M/s.Marthoma Cheria Pally, Kothamangalam V. Jt.Director of Income Tax(OSD)(Exemption, Cochin

ITA 341/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81426 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: C B M WARRIER
• Keywords: Capital asset; Depreciation; Charitable institution
• Section: 12A; 12AA; 6; 12; 11

Judgement Text

1 ITA NO. 341/COCH/2014 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 341/COCH/2014 (ASSESSMENT YEAR 2009-10) M/S MAR THOMAS CHERIA PALLY VS JT. DIRECTOR OF IN COME-TAX A.M. ROAD, KOTHAMANGALAM (OSD), EXEMPTION PIN 686 691 RANGE-4, KOCHI PAN : AAATM4432C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI CBM WARRIER RESPONDENT BY : SHRI M ANIL KUMAR, CIT DATE OF HEARING : 04-12-2014 DATE OF PRONOUNCEMENT : 12-12-2014 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-II, KOCHI DATED 15-02-2014 FOR THE ASSESSMEN T YEAR 2009-10. 2. SHRI CBM WARRIER, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DENIED THE EXEMPTION TO THE EXTENT OF RS.4,03,46,605. THE ASSESSING OFFICER HAS ALSO REJ ECTED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION. ACCORDING TO THE LD.REP RESENTATIVE, THE ASSESSEE TRUST WAS REGISTERED U/S 12AA OF THE ACT A S CHARITABLE INSTITUTION. 2 ITA NO. 341/COCH/2014 ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE TR UST ESTABLISHED TWO MORE TRUSTS BY NAME MAR BASELIOS EDUCATIONAL CHARIT ABLE TRUST AND MAR BASELIOS MEDICAL MISSION ASSOCIATION. THE LD.REPRE SENTATIVE FURTHER SUBMITTED THAT ST. MARYS PUBLIC SCHOOL & MAR BASEL IOS EDUCATIONAL CHARITABLE TRUST ARE RUN BY THE CHURCH, HOWEVER, TH E SAME ARE NOT OWNED BY THE ASSESSEE TRUST. THE SCHOOLS WERE REGISTERED AS SEPARATE TRUSTS FOR THE PURPOSE OF PROPER ADMINISTRATION. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE USED ITS FUNDS FOR THE PURPOSE OF UTIL IZATION OF MAR BASELIOS MEDICAL MISSION ASSOCIATION AND MAR BASELIOS EDUCAT IONAL CHARITABLE TRUST. ACCORDING TO THE LD.REPRESENTATIVE, THE ASS ESSEE IS THE FOUNDER AND SPONSOR OF THE TRUST, THEREFORE, THE AMOUNT GIVEN B Y THE ASSESSEE TRUST TO MAR BASELIOS MEDICAL MISSION ASSOCIATION AND MAR BA SELIOS EDUCATIONAL CHARITABLE TRUST WOULD AMOUNT TO APPLICATION OF FUN DS FOR THE PURPOSE OF SECTION 11(1) OF THE ACT. THE LD.REPRESENTATIVE FU RTHER SUBMITTED THAT THE ASSESSEE ALSO ENTITLED FOR DEPRECIATION ON THE FIXE D ASSETS. ON A QUERY FROM THE BENCH, WHETHER MAR BASELIOS MEDICAL MISSIO N ASSOCIATION AND MAR BASELIOS EDUCATIONAL CHARITABLE TRUST ARE INDEP ENDENT AND SEPARATE LEGAL ENTITY AND ASSESSABLE SEPARATELY, THE LD.REPR ESENTATIVE CLARIFIED THAT THEY ARE INDEPENDENT SEPARATE LEGAL ENTITY AND ASSE SSABLE AS SEPARATE UNITS UNDER THE INCOME-TAX ACT. REFERRING TO EXPL ANATORY NOTE TO FINANCE ACT, 2002, THE LD.REPRESENTATIVE SUBMITTED THAT EXP LANATION TO SECTION 11(2) IS APPLICABLE ONLY IN RESPECT OF THE AMOUNT WHICH W AS SET APART OR 3 ITA NO. 341/COCH/2014 ACCUMULATED. IT WILL NOT BE APPLICABLE IN RESPECT OF THE INCOME RECEIVED IN THE YEAR UNDER CONSIDERATION. THEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, EXPLANATION TO SECTION 11(2) AND PROVISIONS OF SECTION 11(3)(D) IS NOT APPLICABLE. 3. WE HEARD SHRI M ANIL KUMAR, THE LD.DR ALSO. THE LD.DR SUBMITTED THAT THE ASSESSEE TRUST ESTABLISHED AND SPONSORED T WO MORE TRUSTS IN THE NAME AND STYLE MAR BASELIOS MEDICAL MISSION ASSOCI ATION AND MAR BASELIOS EDUCATIONAL CHARITABLE TRUST. THESE TWO TRUSTS ESTABLISHED AND SPONSORED BY THE ASSESSEE TRUST ARE INDEPENDENT LEG AL ENTITY AND SEPARATELY ASSESSABLE. ACCORDING TO THE LD.DR, MAR BASELIOS MEDICAL MISSION ASSOCIATION WAS ALSO NOT REGISTERED U/S 12A OF THE ACT. THE ASSESSEE DONATED RS.3,25,29,955 TO MAR BASELIOS MED ICAL MISSION ASSOCIATION. THE ASSESSEE HAS ALSO PAID RS.5,36,10 ,157 TO THE OTHER TRUST, VIZ. MAR BASELIOS EDUCATIONAL CHARITABLE TRU ST FOR THE PURPOSE OF PURCHASING LAND FOR ENGINEERING COLLEGE. ACCORDING TO THE LD.DR, MAR BASELIOS EDUCATIONAL CHARITABLE TRUST HAS NOT BEEN GRANTED REGISTRATION U/S 12A SO FAR. SINCE THE CONTRIBUTION WAS MADE TO AN INSTITUTION WHICH WAS NOT REGISTERED U/S 12A, ACCORDING TO THE LD.DR, IT IS NOT POSSIBLE TO VERIFY THE UTILIZATION OF FUNDS BY THE RECIPIENT OR GANIZATIONS. REFERRING TO MAR BASELIOS MEDICAL MISSION ASSOCIATION, THE LD.DR SUBMITTED THAT THE ASSESSEE CLAIMS THAT REGISTRATION WAS GRANTED U/S 1 2A WHEREAS, IN FACT, NO 4 ITA NO. 341/COCH/2014 REGISTRATION WAS GRANTED AND THE APPLICATION FILED BY MAR BASELIOS MEDICAL MISSION ASSOCIATION IS PENDING BEFORE THE COMMISSIO NER OF INCOME-TAX; THEREFORE, IT CANNOT BE SAID THAT REGISTRATION WAS GRANTED U/S 12A OF THE ACT. THE ASSESSEE DIVERTED ITS FUNDS TO THE EXTENT OF RS .8,86,29,562 TO TWO INDEPENDENT ORGANIZATIONS, WHICH ARE CLAIMED TO BE CHARITABLE INSTITUTIONS, BUT ARE NOT GRANTED REGISTRATION U/S 12A OF THE ACT . THEREFORE, ACCORDING TO THE LD.DR, THE CIT(A) HAS RIGHTLY REJECTED THE CLAI M OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE TRUST ESTABLISHED TWO MORE TRUSTS, VIZ. MA R BASELIOS MEDICAL MISSION ASSOCIATION AND MAR BASELIOS EDUCATIONAL CH ARITABLE TRUST. THOUGH THE ASSESSEE CLAIMS THAT REGISTRATION U/S 12 A WAS GRANTED FOR THOSE TWO NEWLY ESTABLISHED INDEPENDENT CHARITABLE TRUSTS, THE REVENUE DISPUTES THE SAME ON THE GROUND THAT THE APPLICATIO NS FILED BY THOSE TWO TRUSTS ARE STILL PENDING BEFORE THE COMMISSIONER OF INCOME-TAX. THE FACT REMAINS THAT THE CIT(A) REJECTED THE CLAIM OF THE A SSESSEE ONLY ON THE GROUND THAT THE FUNDS WERE DIVERTED TO THE SO-CALLE D CHARITABLE INSTITUTIONS WHICH WERE NOT REGISTERED U/S 12A OF THE ACT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT POSITION MAY NOT CHANGE EVE N IF THE REGISTRATION WERE GRANTED TO THOSE TWO TRUSTS TO WHICH THE ASSES SEE DIVERTED ITS FUNDS. THE PROVISIONS OF SECTION 11 WAS AMENDED BY THE FIN ANCE ACT 2002 WITH 5 ITA NO. 341/COCH/2014 EFFECT FROM 01-04-2003 BY INTRODUCING EXPLANATION T O SECTION 11(2) AND PROVISIONS OF SECTION 11(3)(D) OF THE ACT. FOR THE PURPOSE OF CONVENIENCE, THE EXPLANATION TO SECTION 11(2) AND PROVISIONS OF SECTION 11(3)(D) OF THE ACT AS INTRODUCED IN THE STATUTE BOOK BY FINANCE AC T, 2002 WITH EFFECT FROM 2003 ARE REPRODUCED HEREUNDER: (2) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX PROVIDED XXXXXXXXXXXXXXXXXXXXXXXXXXX PROVIDED FURTHER XXXXXXXXXXXXXXXXXXXXX EXPLANATION.- ANY AMOUNT CREDITED OR PAID, OUT OF I NCOME REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECT ION (1), READ WITH EXPLANATION TO THAT SUB-SECTION, WHICH IS NOT APPLIED, BUT IS ACCUMULATED OR SET APART, TO ANY TRUST OR INSTIT UTION REGISTER2ED UNDER SECTION 12AA OR TO ANY FUND OR IN STITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTIT UTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO I N SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CL AUSE (VIA) OF CLAUSE (23C) OF SECTION 10, SHALL NOT BE TREATED AS APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES, EIT HER DURING THE PERIOD OF ACCUMULATION OR THEREAFTER. (3) ANY INCOME REFERRED TO IN SUB-SECTION (2) WHICH (A) IS APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES AS AFORESAID OR CEASES TO BE ACCUMULATED OR SET APART FOR APPLICATION THERETO, O R (B) CEASES TO REMAIN INVESTED OR DEPOSITED IN ANY O F THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5), OR 6 ITA NO. 341/COCH/2014 (C) IS NOT UTILIZED FOR THE PURPOSE FOR WHICH IT IS SO ACCUMULATED OR SET APART DURING THE PERIOD REFERRED TO IN CLAUSE (A) OF THAT SUB-SECTION OR IN THE YEAR IMMEDIATELY FOLLOWING THE EXPIRY THEREOF, (D) IS CREDITED OR PAID TO ANY TRUST OR INSTITUTION REGISTERED UNDER SECTION 12AA OR TO ANY FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CLAUSE (VI A) OF CLAUSE (23C) OF SECTION 10. SHALL BE DEEMED TO BE THE INCOME OF SUCH PERSON OF THE PREVIOUS YEAR IN WHICH IT IS SO APPLIED OR CEASES T O BE SO ACCUMULATED OR SET APART OR CEASES TO REMAIN SO INV ESTED OR DEPOSITED OR CREDITED OR PAID OR, AS THE CASE MAY B E, OF THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE EXPIRY OF T HE PERIOD AFORESAID. BOTH THE AUTHORITIES BELOW HAD NO OCCASION TO CONSI DER THE ABOVE PROVISIONS IN THE ACT. THE ASSESSEE ALSO HAD NO OC CASION TO EXPLAIN THE IMPLICATIONS OF EXPLANATION TO SECTION 11(2) AND PR OVISIONS OF SECTION 11(3)(D) OF THE ACT. IN SUCH A SITUATION, THIS TRI BUNAL IS OF THE CONSIDERED OPINION THAT AN OPPORTUNITY SHALL BE GIVEN TO THE A SSESSEE TO EXPLAIN THE IMPLICATIONS OF EXPLANATION TO SECTION 11(2) AND PR OVISIONS OF SECTIONS 11(3)(D) OF THE ACT. THEREFORE, THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT AN OPPORTUNITY SHALL BE GIVEN TO THE ASSESSEE TO EXPLAIN THE 7 ITA NO. 341/COCH/2014 IMPLICATIONS OF EXPLANATION TO SECTION 11(2) AND PR OVISIONS OF SECTIONS 11(3)(D) OF THE ACT. BY REMANDING THE MATTER BACK, THE ASSESSING OFFICER WILL HAVE AN OPPORTUNITY TO EXAMINE THE APPLICABILI TY OF EXPLANATION TO SECTION 11(2) AND PROVISIONS OF SECTION 11(3)(D) OF THE ACT. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ISSUE OF EXEMPTION CLAIMED BY THE ASSESSEE IS REMITTED BACK TO THE FIL E OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE TH E ISSUE IN THE LIGHT OF EXPLANATION TO SECTION 11(2) AND PROVISIONS OF SECT ION 11(3)(D) OF THE ACT AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH L AW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF DEPRECIATION. WE HEARD THE LD.REPRESENTATIVE FOR T HE ASSESSEE AND THE LD.DR. 6. THE CIT(A) CONFIRMED THE CLAIM OF DEPRECIATION O N THE BASIS OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN LISSIE MEDICAL INSTITUTION VS CIT 348 ITR 344 (KER). IT IS NOT IN DISPUTE THAT THE A MOUNT INVESTED BY THE ASSESSEE IN THE CAPITAL ASSET WAS CLAIMED AND ALLOW ED AS APPLICATION OF INCOME. ONCE THE INVESTMENT WAS ALLOWED AS APPLICA TION OF INCOME U/S 11 OF THE ACT, IN VIEW OF THE JUDGMENT OF THE KERALA H IGH COURT IN LISSY MEDICAL INSTITUTION (SUPRA), THE ASSESSEE MAY NOT B E ENTITLED FOR 8 ITA NO. 341/COCH/2014 DEPRECIATION. THEREFORE, THE ORDER OF THE LOWER AU THORITY IS CONFIRMED ON THIS ISSUE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DECEMBER, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 12 TH DECEMBER, 2014 PK/- COPY TO: 1. M/S MAR THOMAS CHERIA PALLY, A.M. ROAD, KOTHAMAN GALAM, PIN 686 691 2. THE JT DIRECTOR F INCOME-TAX (OSD), EXEMPTION, R ANGE-4, KOCHI 3. THE COMMISSIONER OF INCOME-TAX, KOCHI 4. THE COMMISSIONER OF INCOME-TAX(A)-II, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH