON SIDERED THE DEDUCTION WHILE DETERMINING THE TAXABLE INCOME. 6.1. I HAVE GONE THROUGH THE FINDING OF THE A.O IN THE ASSESSMENT ORDER AND WRITTEN SUBMISSION OF THE LD. AR IN THIS REGARD. I AM INCLINED TO ACCEPT THE VIEW OF THE LD . AR THAT AS PER PROVISIONS OF SECTION 10(34) AND 10(15) OF THE INCO ME TAX ACT, DIVIDED INCOME AND THE INTEREST ARE EXEMPT. THEREF ORE, GROUND (C) IS ALLOWED IN FAVOUR OF THE APPELLANT. 38. BEING AGGRIEVED WITH THE ORDER OF LD. CIT, DEPARTME NT IS IN APPEAL BEFORE US AND HAS TO BE FOLLOWING GROUNDS OF APPEAL AS UNDER:- 1. ON THE FACT & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING EXEMPTION OF DIVID ED INCOME AND THE INTEREST INCOME U/S 10(34) AND 10(15) OF TH E ACT, RESPECTIVELY AS THE ASSESSEE HAS FAILED TO PRODUCE CONCRETE EVIDENCES TO SUBSTANTIATE ITS CLAIM THAT THE RECEIP TS ARE IN THE NATURE OF DIVIDEND AND/OR THE INTEREST ON BONDS. 39. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORDS OF THE CASE. WE HAVE ALREADY H ELD IN THE ASSESSEES APPEAL FOR AY 2006-07 THAT THERE WAS NO VIOLATION O F SECTION 11(1)(D). I.T.A .NO.1854 & 2697 & 1327/DEL/2011 31 THEREFORE, ASSESSEE WAS ELIGIBLE FOR EXEMPTION OF I TS INCOME U/S 11. FURTHER U/S 10(34) AND 10(15), SPECIFIC EXEMPTION HAS BEEN PROVIDED IN RESPECT OF DIVIDEND INCOME AND INTEREST ON TAX FREE BONDS, THE REFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). 40. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMI SSED. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AR E ALLOWED AND REVENUESS APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.10.2012. SD/- SD/- (U.B.S.BEDI) (S.V.MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12.10.2012 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI I.T.A .NO.1854 & 2697 & 1327/DEL/2011 32