ADIT (E) I(2), MUMBAI V. ROYAL HIGHER EDUCATION SOCIETY, MUMBAI

ITA 6262/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9113 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 09-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Charitable institution; Benefit of exemption
• Section: 143(3); 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER & SHRI P.M.JAGTAP, ACCOUNTANT MEMBER. I.T.A. NO.6262/MUM/2011 ASSESSMENT YEAR : 2008-09 ADIT (EXEMPTION), ROYAL HIGHER EDUCATION SOCIETY, 1(1), MUMBAI. VS. 380, SIR J.J. ROAD, MUMBAI 400 008. PAN ABATR 5242F APPELLANT. RESPONDENT . APPELLANT BY : SHRI A.B. KOLI. RESPONDENT BY : SHRI PRAKASH PANDIT. DATE OF HEARING : 04-12-2012 DATE OF PRONOUNCEMENT : 14-12-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-I, MUMBAI DATED 13-06-2011 WHEREBY HE DIRECTED THE AO TO ALLOW THE EXEMPTION AS CLAIMED BY THE ASSESSEE U/S 11 OF THE ACT. 2. THE ASSESSEE IN THE PRESENT CASE IS AN EDUCATION SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT AS WELL AS UNDER THE BO MBAY PUBLIC CHARITABLE TRUST ACT. IN THE RETURN OF INCOME FILED FOR THE YEAR UND ER CONSIDERATION ON 16-02-2009, EXEMPTION U/S 11 OF THE ACT WAS CLAIMED BY THE ASSE SSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT SUM OF RS .15 LAKHS HAS BEEN ADVANCED BY THE ASSESSEE TO ROYAL SOCIETY OF BOMBAY, ANOTHER TRUST HAVING COMMON TRUSTEES WITHOUT ADEQUATE SECURITY AND ADEQUATE INTEREST. HE , THEREFORE, HELD THAT IT WAS A 2 ITA NO.6262/MUM/2011 CASE OF USE OF ITS INCOME BY THE ASSESSEE TRUST DIR ECTLY OR INDIRECTLY FOR THE BENEFIT OF A PERSON REFERRED TO IN SECTION 13(3) OF THE ACT AND THE ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION U/S 11 AS PER THE PROVISIONS OF CLAUSE (C) OF SUB-SECTION (1) OF SECTION 13. HE ALSO NOTED THAT THE REGISTRATION U/S 12A OF THE ACT WAS GRANTED TO THE ASSESSEE BY THE COMMISSIONER OF INCOME-TAX ON THE B ASIS OF MEMORANDUM OF ASSOCIATION DATED 20-07-1987 AND ALTHOUGH SUBSTANTI AL CHANGES WERE MADE IN THE SAID MEMORANDUM SUBSEQUENTLY, FRESH REGISTRATION WA S NOT OBTAINED BY THE ASSESSEE AS REQUIRED TO CLAIM THE BENEFIT OF SECTIO N 11. HE, THEREFORE, DISALLOWED THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 11 IN T HE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 30-12-2010. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) BEFORE WHOM THE ASSESSEE EXPLAINED THE FACTS AND CIRCUMSTANCES IN WHICH THE ADVANCE OF RS.15 LAKHS CAME TO BE GIVEN TO ROYAL SOCIETY OF BOMBAY AS UNDER : (1) THE ASSESSEE ROYAL HIGHER EDUCATION SOCIETY IS A SOCIETY REGISTERED UNDER THE SOCIETYS REGISTRATION ACT AS WELL UNDER THE BOMBAY PUBLIC CHARITABLE TRUST ACT HAVING ITS REGISTERED OFFICE A T 390, SIR J.J. ROAD, MUMBAI 400008. THE SAID SOCIETY WAS FORMED IN THE Y EAR 1987. (1) THERE IS ALSO ANOTHER CHARITABLE TRUST RUN FROM THE SAME ADDRESS NAMED AS ROYAL SOCIETY OF BOMBAY. IN BOTH THE TRUST S THERE ARE FEW COMMON TRUSTEES. BOTH THE TRUSTS WERE TENANTS IN RE SPECT OF THE PREMISES SITUATED AT CADASTRAL SIRVEY NO 1457 OF BY CULLA DIVISION HEREINAFTER CALLED AS THE SAID PREMISES. (2) BY AGREEMENT DATED 30 TH MARCH 1998, THE LANDLORD OF THE SAID PREMISES OFFERED THE SAID PREMISES ON OWNERSHIP BAS IS TOGETHER STRUCTURE THEREON WHICH WAS IN THE POSSESSION OF SE VERAL TENANTS FOR A CONSIDERATION OF RS.15,00,000/- TO ROYAL SOCIETY OF BOMBAY. AS THE SAID ROYAL SOCIETY OF BOMBAY WAS HAVING INSUFFICIEN T CORPUS AND 3 ITA NO.6262/MUM/2011 FUNS TO PURCHASE THE SAID PREMISES WITH THE STRUCTU RE THEREON, REQUESTED THE ASSESSEE I.E. ROYAL HIGHER EDUCATION SOCIETY TO TAKE THE SAID PREMISES ON LEASE. ACCORDINGLY THE ASSESSEE RO YAL HIGHER EDUCATION SOCIETY PAID RS.15,00,000/- TO THE ROYAL SOCIETY OF BOMBAY. (3) BY AGREEMENT DATED 17 TH NOVEMBER 1999 BETWEEN THE ASSESSEE AND ROYAL SOCIETY OF BOMBAY IT WAS AGREED UNDER CLAUSE NO 5 OF THE SAID AGREEMENT THAT FOR ANY REASON THE SAID ROYAL SOCIET Y OF BOMBAY, UNABLE TO REPAY THE SAID AMOUNT OF RS.15,00,000/- T O THE ASSESSEE, IN THAT EVENT THE SAID ROYAL SOCIETY OF BOMBAY WILL LE ASE THE SAID PREMISES FOR THE PERIOD OF 99 YEARS TO THE ASSESSEE . IT WAS ALSO AGREED UNDER CLAUSE 6 OF THE SAID AGREEMENT DATED 17 TH NOVEMBER 1999 THAT THE ASSESSEE WILL BE ENTITLED TO RECOVER THE RENT F ROM THE TENANTS AND/OR THE OCCUPANTS OF THE SAID PREMISES AND IT WA S ALSO AGREED THAT THE ASSESSEE WILL PAY ALL THE MUNICIPAL TAXES AND O THER MAINTENANCE CHARGES IN RESPECT OF THE SAID PREMISES TO THE CONC ERNED AUTHORITIES. AS PER CLAUSE 7 THE SAID AGREEMENT, IT WAS ALSO AGR EED THAT CHARGES RECEIVED FOR GIVING CONSENT FOR CHANGE OF TENANCY O R SURRENDER/CREATION OF NEW TENANCY WILL BE ALSO RECE IVED BY THE ASSESSEE. (4) IN PURSUANCE OF THE SAID ARRANGEMENT BETWEEN TH E ASSESSEE AND THE SAID ROYAL SOCIETY OF BOMBAY, THE RENT INCOME AS WE LL AS DONATIONS WERE DULY RECEIVED BY ASSESSEE SINCE 1999 AND THE S AME WERE DULY DISCLOSED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AND THE SAME INCOME WAS DULY ACCEPTED BY THE ALL A.OS. IN THE PA ST. IN THE BACKGROUND OF THE FACTUAL POSITION AS EXPLAI NED ABOVE, IT WAS SUBMITTED BY THE ASSESSEE THAT THE ADVANCE OF RS.15 LAKHS WAS GI VEN TO ROYAL SOCIETY OF BOMBAY FOR PURCHASE OF THE PREMISES AND THE POSSESS ION OF THE PREMISES WAS ALSO HANDED OVER BY THE ROYAL SOCIETY OF BOMBAY TO THE A SSESSEE IN THE YEAR 1999 ITSELF. IT WAS ALSO SUBMITTED THAT THE ASSESSEE NOT ONLY ENJOYED THE POSSESSION OF THE SAID PREMISES BUT ALSO EARNED INCOME ARISING FROM T HE SAID PREMISES IN THE FORM OF 4 ITA NO.6262/MUM/2011 RENT WHICH WAS DULY DISCLOSED IN THE BOOKS OF ACCOU NT. IT WAS CONTENDED THAT THERE WAS NO INCOME APPLIED BY THE ASSESSEE TRUST DIRECTL Y OR INDIRECTLY FOR THE BENEFIT OF ROYAL SOCIETY OF BOMBAY SO AS TO SAY THAT THERE WAS ANY VIOLATION OF THE PROVISIONS OF SECTION 13 OF THE ACT. AS REGARDS THE OTHER BASIS GIVEN BY THE AO FOR REJECTING ITS CLAIM FOR EXEMPTION U/S 11 BEING SUBS TANTIAL CHANGES IN THE MEMORANDUM OF ASSOCIATION, IT WAS SUBMITTED ON BEHA LF OF THE ASSESSEE THAT THE ALLEGATION MADE BY THE AO ABOUT SUCH SUBSTANTIAL CH ANGES WAS TOTALLY FALSE AND IMAGINARY SINCE THERE WAS NO SUCH CHANGES MADE IN T HE MEMORANDUM OF ASSOCIATION DATED 20-07-1987 ON THE BASIS OF WHICH REGISTRATION U/S 12A WAS GRANTED TO IT BY THE COMMISSIONER OF INCOME TAX. A CERTIFIED TRUE COPY OF THE MEMORANDUM OF ASSOCIATION OBTAINED FROM CHARITY COM MISSIONER WAS ALSO FILED BY THE ASSESSEE SHOWING THAT THE MEMORANDUM OF ASSO CIATION DATED 20-07-1987 WAS STILL SUBSISTING AND THERE WERE NO CHANGES IN T HE SAME AS ALLEGED BY THE AO. 4. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE SUBM ISSIONS OF THE ASSESSEE AND DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSES SEE FOR EXEMPTION U/S 11 FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.2 TO 3.4 OF HIS IMPUGNED ORDER : 3.2 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANTS AR AND THE FACTS OF THE CASE. I FIND THAT THE AO IS NOT JUSTIF IED IN DENYING THE EXEMPTION U/S. 11 TO THE APPELLANT, BY TREATING THE ADVANCE O F RS.15,00,000/- GIVEN FOR ACQUIRING THE PROPERTY FOR THE PURPOSE OF CONSTRUCT ING SCHOOL BUILDING, WHICH, ACCORDING TO HIM, CANNOT BE TREATED AS ADVAN CE FOR SALE BUT SHOULD BE TREATED AS CONSIDERATION FOR ACQUIRING THE LAND FOR THE PURPOSE OF CONSTRUCTING SCHOOL BUILDING. IN FACT, THE ASSESSEE HIMSELF HAS TREATED THE ADVANCE AS CONSIDERATION FOR THE PROPERTY WHICH HAS ALREADY BEEN ACQUIRED BY THE ASSESSEE AND THE ASSESSEE IS ALREADY SHOWING INCOME FROM PROPERTY IN THE INCOME TAX RETURNS. EVEN, FOR THE PURPOSE OF TR ANSFER OF PROPERTY ACT AND INCOME TAX ACT, IF THE POSSESSION IS GIVEN OF T HE PROPERTY, THEN, THE ASSESSEE IS TO BE REGARDED AS OWNER OF THE PROPERTY , WHETHER REGISTRATION HAS BEEN DONE OR NOT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO IS NOT 5 ITA NO.6262/MUM/2011 JUSTIFIED IN DENYING EXEMPTION U/S 11 TO THE APPELL ANT TREATING CONSIDERATION PAID BY THE ASSESSEE FOR ACQUIRING THE LAND PROPERT Y AS A PURE ADVANCE WITHOUT ADEQUATE SECURITY. 3.3 IT IS A FACT THAT THE ASSESSEE HAS BEEN DISCLOS ING THE INCOME IN INCOME TAX RETURNS SINCE 1987. IT IS ALSO A FACT THAT THER E WAS AN AGREEMENT BETWEEN THE ASSESSEE AND THE ROYAL SOCIETY OF BOMBAY AND TH E ASSESSEE HAS BEEN FOLLOWING THE AGREEMENT ENTERED INTO BY THEM ON 17. 11.1999 IN RESPECT OF THIS PROPERTY. 3.4 THE AO HAS ALSO COMMENTED THAT THE ASSESSEE TRU ST HAS MADE SUBSTANTIAL CHANGES IN MEMORANDUM OF ASSOCIATION. H ENCE, THE TRUST IS NOT ELIGIBLE FOR GRANT OF REGISTRATION U/S. 12A. THE AP PELLANTS AR SUBMITTED THAT THERE IS NO CHANGE AT ALL IN THE MEMORANDUM OF ASSO CIATION. HE FILED A COPY OF THE MEMORANDUM OF ASSOCIATION AND POINTED OUT TH AT THERE IS NO CHANGE AT ALL IN THE MEMORANDUM. THE SAME MEMORANDUM OF AS SOCIATION WAS FILED BEFORE THE CHARITY COMMISSIONER ALSO AND THE DIT(EX EMPTION). THEREFORE, REGISTRATION OF THE ASSESSEE CANNOT BE CANCELLED U/ S. 12AAC. 5. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEAL S), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FO LLOWING GROUNDS : 1. WHETHER ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT(A) DRRED IN DIRECTING THE AO TO ALLOW THE EXEMPTION AS CLAIMED U/S. 11 OF THE I.T. ACT, WHEN THE ASSESSEE HAS VIOLATED THE PROVISIONS U/S. 13(3) OF THE I.T. ACT. 2. WHETHER ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN THE AO TO ALLOW THE EXEMPTION AS CLAIMED U/S. 11 OF THE I.T. ACT INSPITE OF SUBSTANTIAL CHANGE IN THE MEMORANDUM OF ASSOCIATION. 6. AT THE TIME OF HEARING BEFORE US, THE LEARNED DR HAS NOT PRESSED GROUND NO.2 RAISED BY THE REVENUE IN THIS APPEAL THEREBY A CCEPTING THAT THERE WAS NO 6 ITA NO.6262/MUM/2011 SUBSTANTIAL CHANGE IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE TRUST DATED 20-07-1987 ON THE BASIS OF WHICH REGISTRATION U/S 1 2A WAS GRANTED BY THE COMMISSIONER OF INCOME TAX. GROUND NO. 2 OF THE REV ENUES APPEAL IS ACCORDINGLY DISMISSED. 7. AS REGARDS GROUND NO.1, THE LEARNED DR SUBMITTED THAT THE ASSESSEE TRUST HAVING GIVEN ADVANCE OF RS.15 LAKHS TO ROYAL SOCIET Y OF BOMBAY, THE PERSON REFERRED TO IN SECTION 13(3), WITHOUT ADEQUATE SECU RITY OR ADEQUATE INTEREST, IT WAS A CLEAR CASE OF VIOLATION AS SPECIFIED IN SECTION 13( 1) READ WITH SECTION 13(2)(A) MAKING THE ASSESSEE DISENTITLED FOR THE BENEFIT OF SECTION 11. HE CONTENDED THAT THE AO, THEREFORE, WAS CORRECT IN DENYING THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 11 AND THE LEARNED CIT(APPEALS) IS NOT JUSTIFIED IN DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR SUCH EXEMPTION. HE, THERE FORE, STRONGLY RELIED ON THE ORDER OF THE AO IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, STRONGLY RELIED ON THE ORDER OF THE LEARNED CIT(APPEALS) AS WELL AS TH E DETAILED SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CASE ON TH IS ISSUE. HE SUBMITTED THAT THE ADVANCE OF RS.15 LAKHS WAS GIVEN BY THE ASSESSEE TO ROYAL SOCIETY OF BOMBAY IN THE YEAR 1999 AND THAT TOO FOR ACQUIRING PROPERTY F OR THE PURPOSE OF CONSTRUCTING SCHOOL BUILDING. HE SUBMITTED THAT THE POSSESSION O F THE SAID PROPERTY WAS ALSO TAKEN BY THE ASSESSEE IN THE YEAR 1999 ITSELF AND E VEN THE RENTAL INCOME EARNED FROM THE SAID PREMISES WAS DULY RECORDED BY THE ASS ESSEE IN ITS BOOKS OF ACCOUNTS. HE CONTENDED THAT THERE WAS THUS NO VIOLATION OF AN Y OF THE PROVISIONS OF SECTION 13 AS RIGHTLY HELD BY THE LEARNED CIT(APPEALS) WHIL E DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 11. 7 ITA NO.6262/MUM/2011 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. AS PER THE PROVISIONS OF CLAUSE (C) OF SUB-SECTION (1) OF SECTION 13, IF ANY PART OF INCOME OR PROPERTY OF THE TRUST IS USED OR APPLIED DURING THE RELEVANT PREVIOUS YEAR DIRECTLY OR INDIRECTLY FOR T HE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SECTION (3) OF SECTION 13, THE BENEFIT OF SE CTION 11 SHALL NOT BE AVAILABLE. SECTION 13(2) SPECIFIES TRANSACTIONS WHICH ARE DEEM ED TO BE FOR THE BENEFIT OF SUCH PERSONS AND AS PER CLAUSE (A) THEREOF, IF ANY PART OF THE INCOME OR PROPERTY OF THE TRUST IS OR CONTINUES TO BE LENT TO ANY PERSON REF ERRED TO IN SECTION 13(3) FOR ANY PERIOD DURING THE PREVIOUS YEAR WITHOUT EITHER ADEQ UATE SECURITY OR ADEQUATE INTEREST OR BOTH, THE SAME SHALL BE TREATED AS THE TRANSACTIONS DEEMED TO BE FOR THE BENEFIT OF SUCH PERSON. IN THE PRESENT CASE, THE AM OUNT OF RS.15 LAKHS NO DOUBT WAS ADVANCED BY THE ASSESSEE TRUST TO ROYAL SOCIETY OF BOMBAY, A PERSON REFERRED TO IN SECTION 13(3). HOWEVER, THE SAID AMOUNT WAS PAID AG AINST ACQUISITION OF PROPERTY AS PER THE AGREEMENT DATED 17 TH NOVEMBER, 1999. IN PURSUANCE OF THE SAID AGREEMENT, THE POSSESSION OF THE PROPERTY WAS ALSO RECEIVED BY THE ASSESSEE TRUST AND EVEN THE INCOME FROM THE SAID PROPERTY IN THE F ORM OF RENT WAS RECEIVED BY THE ASSESSEE WHICH WAS DULY DISCLOSED IN ITS BOOKS OF A CCOUNT. THE ASSESSEE WAS ALREADY A TENANT IN THE SAID PROPERTY AND THE PURPO SE OF ACQUIRING THE SAID PROPERTY WAS TO CONSTRUCT A SCHOOL THEREON AS PER OBJECTIVE OF THE ASSESSEE TRUST. HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE AGREE WIT H THE VIEW OF THE LEARNED CIT(APPEALS) THAT THE AMOUNT OF RS.15 LAKH ADVANCED BY THE ASSESSEE TRUST TO ROYAL SOCIETY OF BOMBAY CANNOT BE TREATED AS GIVEN WITHOUT ADEQUATE SECURITY OR INTEREST SO AS TO DENY IT THE BENEFIT OF EXEMPTION AVAILABLE U/S 11 BY INVOKING SECTION 13(1) READ WITH SECTION 13(2)(A). WE, THERE FORE, UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DIRECTING THE AO TO ALL OW EXEMPTION U/S 11 AS CLAIMED BY THE ASSESSEE AND DISMISS GROUND NO. 1 OF THE REV ENUES APPEAL. 8 ITA NO.6262/MUM/2011 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF DEC., 2012. SD/- SD/- (D.K.AGARWAL) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 14 TH DEC., 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, D-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENCHES, MUMB AI. WAKODE