The ITO, Ward-1(3), RAJKOT-GUJARAT V. M/s Rajhans Education Trust, RAJKOT-GUJARAT

ITA 27/RJT/2010

• Counselvise Citation: 2724914 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-09-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 13-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JM SAHAY
• Assessee Lawyers: JC RANPUIRA
• Keywords: Business income
• Section: 63; 11; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI T.K. SHARMA (JM) AND SHRI A.L. GEHLOT ( AM) I.T.A. NO.27/RJT/2010 (ASSESSMENT YEAR 2004-05) ITO, WD.1(3) VS M/S RAJHANS EDUCATION TRUST RAJKOT OPP BILESHWAR RLY STATION AT : HADMATIYA, RAJKOT PAN : AAATR2608B (APPELLANT) (RESPONDENT) DATE OF HEARING : 30-11-2011 DATE OF PRONOUNCEMENT : 02-12-2011 APPELLANT BY : SHRI JM SAHAY RESPONDENT BY : SHRI JC RANPUIRA O R D E R PER AL GEHLOT (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I, RAJKOT DATED 07-10-2009 FOR THE ASSESSMENT YEAR 200 4-05 2. THE GROUNDS RAISED IN THE APPEAL READ AS FOLLOWS : 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE FOLLOWING DISALLOWANCE / ADDITIONS:- (A) ADDITION MADE U/S 68 RS. 59,46,000/- 2. ON THE FACTS OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. ITA NO.27/RJT/2010 2 3. THE ASSESSEE TRUST IS ENGAGED IN EDUCATIONAL ACT IVITIES AND DERIVING INCOME FROM DONATION AND INTEREST FROM BANK DEPOSIT . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE TRUST HAS TAKEN LOAN FROM VARIOUS PERSONS AMOUNTING TO RS.59,46,000. TH E ASSESSING OFFICER MADE ADDITION OF THE SAID AMOUNT U/S 68 ON THE GROUND TH AT THE ASSESSEE FAILED TO SATISFY THE CONDITIONS PRESCRIBED IN SECTION 68 OF THE ACT. THE CIT(A) FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF HIRALAL BHAGWATI 246 ITR 188 (GUJ) AND THE DECISION OF RAJKOT BENCH IN T HE CASE OF ITO VS KUTCHVIKAS TRUST IN ITA NO.396/RJT/2006 HELD THAT EVEN IF ENTI RE CREDITS ARE TREATED AS NON GENUINE THE TRUST IS ENTITLED TO GET BENEFIT U/S 11 & 12. THEREFORE, THE ASSESSING OFFICER WAS DIRECTED TO ADOPT THE INCOME AS WORKED OUT BY THE CIT(A) ON PAGE 7 OF HIS ORDER, WHICH IS AS UNDER: GROSS RECEIPTS AS PER AUDIT REPORT RS. 20,38,932 ADDITION U/S 68 OF THE ACT RS. 59,46,000 TOTAL RS. 79,84,932 LESS : EXPENSES OF THE TRUST TOWARDS OBJECTS (A) IMMOVABLE ASSETS (SCHEDULE-2) LAND 16,355 BLDG CONSTRUCTION 64,15,760 OTHER FIXED ASSETS SCH.3 DEAD STOCK 3,726 ELECTRIC & DIESEL PUMP 8,083 ELECTRIC FITTINGS 37,076 PIPES & PIE FITTINGS ETC 2,85,950 FURNITURE 1,64,487 TELEPHONE 4,100 TRUCK & TROLLEY 68,561 ITA NO.27/RJT/2010 3 ---------------- 69,04,454 (B) EXPENDITURE AS PER INCOME EXP.A/C 2,76,454 ---------------- 71,80,552 ---------------- 4. THE LD.DR ON THE OTHER HAND SUBMITTED THAT THE R EVENUE HAS TAKEN THE GROUND ON THE BASIS THAT THIS ADDITION HAS BEEN DEL ETED WHEREAS IN FACT, THE DEPARTMENT WANT TO CHALLENGE THE DIRECTION GIVEN BY THE CIT(A). 5. AFTER HEARING LD.AR, WE FIND THAT THE CIT(A) DID NOT DELETE THE ADDITION. THEREFORE, THERE IS NO QUESTION OF CHALLENGING THE ORDER OF CIT(A) ON THAT GROUND. HOWEVER, EVEN IF THE DEPARTMENT WANT TO CHALLENGE T HE DIRECTION OF THE CIT(A) WE FIND THAT SECTION 11(1) REQUIRES THAT SUBJECT TO TH E PROVISIONS OF SECTION 60 TO 63 THE INCOME MENTIONED IN SUB CLAUSES (A), (B), (C) A ND (D) SHALL NOT BE INCLUDED IN TOTAL INCOME OF THE PREVIOUS YEAR OF THE TRUST. TH E SECOND EMPHASIS IS ON APPLICATION OF THE INCOME AND NOT THE INCOME ITSELF . THE QUESTION IS WHAT DOES THE WORD INCOME CONNOTES IN THE CONTEXT OF EXEMPT ION U/S 11 OF THE ACT. THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECTION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSESSABLE. ON A READING OF SECTION 11(1)(A) IT WILL BE EVIDENT WITH REFERENCE TO THAT SECTION IS INCOM E AND NOT TOTAL INCOME AS DEFINED IN SECTION 2(45) OF THE ACT. TO RESOLVE TH E CONTROVERSY IN SUCH CASES, REGARD MUST BE HAD TO THE LANGUAGE THAT HAS BEEN EM PLOYED AND ALSO TO THE OBJECT OF THE INSTITUTE. IT IS WELL SETTLED THAT I F POSSIBLE, THE WORDS OF THE STATUTE MUST BE CONSTRUED SO AS TO GIVE SENSIBLE MEANING TO THEM. THE ENTIRE OBJECT OF ITA NO.27/RJT/2010 4 SECTION 11 IS TO GRANT IMMUNITY TO THE INCOME OF CH ARGEABLE TRUST FROM INCOME- TAX. THE IMMUNITY, HOWEVER, IS CONFINED TO THE EXT ENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. THE EXCLUSION F ROM THE IMMUNITY THAT HAS BEEN GRANTED BY SECTION 11 MUST BE CONFINED TO THE REAL INCOME OF THE TRUST. THE INCOME FROM PROPERTIES HELD UNDER THE TRUST WOULD H AVE TO BE CALCULATED IN THE COMMERCIAL MANNER. THE CBDT CIRCULAR DATED JUNE 19 , 1968 (AT PAGE 285 OF 159 ITR) IT WAS STATED INTER-ALIA AS FOLLOWS: 2. SECTION 11(1) PROVIDES THAT SUBJECT TO THE PR OVISIONS OF SECTIONS 60 TO 63 THE FOLLOWING INCOME SHALL NO T BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS .. THE REFERENC E IN SUB-SECTION (1)(A) IS INVARIABLY TO INCOME AND NOT TO TOTAL INCOME. THE EXPRESSION TOTAL INCOME E HAS BEEN SPECIFICALLY D EFINED IN SECTION 2(45) OF THE ACT AS THE TOTAL AMOUNT OF INCOME C OMPUTED IN THE MANNER LAID DOWN IN THIS ACT. IT WOULD, ACCORDING LY, BE INCORRECT TO ASSIGN TO THE WORD INCOME, USED IN SECTION 11(1)( A), THE SAME MEANING AS HAS BEEN SPECIFICALLY ASSIGNED TO THE EX PRESSION TOTAL INCOME, VIDE SECTION 2(45).. 4. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPE RTY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOU RCES, THE WORD INCOME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SEN SE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APP LICATIONS THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERW ISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPEN DITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHO ULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WILL BEC OME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE O F THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TR UST FROM OUT OF THE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LESS THAN 75 PER CENT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION UNDER SECTION 11(1) 5. TO SUM UP, THE BUSINESS INCOME OF THE TRUST AS DISCLOSED BY THE ACCOUNTS PLUS ITS OTHER INCOME COM PUTED AS ABOVE, WILL BE THE INCOME OF THE TRUST FOR PURPOS ES OF SECTION 11(1). ITA NO.27/RJT/2010 5 FURTHER, THE TRUST MUST SPEND AT LEAST 75 PER CENT OF THIS INCOME AND NOT ACCUMULATE MORE THAN 25 PER CENT THEREOF. THE EXCESS ACCUMULATION, IF ANY, WILL BECOME TAXABLE UNDER SEC TION 11(1). 6. ON CONSIDERATION OF THE FACT OF THE CASE UNDER C ONSIDERATION WE FIND THAT THERE IS NO DISPUTE REGARDING THE INCOME WHICH HAS BEEN CALCULATED AFTER MAKING ADDITION U/S 68 OF THE ACT. THEREFORE, THE REVENUE SHOULD HAVE NOT ANY GRIEVANCES IN THIS REGARD. ALSO, WE OBSERVE, THAT THE REVENUE HAS FAILED TO POINT OUT WHAT IS THE SPECIFIC GRIEVANCE OF THE REVENUE I N FOLLOWING THE DIRECTION OF THE CIT(A) TO ADOPT THE WORKING GIVEN BY HIM WHICH HAS BEEN EXTRACTED ABOVE. IN THE ABSENCE OF ANY SPECIFIC REASON / GRIEVANCE, THE ORDER OF CIT(A) IS CONFIRMED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02-11-2011. (T.K. SHARMA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 02 ND DECEMBER, 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-I, RAJKOT 4. THE CIT-I, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT