M/s Kerala State Handicapped persons welfare corpn ltd, Trivandrum V. Assitant Director of Income Tax(Exemptions), Trivandrum

ITA 542/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64960 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 03-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-10-2010
• Court: TRIBUNAL
• Assessee Lawyers: P K RAJU
• Keywords: Charitable institution; Retrospective amendment
• Section: 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS.173/COCH/2011 & 542/COCH/2010 ASSESSMENT YEARS: 2005-06 & 2007-08 KERALA STATE HANDICAPPED PERSONS WELFARE CORPORATION LTD., T.C. 17/230(1), JUVENILE HOME COMPOUND, POOJAPPURA, TRIVANDRUM-695012 [PAN:AACFT 115B] VS. THE ASSISTANT DIRECTOR OF INCOME- TAX (EXEMPTION), TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI P.K. RAJU, CA REVENUE BY SHRI PRATAP NARAYAN SHARMA, JR. DR DATE OF HEARING 03/09/2012 DATE OF PRONOUNCEMENT 16/11/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIR ECTED AGAINST THE ORDERS PASSED BY THE LD. CIT(A)-I, TRIVANDRUM AND THEY RELATE TO THE ASS ESSMENT YEARS 2005-06 AND 2007- 08. 2. FOR BOTH THE YEARS, THE ASSESSING OFFICER REJECT ED THE ASSESSEES CLAIM FOR EXEMPTION U/S. 11 OF THE ACT AND THE SAID ACTION OF THE ASSESSING OFFICER WAS UPHELD BY THE LD. CIT(A). HENCE THE ASSESSEE IS IN APPEAL BE FORE US FOR BOTH THE YEARS. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS A LIMITED COMPANY OWNED BY THE GOVERNMENT OF KERALA. IT IS R UNNING A CHAIN OF DEPARTMENT STORES UNDER THE NAME SOWBHAGYA DEPARTMENT STORE. IT ALSO RUNS SOWBHAGYA OFFSET I.T.A. NOS. 173/COCH/2011 & 542/COCH/2010 2 PRESS AND A MANUFACTURING, SERVICING AND TRAINING C ENTRE AT TRIVANDRUM. THE ASSESSEE- COMPANY ENGAGES PHYSICALLY HANDICAPPED PERSONS FOR EMPLOYMENT IN THEIR OUTLETS. IT IS ALSO ENGAGED IN PROVIDING RELIEF AND REHABILITATION OF PHYSICALLY HANDICAPPED PERSONS THROUGH VARIOUS PROJECTS FUNDED BY THE NATIONAL HAN DICAPPED FINANCIAL DEVELOPMENT CORPORATION. THE ASSESSEE-COMPANY WAS REGISTERED A S A CHARITABLE INSTITUTION, VIDE ORDER DATED 15.04.2004 PASSED BY THE COMMISSIONER O F INCOME TAX, THIRUVANANTHAPURAM, UNDER SEC. 12A OF THE ACT WITH RETROSPECTIVE EFFECT FROM 01/09/1979. 4. THE ASSESSEE FILED ITS RETURN OF INCOME FOR BOTH THE YEARS UNDER CONSIDERATION DECLARING NIL INCOME, AFTER CLAIMING EXEMPTION U/S. 11 OF THE INCOME TAX ACT. THE ASSESSING OFFICER REJECTED THE CLAIM OF EXEMPTION U /S. 11 FOR THE REASONS THAT THE ASSESSEE-COMPANY WAS NOT REGISTERED U/S. 25 OF THE COMPANIES ACT AND FURTHER IT IS AUTHORISED BY ITS MEMORANDUM OF ASSOCIATION TO DECL ARE DIVIDEND, TRANSACT ANY OTHER BUSINESS ETC., APPARENTLY ON THE IMPRESSION THAT SU CH CLAUSES ARE NOT GERMANE TO A CHARITABLE INSTITUTION. FOR THE SAKE OF CONVENIENC E, WE EXTRACT BELOW THE OBSERVATIONS OF THE ASSESSING OFFICER MADE IN THE ASSESSMENT ORD ER RELATING TO THE ASSESSMENT YEAR 2005-06:- DURING THE YEAR, THE CORPORATION HAS ARRIVED AT A PROFIT OF RS.33,11,014 AS SEEN FROM THE INCOME AND EXPENDITURE ACCOUNT. THE INCOM E OF THE CORPORATION INCLUDED RECEIPT FOR SALES, INTEREST INCOME, GRANT IN AID RECEIVED AND OTHER INCOME. THIS PROFIT OF RS. 33,11,014 IS NOT FOUND TO HAVE BEEN APPEARED FOR THE OBJECTS. WHEN THIS WAS PUT BEFORE THE ASSESSEES REPRESENTATIVE, HE EXPLAINED THAT THEY HAVE OMITTED TO CLAIM THE REPAYMENT MAD E ON THE LOANS FROM NHFDC IN THE RETURN AND SINCE REPAYMENT OF LOANS IS AN A PPLICATION, THE CORPORATION IS NOT LIABLE TO TAX. HE ALSO FURNISHED EVIDENCE IN SUPPORT OF THE CLAIM OF LOAN REPAYMENT WORTH RS. 59,72,607 DURING THE YEAR. ASSESSEES CLAIM WAS CAREFULLY CONSIDERED. IT IS FOUND THAT ASSESSEE CORPORATION WAS INCORPORATED AS A LIMITED COMPANY UNDER THE CO MPANYS ACT IN THE MEMORANDUM OF ASSOCIATION OF THE COMPANY. IT IS M ENTIONED THAT DEBENTURES, BONDS OR OTHER SECURITIES MAY BE MADE ASSIGNABLE, FREE FROM ANY EQUITIES BETWEEN THE COMPANY AND THE PERSONS TO WHOM THE SA ME MAY BE ISSUED. FURTHER, IT IS MENTIONED WITH REGARD TO GENERAL M EETINGS THAT THE BUSINESS OF ANNUAL GENERAL MEETING SHALL BE TO RECEIVE AND CON SIDER THE ACCOUNTS AND REPORT OF THE DIRECTORS AND OF AUDITORS, TO DECLARE DIVID ENDS AND TO TRANSACT ANY OTHER BUSINESS. I.T.A. NOS. 173/COCH/2011 & 542/COCH/2010 3 FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE CORPO RATION IS INTENDED TO DECLARE DIVIDENDS OUT OF THE PROFIT EARNED AND NOT TO APPL Y THE PROFITS FOR THE OBJECTS FOR WHICH THE CORPORATION WAS FORMED. MOREOVER, THE A SSESSEE CORPORATION IS NOT A COMPANY INCORPORATED U/S. 25 OF THE COMPANIES ACT. THIS IS INCORPORATED AS A PRIVATE COMPANY ONLY UNDER THE ACT. IF THE INTE NTION OF THE CORPORATION IS TAX, WELFARE OF THE PHYSICALLY HANDICAPPED PEOPLE, AND TO APPLY ITS PROFITS IF ANY FOR SUCH OBJECTS, THE ASSESSEE SHOULD HAVE INCORPORATE D ITSELF U/S. 25 OF THE COMPANIES ACT. SEC. 25 PROHIBITS THE COMPANY FROM DISTRIBUTING DIVIDENDS OUT OF ITS PROFITS. IN THE ASSESSEES CASE, IT IS ONLY A COMPANY UNDER THE STATE GOVERNMENT. TO BE ELIGIBLE TO CLAIM EXEMPTION U/S. 11 OF THE I T ACT, A COMPANY HAS TO BE REGISTERED U/S. 25 OF THE COMPANIES ACT. SEC. 25 TAKES CARE, THAT THE PROFITS OF THE COMPANY ARE APPLIED FOR THE CHARITABLE OBJECT ONLY. THE ASSESSEE COMPANY IS REGISTERED U/S. 12AA OF THE ACT. REGISTRATION U/S. 12AA IS ONLY A PRECEDEDANT AND IS NOT A TOKEN FOR CLAIMING EXEMPTION U/S. 11. BY HAVING AN OPTION TO DECLARE DIVIDENDS AS PER THE MEMORANDUM OF ASSOCIA TION, THE ASSESSEE COMPANY HAS LOST ITS ELIGIBILILTY TO CLAIM EXEMPTI ON U/S. 11. 4. THE COMMISSIONER OF INCOME-TAX (A) ALSO UPHELD T HE ORDER OF THE ASSESSING OFFICER FOR BOTH THE YEARS WITH FOLLOWING OBSERVATI ONS:- IT IS A FACT THAT THE COMPANY IS NOT INCORPORATED U/S. 25 OF THE COMPANIES ACT. THE INTENTION OF THE COMPANY ARE CLEAR THAT IT DOE S NOT INTEND TO APPLY ITS PROFIT IF ANY, OR OTHER INCOME IN PROMOTING ITS OBJECTS A ND IT DOES NOT PROHIBIT THE PAYMENT OF DIVIDENDS TO ITS MEMBERS. IF TH INTENT ION OF THE CORPORATION WAS CLEAR ABOUT THE WELFARE OF THE PHYSICALLY HANDICAP PED PEOPLE IT SHOULD HAVE BEEN INCORPORATED U/S. 25 OF THE COMPANIES ACT. SEC. 2 5 PROHIBITS THE COMPANY FROM DISTRIBUTING THE DIVIDEND OUT OF ITS PROFIT. IN CA SE OF THE APPELLANT, IN THE MEMORANDUM OF ASSOCIATION, THE INTENTION OF THE CO MPANY IS TO BE DISTRIBUTE DIVIDENDS OUT OF ITS PROFITS. ACCORDINGLY, I HOLD THAT THE COMPANY IS NOT ELIGIBLE TO CLAIM EXEMPTION U/S. 11 AND I CONFIRM THE STAND OF THE ASSESSING OFFICER THAT BY HAVING AN OPTION TO DECLARE DIVIDENDS AS PER TH E MEMORANDUM OF ASSOCIATION, THE APPELLANT HAS LOST ITS ELIGIBILITY TO CLAIM EX EMPTION U/S. 11. HENCE THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGI NG THE ORDERS OF LD CIT(A). 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENJOYING REGISTRATION U/S. 12A OF THE ACT AND HENCE, IT IS E NTITLED FOR EXEMPTION U/S. 11 OF THE ACT IN RESPECT OF THE INCOME APPLIED FOR THE CHARITABLE OBJECTS OF THE COMPANY. HE FURTHER SUBMITTED THAT THE INCOME TAX ACT NOWHERE PRESCRIBE S THAT A COMPANY HAVING CHARITABLE OBJECT SHOULD INVARIABLY BE REGISTERED U /S. 25 OF THE COMPANIES ACT. I.T.A. NOS. 173/COCH/2011 & 542/COCH/2010 4 ACCORDINGLY, HE CONTENDED THAT THE ASSESSEE IS ENTI TLED FOR EXEMPTION U/S. 11 OF THE ACT. 6. ON THE CONTRARY, THE LD. DR STRONGLY SUPPORTED T HE ORDERS PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSE E-COMPANY IS REGISTERED AS A CHARITABLE INSTITUTION U/S. 12A OF THE ACT. THE VA RIOUS DEFECTS POINTED OUT BY THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) IN THE MEMORANDUM OF ASSOCIATION OF THE COMPANY AS WELL AS ON THE ACTIVITIES OF THE COMPANY , IN OUR VIEW, ARE REQUIRED TO BE EXAMINED BY THE ADMINISTRATIVE COMMISSIONER AT THE TIME OF GRANTING REGISTRATION U/S. 12A OF THE ACT. ACCORDINGLY, WE ARE OF THE VIEW THAT THE SAID DEFECTS CANNOT BE LOOKED INTO AT THE STAGE OF ASSESSMENT EITHER BY THE ASSES SING OFFICER OR BY THE LD. CIT(A). IN OUR VIEW, THE ASSESSING OFFICER HAS TO EXAMINE THE CLAIM OF EXEMPTION IN ACCORDANCE WITH THE PROVISIONS OF SEC. 11 TO 13 OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LD. CIT(A) IN BOTH THE YEARS AND RESTORE ALL TH E MATTERS TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DO THE ASSESSMENTS DE-N OVA AFTER DULY EXAMINING THE APPLICABILITY OF PROVISIONS OF SEC. 11 TO 13 OF TH E ACT AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY O N 16-11-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 16TH NOVEMBER, 2012 GJ I.T.A. NOS. 173/COCH/2011 & 542/COCH/2010 5 COPY TO: 1. KERALA STATE HANDICAPPED PERSONS WELFARE CORPORA TION LTD., T.C. 17/230(1), JUVENILE HOME COMPOUND, POOJAPPURA, TRIVANDRUM-695012 2.THE ASSISTANT DIRECTOR OF INCOME-TAX (EXEMPTION), TRIVANDRUM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, TRIVAN DRUM. 4.THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN