Asstt. Commissioner of Income Tax-I, Kanpur V. M/s Kanpur Educational Centre, Kanpur

ITA 573/LKW/2013

• Counselvise Citation: 57323714 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 18-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWATI RATNA
• Assessee Lawyers: P K KAPOOR
• Keywords: Charitable institution; Opportunity of being heard
• Section: 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.573/LKW/2013 ASSESSMENT YEAR:2005-06 ACIT-1 KANPUR V. M/S KANPUR EDUCATIONAL CENTRE 287-295, KALYANPUR BITHOOR ROAD, KANPUR TAN/PAN:AAATK3998F (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. SWATI RATNA, D.R. RESPONDENT BY: SHRI. P. K. KAPOOR, C.A. DATE OF HEARING: 13 04 2015 DATE OF PRONOUNCEMENT: 23 04 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DEDUCTION OF RS.5,66,589/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CONTRIBUTION TO SUNAMI RELIEF FUND, DONATED TO DELHI PUBLIC SOCIETY BY IGNORING THE FINDINGS GIVEN BY THE A.O. THAT THE ASSESSEE HAS NO SURPLUS INCOME DURING THE YEAR UNDER CONSIDERATION, AND SUCH PAYMENT WAS MADE OUT OF ACCUMULATED INCOME WHICH IS NOT ALLOWABLE IN VIEW OF EXPLANATION TO SUB-SECTION (2) OF SECTION 11 READ WITH PROVISIONS OF CLAUSE (A) TO SUB-SECTION (3) OF SECTION 11 OF THE I.T. ACT, 1961. 2. THAT THE LD. CIT(A)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION OF THE DONATION OF RS. 30,00,000/- MADE :- 2 -: TO SHYAM BIHARI MEMORIAL CHARITABLE TRUST MADE BY THE ASSESSING OFFICER BY IGNORING THE FINDINGS GIVEN BY THE A.O. THAT THE ASSESSEE HAS NO SURPLUS INCOME DURING THE YEAR UNDER CONSIDERATION, AND SUCH PAYMENT WAS MADE OUT OF ACCUMULATED INCOME WHICH IS NOT ALLOWABLE IN VIEW OF EXPLANATION TO SUB-SECTION (2) OF SECTION 11 READ WITH PROVISIONS OF CLAUSE(A) TO SUB-SECTION (3) OF SECTION 11 OF THE IT. ACT,1961. 3. THAT THE LD. CIT(A)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE INTEREST OF RS.33769/-MADE BY THE ASSESSING OFFICER BY IGNORING THE FINDINGS GIVEN BY THE AO THAT SUCH INTEREST PAID IS EXCESSIVE IN NATURE AND PAID TO THE PERSON COVERED BY SECTION 13(3) OF THE I.T. ACT, 1961. 4. THAT THE LD. CIT(A)-II, KANPUR HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DECIDING THE APPEAL WITHOUT GIVING ANY OPPORTUNITY OF BEING HEARD TO THE A.O. U/S 250 OF THE IT. ACT,1961.' 5. THAT THE ORDER OF LD. CIT (A)-II, KANPUR DATED 28.03.2013 NEEDS TO BE QUASHED AND THE ORDER PASSED BY THE ASSESSING OFFICER DATED 13.12.2007 TO BE RESTORED. 2. APROPOS GROUND NO.1, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE HAVING NOTED THAT THE ASSESSEE HAS MADE PAYMENT OF RS.5,66,589/- TO DELHI PUBLIC SCHOOL SOCIETY, NEW DELHI, OF WHICH ASSESSEE IS A FRANCHISEE. THE PAYMENT WAS MADE IN THE NATURE OF DONATION TO THE SAID SOCIETY AND SINCE THE ASSESSEE HAS NO SURPLUS INCOME DURING THE YEAR UNDER CONSIDERATION, THE PAYMENTS MADE ON ACCOUNT OF DONATION TO ANOTHER CHARITABLE ORGANIZATION CANNOT BE CONSIDERED AS APPLICATION OF ITS INCOME IN VIEW OF EXPLANATION TO SUB-SECTION (2) OF SECTION 11 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'), WHICH PROVIDES SUCH DONATION TO OTHER CHARITABLE INSTITUTION OUT OF ACCUMULATED INCOME. :- 3 -: 3. THE DISALLOWANCE WAS CHALLENGED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE FINDING OF THE ASSESSING OFFICER IS INCORRECT, AS DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-SOCIETY HAD EXCESS INCOME OVER THE EXPENDITURE AMOUNTING TO RS.38,12,145.68, AND RS.14,85,000/- HAS BEEN DIRECTLY CREDITED IN THE CORPUS FOR ADMISSION FEES RECEIVED. THUS, IN TOTALITY THE SOCIETY HAS AN INCOME OVER EXPENDITURE AMOUNTING TO RS.52,97,145.68. IT WAS ALSO CONTENDED BEFORE THE LD. CIT(A) THAT THE ASSESSEE-SOCIETY HAS SPENT 85% OF THE RECEIPTS. THE LD. CIT(A) WAS CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND RELYING UPON VARIOUS JUDICIAL PRONOUNCEMENTS, HE WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 11(3) OF THE ACT CAN ONLY BE APPLIED ONCE THE INCOME LESS THAN 85% HAS BEEN UTILIZED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND THAT THE INCOME HAS BEEN APPLIED FOR THE PURPOSE OTHER THAN FOR WHICH IT WAS ACCUMULATED. THUS, THE PROVISIONS OF SECTION 11(3) OF THE ACT DO NOT APPLY. THE LD. CIT(A) HAS ALSO OBSERVED THAT THIS AMOUNT HAS BEEN PAID TO DELHI PUBLIC SCHOOL SOCIETY WHICH IS ALSO REGISTERED UNDER SECTION 12AA OF THE ACT. HE HAS ALSO PLACED RELIANCE UPON THE INSTRUCTION NO.1132 DATED 5.1.1978 AND ACCORDINGLY HE DELETED THE ADDITION. 4. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE INCOME & EXPENDITURE ACCOUNT AND BALANCE SHEET APPEARING AT PAGES 7 TO 9 OF COMPILATION OF THE ASSESSEE, IN WHICH THE INCOME OVER EXPENDITURE WAS SHOWN AT RS.38,12,145.68. BESIDES, HE HAS ALSO PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 5. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE ON THE PREMISE THAT THE ASSESSEE DID NOT HAVE ANY SURPLUS INCOME DURING THE YEAR UNDER CONSIDERATION AND THE PAYMENT WAS MADE :- 4 -: OUT OF ACCUMULATED INCOME; WHEREAS THIS FINDING OF THE ASSESSING OFFICER HAS FACTUALLY INCORRECT, AS THE ASSESSEE HAS SUFFICIENT INCOME OVER EXPENDITURE OUT OF WHICH PAYMENT WAS MADE TO DELHI PUBLIC SCHOOL SOCIETY, NEW DELHI. THEREFORE, WE FIND NO MERIT IN THIS DISALLOWANCE MADE BY THE ASSESSING OFFICER. MOREOVER, THE LD. CIT(A) HAS EXAMINED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND ALSO IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ACT. SINCE NO DEFECT IN THE ORDER OF THE LD. CIT(A) HAS BEEN POINTED OUT, WE CONFIRM THE SAME. 6. APROPOS GROUND NO.2, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE ADDITION OF RS.30 LAKHS FOR THE REASON THAT THE ASSESSEE HAS GIVEN DONATION OF RS.30 LAKHS TO SHYAM BIHARI MEMORIAL CHARITABLE TRUST WITHOUT HAVING ANY SURPLUS INCOME OVER THE EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE DONATION WAS GIVEN OUT OF ACCUMULATED INCOME. HE HAS ALSO OBSERVED THAT THE DONATION WAS PAID ON ACCOUNT OF CHANGE OF MANAGEMENT OF THE SOCIETY AND IN CONSIDERATION OF REPAYMENT TO SHRI. ALOK MISHRA. 7. IN APPEAL BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT RS.30 LAKHS WAS GIVEN OUT OF INCOME OVER EXPENDITURE. FOR THE SAME REASONS AS DISCUSSED IN EARLIER PARAGRAPHS, THE LD. CIT(A) HAS DELETED THE ADDITION. 8. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS PLACED HEAVY RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT SINCE THE ASSESSEE WAS HAVING SUFFICIENT INCOME OVER EXPENDITURE AND PAYMENT WAS MADE OUT THE SAME, DISALLOWANCE CANNOT BE MADE FOR THE VIOLATION OF THE PROVISIONS OF SECTION 11(3) OF THE ACT. HE HAS ALSO PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 9. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER HAS MADE :- 5 -: DISALLOWANCE ON THE GROUND THAT THE PAYMENT WAS MADE OUT OF ACCUMULATED AMOUNT; WHEREAS THE ASSESSEE WAS HAVING EXCESS INCOME OVER EXPENDITURE OF RS.38,12,145.68 BESIDES RS.14,85,000/- HAS BEEN DIRECTLY CREDITED IN THE CORPUS FOR ADMISSION FEES RECEIVED. THUS, IN TOTALITY THE SOCIETY HAS AN INCOME OVER EXPENDITURE AMOUNTING TO RS.52,97,145.68. THE LD. CIT(A) HAS RE-EXAMINED ALL THESE ASPECTS AND WAS OF THE VIEW THAT PROVISIONS OF SECTION 11(3) OF THE ACT CANNOT BE APPLIED ONCE ANY INCOME HAS BEEN UTILIZED MORE THAN 85% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- I HAVE CONSIDERED THE VIEWS OF THE ASSESSING OFFICER, SUBMISSIONS OF LEARNED AR, RELEVANT PART OF WHICH HAS BEEN REPRODUCED ABOVE. THE AO CONTENTION THAT THE SOCIETY DOES NOT HAVE SURPLUS INCOME IS INCORRECT AS DURING THE YEAR UNDER CONSIDERATION THE SOCIETY HAS AN EXCESS OF INCOME OVER EXPENDITURE AMOUNTING TO RS.38,12,145.68 AND RS.14,85,000 HAS BEEN DIRECTLY CREDITED IN THE CORPUS FOR ADMISSION FEES RECEIVED. THUS IN TOTALITY THE SOCIETY HAS AN INCOME OVER EXPENDITURE AMOUNTING TO RS.52,97,145.68. IT IS ALSO PERTINENT TO NOTE THAT THE SOCIETY HAS EXPENDED 85% OF THE RECEIPTS. IN MY VIEW THE PROVISIONS OF SECTION 11(3) CAN ONLY BE APPLIED ONCE ANY INCOME HAS BEEN UTILIZED LESS THAN 85% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS AND THEN THAT INCOME HAS BEEN APPLIED FOR PURPOSES OTHER THAN FOR WHICH IT WAS ACCUMULATED. THUS THE PROVISIONS OF SECTION 11(3) DO NOT APPLY. HOWEVER THE ALLOWABILITY OF THE ABOVE EXPENDITURE HAS TO STILL BE EXAMINED. THE AMOUNT HAS BEEN PAID TO DELHI PUBLIC SCHOOL SOCIETY WHICH IS ALSO REGISTERED UNDER SECTION 12AA. THE BOARD HAS ISSUED A INSTRUCTION NO 1132 DATED 5TH JANUARY 1978 ON THIS ISSUE ONLY, THE RELEVANT TEXT OF THE INSTRUCTION IS BEING REPRODUCED BELOW: :- 6 -: 'A QUESTION HAS BEEN RAISED REGARDING THE AVAILABILITY OF EXEMPTION IN THE HANDS OF THE CHARITABLE TRUSTS OF AMOUNT PAID AS DONATION TO OTHER CHARITABLE TRUSTS. THE ISSUE HAS BEEN CONSIDERED BY THE BOARD AND IT HAS BEEN DECIDED THAT, AS THE LAW STANDS AT PRESENT, THE PAYMENT OF A SUM BY ONE CHARITABLE TRUST TO ANOTHER FOR UTILIZATION BY THE DONEE TRUST TOWARDS ITS CHARITABLE OBJECTS IS PROPER APPLICATION OF INCOME FOR CHARITABLE PURPOSE |IN THE HANDS OF THE DONE.' THE HON'BLE GUJRAT HIGH COURT IN THE CASE OF CIT V. SARALADEVI SARABHAI TRUST-NO.2 [1988] 172 ITR 698 FOLLOWING THE INSTRUCTION OF THE BOARD ALLOWED THE APPLICATION OF DONATION IN THE HANDS OF THE DONOR CHARITABLE TRUST. THE LAW HAS NOT CHANGED AND IS THE SAME. THUS THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 10. SINCE THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON WRONG PREMISE AND THE LD. CIT(A) HAS EXAMINED THE CORRECT FACTS IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ACT, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. WE ACCORDINGLY CONFIRM THE SAME. 11. APROPOS GROUND NO.3, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF EXCESS INTEREST PAID AMOUNTING TO RS.33,769/- TO SUPER HOUSE LEATHER LTD. UNDER THE PRETEXT THAT SUPER HOUSE LEATHER LTD. IS THE PERSON COVERED UNDER SECTION 13(3) OF THE ACT. 12. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 13(3) OF THE ACT CAN ONLY BE ATTRACTED WHERE ANY PART OF INCOME IS DIRECTLY OR INDIRECTLY USED FOR THE BENEFIT OF ANY PERSON. THE BANK HAS BEEN PROVIDING INTEREST ON SECURED LOAN @ 15% WHEREAS SUPER HOUSE LEATHER LTD. HAS PROVIDED INTEREST ON UNSECURED LOAN @ 18%. IT WAS ALSO CONTENDED BEFORE THE LD. CIT(A) THAT WHEN UNSECURED LOAN HAS BEEN OBTAINED FROM THE MARKET WITHOUT ANY SECURITY, RATE OF INTEREST @ 18% SHALL BE CHARGEABLE. :- 7 -: BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS DELETED THE ADDITION. 13. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SUPER HOUSE LEATHER LTD. HAS PROVIDED LOAN AT THE MARKET RATE, THEREFORE, IT IS NOT PROPER TO SAY THAT EXCESS RATE OF INTEREST WAS PAID TO A PERSON COVERED UNDER SECTION 13(3) OF THE ACT. 14. HAVING CAREFULLY EXAMINED THE MARKET POSITION IN THE LIGHT OF THE FACTS OF THE CASE, WE FIND THAT UNDISPUTEDLY THE MARKET RATE OF INTEREST AT THE RELEVANT POINT OF TIME WAS ALMOST 18% AND WE FIND NO UNREASONABLENESS IN PAYING THAT MUCH RATE OF INTEREST FOR UNSECURED LOAN TO A PERSON COVERED UNDER SECTION 13(3) OF THE ACT. SINCE THE LD. CIT(A) HAS TAKEN INTO ACCOUNT ALL THE RELEVANT FACTS WHILE ADJUDICATING THE ISSUE, WE FIND NO INFIRMITY IN HIS ORDER AND WE ACCORDINGLY CONFIRM THE SAME. 15. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:23 RD APRIL, 2015 JJ:1604 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR