OM KOTHARI FOUNDATION, Kota V. CIT-EXEMPTION, Jaipur

ITA 264/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2012 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 25-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Assessee Lawyers: B V MAHESHWARI
• Keywords: Gift; Charitable institution; Benefit of exemption
• Section: 148; 12; 11

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 264/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10. OM KOTHARI FOUNDATION, OM TOWER, M.I. ROAD, JAIPUR. CUKE VS. CIT(E), 3 RD FLOOR, LAL KOTHI ROAD, KAILASH HIGHTS, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAATO 0616 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI B.V.MAHESHWARI (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25.05.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 13/07/2017. VKNS'K@ ORDER PER SHRI KUL BHART, JM. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT (E)-III, JAIPUR DATED 10.03.2016 PERTAINING TO ASSESSMENT YE AR 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL :- 1. THAT THE LD. CIT(E) JAIPUR HAVE GROSSLY ERRED O N LAW AND FACTS IN WITHDRAWING THE APPROVAL GRANTED U/S 10(23C)(VI) OF INCOME TAX ACT, 1961. THE LD. CIT(E) WITHDRAWAL THE EXEMPTION ON HOLDING THAT THE ASSESSEE HAVE VIOLATED THE PROVISIONS OF INVESTMENT CONTAINE D IN SEC. 13(1) (D)/11(5) OF INCOME TAX ACT,1961 WHICH IS NOT TRUE, SINCE THERE WAS NO INVESTMENT OUT OF THE FUNDS OF EDUCATION. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER & AMEND THE GROUNDS OF APPEAL. 2 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE G RANTED EXEMPTION U/S 10(23C)(VI) 1961, (HEREINAFTER REFERRED TO AS THE A CT). SUBSEQUENTLY, THE SAID EXEMPTION WAS WITHDRAWN, ON THE GROUND THAT THE ASS ESSEE WAS NOT HOLDING THE FUND IN SPECIFIED MODE. 3. THE LD. CIT RELYING UPON THE DECISION OF DELHI H IGH COURT IN THE CASE OF SHREE RADHA KRISHAN CHARITABLE TRUST IN ITA NO. 303/JP/2 008. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT WAS NOT JUSTIFIED IN WITHDRAWING T HE EXEMPTION U/S 10(23C)(VI). HE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN S UBMISSIONS. 4. ON THE CONTRARY, LD. DEPARTMENTAL REPRESENTATIVE S OPPOSED THE SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. CIT(E) WITHDRAWN THE EXEMPTION ON THE GROUND THAT ASSESSEE IS HOLDING THE ASSET IN THE FORM OF SHARES OF M/S OM M ETALS INFRA PROJECT LTD. FOR THE LAST MANY YEARS, WHICH IS NOT IN THE SPECIFIED MODE S. THIS FACT IS ALSO BORNE OUT FROM AUDITORS REPORT. LD. CIT(E) OBSERVED THAT AS THE CLAIM OF THE ASSESSEE THAT THESE SHARES WERE NOT ACQUIRED FROM THE FUNDS OF TH E TRUST. IT IS IMMATERIAL WHETHER THE SHARES HAVE BEEN PURCHASED BY THE TRUST FROM IT S OWN FUNDS OR HAVE BEEN DONATED BY SOMEBODY. HE WAS OF THE VIEW THAT AS PE R 6 TH PROVISO READ WITH 3 RD PROVISO OF SECTION 10(23C) OF THE ACT, A TRUST CANN OT HOLD FUNDS IN NON-SPECIFIED MODES; THEY ARE REQUIRED TO BE CONVERTED INTO SPECI FIED MODES WITHIN A PERIOD OF ONE YEAR. 3 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR. 5.1 NOW, THE ISSUE IS REQUIRED TO BE ADJUDICATED WH ETHER THE LD. CIT WAS JUSTIFIED IN WITHDRAWING THE EXEMPTION ON THIS BASIS. THE SUB MISSIONS OF THE ASSESSEE ARE REPRODUCED AS UNDER:- 1. THE ASSESSEE HAS NOT FILED ANY EVIDENCE WITH REGAR D TO RECEIPT OF SHARES, DONATION IN THE YEAR 2006-07 FOR WHICH W E SUBMIT THAT WE HAVE FILED THE DETAILS. THEN HE TOOK THE RESOURECE S ON THE REASON OF HONBLE DELHI HIGH COURTS ORDER IN THE CASE OF SHR EE RADHA KRISHAN CHARITABLE TRUST, DELHI. THE SAID DECISION WAS IN FAVOUR OF THE ASSESSEE. SINCE THE RESCINDED NOTIFICATION ORDER W AS GIVEN WITHIN ONE YEAR FROM THE DATE OF INVESTMENT, THEREFORE, THIS I S NOT APPLICABLE IN THIS CASE. BASED SOLELY ON THE SAID DECISION, THE LD. CIT INVOKED AND RESCINDED CERTIFICATES OF THE ASSESSEE. NOW, WE SU BMIT THE LEGAL POSITION WHICH IS DECIDED BY THE DIFFERENT COURTS, HONBLE ITAT: 1. ITAT, JAIPUR -SANTOKBA DURLABHJI MEMORIAL HOSPITAL VS. DEPARTMENT. SIMILAR ISSUE CAME IN THIS CASE IN THE APPEAL BEFOR E THE HONBLE ITAT, JAIPUR. THE ISSUE WAS THAT THE TRUST INVESTED CERT AIN AMOUNT IN THE SHARES OF A LISTED COMPANY - CALLED TISCO. IN TH E SAID INVESTMENT IT WAS EXPLAINED BY THE TRUST THAT THE INVESTMENT WAS NOT MADE OUT OF ITS OWN FUND, BUT SHARES WERE RECEIVED IN RIGHT ISS UE, THEREFORE, NO AMOUNT OF THE TRUST WAS INVESTED. IT WAS ALSO SUBMITTED THAT EVEN AFTER THERE IS A IN VESTMENT IN THE MODES WHICH ARE NOT AS PER SEC. 11(5), THEN THE ENT IRE EXEMPTION OF THE TRUST SHALL NOT GO, ONLY THE INCOME FROM SAID I NVESTMENT WILL BE LIABLE FOR CHARGING TAX AT THE MAXIMUM MARGINAL RAT E. AS SUCH THE APPLICABLE OF SEC. 13(1)(D) WAS KEPT LIMITED. IT W AS ALSO HELD THAT ON THE BASIS OF THESE INVESTMENTS, THE ENTIRE BENEFIT OF SEC. 11 AND 12 CANNOT BE FORFEITED. THIS VERSION WAS TAKEN BY THE HONBLE BENCH ON THE BASIS OF DAUDI BOHRA TRUST CASE DECIDED BY THE HONBLE SUPREME 4 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR. COURT OF INDIA. IT WAS ALSO STATED THAT THE THERE ARE JUDGMENTS OF THE HONBLE ITAT, HIGH COURTS AND SUPREME COURT THAT TH E ISSUE IN RELATION TO INVESTMENT IN VIOLATION OF SEC. 11(5) HAVE GOT F INALITY AND IN SUCH CASES THE ONLY RECOURSE AVAILABLE TO THE DEPARTMENT , IS TO TAX THE INCOME YIELDED FROM THE SAID INVESTMENT AND NO OTHE R AFFECT CAN BE MADE. WE ALSO SUBMIT THAT IN COURSE OF REGULAR ASSESSMENT OF THE TRUST FOR THE YEAR 2006-07 ONWARDS, THE LD. AO REOPENED THAT CASE U/S 148 OF THE IT ACT, 1961 AND IN ALL THE YEARS HE DENIED THE BENEFIT TO THE ENTIRE TRUST U/S 11 & 12 AND INCOME MADE TAXABLE APART FRO M OTHER ADDITIONS. THE SAID ASSESSMENT WAS NOT ACCEPTED BY THE LEARNED: CIT(A) III, JAIPUR IN APPEAL NO. 333/JPR/13-14 FO R THE YEAR 2006- 07. CIT(A) III, JAIPUR IN APPEAL NO. 394/JPR/14-15 FO R THE YEAR 2007- 08. CIT(A) III, JAIPUR IN APPEAL NO. 759/JPR/15-16 FO R THE YEAR 2008- 09. AND ON THE BASIS OF THE DECISION OF THE HONBLE ITA T IN THE CAE OF SANTOBA DURLABHJI MEMORIAL HOSPITAL IT WAS DECIDED THAT ONLY THE INCOME FROM INELIGIBLE INVESTMENT CAN BE TAXED AND THE BENEFIT OF EXEMPTION CANNOT BE DENIED TO THE OTHER INCOME OF T HE TRUST. THE SAID DECISION WAS UPHELD BY THE HONBLE ITAT IN ITA NO. 383 AND 384 A.Y. 2006-07 & 2007-08. IN VIEW OF THE ABOVE WE SU BMIT THAT THE LD. CIT(E) WAS TOTALLY WRONG IN HOLDING THAT TRUST LOST EXEMPTION. WE ALSO SUBMIT THAT THE SAME ISSUE CAME BEFORE THE HONBLE KARNATAKA IN THE CASE OF MULLERS CHARITABLE TRUST, KANKANEDI AND IN ITS DECISION IT WAS HELD THAT THE EXEMPTION CAN BE FORFEITED TO THE INC OME FROM INELIGIBLE INVESTMENT AND IN HOLDING TO THAT THE JUDGMENT THE HONBLE HIGH COURT HAS CONSIDERED THE CASE OF BOMBAY HIGH COURT IN THE MATTER OF DIRECTOR OF INCOME TAX VS. SETH MAFAT LAL GOGAI 249 ITR 33, DIT VS. AGRIM 5 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR. CHARAN CHARITABLE TRUST 253 ITR 593. IN VIEW OF TH E ABOVE JUDGMENT OF THE HONBLE ITAT, JAIPUR, HONBLE HIGH COURT AND HONBLE SUPREME COURT THE TRUST WILL NOT FORFEIT EXEMPTION OF ITS O THER INCOME EXCEPT TO THE INCOME EARNED FROM THE SAID INELIGIBLE INVESTME NT. FURTHER, ON THE FACTS WE ALSO REITERATE OUR STAND THAT THE TRUST IS HAVING 2 PARTS- ONE PART RELATES TO ITS EDUCATIONAL ACTIVITY AND FOR TH AT THE TRUST GOT CERTIFICATE U/S 10(23C)(VI) OF THE INCOME TAX ACT A ND THE INVESTMENT SHOWN IN THE SHARES IS NOT COMING FROM EDUCATION DI VISION OF THE TRUST WHICH IS CERTIFIED BY THE AUDITORS IN THE BALANCE S HEET OF THE EDUCATIONAL INSTITUTE SUBMITTED BEFORE THE LD. AO A ND THE LD. CIT. AS SUCH, WHEN THE INVESTMENT IN SHARES IS NOT OUT OF F UND OF ITS EDUCATIONAL ACTIVITIES, THEN THERE IS NO ROOM FOR R ESCINDING THE NOTIFICATION ISSUED U/S 10(23C)(VI) OF THE INCOME T AX ACT. THE LD. CIT HAS REFERRED THE CASE OF SHREE RADHA KRISHNA CHARIT ABLE TRUST BY TAKING SOME PORTION OF THE ORDER AND NOT CONSIDERED THE ENTIRE ORDER. HE HAS NOT SEEN THAT THE SAID ORDER WAS IN FAVOUR O F THE ASSESSEE AND HE HAS NOT GIVEN ANY LEGAL ISSUES AND, THEREFORE, B ECAUSE OF THIS BASIS, RESCINDING THE CERTIFICATES IS ILL STATES CLAUSE HA NOT GOT FINALITY AS SUBMITTED ABOVE AND IN VIEW OF THIS WE SUBMIT THAT THE LD. CIT(E) HAS GROSSLY ERRED ON LAW TO RESCIND THE CERTIFICATE ISS UES U/S 10(23C). IN SUMMARY WE SUBMIT THAT:- 1. THE INVESTMENT IN SHARES IS NOT MADE OUT OF INCOME OF EDUCATIONAL INSTITUTION. 2. THE SHARES WERE RECEIVED IN GIFT WERE IN LOOK PERIO D HENCE PERFORCE KEPT IN INVESTMENT. 3. WHEN SHARES ARE NOT PART OF INCOME INVESTED OUT OF EDUCATIONAL INCOME THEN THERE IS NOTHING TO ATTRACT 13 TH PROVISO OF SEC. 10(23C). 4. THE LD. AO HAVE WHICH DISCUSSED BY THE LD. CIT(A) I N APPEAL ORDER ALREADY DEALT THIS ISSUE IN THE ASSESSMENT OR DER FOR THE 6 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR. AY 2006-07 & 2007-08 AND THAT ORDER OF LD. CIT(A) H AS BEEN UPHELD BY THE HONBLE ITAT IN ITA NO. 383 & 384 AS SUCH ON THE SAME BASIS THE DECISION TO RESCIND THE NOTIFICATION U/S 10(23C) IS WRONG. 5.2 THE CONTENTION OF THE ASSESSEE IS THAT THE OBJE CTION OF THE LD. CIT(E) WAS THAT THE ASSESSEE HAD NOT FILED ANY EVIDENCE WITH R EGARD TO RECEIPT OF SHARES AND DONATION IN THE YEAR 2006-07. THIS OBSERVATION OF THE LD. CIT(E) IS NOT CORRECT. THE ASSESSEE HAD FILED THE DETAILS, HE SUBMITTED THAT E VEN IF IT IS PRESUMED THAT INVESTMENT IN THE MODES WHICH ARE NOT AS PER SEC. 1 1(5) OF THE ACT, THEN THE ENTIRE EXEMPTION OF THE TRUST SHALL NOT GO, AND ONLY THE I NCOME FROM SAID INVESTMENT SHOULD BE MADE LIABLE FOR CHARGING TAX AT THE MAXIM UM MARGINAL RATE. THE LD. COUNSEL PLACED RELIANCE ON THE DECISION OF THE TRIB UNAL IN THE CASE OF M/S SANTOBA DURLABHJI VS. ITO IN ITA NO. 241 & 242/JP/2014, ALS O PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF DIRECTOR OF INCOME TAX VS. SHRI RADHA KRISHAN CHARITABLE TRUST. THE HONBLE H IGH COURT AFFIRMED THE VIEW OF THE TRIBUNAL, THAT THE ASSESSEE WAS ALLOWED TO HOLD THE INVESTMENT CONTRARY TO PROVISIONS OF SECTION 11(5) OF THE ACT UNDER AN OBL IGATION TO DISINVEST ON OR BEFORE 31/03/1993, WITHOUT LOSING THE BENEFIT OF SECTION 1 1 & 12 OF THE ACT. THIS IS NOT THE FACT OF THE PRESENT CASE. THE CONTENTION OF THE AS SESSEE IS THAT THE ASSESSEE HAD NOT MADE INVESTMENT, IN FACT, THE SHARES WERE RECEI VED UNDER THE DONATION AND SUCH SHARES WERE RECEIVED FOR CHARITABLE PURPOSE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT IF THE ASSESSEE HAS NOT MADE INVESTMENT A S PER THE PROVISIONS OF SECTION 13 OF THE ACT, THE AUTHORITIES CAN WITHDRAW EXEMPTION U/S 11 & 12 OF THE ACT. IN THE 7 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR. PRESENT CASE THE ASSESSEE HAS NOT DISPUTED THE FACT THAT THE SHARES OF M/S OM METAL INFRA PROJECT LTD. WOULD NOT FALL IN THE CATEGORY O F SHARES IN A PUBLIC SECTOR COMPANY. 5.3 LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MULLERS CHARITABLE INSTITUTIONS THIS CASE IS RELATED TO DEN IAL OF EXEMPTION, BUT NOT ON THE ISSUE OF RESCINDING EXEMPTION GRANTED U/S 10(23C)(V I). THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S SANTOKBA DURLABHJI IN ITA NO. 24 1 & 242/JP/2014 IS ALSO RELATED WITH THE TAXABILITY OF INCOME ARISING FROM THE INVE STMENT, WHICH ARE NOT SPECIFIED UNDER THE PROVISIONS OF SECTION 13(1)(D). THE ISSU E IN THE PRESENT CASE, IS WHETHER THE LD. CIT(A) IS JUSTIFIED IN RESCINDING THE NOTIF ICATION GRANTED U/S 10(23C)(VI) OF THE ACT, UNDER THE FACTS OF THE PRESENT CASE. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD THE ORDER OF CIT(A) PERTAINING TO THE AY 2008-09 DATED 12-8-2016 IN ASSESSEES OWN CASE. IN THAT YEAR THE ISSUE OF RESCINDING THE NOTIFICATION U/S 10(23C)(VI) WAS NOT UNDER CONSIDERATION. THE ONLY ISSUE WHICH REQUIRES TO BE CONSIDERED WHETHER THE LD. CIT(E) WAS JUSTIFIED IN WITHDRAWING THE NOTIFICATION AND BENEFIT U/S 10(23C)(VI) OF THE ACT, ON THE BASIS TH AT THE ASSESSEE HAS NOT MADE INVESTMENT IN THE SPECIFIED ASSETS. THERE IS NO DI SPUTE WITH REGARD TO THE FACT THAT THE ASSESEE KEPT THIS INVESTMENT AS IT IS WITHOUT C ONVERTING INTO THE SAME IN THE MODE SPECIFIED UNDER THE ACT DESPITE ELAPSE OF SEVE RAL YEARS, THE PROVISO OF SECTION 10(23C)(VI) EMPOWERS THE PRESCRIBED AUTHORITY UNDER THE ACT TO WITHDRAW THE APPROVAL GRANTED U/S 10(23C)(VI). IT IS BORNE OUT O F RECORDS THAT THE REVENUE CHOSE NOT TO RESCIND THE APPROVAL IN EARLIER YEARS. THE LD. COUNSEL FOR THE ASSESSEE URGED 8 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR. THAT WITHDRAWAL OF EXEMPTION IS VERY HARSH STEP AS THE ASSESSEE HAS BEEN ENJOYING THE BENEFIT OF EXEMPTION, FOR SEVERAL YEARS. AFTER CONSIDERING THE TOTALITY OF THE FACT, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE CIT(E) TO RECONSIDER THE SUBMISSIONS OF THE ASSESSEE, AND GIVE LAST OPPORTUN ITY TO CONVERT THE SHARES INTO SPECIFIED ASSETS WITHIN A SPECIFIED PERIOD, AND MEA NTIME WITHDRAW EXEMPTION U/S 11 & 12 IN RESPECT OF INCOME EARNED FROM THE INVESTMEN T MADE IN NON-SPECIFIED ASSETS. THIS GROUND OF ASSESSEES APPEAL IS ALLOWE D FOR STATISTICAL PURPOSE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 264/JP/2016 IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE 13 TH DAY OF JULY 2017. SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 13 /07/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- OM KOTHARI FOUNDATION, OM TOWER, MI ROAD, JAIPUR. 2. THE RESPONDENT- CIT(E), 3 RD , FLOOR LAL KOTHI ROAD, JAIPUR. 3. THE CIT 4. THE CIT, (A) 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 264/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 9 ITA NO. 264/JP/2016 OM KOTHARI FOUNDATION, JAIPUR.