RAJENDRA SHIKSHAN SANSHTA, MUMBAI V. DDIT (E) I(1), MUMBAI

ITA 5307/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7878 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 10-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B PRUSHETH
• Assessee Lawyers: V G GINDE
• Keywords: Business income; Depreciation; Charitable institution; Retrospective amendment; Benefit of exemption
• Section: 12A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D.T.GARASIA , JM AND SHRI RAJESH KUMAR, AM I.T.A. NO. 5307 /MUM/20 1 5 ( / ASSESSMENT YEAR : 20 11 - 12 ) RAJENDRA SHIKSHAN SANSTHA, 2/1 EVEREST CO - OP H SG.SOC., PANDI T DEENDAYAL ROAD, DOMBIVALI - (W) - 421202 / VS. DY. COMMISSIONER OF INCOME TAX (EXEMPTION) I(1), ROOM NO.516, 5 TH FLOOR, PIRAMAL CHAMBER, PAREL, MUMBAI - 400012 ./ PAN : AABTR1399C ( / APPELLANT) : ( / RESPONDENT ) / ASSESSEE BY : SHRI V G GINDE / REVENUE BY : SHRI B PRUSHETH / DATE OF HEARING : 21.9. 2017 / DATE OF PRONOUNCEMENT : 27 . 1 2 . 201 7 / O R D E R PER RAJESH KUMAR, A. M: BY WAY OF THIS APPEAL, THE ASSESSEE IS CHALLENGING THE ORDER OF LD.CIT(A) - 1, MUMBAI, DATED 16.9.2015, WHEREIN THE ASSESSEE HAS BEEN REFUS ED THE EXEMPTION U/S 11 OF THE INCOME TAX ACT, 1 9 61 (HEREINAFTER CALLED THE ACT) AND THE I SSUE OF DISALLOWANCE OF DEPRECIATION WHICH PERTAINS TO THE ASSESSMENT YEAR 2011 - 12. 2 I.T.A. NO 5307 /MUM/201 5 2. IN THE FIRST GROUND OF APPEAL, THE ISSUE RAISED BY THE ASSESSEE IS AGAINST THE UPHOLDING THE DENIAL OF EXEMPTION U/S 11 OF THE ACT AND THE SECOND ISSUE RAISED BY THE ASSESSEE IS UPHOLDING THE DISALLOWANCE OF DEPRECIATION BY THE LD.CIT(A) AS MADE BY THE AO ON THE GROUND OF ALLOWANCE OF DEPRECIATION AMOUNTED TO DOUBLE DEDUCTION, FIRST BY WAY OF ALLOWING ACTUAL COST OF ASSETS AS APPLICATION OF INCOME FOR THE PURPOSE OF SECTION 11 AND THEN THE SECOND BY WAY OF DEPRECIATION ON THE SAID ASSETS TO THE TUNE OF RS.8,58,569/ - . 3 . THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 30.9.2011 DECLARING TOTAL INCOME AT RS.NIL ACCOMPANYING THEREWITH THE INCOME AND EXPENDITURE ACCOUNT, BALANCE SHEET AND AUDIT REPORT IN FORM NO. 3CB AND 3CD. THE ASSESSEE IS A CHARITABLE TRUST WHICH IS REGISTERED WITH DIT ( EXEMPTION ), MUMBAI UNDER SECTION 12A HAVING REGISTRATION NO.INS/24669 AND WITH CHARITY COMMISSIONER UNDER REGI STRATION NO. F - 10515(MUM) AND HENCE THE ASSESSEE CLAIMED EXEMPTION U/S 11 OF THE ACT. 4 . THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED FROM THE BALANCE SHEET THAT A LOAN OF RS.1,15,000/ - WAS OUTSTANDING IN THE NAME OF SHRI ATUL PANDI T WHO IS A SON OF ONE OF THE TRUSTEES OF THE ASSESSEE TRUST. THE AO CONCLUDED THAT THE PAYMENT IS COVERED BY THE PROVISIONS OF SECTION 13(3) OF THE INCOME TAX ACT, 1961 AS THE INTEREST CHARGED FROM THE SAID PERSON WAS LOWER THAN THE MARKET RATE OF INT EREST. MOREOVER, THE ASSESSEE HAS NOT TAKEN ANY SURETY FOR THE SAID ADVANCE. BESIDES, THE AO OBSERVED 3 I.T.A. NO 5307 /MUM/201 5 THAT THE ASSESSEE TRUST HAS PAID AN AMOUNT OF RS.1,70,460/ - TO MS. GAURI PANDIT BEING PROFESSIONAL FEES AND RS.2,81,360/ - WAS PAID TO SHRI ATUL PAND IT AGAINST THE SERVICES RENDERED BY HIM IN THE FORM OF SALARY AND NO TDS WAS DEDUCTED. ACCORDINGLY , THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE. THE ASSESSEE REPLIED THE SAID NOTICE JUSTIFYING THE PAYMENT AT THE LOWER RATE OF INTEREST THAN THE MAR KET RATE OF INTEREST CHARGED FROM MR.ATUL PANDIT. ON THE ISSUE THAT THE ASSESSEE ADMITTED THAT NO TDS WAS DEDUCTED FROM THE PAYMENT MADE TO SHRI ATUL PANDIT AND MS.GAURI PANDIT. THE AO REJECTED THE CONT ENTION S OF THE ASSESSEE AND CAME TO THE CONCLUSION THAT SINCE NO TDS WAS DEDUCTED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE ATTRACTED AND THE CASE IS ALSO COVERED BY THE PROVISIONS OF SECTION 13(3) OF THE ACT AND THEREFORE EXEMPTION U/S 11 OF THE ACT WA S NOT ALLOWABLE TO THE INSTANT CASE. IN THE APPEAL BEFORE FIRST APPELLATE AUTHORITY , T HE LD. CIT(A) UPHELD THE OR ORDER OF THE AO BY OBSERVING AS UNDER : 5.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE A PPELLANT AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. THE CONTENTIONS AND SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HERE IN UNDER: I. THE AO HAS DENIED BENEFIT OF EXEMPTION U/S LION THE GROUND THAT PAYMENTS WERE MADE TO TH E PERSONS SPECIFIED UNDER SECTION 11. IN THIS REGARD THE APPELLANT HAS NOT MADE ANY SUBMISSIONS ON MERIT BUT HAS FILED A COPY OF CIT(A)'S ORDER FOR A.Y. 2008 - 09 DATED 29.7.2011 IN ITS OWN CASE. IT WAS CLAIMED THAT THE FACTS IN THE 2 YEARS ARE COMMON AND H ENCE RELIEF MAY BE ALLOWED. HOWEVER, IT IS NOTED THAT IN THIS YEAR THERE WAS NO PAYMENT MADE TO MS. GAURI PANDIT. DURING THE APPELLATE PROCEEDINGS NOTHING 4 I.T.A. NO 5307 /MUM/201 5 HAS BEEN BROUGHT ON RECORD TO PROVE THAT MR. ATUL PANDIT AND MS. GAURI PANDIT ARE EMPLOYEES OF THE AP PELLANT. ALSO THERE IS NOTHING ON RECORD TO PROVE THAT THE RECEIPT OF INTEREST CHARGED FROM THESE PERSONS IS MORE THAN THE MARKET RATE. FURTHER NO SUBMISSION HAS BEEN MADE BY THE APPLICANT REGARDING CONTRAVENTION OF PROVISIONS OF SECTION 40(A)(IA). IN VIEW OF THESE DISTINGUISHING FACTS, FINDINGS BY THE LD.CIT(A) FOR AY 2008 - 09 CANNOT BE APPLIED TO THE YEAR UNDER CONSIDERATION . II. THE AO HAS ALSO DENIED EXEMPTION U/S. 11 ON THE GROUND THAT THERE WAS CHANGE IN OBJECTS CLAUSE IN MEMORANDUM OF ASSOCIATION. D URING THE COURSE OF APPELLATE PROCEEDINGS IT WAS SUBMITTED THAT CHANGES WERE MADE BY CHARITY COMMISSIONER OF TRUST. IN THIS REGARD, IT IS MENTIONED THAT NO SUCH CERTIFICATE ISSUED BY CHARITY COMMISSIONER IN SUPPORT OF ITS CONTENTION HAS BEEN FILED BEFORE M E AND HENCE THIS CONTENTION OF THE APPELLANT BEING NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE IS NOT ACCEPTABLE. IT WAS ARGUED THAT IN A.Y. 2008 - 09 THE L D. CIT(A) HAS ACCORDINGLY DECIDED THE VERDICT IN ITS FAVOUR. HOWEVER, ON PERUSAL OF ASSESSMENT ORDER IT WAS NOTED THAT THE ISSUE REGARDING CHANGE IN MEMORANDUM HAS NOT BEEN RAISED IN THE SAID ORDER. ACCORDINGLY, I AGREE WITH THE AO THAT SUBSTANTIAL CHANGES IN THE OBJECT CLAUSE HAS BEEN MADE FOR WHICH NO INTIMATION TO THE CIT(E) WAS MADE. ON THIS GROUND ALSO EXEMPTION U/S. 11 WOULD NOT BE AVAILABLE TO THE APPELLANT. III. AS' REGARDS TO THE DISALLOWANCE OF DEPRECIATION, NO SUBMISSIONS HAVE BEEN MADE BY THE APPELLANT. ACCORDINGLY, SAME IS NOT CONSIDERED WHILE DECIDING APPEAL FOR WANT OF DETAILS FROM THE APPEL LANT. 5 . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ORDER PASSED BY THE FAA UPHOLDING THE DENIAL OF EXEMPTION U/S 11 OF T HE ACT IS CONTRARY TO THE RATIO LAID DOWN BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.6764/MUM/2011 (AY - 2008 - 09) DA T ED 26.4.2013 WHICH HAS BEEN REFERRED BY THE LD.CIT(A) IN HIS ORDER. 5 I.T.A. NO 5307 /MUM/201 5 6. THE LD. A R SUBMITTED THAT THE ISSUE HAS BEEN CONSIDERED BY THE JURISDICTIONAL TRIBUNAL IN ASSESSEES OWN C A SE IN ASSESSMENT YEA 2008 - 09 IN ORDER DATED 26. 4.2013 (SUPRA) AND DECIDED THE IN FAVOUR OF THE ASSESSEE WITH A FINDING THAT LESSER AMOUNT OF LOAN WAS OUTSTANDING DURING THE YEAR UNDER CONSI DERATION DUE TO EPAYMENT OF THE LOAN. THE LD. AR ALSO SUBMITTED THAT THE REASONS GIVEN BY THE FAA FOR DENYING THE EXEMPTION THAT THERE I S A CHANGE IN THE OBJECT CLAUSE OF THE ASSESSEE WHICH WAS NOT APPROVED BY THE CITWA S TOTALLY WRONG , MISLEADING AND AGAINST THE FA CT S OF THE CASE. THE LD. AR TOOK U S THROUGH THE PAGE 90 WHICH IS A TRUST DEED BY SUBMITTING THAT THE CLAUSE 3A TO 3C WERE C ANCELLED IN THE YEAR 1985 BY CHARITY COMMISSIONER AND IT IS ONLY THEREAFTER THE SE AMEND MENTS , THE AMENDED DEED WAS MOVED BEFORE THE CIT FOR REGISTRATION AND THE SAME WAS GRANTED REGIST RATION ACCORDINGLY. THE LD. AR ALSO BROUGHT TO OUR NOTICE THAT THE CERTIFICATE OF REGISTRATION ISSUED BY THE COMMISSIONER ON 8.4.1985 AND THEREAFTER THE REGISTRATION DATED 17.9.1985 WAS GRANTED BY THE CIT WHICH FILED AT PAGE 13 OF THE PAPER BOOK. IN VIEW OF THIS FACT, THE LD.AR HUMBLY PRAYED THAT THE ORDER OF CIT SHOULD BE REVERSED AS THE ISSUE HAS BEEN COVERED BY THE ORDER OF THE TRIBUNAL DATED 26.4.2013 (SUPRA) IN FAVOUR OF THE ASSESSEE AND THE ISSUE OF CHANGE OF OBJECT CLAUSE WAS WRONG AND CONTRARY TO THE FACTS ON RECORD . THE LD. DR , ON THE OTHER HAND, RE LIED ON THE ORDERS OF AUTHORITIES BELOW . 6 I.T.A. NO 5307 /MUM/201 5 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 26.4.2013 (SUPRA) WHICH IS REPRODUCED BELOW: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PALED BEFORE US. THERE ARE A COUPLE OF ISSUES RAISED BY THE REVENUE IN THE APPEAL A ND THEY ARE : (I) DENIAL OF ASSESSEES CLAIM OF EXEMPTION U/S 11 OF THE ACT IN VIEW OF THE GRANT OF INTEREST BEARING CAR LOAN OF RS.4 LAKHS LAKHS TO ATUL PUNDIT, SON OF A TRUSTEE AND AN EMPLOYEE OF THE TRUST; AND (II) APPLICABILITY OF THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT ONLY TO THE PROFESSIONAL/BUSINESS INCOME. 7.1 REGARDING THE FIRST ISSUE OF DENIAL OF EXEMPTION U/S 11 OF THE ACT, CIT(A) DISAPPROVED THE AO'S FINDING IN THIS REGARD CONSIDERING THE PATNA HIGH COURT'S JUDGMENT IN THE CASE OF CI T VS. TATA STEEL CHARITABLE TRUST (203 ITR 764), WHICH IS RELEVANT FOR THE RATIO THAT THE PROVISIONS OF SECTION 13(3) WOULD NOT APPLY TO AN EMPLOYEE OF THE TRUST. SRI ATUL PUNDIT IS UNDISPUTEDLY AN EMPLOYEE. WE FIND THAT THE TRUST HAS TAKEN ENOUGH CARE BY CHARGING INTEREST AT THE RATE OF 6% ON THE CAR LOAN. IT IS ALSO A FACT THAT THE TRUST HAS GRANTED SUCH LOANS TO MANY OTHER EMPLOYEES AND THEY ARE IN FACT INTEREST FREE. BEING A SON OF THE TRUSTEE, SRI ATUL PUNDIT HAS TO INCUR EXPENDITURE BY WAY OF INTEREST AT THE RATE OF 6%. THUS, THE AO HAS NOT MADE OUT A CASE THAT THE TRUST HAS BENEFITED DIRECTLY OR INDIRECTLY THE RELATIVE OF THE TRUSTEE OF THE TRUST/TRUSTEE. AD HAS NOT DISCOUNTED THE FACT THAT ATUL PUNDIT IS NOT ONLY AN EMPLOYEE OF THE TRUST BUT ALSO TAK EN THE INTEREST BORNE CAR LOAN. WHEREAS OTHER EMPLOYEES HAVE TAKEN THE CAR LOAN, WHICH ARE INTEREST FREE. OF COURSE, WITH THE KIND OF DETAILS FURNISHED BY THE ASSESSEE TO THE AO, THE ONUS NOW SHIFTED TO THE AO AND THE SAME IS NOT DISCHARGED. THEREFORE THE FINDING OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE ON THIS ISSUE. 7.2 REGARDING OTHER ISSUE OF RELATING TO THE INVOKING OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, CIT(A) GRANTED RELIEF ON THE LEGAL PROPOSITION THAT THE SAID SECTION IS NOT A PPLICABLE TO THE NON BUSINESS/PROFESSIONAL INCOME. BEFORE US, NOTHING CONTRARY DECISIONS ARE PLACED BEFORE US BY THE LD DR FOR THE REVENUE. THEREFORE, WE APPROVE 7 I.T.A. NO 5307 /MUM/201 5 THE FINDING OF THE CIT(A) ON THIS ISSUE TOO. THUS, WE ARE OF THE OPINION THAT THERE IS NO INFI RMITY IN THE ORDER OF THE CIT (A) AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8 . MOREOVER THE ALLEGATION OF AMENDMENT IN THE TRUST DEED NOT BEING APPROVED BY THE CHARITY COMMISSIONER IS AGAI NST T HE FACTS ON RECORDS AS WE FIND FROM THE TRUST DEED THAT THERE WAS NO AMENDMENT MADE IN THE MAIN OBJECTION CLAUSE 3A TO 3C WHICH WAS ORIGINALLY