KAMAL RAJADHYAKSHA MEMORIAL TRUST, MUMBAI V. ITO (E) II(1), MUMBAI

ITA 4370/MUM/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7078 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 20-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: B N RAO
• Keywords: Charitable institution; Capital receipt; Benefit of exemption
• Section: 12A; 12AA; 148; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFOR E SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO S . 4370 & 4371 / MUM/20 14 ( ASSESSMENT YEAR S : 2008 - 09 & 2009 - 10 ) KAMAL RAJADHYAKSHA MEMORIAL TRUST 1, RAJHANS , PLOT NO.5 00 L.J.ROAD , MAHIM MUMBAI 400 016 VS. INCOME TAX OFFICER (E) - II(1) PIRAMAL CHAMBERS LALBAUG, PAREL MUMBAI 400 012 PAN/GIR NO.AABTK4193K APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI B.N.RAO REVENUE BY SHRI M.C. OMI NINGSHEN DATE OF HEARING 09 . 04 . 201 8 DATE OF PRONOUNCEMENT 31 .05. 201 8 / O R D E R PER R.C.SHARMA, A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORD ER OF CIT(A) - 1, MUMBAI DATED 27.02. 2014 FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S . 147 OF THE INCOME TAX ACT, (HEREINAFTER THE ACT). 2. IN BOTH THE YEARS UNDER CONSIDERATION, THE ASSESSEE IS AGGR IEVED FOR TAXING THE AMOUNT FLEW FROM THE ESTATE OF THE WILL OF THE DECEASED DR.( MISS) KAMAL RAMKRISHNA RAJADHYAKSHA AS THE INITIAL CORPUS IN THE HANDS OF THE ASSESSEE TRUST THAT BORE NO INKLING OF INCOME NATURE. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS CHARITABLE TRUST FORMED UND ER BOMBAY PUBLIC TRUST ACT , 1951 BEARING REGISTRATION NO. E 24534. ASSESSEE WAS ITA NO S . 4370 & 4371/MUM/2014 KAMAL RAJADHYAKSHA MEMORIAL TRUST 2 ISSUED A NOTICE FOR ASSESSMENT U NDER S ECTION 148 OF THE ACT. ASSESSEE HAS FILED INCOME TAX RETURN FOR AY 20 08 - 09 ON 1 6 TH NOVEMBER , 2011. DURING THE YEAR THE ASSESSEE HAS RECE IVED RS. 35,00,000 IN PURSUANCE TO HIGH COURT ORDER ON PROBATE OF WILL OF LATE KAMAL RAJADHAYKSHYA IN FY 2007 - 08 AS CORPUS OF TRUST. IN THE RETURN OF INCOME, IT WAS CLAIMED THAT RECEIPTS ARE CAPITAL IN NATURE, IN COME IS VOLUNTARY, CORPUS DONATION IS RECEIVE D BECAUSE OF THE ORDER OF THE HIGH COURT AND HENCE, THE RECEIPTS ARE NOT TAXABLE AND EXEMPTION UNDER SECTION 11 OF THE ACT SHOULD BE ALLOWED. THE AO OBSERVED THAT THE REGISTRATION UNDER SECTION 12A OF THE ACT HAS NOT BEEN GRANTED TO ASSESSEE FOR A.Y. 2009 - 10. AS PER AO, THE ASSESSEE IS NOT ENTITLED TO BENEFIT OF EXEMPTION UNDER SECTION 11(1). RESULTANTLY, THE ASSESSEE IS BEING TAXED AS AOP WITHOUT ALLOWING EXEMPTION UNDER SECTIONS 11(1) AND 11(2) OF THE ACT AND ACCORDINGLY THE INCOME OF THE ASSESSEE IS BEIN G COMPUTED UNDER THE NORMAL PROVISIONS OF THE INCOME - TAX ACT IN THE STATUS AOP . 4. REPLY OF THE ASSESSEE BEFORE AO WAS AS UNDER: - 1. THE ASSESSEE ABOVE IN REFERRED, HAS RECEIVED THE RECEIPT WHICH IS CAPITAL NATURE. THE ENTIRE EXISTENCE OF TRUST IS BASED AN D CREATED OUT THE AMOUNT WHICH GOT CREATED OUT OF CONSENT TERMS EXECUTED AS' PER COURT DIRECTIONS. COPY OF SAID COURT ORDER IS ALREADY SUBMITTED ON RECORDS FOR ASSESSMENT PURPOSE. ANY ACTIVITY WHICH CREATED OUT OF OBLIGATION BY NATURE OF LAW OR ORDER OF LA W IS NOT INCOME IN ANY NATURE. 2. ON PAGE NO.4 CONSENT TERMS DATED 26 FH APRIL, 2007, IN SUIT (L) NO. 3114 OF 2005 1 IN PARA 10, WHICH SPECIFIED THAT BOTH PARTIES TO SUIT HAS AGREED TO FORM CHARITABLE TRUST. IN PARA.12 OF CONSENT TERMS IT WAS ALSO AGREED ON THE PURPOSE OF THE TRUSTS AND AMOUNT WHICH EACH TRUST WHICH IS GETTING FO RM ED OUT CONSENT TERMS ARE EXECUTED, WILL BE RECEIVED AS PART OF WILL FOR WHICH PROBATE WAS PASSED BY HIGH COURT ON BASIS OF CONSENT TERMS EXECUTED. 3. 'CORPUS' HAS NOT BEEN DEFINED E ITHER IN THE INCOME TAX ACT OR IN THE SOCIETIES REGISTRATION ACT, 1860. ORDINARILY, 'CORPUS MEANS BODY OF LAW OR COLLECTION OF WRITINGS. UNDER SEC. 11(1)(D) OF THE ITA NO S . 4370 & 4371/MUM/2014 KAMAL RAJADHYAKSHA MEMORIAL TRUST 3 INCOME TAX ACT, THE INCOME FROM THE VOLUNTARY CO N TRIBUTIONS TOWARDS THE CORPUS OF THE TRUST OR THE INSTITUTION IS NOT TO BE INCLUDED IN THE COMPUTATION OF INCOME. TH EREFORE TO THE EXTENT OF THE MONEY RECEIVED TOWARDS CORPUS, THE TRUST OR THE INSTITUTION IS NOT UNDER OBLIGATION TO SPEND AT LEAST 75% OF THIS MONEYS IN THE YEAR OF IT S RECEIPT AS PR OVIDED IN SEC. 11(1)(A) OF THE INCOME TAX ACT 4. ALL KINDS OF RECEIPTS, WHETHER CAPITAL OR REVENUE NATURE ARE TREATED AS INCOME IN THE HANDS OF A PUBLIC TRUST OR RELIGIOUS TRUST, EXCEPT DONATIONS MADE WITH A WRITTEN DIRECTION FROM THE DONOR THAT THE DONATI ON MADE SHALL BE TREATED AS PART OF THE CORPUS OF THE TRUST. SUCH A DONATION TO CORPUS SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF A TRUST OR INSTITUTION. 5. SECTION 12' OF ACT EXCLUDES CORPUS DONATIONS FROM THE AMBIT OF INCOME. THE SECTION INCOME T AX ACT IS AS FOLLOWS; 6. ANY VOLUNTARY CONTRIBUTIONS RECEIVED BY A TRUST CREATED WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES OR ANY AN INSTITUTION ESTABLISHED WHOLLY FOR SUCH PURPOSES (NOT BEING CONTRIBUTIONS MADE WITH SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION) SHALL FOR THE PURPOSES OF SECTION 11 BE DEEMED TO BE INCOME DERIVED F ROM PROPERTY HELD UNDER TRUST WHOLLY FOR C HARITABLE OR RELIGIOUS PURPOSES AND THE PROVISIONS OF THAT SECTION AND SECTION 13 SHALL APPLY AC CORDINGLY . 5. AFTER CONSIDERING THE ABOVE SUBMISSION, AO HELD THAT SEC. 2(24) (IIA) IS VERY CLEAR THAT THE VALUE OF ANY BENEFIT IS CONVERTIBLE INTO MONEY IS TAXABLE. THEREFORE, THE ENTIRE RECEIPTS OF RS. 37 , 62 , 500/ - WAS BROUGHT TO TAXABLE INCOME. 6. SI MILARLY FOR THE A.Y. 2009 - 10, AO BROUGHT TO TAX NET DONATION OF RS. 1 CRORE INTRODUCED TO CORPUS FUND AND ALSO INTEREST INCOME OF RS. 3,06,617/ - . 7. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BE FORE US IN BOTH THE YEARS UNDER CONSIDERATION. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD WE FOUND THAT THE ASSESSEE, ITA NO S . 4370 & 4371/MUM/2014 KAMAL RAJADHYAKSHA MEMORIAL TRUST 4 KAMAL RAJADHYAKSHA MEMORIAL TRUST IS A CHARITABLE TRUST SETTLED ON 19.0 4.2007. IT IS REGISTERED UNDER BOMBAY PUBLIC TRUSTS ACT IN NO.E - 14538/MUM ON 20.10.2007. THE TRUSTEES FILED APPLICATION FOR REGISTRATION UNDER SECTION 12AA OF THE ACT BEFORE THE CIT (EXEMPTION) BUT THE APPLICATION HAS BEEN REJECTED FOR ONE REASON OR THE OT HER. DR. KAMAL RAMAKRISHNA RAJADHYAKSHA EXECUTED A WILL ON 15 TH MAY 2005 . SHE WAS A SPINSTER AND THEREFORE HAD NO LINEAL DESCENDANTS AS LEGAL HEIRS. SHE APPOINTED ONE MR. MUKUL MADHUBHAI PATEL AND MR. AJIT CHINUBHAI SHAH AS EXECUTORS. VIDE PARA 5.1, KAMAL OWNED AN IMMOVABLE PROPERTY BEING A PLOT OF LAND BEARING SURVEY NO.604 TPS III OF BANDRA AND CTS NO.F/72 ALSO AT BANDRA MUMBAI. ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT, WHEREIN DEVELOPMENT RIGHTS WERE GIVEN TO M/S. DEV CONSTRUCTION. AS PER P RA 8.3, S URPLUS FUNDS AFTER MAKING VARIOUS PROVISIONS MADE IN THE WILL AND INCOME THEREON WAS TO BE INVESTED IN NABARD, BANK, MUTUAL FUNDS ETC. DISCRETION WAS VESTED FOR SUCH INVESTMENTS WITH THE EXECUTORS. SUCH BALANCE SURPLUS FUNDS ALONG WITH ACCUMULATED INCOME A S MAY BE REMAINING WITH EXECUTORS UPON DEATH OF DR. KANTA P. PATEL WAS DIRECTED TO BE UTILIZED ENTIRELY BY MAKING CHARITIES IN THE MEMORY OF VARIOUS PERSONS AS PROVIDED IN THE WILL FOR SUCH PURPOSES SPENDING SUCH AMOUNT AS THE EXECUTORS MAY DEEM FIT AND PR OPER. KAMAL EXPIRED ON 01.12.2005, EXECUTORS FILED TESTAMENTARY PETITION NO.349 OF 2006 BEFORE THE BOMBAY HIGH COURT FOR OBTAINING PROBATE OF THE SAID WILL. DURING THE PROBATE PROCEEDINGS PURELY RELATED TO DISPOSITION OF THE DECEASEDS PROPERTY AND RIGHTS A CONSENT TERMS CAME TO BE EXECUTED BY THE PARTIES CLAIMING VARIOUS RIGHTS UNDER THE WILL. IN RESPECT OF DISPOSITION OF HER ESTATE TOWARDS CHARITABLE ACTIVITIES, IT IS AT THE INSTANCE OF THE HIGH COURT AND CONSENT OF PARTIES INVOLVED IT WAS DECIDED TO FOR M TWO CHARITABLE TRUSTS TO DEAL WITH THE PART OF THE ESTATE TO BE APPLIED TO CHARITABLE OBJECTIVES. THE TRUSTS WERE THEREFORE FORMED. THE DECEASED IN HER WILL, PROVIDED A PART ITA NO S . 4370 & 4371/MUM/2014 KAMAL RAJADHYAKSHA MEMORIAL TRUST 5 OF THE ESTATE FOR CHARITIES. THE OBJECTS OF CHARITIES WERE ALSO DEFINED. IN THE COURSE OF PROBATING THE WILL THE SAME WAS CONTESTED BY THE LEGAL HEIRS. IN TERMS OF THE INTERLOCUTORY ORDER PASSED BY HIGH COURT THE EXECUTORS AGREED TO SETTLE TWO SPECIFIC CHARITABLE TRUSTS TO CARRY OUT CHARITIES AS DIRECTED BY THE DECEASED AND DISTRIBUTE RS. 1 CRORE FROM THE ESTATE OF THE DECEASED TO PUT TO CHARITABLE OBJECTS. 9. IN VIEW OF THE ABOVE FACTUAL FINDINGS WE OBSERVE THAT THE GENESIS OF THE CORPUS FUND WITH THE TRUST IS THE ESTATES OF THE DECEASED. THUS THE NATURE OF RECEIPT IN THE HANDS OF THE TRUSTEES IS CAPITAL AND NOT REVENUE IN SO FAR AS IT IS PART OF TAX PAID MONIES BY DECEASED DISTRIBUTED TO THE TRUST. THE PAYMENT OF RS. 1 CRORE RECEIVED IS DIRECTLY FROM THE ESTATE OF THE DECEASED IN TERMS OF THE WILL AS DECREED BY THE HON'BLE BOMBAY HIGH COURT IN TERMS OF CONSENT TERMS BY THE PARTIES. THEREFORE IT CANNOT BE CONSIDERED TO BE AN INCOME IN THE HANDS OF THE TRUST. THUS CORPUS MONEY WAS RECEIVED BY THE TRUST IS NOT IN THE NATURE OF INCOME. THE ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH I N THE CASE OF CHANDRAPRABHU JAIN VS. ACIT IN ITA NO. 230/MUM/2016 DATED 12 TH AUGUST, 2016 WHEREIN IT WAS HELD THAT CORPUS DONATIONS ARE CAPITAL RECEIPTS BEING CAPITAL IN NATURE AND IS NOT TAXABLE DESPITE THE FACT THAT THE TRUST WAS NOT REGISTERED UNDER SEC TION 12A/12AA. APPLYING THE PROPOSITION OF LAW LAID DOWN IN THE ABOVE JUDICIAL PRONOUNCEMENT, WE DO NOT FIND ANY MERIT FOR TAXING THE CORPUS FUND AS INCOME IN THE HANDS OF THE ASSESSEE. SO FAR AS ANY INCOME IS EARNED BY THE TRUST OUT OF THIS CORPUS FUND, T HE SAME IS LIABLE TO BE TAXED AS INCOME AFTER ALLOWING EXPENSES INCURRED FOR EARNING THE SAME. WE DIRECT ACCORDINGLY. 10. THE FACTS AND CIRCUMSTANCES IN BOTH THE YEARS ARE SAME. THEREFORE, FOLLOWING THE REASONING GIVEN HEREINABOVE, WE DIRECT THE AO NOT TO TAX ITA NO S . 4370 & 4371/MUM/2014 KAMAL RAJADHYAKSHA MEMORIAL TRUST 6 CORPUS FUND AS INCOME AND TAX ONLY THE INCOME RECEIVED ON SUCH CORPUS FUND AFTER ALLOWING EXPENSES INCURRED FOR EARNING THE SAME. 11. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 ST MAY, 201 8 . SD/ - ( SANDEEP GOSAIN ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 31 ST MAY, 201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE C IT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//