Caruna Bal Vikas, CHENNAI V. DDIT, CHENNAI

ITA 376/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86291 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Charitable institution
• Section: 12AA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI .. , , ! '# BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NO.376/MDS/2014 / ASSESSMENT YEAR : 2010-11 M/S. CARUNA BAL VIKAS, NO.128, BRICK KLIN ROAD, PURASAWALKAM, CHENNAI 600 007. PAN AAATC3951G APPELLANT) V. THE DEPUTY DIRECTOR OF INCOME-TAX(EXEMPTIONS)-II, CHENNAI. RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI P.B.SEKARAN, CIT ! / DATE OF HEARING : 05.02.2015 '# ! / DATE OF PRONOUNCEMENT: 05.02.2015 $ / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMP UGNING THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS )-VII, CHENNAI DATED 18.12.2013 FOR THE ASSESSMENT YEAR 20 10-11. - - ITA 376/14 2 2. THE BRIEF FACTS OF THE CASE ARE: THE ASSESSEE I S A PUBLIC CHARITABLE SOCIETY AND IS ENJOYING THE BENEFIT OF S ECTION 12AA OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT). THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2010-11 ON 28.9.2010 DECLARING TAXABLE INCOME AS N IL. THE ASSESSEE-SOCIETY WAS FORMED WITH THE MAIN OBJECT OF DEVELOPMENT OF POOR AND UNDER-PRIVILEGED CHILDREN A LL OVER INDIA THROUGH ITS VARIOUS PROJECTS AND PROGRAMMES. THE ASSESSEE IS PROVIDING EDUCATION, HEALTH CARE, SOCIAL, SPIRITUAL AND MORAL DEVELOPMENT IRRESPECTIVE OF CASTE, CREED, CLASS OR RELIGION. THE ASSESSEE IN ORDER TO ACHIEVE ITS OBJECTS SELECTED S EVERAL SOCIETIES / TRUSTS THROUGHOUT INDIA KNOWN AS CHANN EL PARTNERS. BEFORE SELECTING CHANNEL PARTNERS, THE ASSESSEE E NSURES THAT THE SOCIETY/TRUST IS ALREADY CARRYING ON SIMILAR OB JECTS AND IS ENJOYING BENEFIT OF REGISTRATION U/S.12AA OF THE AC T. THE ASSESSEE-SOCIETY IDENTIFIED 129 CHANNEL PARTNERS DU RING THE IMPUGNED ASSESSMENT YEAR TO ACHIEVE ITS OBJECTIVES. THE ASSESSEE RECEIVED FOREIGN CONTRIBUTION TO THE TUNE OF ` 82.56 CRORES DURING THE YEAR. IN THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSI NG OFFICER OBSERVED THAT OUT OF 129 CHANNEL PARTNERS O F THE - - ITA 376/14 3 ASSESSEE, 51 ARE WHOLLY CHARITABLE, 19 ARE WHOLL Y RELIGIOUS AND 59 ARE PARTLY RELIGIOUS AND PARTLY CHARITABLE . THE ASSESSING OFFICER HELD THAT IN RESPECT OF 19 RELIGIOUS SOCIET IES/TRUSTS, IT IS A CLEAR CASE OF DIVERSION OF FUNDS AND VIOLATION OF O BJECTS OF THE SOCIETY. IN RESPECT OF 59 CHANNEL PARTNERS, WHIC H ARE PARTLY CHARITABLE AND PARTLY RELIGIOUS, THERE IS NOTHING O N RECORD TO SHOW THAT THE FUNDS WERE UTILIZED FOR CHARITABLE ACTIVIT IES AND NOT FOR RELIGIOUS PURPOSE. THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE HAS UTILIZED PART OF ITS FUNDS FOR RELIGIO US ACTIVITIES THROUGH CHANNEL PARTNERS, THE SAID AMOUNT IS NOT APPLICATION OF FUNDS AND IS HIT BY THE PROVISIONS OF SEC.13(1)(B) OF THE ACT. THE ASSESSING OFFICER HELD THAT ONLY A SUM OF ` 22.89 CRORES UTILIZED FOR FUNDING CHANNEL PARTNERS, EXCLUSIVELY ENGAGED IN CHARITABLE ACTIVITIES IS CONSIDERED AS APPLICATION OF FUNDS. THEREFORE, ONLY ` 22.89 CRORES QUALIFY FOR EXEMPTION U/S.11(1)(A) OF THE ACT. THE BALANCE SUM OF ` 50 CRORES WAS THUS DISALLOWED. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.3.2013 , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME-TAX(APPEALS). THE COMMISSIONER OF INCOME- TAX(APPEALS) CONFIRMED THE AFORESAID ADDITION. - - ITA 376/14 4 AGAINST THE ORDER OF THE FIRST APPELLATE AUTHORIT Y, THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBU NAL. 3. BEFORE THE TRIBUNAL, THE ASSESSEE HAS RAISED FOL LOWING GROUNDS : 1. THE CIT(APPEALS) ERRED IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER IN BRINGING TO TAX ` 50,00,25,307/- OUT OF THE TOTAL OF ` 72,89,46,618/- BEING THE CLAIM OF APPLICATION OF INCOME FOR CHILD WELFARE PROGRAMS/PROJECTS WHILE RE-COMPUTING THE TAX EXEMPTION PROVIDED IN SECTION 11(1)(A) OF THE ACT R EAD WITH SECTION 13(1)(B) OF THE ACT WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 2. THE CIT(APPEALS) FAILED TO APPRECIATE THAT HAVIN G ACCEPTED THE STATUTORY PRESCRIPTION/IMPORT OF SECTI ON 13(1)(B) OF THE ACT AND HAVING NOT DISPUTED THE FAC T OF REGISTRATION OF THE APPELLANT SOCIETY AS A PUBLIC CHARITABLE TRUST IN TERMS OF SECTION 12AA OF THE AC T VID ORDER DATED 23.09.2002 IN DIT(E) NO.2(336)/2001-02, THE SUSTENANCE OF THE DENIAL OF TAX EMPTION BY THE ASSESSING OFFICER WAS WRONG, ERRONEOUS, UNJUSTIFIED , INCORRECT AND NOT SUSTAINABLE IN LAW. 3. THE CIT(APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION AMOUNT TO ` 65,91,434/- MADE BY THE ASSESSING OFFICER, HOLDING - - ITA 376/14 5 THAT THE SAME DOES NOT AMOUNT TO APPLICATION OF INCOME. 4. SHRI S. SRIDHAR, APPEARING ON BEHALF OF THE ASSE SSEE, SUBMITTED THAT THE AUTHORITIES BELOW HAVE NOT DISPU TED THE FACT THAT THE ASSESSEE IS A CHARITABLE SOCIETY AND IS EN GAGED IN UPLIFTMENT AND DEVELOPMENT OF UNDER-PRIVILEGED AND POOR CHILDREN. THE ASSESSEE IS ACCOMPLISHING ITS OBJEC TS THROUGHOUT INDIA BY ROPING VARIOUS ORGANIZATIONS WITH SIMILAR OBJECTS KNOWN AS CHANNEL PARTNERS. THE ASSESSEE HAS 129 CHANN EL PARTNERS, WHICH ARE ASSISTING THE ASSESSEE IN ACH IEVING ITS MISSION. THE ASSESSING OFFICER APPLIED THE PROVISI ONS OF SEC.13(1)(B) OF THE ACT ON THE BASIS OF INFORMATION COLLECTED IN RESPECT OF CHANNEL PARTNERS FROM THE WEBSITE OF M INISTRY OF HOME AFFAIRS, GOVT. OF INDIA. THE ASSESSING OFFICE R HAS NOT MADE ANY EFFORT TO PHYSICALLY VERIFY THE ACTIVITIES OF THE CHANNEL PARTNERS, WHICH ARE STATED TO BE RELIGIOUS AND/OR RELIGIOUS AND CHARITABLE IN NATURE. THE LD. COUNSEL FOR THE ASSE SSEE VEHEMENTLY STATED THAT THE FUNDS RECEIVED BY THE AS SESSEE WERE UTILIZED IN ACCORDANCE WITH ITS OBJECTS. IN ORDER TO SUPPORT HIS CONTENTIONS, HE FILED 35 VOLUMES OF PAPER BOOKS CON TAINING INFORMATION REGARDING THE DETAILS OF AMOUNTS RECEIV ED, THE - - ITA 376/14 6 ACTIVITIES BEING CARRIED OUT BY THE ASSESSEE AND IT S CHANNEL PARTNERS ETC. THE LD. COUNSEL CONTENDED THAT THE THOROUGH EXAMINATION OF INFORMATION AND DATA GIVEN IN THE PA PER BOOKS WOULD SHOW THAT DONATIONS RECEIVED WERE IN FACT UTI LIZED IN CONSONANCE WITH THE OBJECTS OF THE TRUST. 5. SHRI P.B.SEKARAN, REPRESENTING THE DEPARTMENT, D EFENDED THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME- TAX(APPEALS). THE LD. DR SUBMITTED THAT THE ASSESS EE HAS RECEIVED ` 82 CRORES OF DONATIONS, OUT OF WHICH MORE THAN ` 50 CRORES WAS DIVERTED TOWARDS RELIGIOUS ACTIVITIES TH ROUGH ITS CHANNEL PARTNERS. THE INFORMATION GIVEN BY THE M INISTRY OF HOME AFFAIRS ON ITS WEBSITE SHOWS THAT OUT OF 129 CHANNEL PARTNERS, ONLY 51 ARE WHOLLY ENGAGED IN CHARITABLE ACTIVITIES AND THE REMAINING 78 CHANNEL PARTNERS ARE EITHER RELIGI OUS OR PARTLY CHARITABLE AND PARTLY RELIGIOUS. THE ASSESSING OFF ICER HAD RIGHTLY INVOKED THE PROVISIONS OF SEC.13(1)(B) OF THE ACT T O DISALLOW EXEMPTION ON THE AMOUNTS ADVANCED TO RELIGIOUS AND PARTLY CHARITABLE & PARTLY RELIGIOUS ORGANIZATIONS. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF - - ITA 376/14 7 THE AUTHORITIES BELOW. IN APPEAL, THE ASSESSEE HAS PRIMARILY RAISED FOLLOWING TWO ISSUES: (I) WHETHER THE AMOUNT OF ` 50 CRORES, WHICH HAS BEEN GIVEN BY THE ASSESSEE TO ITS CHANNEL PARTNERS FOR CARRY ING OUT CHARITABLE ACTIVITIES, FALL WITHIN THE SCOPE OF SEC .13(1)(B) OF THE ACT? (II) WHETHER THE DISALLOWANCE OF DEPRECIATION AMOUN TING TO ` 65,91,434/- AMOUNTS TO APPLICATION OF INCOME? THE LD. COUNSEL FOR THE ASSESSEE IN ORDER TO SUB STANTIATE HIS SUBMISSIONS, HAS FILED 35 VOLUMES OF PAPER BOOK S CONTAINING DETAILED INFORMATION REGARDING CHANNEL PARTNERS, THEIR ACTIVITIES, AMOUNTS ADVANCED TO THEM BY THE ASSESSEE, APPLICATI ON OF FUNDS INCLUDING DETAILS OF BENEFICIARIES, ETC. THESE DET AILS WERE NOT PROVIDED IN AN EXHAUSTIVE MANNER BEFORE THE AUTHORI TIES BELOW. WE ARE OF THE CONSIDERED OPINION THAT THE FIRST ISS UE RAISED BY THE ASSESSEE IN ITS APPEAL, IS A QUESTION OF FACT, WHIC H HAS TO BE DECIDED AFTER EXAMINATION OF THE DATA AND INFORMATI ON FILED BY THE ASSESSEE. TO ANSWER THE FIRST ISSUE, IT IS ESSENTI AL TO EXAMINE THE OBJECTS OF CHANNEL PARTNERS AND VERIFY THE AC TIVITIES PERFORMED BY THEM. FOR PROPER ADJUDICATION OF THE ISSUE, WE - - ITA 376/14 8 DEEM IT APPROPRIATE TO REMIT THE FILE BACK TO THE A SSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER ANALYZING THE EXHA USTIVE INFORMATION AND DATA FILED BY THE ASSESSEE BEFORE T HE TRIBUNAL. SO FAR AS, THE SECOND ISSUE OF DEPRECIATION IS CONC ERNED, WE REMIT THIS ISSUE ALSO BACK TO THE ASSESSING OFFICER TO DECIDE IT AFRESH IN ACCORDANCE WITH LAW. 7. THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL O F THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING, ON THURSDAY, THE 05 TH OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( $%%$& ) ( ' &( )%*%)+,-+.+/( 01-+,23+,456( ! 7&2889:/4+/4;<=><. ? 7& /JUDICIAL MEMBER @? /CHENNAI, A7 /DATED, THE 05 TH FEBRUARY, 2015. MPO/KRI. 7B C'D' /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E( /CIT(A) 4. E /CIT 5. 'FG H /DR 6. GIJ /GF.