ASST CIT CEN CIR 17 & 28, MUMBAI V. NANDLAL TAOLANI CHARITABHLE TRUST, MUMBAI

ITA 199/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71360 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-02-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Retrospective amendment; Capital receipt; Reassessment proceedings; Capital expenditure
• Section: 14A; 37; 154; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, A.M. AND SHRI AMIT SHUKL A, J.M. ./ I.T.A. NOS. 6970 & 199/MUM/2011 ( ASSESSMENT YEAR: 2004-05) ASST. CIT, CENTRAL CIRCLE 17 & 28, AAYKAR BHAVAN, MUMBAI / VS. NANDLAL TOLANI CHARITABLE TRUST, 10-A, BHAKHTAWAR, NCPA MAR, NARIMAN POINT, MUMBAI-400 021 ' ./# ./PAN/GIR NO. AAATN 0043 Q ( $ / REVENUE ) : ( %& '( /ASSESSEE ) & ./ I.T.A. NO. 1111/MUM/2011 ( ASSESSMENT YEAR: 2004-05) NANDLAL TOLANI CHARITABLE TRUST, 10-A, BHAKHTAWAR, NCPA MAR, NARIMAN POINT, MUMBAI-400 021 / VS. ASST. CIT, CENTRAL CIRCLE 17 & 28, AAYKAR BHAVAN, MUMBAI ' ./# ./PAN/GIR NO. AAATN 0043 Q ( %& '( /ASSESSEE ) : ( $ / REVENUE ) $ ) * / REVENUE BY : SHRI O. P. SINGH %& '( ) * / ASSESSEE BY : SHRI S. M. AGARWAL %$ + ) , DATE OF HEARING : 30.07.2013 -./ ) , / DATE OF PRONOUNCEMENT : 30.09.2013 / O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF TWO APPEALS BY THE REVENUE AND ONE APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR (A.Y.) 2004-05, ARISING OUT OF SEPARATE ORDERS BY THE COMMISSIONER 2 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST OF INCOME TAX (APPEALS)-39, MUMBAI (CIT(A) FOR SH ORT), I.E., DISPOSING THE ASESSEES APPEALS IN RESPECT OF ITS ASSESSMENT AS WELL AS REA SSESSMENT FOR THE SAID YEAR, VIDE ORDERS DATED 29.10.2010 AND 15.07.2011 RESPECTIVELY. WHILE THE ASSESSEE IS IN APPEAL ONLY IN RESPECT OF ITS ORIGINAL ASSESSMENT, THE REVENUE IS IN APPEAL ALSO FOR ITS SUBSEQUENT REASSESSMENT. 2. IT WOULD BE RELEVANT TO RECALL THE BACKGROUND FA CTS OF THE CASE, AS WELL AS DELINEATE THE ISSUES ARISING THUS, FOR OUR ADJUDICATION. THE APPELLANT IS A CHARITABLE TRUST REGISTERED UNDER THE BOMBAY PUBLIC TRUST ACT, ENGAGED IN CHARI TABLE OBJECTS, AS PROMOTION OF EDUCATION, MEDICAL RELIEF, AND FOR OTHER OBJECTS OF GENERAL PUBLIC NATURE. IT FILED ITS RETURN OF INCOME FOR THE YEAR ON 01.11.2004, CLAIMING EXEM PTION U/S. 11(1)(A) OF THE INCOME TAX ACT, 1961(THE ACT HEREINAFTER) AT RS.67,87,24 9/-, THOUGH RESTRICTED TO THE EXTENT OF AVAILABLE INCOME, I.E., RS.57,30,186/-. THE ASSESSE E HAD CLAIMED DEDUCTION U/S. 24(A) OF THE ACT IN THE SUM OF RS.20,54,703/- AT THE RATE OF 30% OF THE RENTAL INCOME. ON BEING QUESTIONED IN ITS RESPECT, IT WAS EXPLAINED BY THE ASSESSE THAT IT HAD TAKEN THE ANNUAL VALUE OF THE HOUSE PROPERTY ON THE BASIS OF RENT RECEIVED (RS.6950568 / PAGE 36 OF PB 1) AS PROVIDED U/S. 22 OF THE ACT, AND AFTER DEDUCTING MU NICIPAL TAX (RS.101558/-), ARRIVED AT THE ANNUAL VALUE OF RS.68.49 LACS, ON WHICH THE STA TUTORY DEDUCTION U/S. 24(A) WAS CLAIMED TO ARRIVE AT THE PROPERTY INCOME. THE SAME DID NOT FIND ACCEPTANCE BY THE ASSESSING OFFICER (AO), IN WHOSE VIEW THE INCOME OF A CHARITABLE INSTITUTION OR TRUST FROM ANY SOURCE IS TO BE COMPUTED NOT UNDER ANY HEA D OF INCOME BUT AS PER ITS REGULAR ACCOUNTS. THE SAME FOUND CONFIRMATION BY THE LD. CI T(A). WITH REFERENCE TO THE DECISIONS IN THE CASE CIT VS. PROGRAMME FOR COMMUNITY ORGANIZATION [2001] 248 ITR 1 (SC) AND CIT VS. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIE S [1982] 135 ITR 485 (MAD.), IT WAS EXPLAINED BY HIM THAT THE INCOME WHI CH IS TO BE APPLIED FOR CHARITABLE PURPOSES AND, CONSEQUENTLY, IS SUBJECT TO EXEMPTION U/S. 11, IS THAT WHICH IS AVAILABLE, SO THAT THE SAME IS TO BE CONSIDERED AND ARRIVED AT IN THE COMMERCIAL SENSE. ACCORDINGLY, THE ENTIRE RECEIPT LESS THE ACTUAL EXPENDITURE, VIZ. MU NICIPAL TAXES, EXPENSES TOWARD REPAIR AND MAINTENANCE OF BUILDING, ETC., I.E., THE NET IN COME SO ARRIVED, IS TO BE CONSIDERED FOR 3 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST EXEMPTION U/S. 11. NO SEPARATE DEDUCTION U/S. 24, A S CLAIMED, WOULD BE EXIGIBLE. AGGRIEVED, THE ASSESSE IS IN SECOND APPEAL BEFORE U S, AND WHICH FORMS SOLE ISSUE THEREOF. THE SECOND ISSUE ARISING, I.E., PER THE REVENUES A PPEAL, IS AGAINST THE ORIGINAL ASSESSMENT, IN RESPECT OF DONATION OF RS.24 LAKHS T O TOLANI EDUCATION FOUNDATION (TEF) BY ASSESSEE-TRUST DURING THE RELEVANT YEAR. THE ASS ESSEE HAD, IT WAS OBSERVED BY THE AO, RECEIVED RS.120 LAKHS FROM TEF DURING THE YEAR, OF WHICH RS.60 LAKHS HAD BEEN APPROPRIATED TOWARD RENT AND THE BALANCE RS.60 LAKH S ACCOUNTED FOR AS DONATION TOWARDS CORPUS. IT WAS A CLEAR CASE OF ROUND TRIPPING, I.E. , OF A DONATING TO B AND B DONATING TO A AND, THUS, ONLY AN EYE-WASH. REFERENCE WAS M ADE BY HIM TO EXPLANATION TO SECTION 11(2) OF THE ACT (INSERTED BY FINANCE ACT, 2002 W.E .F. 01.04.2003), WHICH WAS WITH A VIEW TO CHECK SUCH ROUND TRIPPING TRANSACTIONS. FUR THER, THE DONATION TO TEF WAS AGAIN TOWARDS THE CORPUS OF THE DONEE-FUND, SO THAT IT WA S NOT LIABLE TO BE SPENT FOR THE LATTERS OBJECTS. THE SAME COULD NOT, THEREFORE, BE REGARDED AS AN APPLICATION OF INCOME FOR CHARITABLE PURPOSES. HE, ACCORDINGLY, ADDED RS.24 L AKHS AS WELL AS RS.60 LAKHS TO THE ASSESSEES INCOME, I.E., AS REFLECTED PER ITS INCOM E AND EXPENDITURE ACCOUNT. IN APPEAL, IT WAS EXPLAINED BY THE ASSESSEE THAT I T HAD NOT RECEIVED ANY DONATION OF RS.60 LAKHS FROM TEF, AND WHICH HAD SINCE BEEN ADMI TTED TO BE A MISTAKE BY THE AO, RECTIFYING HIS ORDER DATED 15.12.2006 UNDER SECTION 154 BY DELETING THE ADDITION OF RS.60 LAKHS VIDE ORDER DATED 12.03.2007. AS REGARDS THE D ONATIONS BY THE ASSESSEE, IT HAD IN FACT GIVEN DONATION FOR A TOTAL OF RS.47,05,691/- DURING THE RELEVANT PREVIOUS YEAR, AS UNDER: I) TOLANI EDUCATION SOCIETY CONDUCTING COMMERCE & MANAGEMENT SCIENCE COLLEGES AT ANDHERI, MUMBAI RS.22,70,000/- II) TOLANI EDUCATION FOUNDATION CONDUCTING NAUTICAL SCIENCE AND MARITIME ENGINEERING COLLEGES AT PUNE RS.24,00,000/- III) OTHER SUNDRY DONATIONS RS. 35,691/- WITH REFERENCE TO THE DECISIONS IN THE CASE OF CIT V. SARLADEVI SARABHAI TRUST (NO. 2) [1988] 172 ITR 698 (GUJ.) AND CIT VS. SHRI RAM MEMORIAL FOUNDATION [2004] 269 ITR 4 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST 36 (DEL), IT WAS SUBMITTED THAT WHEN ONE CHARITABLE TRUST DONATES A SUM TO ANOTHER TOWARD THE LATTERS CHARITABLE OBJECTS, IT IS PROPER APPLI CATION OF INCOME IN THE HANDS OF THE DONOR- TRUST. MERELY BECAUSE THE DONEE-TRUST DOES NOT SPEN D IT IN THE YEAR OF RECEIPT ITSELF WOULD NOT OPERATE TO DISENTITLE THE DONOR-TRUST TO EXEMPT ION U/S. 11(1). ALSO, THE POSITION WOULD NOT ALTER WHEN THE DONATION, AS IN THE INSTANT CASE , IS TOWARDS THE DONEES CORPUS, SO THAT IT CAN UTILIZE ONLY THE INCOME FROM THE SAID CORPUS DO NATION (WHICH IS TO BE INVESTED IN SPECIFIED SECURITIES) FOR CHARITABLE PURPOSES. IN V IEW THEREOF, THE LD. CIT(A) DELETED THE ADDITION OF RS.24 LAKHS, SO THAT, AGGRIEVED, THE RE VENUE IS IN APPEAL. SUBSEQUENT TO THE ASSESSMENT ON 15.12.2006, IT WAS FOUND BY THE REVENUE THAT THE ASSESSEE HAD IN FACT GIVEN DONATION FOR RS.60 LAKHS , AND NOT RS.24 LAKHS ONLY TO TEF DURING THE RELEVANT PREVIOUS YEAR, AS UNDER (REFER PG. 22/ PB 2 ): RECEIPT NO. DATE CHEQUE NO. AMOUNT 414 21.11.2003 030771 30,00,000 410 15.09.2003 030765 15,00,000 409 12.09.2003 030764 15,00,000 AS THE DONATION OF RS.24 LAKHS TO TEF HAD BEEN ALRE ADY ADDED TO INCOME, THE BALANCE RS. 36 LAKHS WAS SIMILARLY PROPOSED FOR ADDITION. WHILE CONCEDING TO THE FACTUAL POSITION, IT WAS EXPLAINED BY THE ASSESSEE IN THE REASSESSMENT P ROCEEDINGS THAT IT HAD PROPERLY ACCOUNTED THE ENTIRE DONATION IN ITS BOOKS, I.E., R S.24 LAKHS AS DONATION; RS.20.80 LAKHS AS SCHOLARSHIP (TEF); AND RS.15.20 LAKHS TOWARD CAPITA L EXPENDITURE, WHICH IN FACT WAS INCURRED BY TEF ON ITS BEHALF. THE AMOUNT OF RS.36 LAKHS (I.E., RS.20.80 LAKHS PLUS RS. 15.20 LAKHS ) HAD BEEN, ACCORDINGLY, CLAIMED AS EXP ENDITURE, DULY DEBITED TO THE INCOME AN EXPENDITURE ACCOUNT FOR THE YEAR, WHILE RS.24 LA KHS IS AN APPLICATION OF INCOME, OPERATING TO EXEMPT THE INCOME TO THAT EXTENT UNDER SECTION 11(1)(A). THE AO WAS NOT IMPRESSED. THE ASSESSEE HAD BEEN ISSUED THREE RECEI PTS FOR AN AGGREGATE OF RS. 60 LAKHS BY TEF, AND TOWARDS CORPUS DONATION. NO DETAILS OF SCHOLARSHIP OR CAPITAL EXPENDITURE WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. THE EXPLANATION BEING NOW FURNISHED IS ONLY AN AFTER-THOUGHT, ON BEING CALLED UPON TO EXPLAIN THE BALANCE ADMITTED 5 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST PAYMENT OF RS.36 LAKHS. THE ENTIRE AMOUNT OF RS.60 LAKHS WAS TOWARD CORPUS DONATION AND, LIKEWISE, THUS LIABLE TO BE DISALLOWED INASMUC H AS THE SAME WAS ONLY A CAPITAL RECEIPT IN THE HANDS OF THE DONEE AND, FURTHER, NOT LIABLE TO BE APPLIED TOWARDS ITS OBJECTS, WHICH WOULD ONLY BE THE INCOME ARISING THERE-FROM. THE BALANCE RS. 36 LACS WAS, ACCORDINGLY, ALSO ASSESSED AS INCOME VIDE ORDER DAT ED 31/12/2007. THE SAME DID NOT FIND FAVOUR WITH THE LD. CIT(A) IN APPEAL. THE ASSESSEE HAD BEEN ABLE TO PROVE, WITH EVIDENCES, THAT IN FACT ONLY RS. 24 LAKHS HAS BEEN GIVEN AS CORPUS DONATION, AND THE BALANCE HAD BEEN GIVEN FOR GRANT OF SCHOLARSHIP (RS .20.80 LAKHS) AND REIMBURSEMENT OF EXPENSES (RS.15.20 LAKHS). THE ADDITION OF RS. 36 L ACS WAS, THEREFORE, NOT JUSTIFIED, AND WAS DIRECTED TO BE DELETED BY HIM. AGGRIEVED, THE R EVENUE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 WE SHALL PROCEED ISSUE-WISE. WE MAY, HOWEVER, B EFORE PROCEEDING IN THE MATTER, AT THE OUTSET, CLARIFY THAT THOUGH THE TOTAL ADDITI ON MADE AND BEING CONTESTED BY THE REVENUE QUA DONATIONS IS RS.60 LACS, IN EFFECT THE SAME HAS BE EN MADE ONLY FOR RS.44,94,470/- , ASSESSING THE INCOME AT THE SAID FIGURE, AS AGAI NST THE NET LOSS (OR EXCESS OF EXPENDITURE OVER INCOME) AS PER THE INCOME AND E XPENDITURE ACCOUNT AT RS.15,05,526 . THIS IS FOR THE SIMPLE REASON THAT THE EXCESS OF EX PENDITURE OVER INCOME, AS CLAIMED AND ALLOWED, INCLUDES OR IS ONLY AFTER INCLUDING SUMS, IN VALUE HIGHER THAN THE SAID EXCESS, WHICH ARE ADMITTEDLY CLAIMED AS OR QUALIFY AS AN AP PLICATION OF INCOME, CLAIMED EXEMPT U/S.11(1)(A). THAT IS, THE SUMS DEBITED BY THE ASSE SSEE TO THE INCOME AND EXPENDITURE ACCOUNT INCLUDE DONATIONS FOR RS.47.06 LACS, INCLUD ING CORPUS DONATION OF RS.24 LACS DISALLOWED, WHICH ARE ADMITTEDLY AN APPLICATION OF INCOME. EVEN OTHERWISE, IT IS NOBODYS CASE THAT THE TRUST IS REQUIRED TO SPEND O N ITS OBJECTS FOR CHARITABLE PURPOSES MORE THAN ITS INCOME, BEING, RATHER, UNFEASIBLE. 3.2 THE FIRST ISSUE ARISING IN THE INSTANT APPEALS IS THE VALIDITY IN LAW OF THE ASSESSEES CLAIM TOWARD REPAIRS AND MAINTENANCE U/S. 24 OF THE ACT IN COMPUTING THE INCOME FROM HOUSE PROPERTY LET OUT BY THE ASSESSE, AND TOWARD W HICH IT HAS (SUBSEQUENTLY) RAISED A 6 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST SINGLE, PRECISE GROUND. THE CLAIM IS, BY ALL COUNTS , WITHOUT MERIT. THIS IS FOR THE SIMPLE REASON THAT THE INCOME OF A CHARITABLE TRUST OR INS TITUTION, SUBJECT TO ITS APPLICATION FOR CHARITABLE PURPOSES, FOR WHICH IT HAS BEEN IN FACT FORMED (PER ITS CONSTITUTING CHARTER) IS EXEMPT FROM TAX UNDER CHAPTER III (SS.10 TO 13B) OF THE ACT. THE SAID INCOME DOES NOT FORM PART OF THE TOTAL INCOME OF THE ENTITY TO WHIC H IT ARISES OR ACCRUES OR IS RECEIVED BY. IT IS ONLY THE INCOME FORMING PART OF THE TOTAL INCOME U/S.2(45) OF THE ACT, WHICH IS TO BE CLASSIFIED UNDER THE VARIOUS HEADS OF THE INCOME U/ S.14 AND, ACCORDINGLY, SUBJECT TO THE COMPUTATION PROVISIONS OF CHAPTER IV (SS. 14 TO 59) OF THE ACT. THE EXPENDITURE INCURRED IN EARNING THE SAME IS, LIKEWISE, AND ONLY UNDERSTA NDABLY, NOT TO BE TAKEN INTO ACCOUNT IN COMPUTING THE TOTAL INCOME UNDER THE ACT, WHICH REP RESENTS TRITE LAW, AND TOWARD WHICH A SEPARATE SECTION (SEC. 14A) HAS SINCE BEEN INSERTED BY FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 01.04.1962. THIS ASPECT S TANDS ABUNDANTLY CLARIFIED BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. HARPRASAD & CO. (P.) LTD. [1975] 99 ITR 118 (SC), EXPLAINING THAT AN INCOME TO COME WITHIN ITS PURVIEW MUST SATISFY THE DEFINITION OF TOTAL INCOME U/S. 2(15) (OF THE INCOME-TAX ACT, 192 2, WHICH IS PARA MATERIA WITH SECTION 2(45) OF THE ACT), PRESCRIBING TWO CONDITIONS. FIRS TLY, IT MUST COMPRISE THE TOTAL AMOUNT OF INCOME, PROFITS AND GAINS REFERRED TO IN SECTION 4(1) AND, TWO, MUST BE COMPUTED IN THE MANNER LAID DOWN UNDER THE ACT. THE CAPITAL GAIN BE ING NOT CHARGEABLE U/S.12B OF THE 1922 ACT DURING THE RELEVANT PERIOD, THE SAME WOULD NOT ENTER THE COMPUTATION MECHANISM OF THE TOTAL INCOME. THIS IS AS THE CAPIT AL GAIN OR LOSS (WHICH IS ONLY NEGATIVE INCOME) DID NOT FORM PART OF THE TOTAL INCOME OF TH E ASSESSEE WHICH COULD BE BROUGHT TO CHARGE, SO THAT IT WAS NOT REQUIRED TO BE COMPUTED. REFERENCE IN THIS CONTEXT MAY ALSO BE MADE TO THE FOLLOWING OBSERVATION BY THE TRIBUNAL I N THE CASE OF PRAVIN SHAH TRUST VS. DY. CIT (IN ITA NO. 4782/MUM/2010 DATED 05.07.2013): 3.3 . THAT IS, AN INCOME EXEMPT U/C. III OF THE ACT, NOT FORMING PART OF THE TOTAL INCOME, WOULD NOT ENTER THE COMPUTATION P ROCESS TO DETERMINE THE QUANTUM OF INCOME UNDER THE RELEVANT HEAD OF INCOME , EACH OF WHICH HAS ITS OWN COMPUTATION PROVISIONS . 7 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST TO THE SAME EFFECT AND PURPORT ARE ITS OBSERVATIONS IN THE CASE OF LKP SECURITIES LTD. (IN ITA NOS. 638 & 1093/MUM/2012 DATED 17.05.2013): `14 . THE INCOME (AND LOSS, WHICH IS ONLY NEGATIVE INCOME ) FALLING UNDER CHAPTER III OF THE ACT AND, THUS, EXEMPT FROM THE LEVY OF THE TAX, WOULD NOT FORM PART OF THE COMPUTATION OF THE INCOM E UNDER CHAPTER IV OF THE ACT. THAT IN FACT IS A FUNDAMENTAL PREMISE; THE BASIS OF SEC. 14A OF THE ACT . THE REVENUES CASE IN THIS REGARD IS UNEXCEPTIONA L, AND WE CONFIRM THE SAME . IN BOTH THE DECISIONS, THE TRIBUNAL RELIED ON THE D ECISION IN THE CASE OF HARPRASAD & CO. (P.) LTD . (SUPRA). THE RELIANCE BY THE LD. CIT(A) ON THE CI RCULAR ISSUED BY THE BOARD (NO.5P(LXX6) DATED 19.06.1968), EXPLAINING THE POSI TION IN THE MATTER, IS ALSO APPOSITE. IT STANDS EXPLAINED THAT ONLY THE INCOME AS REFLECT ED IN THE ACCOUNTS OF THE TRUST/INSTITUTION THAT IS TO BE APPLIED OR DEEMED TO HAVE BEEN APPLIE D FOR CHARITABLE PURPOSES, AND WHICH, THEREFORE, HAS TO BE COMPUTED IN THE COMMERCIAL SEN SE. THE SAID CIRCULAR HAS BEEN FOUND BY THE HONBLE COURTS OF LAW AS REPRESENTING THE CO RRECT INTERPRETATION OF THE RELEVANT PROVISIONS AND THE REQUIREMENT OF THE LAW, AS IN TH E CASE OF CIT VS. PROGRAMME FOR COMMUNITY ORGANISATION [1997] 228 ITR 620 (KER), SINCE APPROVED BY THE AP EX COURT (REPORTED AT [2001] 248 ITR 1 (SC)), TO WHICH (LATT ER) DECISION REFERENCE STANDS ALSO MADE BY THE LD. CIT(A). THIS ASPECT OF THE MATTER, I.E., THE MANNER OF COMPUTATION OF INCOME OF A CHARITABLE OR RELIGIOUS TRUST/INSTITUTION WHICH H AS TO BE APPLIED FOR THE SAID PURPOSES, HAS BEEN A SUBJECT MATTER OF A NUMBER OF DECISIONS, AS BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (I BPS) [2003] 264 ITR 110 (BOM). THIS IS EVEN OTHERWISE PATENT INASMU CH AS A TRUST COULD ONLY APPLY THE INCOME AS AVAILABLE WITH IT, I.E., AS ARRIVED AT FO LLOWING THE ACCEPTED PRINCIPLES OF COMMERCIAL ACCOUNTING. THE COMPUTATION PROVISIONS O F THE ACT DO NOT COME INTO PLAY, SO THAT THE SAID COMPUTATION OF THE INCOME WOULD BE DE HORS THE SAME. THIS WOULD OF COURSE BE SUBJECT TO THE SPECIFIC PROVISIONS OF THE ACT, S O THAT WHERE SPECIFICALLY PROVIDED FOR, THE INCOME WOULD BE COMPUTED IN THE MANNER SO PROVI DED; FOR EXAMPLE SS. 11(4) AND 11(4A) SPECIFICALLY PROVIDE FOR THE COMPUTATION OF INCOME OF A BUSINESS UNDERTAKING FORMING PART OF THE PROPERTY HELD UNDER TRUST BY A CHARITABLE TRUST/INSTITUTION IN 8 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST ACCORDANCE WITH THE PROVISIONS OF THE ACT, EVEN AS POINTED OUT BY THE HONBLE COURT IN RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES (SUPRA). THE SPECIAL BENCH OF THE TRIBUNAL IN SCIENTIFIC ATLANTA INDIA TECHNOLOGY (P.) LTD. VS. A CIT [2010] 2 ITR 66 (TRIB) (CHENNAI) (SB) HELD THAT THE PROFITS OF A UNIT ELIG IBLE FOR DEDUCTION U/S.10A OF THE ACT, I.E., TO THE EXTENT NOT COVERED BY THE DEDUCTION TH ERE-UNDER, WOULD STAND TO BE TAXED DIRECTLY AND NOT ENTER THE COMPUTATION MECHANISM IN ASMUCH AS THE SAME DO NOT FORM PART OF THE GROSS TOTAL INCOME, AS SECTION 10A FALLS UND ER CHAPTER III OF THE ACT, SO THAT THE PROVISIONS OF CHAPTER VI-A AND, CONSEQUENTLY, S. 80 AB WOULD NOT BE APPLICABLE THERETO. BEFORE PARTING WITH THE MATTER, WE MAY ALSO ADD THA T THE ASSESSEE HAS BEEN ALLOWED ALL THE EXPENDITURE ON REPAIRS AND MAINTENA NCE AS DEBITED IN ITS ACCOUNTS, I.E., ON ACTUAL BASIS (RS. 11.97 LACS/PB 1 PG. 39), EVEN AS DIRECTED BY THE LD. CIT(A), AND WHICH FACT WAS ALSO CLARIFIED BY US DURING HEARING. ACCOR DINGLY, THE ASSESSEES GROUND/S FOR THE CLAIM OF THE STANDARD DEDUCTION U/S.24 FAIL. WE DEC IDE ACCORDINGLY. FINALLY, THE RELIANCE BY THE ASSESSEE ON THE DECISI ON IN THE CASE OF IAC, MUMBAI VS. SAURASHTRA TRUST [2007] 106 ITD 1 (MUM) (SB) IS, UNDER THE CIRCUMSTA NCES, MISPLACED. THE SAID DECISION IS, FIRSTLY, SANS ANY REFERENCE TO ANY PRECEDENTS; NAY, EVEN WITHOUT A DISCUSSION OF THE LAW IN THE MATTER. THIS ASPECT WO ULD IN FACT BECOME CLEAR IN VIEW OF THE QUESTIONS REFERRED TO AND ANSWERED BY THE TRIBUNAL. AS A READING OF ITS ORDER WOULD SHOW (REFER PARA 1), THE SAME ARE NOT DIRECTLY CONNECTED WITH THE ISSUE BEFORE US. THE SAID DECISION, THUS, WOULD BE OF NO ASSISTANCE TO THE AS SESSEE, WITH WE HAVING EVEN OTHERWISE DECIDED THE MATTER FOLLOWING THE BINDING PRECEDENTS IN THE MATTER, SO THAT THE DECISION IN THE CASE OF BANK OF BARODA V. H.C. SHRIVASTAVA [2002] 256 ITR 385 (BOM), ADVOCATING JUDICIAL DISCIPLINE WITH REFERENCE TO THE DECISION BY THE APEX COURT IN CCE V. DUNLOP INDIA LTD . AIR 1985 SC 330, ONLY SUPPORTS THE SAME. THE DECI SION IN THE CASE OF AL AMEEN EDUCATIONAL SOCIETY V. DIT (EXEMPTION) (IN ITA NO. 575/BANG./2011 DATED 28/9/2012, ALSO AT [2012] 26 TAXMANN.COM 250 (BANG. )) IS AGAIN ONLY IN RESPECT OF THE SPECIFIC PROVISION OF SEC. 11(1A) OF THE ACT, I.E., QUA CAPITAL GAIN, AND, THUS, NOT APPLICABLE. WE HAVE ALREADY CLARIFIED THAT OUR DECI SION IS BASED ON AND REPRESENTS THE GENERAL POSITION OF LAW, SO THAT IT WOULD BE SUBJEC T TO THE SPECIFIC PROVISIONS OF THE ACT, 9 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST GIVING EXAMPLE OF SS. 11(4) AND 11(4A). IT MAY BE R ELEVANT TO STATE THAT THE DECISION BY THE APEX COURT IN HARPRASAD & CO. (P.) LTD . (SUPRA), REFERRED TO EARLIER, IS ALSO IN RESPECT OF CAPITAL GAINS. 3.3 WE MAY NEXT CONSIDER THE ADD-BACK OF THE DONATI ONS FOR RS. 24 LACS AND RS. 36 LACS, FORMING PART OF THE TOTAL SUM OF RS. 60 LACS PAID BY THE ASSESSE TO TEF, A CHARITABLE INSTITUTION UNDER THE SAME MANAGEMENT, DURING THE R ELEVANT YEAR, BY THE REVENUE IN THE ASSESSMENT AND REASSESSMENT PROCEEDINGS RESPECTIVEL Y. THE BASIS OF THE REVENUES DISALLOWANCE QUA THESE SUMS, PAYMENT DETAILS OF WHICH STAND LISTED AT PARA 2 / PAGE 4 OF THIS ORDER , ARE AS: (A) THE SAME ARE TOWARD CORPUS DONATIONS TO THE DONE-FU ND, I.E., PER THE RECEIPTS ISSUED THEIR RESPECT. AS SUCH, IT IS ONLY THE INCOME THERE -FROM, AND NOT THE SAID FUNDS, WHICH ARE LIABLE TO BE SPENT FOR THE OBJECTS OF THE RECIPIENT, SO THAT THE SAME WOULD NOT QUALIFY AS TOWARD APPLICATION OF INCOME U/S. 11 (1)(A); (B) NO EXPLANATION TOWARD THE SAME AS BEING FOR SCHOLAR SHIP AND REIMBURSEMENT OF CAPITAL EXPENDITURE, AS CLAIMED DURING THE REASSESS MENT PROCEEDINGS, STOOD FURNISHED IN THE ASSESSMENT PROCEEDINGS, SO THAT TH E SAME IS ONLY AN AFTER-THOUGHT. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE MATT ER. FIRSTLY, THERE IS NO CASE OF ANY ROUND TRIPPING INASMUCH AS, ADMITTEDLY VIDE ORDER U/S. 154 DATED 12/3/2007 ASSESSING THE INCOME AT RS. 8,94,470/-, NO DONATION HAS BEEN RECEIVED FROM TEF, SO THAT THERE ARE NO CROSS DONATIONS. ALSO, THERE IS NO QUESTION OF C ONSIDERING THE RENT OF RS. 60 LACS RECEIVED FROM TEF AS A DONATION, AND NEITHER IS IT THE REVENUES CASE OF THE RENT ARRANGEMENT BEING NOT GENUINE. TWO, THE EXPLANATION TO S. 11(2), EVEN AS CLARIFIED BY THE NOTES TO CLAUSES INTRODUCING THE RELEVANT BILL, IS ONLY IN RESPECT OF SUMS ACCUMULATED OR SET APART FOR APPLICATION, AND NOT SUMS APPLIED FOR CHARITABLE PURPOSES DURING THE RELEVANT YEAR, INCLUDING BY WAY OF DONATION TO ANY OTHER CHA RITABLE TRUST WITH SIMILAR OBJECTS; THE RELEVANT PART OF THE SAID NOTE READING AS UNDER: THUS, THE PAYMENT TO THE OTHER TRUST OR INSTITUTION OUT OF INCOME FROM PROPERTY HELD UNDER TRUST IN THE YEAR OF RECEIPT WI LL CONTINUE TO BE TREATED AS AN APPLICATION OF INCOME. HOWEVER, ANY SUCH PAYM ENT OUT OF THE ACCUMULATED INCOME SHALL NOT BE TREATED AS AN APPLI CATION OF INCOME, AND SHALL BE TAXED ACCORDINGLY . 10 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST IN FACT, CONSEQUENTIAL AMENDMENTS STAND ALSO MADE T O THE ACT BY WAY OF INSERTION OF CLAUSE (D) TO S. 11(3) AND PROVISO TO S. 11(3A), ALL TO THE SAME EFFECT AND PURPORT. THE SAID PROVISION/S WOULD HAVE NO APPLICATION IN THE INSTAN T CASE AS, WITHOUT DOUBT, EACH OF THE THREE SUMS COMPRISING THE TOTAL AMOUNT OF RS. 60 LA CS PAID BY THE ASSESSE TO TEF STAND PAID DURING THE RELEVANT YEAR. WE MAY NOW DISCUSS E ACH OF THE THREE SUMS SEPARATELY. THE SUM OF RS. 24 LACS IS ADMITTEDLY A CORPUS DONA TION (ALSO REFER LEDGER ACCOUNTS IN THE BOOKS OF THE DONOR AND THE DONEE PAGES 24, 26 / PB 2). THE LAW IN THE MATTER IS BY NOW WELL SETTLED, SO THAT DONATION BY ONE CHARIT ABLE TRUST TO ANOTHER WOULD ENTITLE THE DONOR FUND TO CLAIM EXEMPTION QUA APPLICATION OF INCOME U/S. 11(1). AS POINTED OUT B Y THE HONBLE COURT IN SARLADEVI SARABHAI TRUST (NO. 2) (SUPRA), IT WOULD MAKE NO DIFFERENCE IF THE DONATION IS TOWARD THE CORPUS OF THE DONEE-FUND, SO THAT IT IS ONLY THE INCOME THEREFROM, AND NOT THE DONATION SUM ITSELF, THAT IS LIABLE TO BE SPENT FOR OR UTILIZED FOR THE CHARITABLE PURPOSES OF THE RECIPIENT. THE W ORD APPLICATION HAS A WIDER CONNOTATION THAN THE WORD SPENT, SO THAT AN APPLI CATION OF INCOME OF THE DONOR TRUST COULD NOT BE DENIED. AGAIN, THE CORPUS FUND MAY NOT NECESSARILY BE INVESTED IN SPECIFIED SECURITIES BUT COULD ALSO BE TOWARD CAPITAL EXPENDI TURE, WHICH AGAIN QUALIFIES AS AN APPLICATION OF INCOME. THE OBJECTION, THUS, RAISED BY THE REVENUE IS NOT MAINTAINABLE. COMING TO THE DONATIONS FOR RS. 36 LACS; THE SAME H AVE BEEN EXPLAINED AS: - RS. 20.80 LACS TOWARD SCHOLARSHIP TO STUDENTS MARIN E ENGG. OF TEF - RS. 15.20 LACS AS REIMBURSEMENT OF CAPITAL EXPENDIT URE OUR FIRST OBSERVATION IS THAT THE REVENUE HAVING AC CEPTED THE DONATION OF RS. 24 LACS, COMPRISED IN THE SUM OF RS. 30 LACS PAID VIDE CHEQU E NO. 30771 DTD. 21/11/2003 (SUPRA), AS A CORPUS DONATION, IT CANNOT RETRACT TO DENY THE SAME TREATMENT TO THE BALANCE RS. 6 LACS OF THE SAID CHEQUE, OR THE AMOUNTS SIMILARLY DONATE D VIDE THE OTHER TWO CHEQUES SUPRA. IN FACT, THE SUMS STAND OSTENSIBLY DEBITED AND REFLECT ED IN THE ASSESSEES ACCOUNTS, INCLUDING THE INCOME & EXPENDITURE ACCOUNT, FORMING PART OF I TS RETURN OF INCOME (PGS. 37 43/ PB 1), SO THAT THERE IS NO QUESTION OF NOT RECOGNIZING THE SAME AS SUCH. 11 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST COMING TO THE SPECIFICS, THE AMOUNT OF RS. 20.80 LA CS IS PAID TO TEF FOR THE SCHOLARSHIP TO STUDENTS OF TOLANI MARITIME INSTITUT E, BEING RUN BY IT, I.E., THE PAYEE-TRUST. THE SAME IS CLEARLY AN APPLICATION OF INCOME TO THA T EXTENT AND, IN FACT, STANDS REFLECTED IN THE INCOME & EXPENDITURE ACCOUNT ITSELF (PGS. 23, 2 5/PB 2 & PG. 39/PB 1). NO DOUBT, AS IT APPEARS, THE DONATION IS NOT TO SET UP ANY SCHOLARS HIP FUND, BUT FOR SCHOLARSHIP TO BE GRANTED TO THE INDIVIDUAL STUDENTS, FORMING PART OF THE REGULAR EXPENDITURE OF THE DONE- TRUST AND, AS SUCH, NOT A CORPUS DONATION, AS STATE D IN THE RELEVANT RECEIPT. HOWEVER, THIS WOULD NOT MATERIALLY IMPACT; RATHER, ONLY ENHANCES THE ASSESSEES CASE INASMUCH AS ONE OF THE REVENUES OBJECTIONS WAS OF THE SAME BEING T OWARD THE CORPUS OF THE DONEE. THE SAME WOULD, THEREFORE, WITHOUT DOUBT, QUALIFY FOR E XEMPTION U/S. 11(1)(A). AS REGARDS THE AMOUNT OF RS. 15.20 LACS, THE SAME I S AGAIN BY WAY OF CORPUS DONATION TOWARD FUNDING THE CAPITAL EXPENDITURE OF TEF ON CONSTRUCTION OF EXECUTIVE RESIDENCY AND HOSTEL BUILDING. THERE IS NO QUESTION OF TEF HAVING SPENT THE MONEY ON ASSESSEES BEHALF, SINCE REIMBURSED BY THE ASSESSEE , WHICH WOULD BE SO WHERE THE BUILDINGS UNDER REFERENCE EITHER BELONG TO THE ASSE SSEE OR ARE BEING CONSTRUCTED BY IT. AS SUCH, AS FAR AS THE ASSESSE-TRUST IS CONCERNED, IT IS DONATION TO ANOTHER TRUST AND, THUS, ONLY AN APPLICATION OF INCOME (REFER PGS. 22, 23 & 27/PB 2). SO, HOWEVER, WE ARE UNABLE TO FIND ANY REFLECTION OF THE SAME IN THE ASSESSEES A NNUAL ACCOUNTS (PGS. 37 43/PB 1), INCLUDING THE INCOME AND EXPENDITURE ACCOUNT (PG. 3 9), SHOWING THE SOURCES AND APPLICATION OF, INCLUDING THE EXPENDITURE INCURRED ON ADMINISTRATION OR OTHERWISE FOR GENERATING, THE REVENUE. THE ASSESSEES CLAIM, THER EFORE, THOUGH ACCEPTABLE IN PRINCIPLE, WOULD BE REQUIRED TO BE SHOWN WITH REFERENCE TO ITS ACCOUNTS. THE AO SHALL VERIFY THE INCURRING OF THE SAID PAYMENT WITH REFERENCE TO THE ASSESSEES ACCOUNTS, AND SUBJECT TO HIS RETURNING A POSITIVE FINDING IN ITS RESPECT, WE CO NFIRM THE TREATMENT OF THE SAID SUM AS TOWARD APPLICATION OF INCOME. WE DECIDE ACCORDINGL Y. 4. IN THE RESULT, THE ASSESSEES AND THE REVENUES APPEAL QUA ASSESSMENT (ITA NOS. 1111 AND 199 OF 2011) ARE DISMISSED, AND THE REVENU ES APPEAL QUA REASSESSMENT (ITA NO. 6970/MUM/2011) IS PARTLY ALLOWED FOR STATISTICA L PURPOSES. 12 ITA NOS. 6970,199 & 1111/MUM/2011 (A.Y. 2004-05) NANDLAL TOLANI CHARITABLE TRUST (/ 0 %& '( / $ ) 1 (ITA NOS. 1111 AND 199 OF 2011) ( / $ ) (ITA NOS. 6970 OF 2011) 2) 345 6 $ 7 ) 89 ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 30, 2013 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER :+ MUMBAI; ;% DATED : 30.09.2013 A.K. PATEL, PS !'#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. '< / THE APPELLANT 2. =>'< / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. A$B C =%D& , , D&/ , :+ / DR, ITAT, MUMBAI 6. C E' F + / GUARD FILE ! ( / BY ORDER, )(*+ (DY./ASSTT. REGISTRAR) , :+ / ITAT, MUMBAI