DCIT, Exemptions, Chennai V. Sri Rengambal Educational Trust, Thiruvannamalai

ITA 394/CHNY/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3322 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 15-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SOUNDARARAJAN
• Keywords: Charitable institution; Maximum Marginal Rate
• Section: 12AA; 12; 11

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER & SHRI DUVVURU R.L. REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 394/CHNY/2019 / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS-III), CHENNAI CIRCLE, AAYAKAR BHAVAN, ANNEXE BUILDING, III FLOOR, 121, M.G. ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. M/S. SRI RENUGAMBAL EDUCATIONAL TRUST, I.C.C. ROAD, ETTIVADI, POLUR TALUK, THIRUVANNAMALAI 606 907. [PAN:AAETS9713L] ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI A. SOUNDARARAJAN, ADDL. CIT / RESPONDENT BY : NONE / DATE OF HEARING : 14.10.2019 /DATE OF PRONOUNCEMENT : 29.11.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 17, CHENNAI DATED 12.12.2018 RELEVANT TO THE ASSESSMENT YEAR 2011-12. THE EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRONEOUSLY ALLOWED THE EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC CHARITABLE TRUST REGISTERED UNDER SECTION 12AA OF THE ACT FILED ITS RETURN OF INCOME ON 12.09.2011 FOR THE ASSESSMENT YEAR 2011-12 DECLARING NIL INCOME. THE I.T.A. NO. 394/CHNY/19 2 CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSEE FILED PARTICULARS AND RECORDS AS CALLED UNDER STATUTORY NOTICES. ON VERIFICATION OF DETAILS FILED BY THE ASSESSEE AND CONSIDERING THE SUBMISSIONS, BY DENYING THE EXEMPTION UNDER SECTION 11 OF THE ACT, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT AND ACCORDINGLY COMPLETED THE ASSESSMENT BY ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT .1,56,95,060/-. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER 85% OF THE GROSS RECEIPTS HAVE BEEN APPLIED AND IF SO, GRANT RELIEF ACCORDINGLY. 3. THE REVENUE PREFERRED FURTHER APPEAL BEFORE THE TRIBUNAL. THE LD. DR HAS SUBMITTED THAT SECTION 13(1) OF THE ACT CLEARLY STATES THAT NOTHING CONTAINED IN SECTION 11 OR 12 SHALL OPERATE SO AS TO EXCLUDE FROM TOTAL INCOME IF VIOLATIONS AS MENTIONED IN THOSE CLAUSES ARE ATTRACTED AND STRONGLY RELIED ON THE DECISION IN THE CASE OF PARAMASIVA NAIDU MUTHUVEL RAJ EDUCATION TRUST IN ITA NO. 2005/CHNY/2012 DATED 09.07.2018 AS WELL AS IN THE CASE OF DIT V. BHARAT DIAMOND BOURSE [2003] 126 TAXMANN 365 (SC). 4. NONE APPEARED ON BEHALF OF THE ASSESSEE WHEN THE APPEAL WAS POSTED FOR HEARING ON TWO OCCASIONS DESPITE SERVICE OF NOTICE [AD ON I.T.A. NO. 394/CHNY/19 3 RECORD]. HENCE, WE PROCEEDED TO DECIDE THE APPEAL ON MERITS AFTER HEARING THE LD. DR. 5. WE HAVE HEARD THE LD. DR, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO THE DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT AND INVOKING PROVISIONS OF SECTION 13(1)(C) OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT THE MANAGING TRUST IS OWNING A TRANSPORT BUSINESS BY NAME M/S. SRI RENUGAMBAL TRAVELS, WHOSE VEHICLES ARE BEING USED BY THE ASSESSEE TRUST. BY OBSERVING THAT SOME EXTRANEOUS EXPENDITURE INCURRED BY THE MANAGING TRUSTEE IN THE TRANSPORT BUSINESS HAS ALSO BEEN CLAIMED BY THE ASSESSEE IN THEIR BOOKS OF ACCOUNTS, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT AND DENIED THE EXEMPTION CLAIMED UNDER SECTION 11 OF THE ACT. IT WAS THE SUBMISSION BEFORE THE LD. CIT(A) THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE PERTAINING TO M/S. SRI RENUGAMBAL TRAVELS. IT WAS FURTHER SUBMISSION THAT THE TRUST IS OPERATING BUSES TO TRANSPORT THE STUDENTS AT FREE OF COST. IN CASE OF BREAKDOWN, THE MANAGING TRUSTEE OFFERS THE VEHICLES OF HIS OWN TRANSPORT BUSINESS TO FERRY THE STUDENTS. FURTHER, IT WAS SUBMITTED THAT THE MANAGING TRUSTEE NEVER UTILIZED THE TRANSPORT SERVICE OF THE TRUST FOR HIS PERSONAL PURPOSE OR HIS OWN BUSINESS PURPOSE. IT WAS SUBMISSION THAT THE ASSESSING OFFICER HAS MISTAKENLY TAKEN INTO ACCOUNT SOME VOUCHERS BELONGING TO SRI RENUGAMBAL TRAVELS, WHICH WERE MIXED UP WITH THE I.T.A. NO. 394/CHNY/19 4 VOUCHERS OF TRUST AND CAME TO A CONCLUSION THAT SOME EXTRANEOUS EXPENDITURE INCURRED BY THE TRUSTEE HAS BEEN CLAIMED BY THE TRUST IN THE BOOKS OF ACCOUNTS OF THE TRUST. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND TO RESOLVE THE ISSUE, THE LD. CIT(A) REFERRED TO THE CBDT CIRCULAR NO. 387 AS WELL AS EXPLANATION TO THE PROVISIONS OF SUB-SECTION 2 OF SECTION 12 OF THE ACT AND OBSERVED THAT THE IMPACT OF CONTRAVENTION OF PROVISIONS UNDER SECTION 13(1)(C) OR 13(1)(D) WILL RESULT IN TAXATION OF INCOME THEREOF TO THE EXTENT OF SUCH CONTRAVENTION AT THE MAXIMUM MARGINAL RATE WHEREIN SUCH INCOME IS THE VALUE OF ANY BENEFIT OR FACILITY GRANTED OR PROVIDED FREE OF COST OR AT CONCESSIONAL RATE TO ANY PERSON REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OR CLAUSE (CC) OR CLAUSE (D) OF SUB-SECTION (3) OF SECTION 13 OF THE ACT. FURTHER, BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. WORKING WOMENS FORUM 365 ITR 353, THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER CAN TAX AT MAXIMUM MARGINAL RATE ONLY SUCH PART OF INCOME WHICH IS IN VIOLATION OF SECTION 13(1)(C) OF THE ACT AND THAT THE ENTIRE BENEFIT OF SECTION 11 AND 12 OF THE ACT CANNOT BE DENIED TO A TRUST THAT HAS BEEN REGISTERED UNDER SECTION 12AA OF THE ACT AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO COMPUTE THE VALUE OF THE BENEFITS EXTENDED TO THE TRUSTEE TO THE EXTENT OF VIOLATION AND THE SAME MAY BE BROUGHT TO TAX AT THE MAXIMUM MARGINAL RATE. I.T.A. NO. 394/CHNY/19 5 7. THE DEPARTMENT HAS CONTENDED THAT WHILE DIRECTING TO ALLOW THE EXEMPTION UNDER SECTION 11 OF THE ACT, THE LD. CIT(A) HAS FAILED TO CONSIDER THE DECISION OF THE ITAT, CHENNAI IN THE CASE OF DDIT(E) V. PARAMASIVA NAIDU MUTHUVEL RAJ EDUCATION TRUST (SUPRA), WHEREIN THE TRIBUNAL HAS CONSIDERED THE DECISION IN THE CASE OF CIT V. FR. MULLERS CHARITABLE INSTITUTIONS [2014] 363 ITR 230 (KAR.) AND IN THE CASE OF CIT V. WORKING WOMEN FORUM [2014] 363 ITR 353 (MAD.). WE HAVE GONE THROUGH THE CASE LAW RELIED ON BY THE DEPARTMENT IN THE GROUNDS OF APPEAL AND FIND THAT IN THE CASE OF DDIT V. PARAMASIVA NAIDU MUTHUVEL RAJ EDUCATION TRUST (SUPRA), IT IS CLEAR CUT CASE OF VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE ACT SINCE IN THAT CASE IT WAS AN UNDISPUTED FACT THAT DURING RELEVANT ASSESSMENT YEAR, THE LAND HAD BEEN MADE AVAILABLE TO M/S. PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST, WHICH IS A TRUST THAT DOES NOT HAVE REGISTRATION UNDER SECTION12AA OF THE ACT BESIDES, THE ASSESSEE TRUST HAS GIVEN LOANS, WHICH ARE INTEREST FREE TO M/S. PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST, THAT THE OBJECTS OF THE ASSESSEE-TRUST AND THAT OF M/S. PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST ARE IDENTICAL, WOULD NOT MAKE M/S. PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST AS HAVING REGISTRATION UNDER SECTION 12AA OF THE ACT. M/S.PMR BANGARU SUBBAMMAL EDUCATIONAL TRUST MUST ON ITS OWN INDEPENDENT STATUS CLAIM AND HAVE THE REGISTRATION UNDER SECTION 12AA OF THE ACT. IN THE ABSENCE OF SUCH REGISTRATION, DEALING WITH SUCH AN UNREGISTERED TRUST WOULD AFFECT THE EXEMPTION AVAILABLE TO THE ASSESSEE, I.T.A. NO. 394/CHNY/19 6 THEREBY, THE TRIBUNAL HAS HELD THAT THE ASSESSING OFFICER WAS RIGHT IN DENYING THE BENEFIT OF SECTION 11 OF THE ACT IN RESPECT OF THE INCOME OF ASSESSEE AS THERE HAS BEEN VIOLATION OF THE PROVISIONS OF THE SECTIONS 13(1)(C) AND 13(1)(D) READ WITH SECTION 13(2) OF THE ACT. IN THE PRESENT CASE, IN FACT, THE ASSESSEE TRUST COULD NOT RECONCILE THE UNRELATED VOUCHERS PERTAINING TO M/S. RENUGAMBAL TRAVELS, WHICH WERE WRONGLY MIXED UP WITH THE VOUCHERS OF THE ASSESSEE TRUST ALONE CANNOT BE HELD TO BE ENDURED BENEFIT TO THE TRUSTEE INDIRECTLY/DIRECTLY AND THEREBY THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT IS NOT CORRECT. 8. FURTHER, THE DECISION IN THE CASE OF DIT V. BHARAT DIAMOND BOURSE (SUPRA) IS ALSO SIMILAR TO THAT OF THE CASE OF DDIT(E) V. PARAMASIVA NAIDU MUTHUVEL RAJ EDUCATION TRUST (SUPRA). IN THE CASE OF DIT V. BHARAT DIAMOND BOURSE (SUPRA), IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1989- 90, THE ASSESSEE HAD ADVANCED AN AMOUNT OF . 70 LAKHS TO ONE BHARAT SHAH WITHOUT INTEREST AND SECURITY AND EVEN WITHOUT ENTERING INTO A WRITTEN AGREEMENT WITH THE SAID BHARAT SHAH. THE SAID BHARAT SHAH WAS ONE OF THE SIGNATORIES TO THE MEMORANDUM OF ASSOCIATION OF THE ASSESSING COMPANY AND ALSO THE HONORARY SECRETARY OF THE INSTITUTION. FOR THIS REASON, THE ASSESSING OFFICER WAS OF THE VIEW THAT BHARAT SHAH WAS A PERSON BELONGING TO THE PROHIBITED CATEGORY WITHIN THE MEANING OF SECTION 13(3)(A) AND SECTION 13(3)(CC) OF THE ACT AND SINCE THE INCOME OR PROPERTY OF THE INSTITUTION HAD I.T.A. NO. 394/CHNY/19 7 BEEN LENT TO SUCH A PERSON FOR ANY TIME DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEARS 1989-90 AND 1990-91, WITHOUT ADEQUATE SECURITY AND ADEQUATE INTEREST, THE LEGAL FICTION IN SUB-SECTION (2) OF SECTION 13 OF THE ACT WOULD COME INTO PLAY AND THE INCOME OR PROPERTY OF THE INSTITUTION SHALL, FOR THE PURPOSE OF CLAUSE (D) OF SUB-SECTION (1) OF SECTION 13 OF THE ACT, BE DEEMED TO HAVE BEEN APPLIED FOR THE BENEFIT OF THE PROHIBITED CATEGORY OF PERSONS UNDER SUB-SECTION (3) AND THEREBY, THE HONBLE SUPREME COURT AFFIRMED THE VIEW OF THE ASSESSING OFFICER. 9. THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. WORKING WOMENS FORUM (SUPRA) IS NOT IN FAVOUR OF THE REVENUE, WHEREIN, IT WAS HELD THAT DENIAL OF EXEMPTION SHOULD ONLY BE TO THE EXTENT OF THE INCOME WHICH IS VIOLATIVE OF SECTION 13(1)(D) OF THE ACT AND NOT THE TOTAL DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT. AGAINST THE ABOVE DECISION, THE SLP FILED BY THE DEPARTMENT IN THIS REGARD HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT AND THUS, THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ABOVE CASE HAS BECOME FINAL. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE ABOVE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND DIRECTED THE ASSESSING OFFICER TO COMPUTE THE VALUE OF THE BENEFITS EXTENDED TO THE TRUSTEE TO THE EXTENT OF VIOLATION AND BROUGHT TO TAX I.T.A. NO. 394/CHNY/19 8 AT THE MAXIMUM MARGINAL RATE. THUS, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 29 TH NOVEMBER, 2019 AT CHENNAI. SD/ - SD/ - (INTURI RAMA RAO) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 29.11.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.