DDIT, CHENNAI V. M/s. Kathir Foundation, Trichy

ITA 2006/CHNY/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2629 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 13-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 05-11-2012
• Court: TRIBUNAL
• Department Lawyers: A B KOLIJCITD R
• Assessee Lawyers: T VASUDEVAN
• Keywords: Charitable institution; Earning of tax free income; Bad and doubtful debts; Benefit of exemption; Bogus loan
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! . ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO. 2006 /MDS./2012 ( / ASSESSMENT YEAR :2008-09) DEPUTY DIRECTOR OF INCOME- TAX,(EXEMPTIONS-III), AYAKAR BHAVAN,ANNEXE BUILDING,III FLOOR, CHENNAI 24. VS. M/S.KATHIR FOUNDATION , 80,SALAI ROAD, WORAIYUR, TRICHY 620 003. PAN AACCK 4897 Q ( %& / APPELLANT ) ( '(%& / RESPONDENT ) / APPELLANT BY : MR.A.B.KOLI,JCIT,D.R / RESPONDENT BY : MR.T.VASUDEVAN,ADVOCATE ! / DATE OF HEARING : 13.01.2016 '# ! /DATE OF PRONOUNCEMENT : 11.03.2016 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE IS DIRECTED A GAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-XII, C HENNAI DATED 31.07.2012 PERTAINING TO THE ASSESSMENT YEAR 2008- 09. ITA NO.2006./MDS/2012 2 2. THE REVENUE HAS RAISED THE GROUNDS IN ITS APPEA L THAT THE CIT(A) ERRED IN GRANTING EXEMPTION U/S.11 OF THE A CT THAT THERE WAS A VIOLATION U/S.13(1)(D) & 13(1)(C) OF THE ACT AND A LSO ERRED IN RESTRICTING THE DISALLOWANCE OF ADMINISTRATIVE EXPE NSES TO 10% AS AGAINST 80% MADE BY THE AO. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE TRU ST IS REGISTERED UNDER THE INDIAN COMPANIES ACT, 1956 ON 19.04.2004, ENGAGED IN MICRO FINANCING ACTIVITIES TO THE SELF-HELP GROUPS. THE ASSESSEE TRUST FILED ITS RETURN OF INCOME ON 13.07.2009 ADMITTING INCOME OF ` 18,25,220/- BEFORE CLAIMING EXEMPTION U/S.11 OF THE ACT. THE AO WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF THE ACT ON 31.12.2010, OBSERVED THAT THE ASSESSEE INVESTED RS. 30,00,000/- IN THE SHARES OF M/S.JAGANNATH FINANCIAL SERVICES LTD. , IN VIOLATION OF PROVISIONS OF THE SECTION 13(1)(D) R.W.S. 11(5) OF THE ACT. THE AO ALSO NOTED THAT THE ASSESSEE HAS FAILED TO RECEIVE THE R EFERRAL CHARGES CHARGEABLE FROM M/S.JAGANNATH FINANCIAL SERVICES LT D., A VIOLATION U/S.13(1) OF THE ACT. HENCE, THE AO REJECTED THE ASSESSEES CLAIM OF EXEMPTION U/S.11 OF THE ACT AND BROUGHT THE EXCE SS OF INCOME OVER ITA NO.2006./MDS/2012 3 EXPENSES TO TAX AS PER THE REGULAR PROVISIONS OF TH E ACT. WHILE DOING SO, THE AO ALSO DISALLOWED THE ASSESSEES CLAIM OF PROVISION FOR DOUBTFUL DEBTS, 80% OF THE ADMINISTRATIVE EXPENSES AND ALSO ADDED INTEREST ON UNACCOUNTED LOANS DISBURSED. ON APPEAL , THE CIT(A) OBSERVED THAT THE REQUIREMENT OF INVESTMENTS IN THE SPECIFIED MODES U/S.11(5) OF THE ACT IS ONLY WITH RESPECT TO THE UN SPENT PORTION OF 85% IN THE TRUSTS INCOME. AS FAR AS THE OTHER PORTION OF 15% OF THE TRUSTS INCOME IS CONCERNED, AS AN ABSOLUTE AND UNFETTERED EXEMPTION OF ACCUMULATED INCOME GUARANTEED BY SECTION 11(1)(A) O F THE ACT, THE ASSESSEE NEED NOT INVEST THE SAME IN THE MODES SPEC IFIED U/S.11(5) OF THE ACT. AS THE TRUST HAS CLEARLY FULFILLED THE STATUTORY REQUIREMENTS LAID DOWN IN THE PROVISIONS. IN THE F.Y. 2007-08 ( I.E. A.Y 2008-09), THE ASSESSEE HAS APPLIED 85% OF ITS INCOME FOR THE OBJECTS AND HENCE THE BALANCE OF INCOME (WHICH IS WITHIN THE LI MITS OF 15%) IS NOT SUBJECTED THE RESTRICTIONS IMPOSED U/S.11(2) R.W.S. 11(5) OF THE ACT. AS FAR AS THE F.Y 2006-07,(I.E.A.Y 2007-08) IS CONCERN ED, THE ASSESSEE FAILED TO APPLY 80% OF INCOME FOR THE OBJECTS. THE SHORTFALL IN APPLICATION WAS ` 71,85,171/- FOR WHICH THE ASSESSEE SOUGHT FOR ITA NO.2006./MDS/2012 4 ACCUMULATION IN FORM NO.10 BEFORE THE REVENUE. THE DETAILS ARE AS UNDER:- PARTICULARS A.Y.2008-09 F.Y.2007-08 AY.2007-O8 A.Y.2006-07 GROSS RECEIPTS 4,27,05,826 6,57,82,073 85% FOR APPLICATION THEREON 3,62,99,952 5,59,14,762 AMOUNT APPLIED FOR THE OBJECT OF THE TRUST - ON REVENUE ACCOUNT. - ON CAPITAL ACCOUNT TOTAL APPLICATION . 4,06,96,827 50,26,834 4,57,23,661 4,75,94,361 11,35,230 4,87,29,591 EXCESS! (SHORTFALL) APPLICATION 94,23,709 (71,85,171) FORM 10 APPLIED FOR ACCUMULATION 1,78,63,762 THUS, THE ABSOLUTE AND UNFETTERED EXEMPTED INCOME A S GUARANTEED BY SECTION 11(1) (A) (WHICH NEED NOT BE INVESTED IN THE MODES SPECIFIED U/S.11(5) OF THE ACT) AVAILABLE WITH THE ASSESSEE DURING THE F.YS. 2006-07 AND 2007-08 (RELEVANT TO A.YS. 2007-0 8 AND 2008-09) ARE ` 98,67,311/- (BEING 15% OF ` 6,57,82,073) AND ` 64,05,874/- (BEING 15% OF ` 4,27,05,826), RESPECTIVELY. THESE AMOUNTS ARE EXEMPTED U/S. 11(1)(A) OF THE ACT ITSELF AND ARE NO T REQUIRED TO BE INVESTED IN THE MODES SPECIFIED U/S. 11(5) OF THE A CT. HENCE, THE ITA NO.2006./MDS/2012 5 INVESTMENT OF `30,00,000/- DURING THE F.Y.2006-07, IN THE SHARES OF JFSL, WHICH IS WITHIN THE LIMITS OF 15% OF THE INCO ME, IS DEEMED TO HAVE BEEN MADE OUT OF THE 15% OF THE INCOME OF THE TRUST EXEMPTED U/S. 11(1)(A) OF THE ACT. THIS IS THE ONLY INVESTME NT MADE IN F.Y. 2006-07 AND CONTINUED DURING THE F.Y.2007-08, WHICH THE ASSESSING OFFICER TREATED AS A VIOLATION U/S. 13(1)(D) R.W.S. 11(5) OF THE ACT. THERE ARE NO OTHER INVESTMENTS MADE IN VIOLATION OF SEC. 13(1)(D) W.R.S. 11(5), BROUGHT ON RECORD BY THE ASSESSING OF FICER. HENCE THE SAID INVESTMENTS IN THE SHARES OF JFSL CANNOT BE CO NSIDERED AS A VIOLATION U/S.13(1)(D) R.W.S. 11(5) OF THE ACT FOR THE PURPOSE OF DENYING EXEMPTION OF INCOME U/S. 11 OF THE ACT. THEREFORE T HE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING EXEMPTION OF IN COME U/S. 11 OF THE ACT TO THE ASSESSEE ON THIS ACCOUNT. 4. REGARDING VIOLATION OF SEC.13(1)(C) OF THE ACT, CIT(A) OBSERVED THAT ON THE BASIS OF BLANK SIGNED PRONOTES AND THE APPLICATION FORMS, THE ASSESSEE CLAIMED THAT NO LOANS WERE ADVANCED TO THE SAID GROUPS DUE TO PAUCITY OF FUNDS. HENCE THE SAME CANN OT BE CONSIDERED AS LOANS ACTUALLY DISBURSED. ON THE OTHE R HAND, SINCE THE AMOUNTS REFLECTED IN THE MIS IN THE SAID NAMES ARE THE PREVIOUS ITA NO.2006./MDS/2012 6 LOANS AVAILED BY THE SAID GROUPS AND WERE PROPERLY ACCOUNTED IN THE BOOKS OF THE ASSESSEE, THE SAID AMOUNTS OF MIS DATA BASE CANNOT BE TREATED AS THE LOANS ADVANCED ON ACCOUNT OF THE BLA NK PRONOTES/ APPLICATION FORMS. THESE ARE TWO SEPARATE AND INDEP ENDENT TRANSACTIONS. IN ANY CASE, SINCE THE ADVANCES MENTI ONED IN THE MIS DATA BASE ARE ALREADY REFLECTED IN THE REGULAR BOOK S OF THE ASSESSEE, IF THE ASSESSING OFFICER FEELS THAT THE LOANS (BASE D ON THE BLANK PROMOTES/ APPLICATION FORMS) ARE ACTUALLY DISBURSED AS CONTAINED IN THE MIS DATA BASE, THE SAID DISBURSEMENT STANDS EXP LAINED AND ACCOUNTED IN THE BOOKS. IF THE ASSESSING OFFICER FE ELS THAT THE AMOUNTS IN THE MIS DATA BASE ARE DIFFERENT LOANS, T HEN THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE ACTUALLY ADVANCE D LOANS TO THE SAID SHGS, BASED ON THE BLANK PRONOTES / APPLICATIO N FORMS. FURTHER, EVEN IF IT IS PRESUMED THAT THERE WERE LOANS ADVANC ED TO THE SAID SHGS BASED ON THE SAID BLANK PRONOTES/APPLICATION F ORMS, WHETHER ACCOUNTED IN THE BOOKS OR NOT, STILL THE SAME WILL NOT AMOUNT TO VIOLATIONS U/S. 13(L)(C) OF THE ACT AS NONE OF THE SELF HELP GROUPS OR SHGS ARE THE PERSONS SPECIFIED U/S. 13(3) OF THE AC T. THUS, THE ASSESSING OFFICER IN NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT ITA NO.2006./MDS/2012 7 THERE WERE UNACCOUNTED LOANS DISBURSED TO THE SHGS ETC., AND TREATING THE SAME AS A VIOLATION U/S. 13(L)(C) OF T HE ACT. 5. REGARDING THE REFERRAL FEE, THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), EXPLAINED THA T THERE WAS RESOLUTION, AS PER WHICH THE TRUST HAS TO GET A REF ERRAL FEE @ ` 5,00,000/- PER QUARTER OR 0.2 5% OF THE AVERAGE LOA NS OUTSTANDING, WHICHEVER IS LESS. DURING THE FINANCIAL YEAR 2007-0 8, THE REFERRAL FEE @ 0.25% OF THE AVERAGE LOANS AMOUNTED TO ` 2,37,607/- AND THE SAME WAS CREDITED IN THE ACCOUNTS AND HENCE THERE W AS NO SHORT COLLECTION FROM JFSL DURING THE YEAR; THE RELEVANT PORTION OF THE ASSESSEES SUBMISSIONS ARE AS UNDER: 8. AS REGARDS THE REFERRAL FEES OF RS.2,3 7,607 TH E SAME IS THE AMOUNT DUE FROM JAGANNATHA FINANCIAL SERVICES LTD., WHO HA D UTILIZED THE NAME OF THE APPELLANT TRUST FOR LENDING LOANS, AND ALSO USED THE PREMISES OF THE TRUST, AND WHO HAD AGREED TO PAY REFERRAL FEE OF RS .5,00,000 PER QUARTER OR 0.25% OF THE AVERAGE LOAN OUTSTANDING, WHICHEVER IS LESS. THIS AMOUNT HAS ALREADY BEEN CREDITED BY THE TRUST IN IT S ACCOUNTS. THERE IS THEREFORE NO SUBSTANCE IN THE ASSESSING OFFICERS C ONTENTION THAT THE AMOUNT WAS UTILIZED BY THE COMPANY IN WHICH THE TRU STEES ARE INTERESTED OR THAT THE PROPERTIES OF THE TRUST WERE USED BY SU CH PERSONS. THE ADDITION OF RS. 18,059 IS ALSO THUS UNWARRANTED. THE ASSESSING OFFICER, AS PER PARAGRAPH NUMBER 13 O F THE ORDER, OBSERVED THAT THE OUTSTANDING LOAN AS ON THE LAST M ONTH THE FINANCIAL ITA NO.2006./MDS/2012 8 YEAR IS ` 7,25,45,083/-, BASED ON WHICH THE ASSESSING OFFICER CALCULATED THE REFERRAL FEES AT ` 2,55,666/-, AS AGAINST THE REFERRAL FEE OF ` 2,37,607/- CLAIMED BY THE ASSESSEE. HENCE THE ASSES SING OFFICER TREATED THE DIFFERENCE OF ` 18,059/- (I.E. ` 2,55,666 ` 2,37,607) AS SHORT COLLECTION OF REFERRAL FEE FROM JFSL AMOUNTIN G TO VIOLATION U/S. 13(1)(C) OF THE ACT. THE CIT(A) OBSERVED THAT THE ABOVE OBSERVATION OF THE ASSESSING OFFICER IS NOT CORRECT. THE REFERR AL FEE IS BEING COLLECTED BY THE ASSESSEE FROM JFSL, AS THE LATTER IS USING THE ASSESSEES FACILITIES IN TERMS OF PREMISES AND MANP OWER. THE REFERRAL FEE IS TO BE COLLECTED ON THE AVERAGE LOANS OUTSTAN DING AND NOT ON THE AMOUNTS OUTSTANDING IN THE LAST MONTH. THE AVERAGE LOANS OUTSTANDING MEANS THE SUM OF LOANS OUTSTANDING AT T HE END OF EACH MONTH DIVIDED BY TWELVE. THE ASSESSEE CALCULATED TH E REFERRAL FEE @ 0.25% ON THE AVERAGE LOANS OUTSTANDING AT THE END O F EACH MONTH. HENCE THERE IS NO SHORT COLLECTION OF REFERRAL FEE BY THE ASSESSEE FROM JFSL IN ORDER TO ATTRACT THE VIOLATIONS U/S. 13(1)( C) OF THE ACT. HENCE, THE ASSESSING OFFICER IS NOT JUSTIFIED INCOMING TO THE CONCLUSION THAT THE ASSESSEE COMMITTED VIOLATIONS U/ S. 11(5) AND A LSO U/S. 13(1)(C) OF THE ACT. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR EX EMPTION OF INCOME ITA NO.2006./MDS/2012 9 U/S. 11 AND THE CIT(A) DIRECTED THE ASSESSING OFFI CER TO ALLOW THE BENEFIT OF EXEMPTION TO THE ASSESSEE U/S. 11 OF THE ACT. THE CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 6. FURTHER, CIT(A) OBSERVED THAT THE ASSESSING OFFICER, AFTER NOTICING VIOLATIONS U/S. 13(1)(D) AND U/S. 13(1)(C) OF THE ACT, DISALLOWED THE ASSESSEES CLAIM OF EXEMPTION U/S. 1 1 AND BROUGHT THE EXCESS OF INCOME OVER EXPENSES TO TAX AS PER THE RE GULAR PROVISIONS OF THE ACT. WHILE DOING SO, THE ASSESSING OFFICER A LSO DISALLOWED THE PROVISIONS FOR DOUBTFUL DEBTS, 80% OF THE EXPENSES CLAIMED AND ALSO ADDED THE INTEREST ELEMENT ON UNACCOUNTED LOANS DIS BURSED ETC., AS DISCUSSED ABOVE AND HELD THAT THE ASSESSEE IS ELIGI BLE FOR EXEMPTION OF ITS INCOME U/S. 11 OF THE ACT, THE INCOME OF THE ASSESSEE AND ITS EXEMPTION IS TO BE DETERMINED, AS PER THE PROVISION S OF SEC. 11 TO 13 OF THE ACT. ITA NO.2006./MDS/2012 10 7. REGARDING THE DISALLOWANCE OF EXPENDITURE, HE OBSER VED THAT C ONSIDERING THE NATURE OF THE ACTIVITIES OF THE ASSE SSEE, THE DISALLOWANCE OF 80% OF THE ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER IS HIGHLY UNREASONABLE AND NOT JU STIFIED. CONSIDERING THE FACTS AND ASSESSEES FAILURE TO FUR NISH THE FULL DETAILS BEFORE THE ASSESSING OFFICER, CIT(A) HELD THAT DISA LLOWANCE OF 10% OF THE ADMINISTRATIVE EXPENSES CLAIMED BY THE ASSESSEE MAY BE REASONABLE. HENCE THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES TO ` 15,46,124/- (BEING 10% ` 1,54,61,238) AS AGAINST ` 1,23,68,990/- (BEING 80% OF ` 1,54,61,238) DISALLOWED BY THE ASSESSING OFFICER IN HIS ORDER. T HE ASSESSIN OFFICER IS REQUIRED TO EXCLUDE ` 15,46,124/- FROM APPLICATION OF INCOME WHILE COMPUTING THE 85% U/S.1L(1) OF THE ACT. AGAINST TH IS THE REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE THERE IS VIOLATION OF SECTIONS 13(1)(C) & 13(1)(D) OF THE ACT AS THE ASSESSEE INVESTED ` 30 LAKHS IN THE SHARE OF M/S.JAGANNATH FINANCIAL SERVICES LTD., AND REMAINED TO CONTINUE IN ITA NO.2006./MDS/2012 11 THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO. THE CONTENTION OF THE LD.A.R IS THAT INVESTMENT ITSELF IS NOT MADE IN THE RELEVANT ASSESSMENT YEAR 2008-09. IN OUR OPINION, DISQUALIFICATION APP LIED FOR DEPOSIT MADE NOT ONLY PREVIOUS YEAR BUT ALSO APPLIED TO DEP OSITS RETAINED IN THE PREVIOUS YEAR. THE PROVISIONS OF THE SECTION 1 3(1)(D) IS RELATING TO DEPOSITS OF SURPLUS AMOUNT BY CHARITABLE INSTITUTIO NS OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS SPECIFIED IN SUB-SE CTION (5) OF SECTION 11 OF THE ACT. BEING SO, THE CIT(A) IS NOT JUSTIFI ED IN GRANTING SEC.11 OF THE ACT. FURTHER, HE ALSO RECORDED THAT THERE IS A VIOLATION OF PROVISIONS OF THE SECTION 13(1)(C) OF THE ACT DUE T O UNACCOUNTED DISBURSEMENT OF LOAN BY ASSESSEE AND ALSO ON ACCOUN T OF PAYMENT OF REFERRAL CHARGE. ON THIS ALSO, ASSESSEE IS NOT ENT ITLED FOR EXEMPTION U/S.11 OF THE ACT. FOLLOWING JUDGMENTS SUPPORT REV ENUE CASE. 1. ITO V. KAS FOUNDATION REPORTED IN (2012) 23 TAXM ANN.COM 292(CHENNAI). 2. THE MUNDAKAPADAM MANDIAMS SOCIETY VS. CIT (2002) 178 CTR (KER) 79. 3. GEORGE EDUCATIONAL MEDICAL & CHARITABLE SOCIETY VS. CIT REPORTED IN [2012] 20 TAXAMANN. COM 638(KER.) 4. SHARADA TRUST VS. CIT (1980) 16 CTR (P&H) 36. 5. IN THE CASE OF M/S.KAS FOUNDATION IN ITA NO.18 92 & 1893/MDS./2010 VIDE ORDER DATED 19 TH MAY, 2012. ITA NO.2006./MDS/2012 12 LD.A.R RELIED ON THE JUDGEMENT OF JURISDICTIONAL HI GH COURT IN THE CASE OF CIT V. WORKING WOMENS FORUM REPORTED IN [2014] 365 ITR 353 (MAD) WHEREIN HELD THAT ONLY THAT PORTION OF INCOME WHICH IS VIOLATION OF SECTION 13(1)(D) ORDERED FOR EXEMPTION U/S.11 O F THE ACT AND NOT THE TOTAL DENIAL OF SEC.11 OF THE ACT. 9. HOWEVER, WE COME ACROSS THE JUDGEMENT OF JURISD ICTIONAL HIGH COURT IN THE CASE OF RAMALINGAM CHARITIES VS. CIT R EPORTED IN 243 ITR 307 WHEREIN HELD THAT WHEN THE ASSESSEE NOT SATISFYING REQUIREMENT OF SEC.11(5) OF THE ACT, THE ASSESSEE CANNOT CLAIM EXEMPTION U/S.11 OF THE ACT. IN ADDITION TO THIS, THE CO-ORDINATE B ENCH IN THE CASE OF INDIA CEMENT EDUCATIONAL SOCIETY IN ITA NO.1525/MDS ./2010 DATED 20.01.2016 AFTER CONSIDERING THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. NAGARATHU VAISIYARGAL SANGAM REPORTED IN 246 ITR 164 HELD AS FOLLOWS:- 4. NOW, WE PROCEED TO EXAMINE SECTION 11 WHICH RE ADS AS FOLLOWS: (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST W HOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA ; AND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICA TION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO ITA NO.2006./MDS/2012 13 ACCUMULATED OR SET APART IS NOT IN EXCESS OF FIFTEE N PER CENT. OF THE INCOME FROM SUCH PROPERTY ; (B) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST I N PART ONLY FOR SUCH PURPOSES, THE TRUST HAVING BEEN CREATED BE FORE THE COMMENCEMENT OF THIS ACT, TO THE EXTENT TO WHICH SU CH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA ; AND WHERE AN Y SUCH INCOME IS FINALLY SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO SET APA RT IS NOT IN EXCESS OF FIFTEEN PER CENT. OF THE INCOME FROM SUCH PROPERTY ; SEC. 13(1)(C) OF THE ACT READS AS FOLLOWS: SECTION 11 NOT TO APPLY IN CERTAIN CASES (1) NOTHING CONTAINED IN SECTION 11 OR SECTION 12 S HALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVI OUS YEAR OF THE PERSON IN RECEIPT THEREOF- (C) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGI OUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOME T HEREOF- (I) IF SUCH TRUST OR INSTITUTION HAS BEEN CREATED O R ESTABLISHED AFTER THE COMMENCEMENT OF THIS ACT AND UNDER THE TE RMS OF THE TRUST OR THE RULES GOVERNING THE INSTITUTION, A NY PART OF SUCH INCOME ENURES, OR (II) IF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR INSTITUTION (WHENEVER CREATED OR ESTABLISHED) IS DU RING THE PREVIOUS YEAR USED OR APPLIED, DIRECTLY OR INDIRECT LY FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SECTION (3 ) : PROVIDED THAT IN THE CASE OF A TRUST OR INSTITUTION CREATED OR ESTAB-LISHED BEFORE THE COMMENCEMENT OF THIS ACT, T HE PROVISIONS OF SUB-CLAUSE (II) SHALL NOT APPLY TO AN Y USE OR APPLICATION, WHETHER DIRECTLY OR INDIRECTLY, OF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR INSTITUTION FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SECTION (3), IF SU CH USE OR APPLICATION IS BY WAY OF COMPLIANCE WITH A MANDATOR Y TERM OF THE TRUST OR A MANDATORY RULE GOVERNING THE INSTITU TION : PROVIDED FURTHER THAT IN THE CASE OF A TRUST FOR RE LIGIOUS PURPOSES OR A RELIGIOUS INSTITUTION (WHENEVER CREAT ED OR ESTABLISHED) OR A TRUST FOR CHARITABLE PURPOSES OR A CHARITABLE ITA NO.2006./MDS/2012 14 INSTITUTION CREATED OR ESTABLISHED BEFORE THE COMME NCEMENT OF THIS ACT, THE PROVISIONS OF SUB-CLAUSE (II) SHALL N OT APPLY TO ANY USE OR APPLICATION, WHETHER DIRECTLY OR INDIRECTLY, OF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR INSTITU TION FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SECTION (3 ), IN SO FAR AS SUCH USE OR APPLICATION RELATES TO ANY PERIOD BEFOR E THE 1ST DAY OF JUNE, 1970 ; 5. AS PER SEC. 13, THE BENEFIT OF EXEMPTION FROM IN COME TAX IS NOT AVAILABLE IF ANY PART OF THEIR INCOME OR PROPERTY E NURES OR IS, DURING THE PREVIOUS YEAR, APPLIED, DIRECTLY OR INDIRECTLY, FOR THE BENEFIT OF THE AUTHOR, FOUNDER, SUBSTANTIAL CONTRIBUTOR OR RELATIV E AFORESAID OR FOR THE BENEFIT OF ANY CONCERN IN WHICH ANY SUCH AUTHOR, FO UNDER, SUBSTANTIAL CONTRIBUTOR OR RELATIVE HAS SUBSTANTIAL INTEREST. T HE EXEMPTION FROM TAX WILL BE DENIED ONLY IF THEIR INCOME IS APPLIED FOR THE BENEFIT OF THE AUTHOR, FOUNDER ETC. OTHERWISE THAN IN COMPLIANCE W ITH A MANDATORY TERM OF THE TRUST OR A MANDATORY RULE GOVERNING THE INSTITUTION. THE REQUIREMENTS OF SEC. 13(1)(C)(II) IS THAT THE TRUST SHOULD APPLY THE FUNDS IN A CONCERN IN WHICH THEY THEMSELVES ARE INT ERESTED, IF THERE WAS A MANDATORY PROVISION IN THE TRUST DEED FOR SUC H A PURPOSE. SUCH A MANDATE IN THE TRUST DEED SHOULD HAVE EXISTE D AND COULD NOT HAVE BEEN BROUGHT IN BY AMENDING THE TRUST DEED AT A LATER STAGE AFTER THAT CRUCIAL DATE, EVEN IF THE TRUST DEED AUT HORIZED THE TRUSTEES TO AMEND THE TRUST DEED TO BRING IN THE MANDATORY C ONDITION OR REQUIREMENT FOR THEM TO INVEST FUNDS OF THE TRUST I N A CONCERN IN WHICH THEY MIGHT BE INTERESTED. IN IS ADMITTED FAC T IN THIS CASE THAT THERE IS A VIOLATION OF SEC. 13(1)(C) OF THE ACT AS THE ASSESSEE INVESTED FUNDS IN A LIMITED COMPANY WHERE THE TRUST EE IS THE MANAGING DIRECTOR AND HIS WIFE IS A DIRECTOR. BEIN G SO, PLACING RELIANCE ON THE JUDGMENT OF SUPREME COURT IN THE CA SE OF CIT VS ITA NO.2006./MDS/2012 15 RATTAN TRUST, 227 ITR 356 AND THE JUDGMENT OF JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT VS NAGARATHU VAISIYARGAL S ANGAM, 246 ITR 164, WE HOLD THAT THE ASSESSING OFFICER WAS CORREC T IN INVOKING THE PROVISIONS OF SEC. 13(1)(C) OF THE ACT AND DENYING EXEMPTION TO THE ASSESSEE U/S 11 OF THE ACT. THE ASSESSEE RELIED ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (SUPRA) WHICH CANNOT BE CONSIDERED IN VIEW OF THE JURISDICTIONAL HIGH COURT JUDGMENT WHICH IS AGAINST THE ASSESSEE. 6 .---- 7 . THE PROVISION OF SECTION 164(2) IS CONCERNED WITH TAXABILITY OF INCOME (I) WHICH IS DERIVED FROM PROPERTY HELD UNDE R TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES OR (II) IN THE FOR M OF VOLUNTARY CONTRIBUTION RECEIVED BY THE TRUST COVERED BY SEC. 2(24)(IIA), OR (III) THE NATURE REFERRED TO IN SEC. 11(4A). THE INCOME OF SUCH TRUST WHICH IS NOT EXEMPT U/S 11 OR SEC. 12 OF THE ACT SHALL BE CHARGED TO TAX AS IF SUCH EXEMPT INCOME IS THE INCOME OF AN AOP. THE PROVISO TO SEC. 164(2) INSERTED WITH EFFECT FROM 1.4.1985 ENJOINS T HAT WHERE THE NON- EXEMPT PORTION OF RELEVANT INCOME ARISES AS A CONSE QUENCE OF THE CONTRAVENTION OF THE PROVISIONS OF SEC. 13(1)(C) O R (D), THE SAID INCOME WOULD BE SUBJECT TO TAX AT THE MAXIMUM MARGI NAL RATE. BEING SO, IN OUR OPINION THERE IS NO MERIT IN THE A RGUMENT OF ASSESSEES COUNSEL THAT ONLY THAT PORTION OF INCOME WHICH IS VIOLATIVE OF SEC.13(1)(C) OF THE ACT & 13(1)(D) TO BE CONSIDE RED FOR DENYING EXEMPTION U/S.11 OF THE ACT. ITA NO.2006./MDS/2012 16 10. NEXT GRIEVANCE OF THE REVENUE IS WITH REGARD T O SUSTAINING THE DISALLOWANCE OF 10% OF ADMINISTRATIVE EXPENDITURE I NSTEAD OF 80% MADE BY THE AO. IN THIS CASE, THE ASSESSEE IN SPIT E OF GIVEN SEVERAL OPPORTUNITY, HAS NOT PRODUCED THE BOOKS BEFORE THE AO FOR EXAMINATION FOR ONE REASON OR THE OTHER. THE ASSES SEE USED TO AVOID THE PRODUCTION OF BOOKS OF ACCOUNTS BEFORE THE AO T O PROVE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSE SSEE AND AS SUCH AO DISALLOWED 80% OF THE ADMINISTRATIVE EXPEND ITURE. IN OUR OPINION, WHATEVER ASSESSEE CLAIMED FOR EXPENDITURE, THE BURDEN IS ON THE ASSESSEE TO PRODUCE NECESSARY DOCUMENTS TO PROV E THE EXPENDITURE THAT WAS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF CARRYING OUT THE OBJECTIVES OF THE TRUST OR FOR THE PURPOSE OF BUSINESS OF ASSESSEE. SINCE THE ASSESSEE HAS FAILE D TO PRODUCE BOOKS OF ACCOUNTS, THE AO FORCED TO ESTIMATE THE DI SALLOWANCE OF ADMINISTRATIVE EXPENDITURE AT 80%. THE CIT(A) REDUC ED TO 10% WITHOUT ANY BASIS. THE CIT(A) OBSERVED THAT DISALL OWANCE OF 10% IS SUFFICIENT IN VIEW OF THE FACTS OF THE CASE. IN O UR OPINION, THIS FINDINGS OF THE CIT(A) IS NOT BASED WITH ANY MATERIAL BROUGH T ON RECORD AND IT ITA NO.2006./MDS/2012 17 IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF AO WITH A DIRECTION TO THE ASSESSEE TO PRODUCE NECESSARY BOOKS OF ACCOUNTS AND SUPPORTING VOUCHERS AND BILLS TO PROVE THE EXPENDITURE INCURRE D BY THE ASSESSEE AND AO WOULD DECIDE THE ISSUE AFRESH. 7. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 11 TH OF MARCH,2016 AT CHENNAI. SD/- SD/- ( . ) (G.PAVAN KUMAR) ( ( $% & ) ) ' CHANDRA POOJARI () JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH MARCH,2016 . K S SUNDARAM. *+)),-).- /COPY TO: ) 1. /APPELLANT 2. /RESPONDENT 3. ) /)'( /CIT(A) 4. ) / /CIT 5. -01 )2 /DR 6. 13)4 /GF