STRUCK DOWN BY THE CHARITY COMMISSIONER IN THE YEAR 1985 AND THEREAFTER ISSUED REGISTRATION CERTIFICATE VIDE ORDER DATED 8.7.1985 WHICH WAS THEN FILED BEFORE THE COMMISSIONER OF INCOME TAX WHO ISSUE D THE REGISTRATION CERT IFICATE ON 17.9.1985. HAVING REGARDS TO THE FACTS IN ENTIRETY AND IN VIEW OF THE ORDER OF TRIBUNAL IN ASSESSEE OWN CASE , THE GROUND NO 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED . 9 . THE SECOND ISSUE IS WITH REGARD TO THE UPHOLDING T HE ORDER O F THE AO ON DE DUCTION OF DEPRECIATION ON THE GROUND THAT DOUBLE ALLOWANCE TO THE ASSESSEE . THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOT ED THAT THE ASSESSEE HAS CLAIMED DEP RECIATION OF RS.8 , 58 , 569/ - ON THE FIXED ASSETS WHICH STOOD WRITTEN OFF BY WAY OF APPLICATION OF FUNDS IN THE EARLIER YEARS . ACCORDING TO THE AO , SAID DEDUCTION HAS RESULTED INTO TO DOUBLE ALLOWANCE, FIRST BY WAY OF APP LICATION OF INCOME U/S 11 OF THE ACT AND SECONDLY BY WAY OF CLAIM OF DEPRECIATION . ACCORDINGLY THE AO DISALLOWED THE CLAIM OF THE 8 I.T.A. NO 5307 /MUM/201 5 ASSESSEE AS TO DEPRECIATION WITHOUT PREJUDICE TO THE DENIAL OF EXEMPTION U/S 11 OF T HE ACT. 10. WE HAVE CAREFULLY CONSIDERE D THE RIVAL CON TENTIONS AND PERUSED THE FACTS AND MATERIALS ON RECORDS . WE FIND THAT THE ISSUE IS COVERED BY THE VARIOUS DECISIONS OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE . IN THE CASE OF DIRECTOR OF INCOME TAX - EXEMPTION III, CHENNAI V/S MEDICAL TRUST OF THE SEVENTH DAY ADVENTISTS REPORTED IN (2017) 84 TAXMAN.COM 202) MADRAS, WHEREIN IT HAS BEEN HELD THAT THE AMENDMENT WAS INSERTED WITH EFFECT FROM ASSESSMENT YEAR 2015 - 16 AND HAS BEEN MADE WITH A VIEW TO DEBAR THE CLAIM OF THE ASSESSEE BY WAY OF DE PRECIATION . THE SAID AMENDMENT HAS NOT BEEN CLARIFIED IN THE MEMORANDUM WHETHER IT IS APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2015 - 16 OR NOT AND THE APPLICATION OF THE AMENDMENT WITH RETROSPECTIVE EFFECT WOULD CERTAINLY LEAD TO GREAT DEAL OF HARDSHI P TO THE ASSES SEE . THE HONBLE HIGH COURT HAS HELD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION OF THE FIXED ASSE T S WHICH HAS BEEN CLAIM ED AS APPLICATION OF INCOME AS IT WOULD NOT BE AMOUNT TO DOUBLE TAXATION. CONSIDERING THE RATIO LAID BY IN THE ABOVE D ECISIONS WE ARE INCLINED TO HOLD THAT THE ORDER OF CIT (A) ON THIS ISSUE IS WRONG AND HENCE REVERSED. THE AO IS DIRECTED TO ALLOW THE DEPRECIATION CLAIM OF THE ASSESSEE ON FIXED ASSETS. 9 I.T.A. NO 5307 /MUM/201 5 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ORD ER PRONOUNCED ON 27. 1 2 .2017. S D SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : . 27. 1 2 .2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESP ONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI