Services Association of Seventh Day Adventists P Ltd., CHENNAI V. ITO (OSD), CHENNAI

ITA 669/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4651 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RANGARAJAN JUNIOR
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Cost of acquisition; Revocable transfer; Benefit of exemption; Condonation of delay; Revised return; Capital expenditure
• Section: 10B; 6; 263; 63; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 669/MDS/2011 ASSESSMENT YEAR : 2006-07 M/S SERVICES ASSOCIATION OF SEVENTH DAY ADVENTISTS P LTD., AA 148, III AVENUE, ANNA NAGAR, CHENNAI 600 040. PAN : AAACS9635J (APPELLANT) V. THE INCOME TAX OFFICER (OSD), EXEMPTIONS, CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE RESPONDENT BY : SHRI K.E.B . RANGARAJAN, JUNIOR STANDING COUNSEL O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THROUGH THIS APPEAL, ASSESSEE ASSAILS THE ORDER OF DIT(EXEMPTIONS), CHENNAI, HOLDING THAT THE ASSESSME NT MADE FOR THE IMPUGNED ASSESSMENT YEAR ON THE ASSESSEE WAS ERRONE OUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF THE REVEN UE. AS PER THE I.T.A. NO. 669/MDS/11 2 ASSESSEE, DIT(E) WAS ONLY SUBSTITUTING A LAWFUL VIE W TAKEN BY THE ASSESSING OFFICER BY HIS OWN VIEW. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, AN ORGANI ZATION REGISTERED UNDER SECTION 12A(A) OF INCOME-TAX ACT, 1961 (IN SHORT THE ACT) AND ALSO A COMPANY REGISTERED UNDER SECT ION 25 OF THE COMPANIES ACT, 1956, WHICH WAS RUNNING EDUCATIONAL INSTITUTIONS, HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASS ESSMENT YEAR ON 12.2.2007. THE SAID RETURN WAS REVISED BY THE ASSE SSEE ON 12.3.2008. DURING THE COURSE OF ASSESSMENT PROCEED INGS, A.O. NOTED THAT THE IMMOVABLE PROPERTIES OF THE ASSESSEE ALONG WITH THAT OF THREE OTHER ASSESSEES WERE HELD BY ANOTHER ORGAN IZATION CALLED INDIA FINANCIAL ASSOCIATION (IFA). IN THE BOOKS OF THE ASSESSEE, IMMOVABLE PROPERTIES WORTH ` 16,92,30,947/- WERE SHOWN AS TRANSFERRED TO M/S IFA. ASSESSING OFFICER NOTED TH AT WHAT WAS REFLECTED IN THE BALANCE SHEET OF IFA, WHICH INCIDE NTALLY WAS ALSO REGISTERED UNDER SECTION 12A(A) OF THE ACT, WAS ` 3,36,11,598/- ONLY. ASSESSEE WAS REQUIRED TO RECONCILE THE DIFFERENCE. ASSESSEE FILED A RECONCILIATION WHICH SHOWED THAT OVER A PERIOD OF F OUR YEARS, THE PROPERTIES ACQUIRED BY THE ASSESSEE BUT, HELD IN TH E NAME OF M/S IFA I.T.A. NO. 669/MDS/11 3 WAS PROPERTY RECONCILED AND ACCOUNTED BY M/S IFA. THE ASSESSING OFFICER DID NOTE THAT ENTIRE CAPITAL EXPENDITURE IN CURRED FOR ACQUISITION OF THE PROPERTIES WERE TREATED AS APPLICATION OF IN COME BY THE ASSESSEE IN TWO PARTS - ONE UNDER THE HEAD TRANSFE R TO IFA AND ANOTHER UNDER THE HEAD DIFFERENCE BETWEEN CLOSING WIP AND OPENING WIP. HOWEVER, A.O. REFUSED TO TAKE COGNIZ ANCE OF THE REVISED RETURN FILED BY THE ASSESSEE SINCE THE ORIG INAL ASSESSMENT WAS FILED OUT OF TIME. NEVERTHELESS, FROM THE FIGU RES GIVEN IN THE REVISED RETURN, THE A.O. FOUND THAT A SALE CONSIDER ATION OF ` 23,22,16,084/- AND INTEREST OF ` 49,04,735/- THEREON WERE ADMITTED BY THE ASSESSEE FOR SALE OF CERTAINED PROPERTIES IN TH E RELEVANT PREVIOUS YEAR HELD IN THE NAME OF M/S IFA. HOWEVER, AS PER THE LD. A.O., THE RELEVANT SALE DEEDS EVIDENCED THE CONSIDERATION AS ` 25,49,72,937/-. A RECONCILIATION STATEMENT IN THIS REGARD WAS ALSO FILED BY THE ASSESSEE. A.O. THEREAFTER CONCLUDED THE ASSESSMENT GIVING THE ASSESSEE BENEFIT OF EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT AND THERE BEING EXCESS OF APPLICATION OVER INCOME, TOTAL INCOME WAS DETERMINED AT NIL. TO COMPLETE THE FACTUAL SCENA RIO, IT NEEDS TO BE MENTION THAT ASSESSEE HAD ALONG WITH THE REVISED RE TURN FILED A FORM I.T.A. NO. 669/MDS/11 4 NO.10 FOR ACCUMULATION OF ITS INCOME. SINCE SUCH F ORM NO.10 WAS BEYOND THE DUE DATE OF FILING RETURN, ASSESSEE HAD FILED AN APPLICATION FOR CONDONATION OF DELAY BEFORE DIT(E) ON 5.12.2008 AND DIT(E) VIDE HIS ORDER DATED 30.12.2008 HAD CONDONED SUCH DELAY. NEVERTHELESS, THIS FORM NO.10 WAS NOT CONSIDERED IN THE ASSESSMEN T SINCE THE ASSESSING OFFICER HAD NOT TAKEN COGNIZANCE OF REVIS ED RETURN AT ALL. 3. LATER, ON 16.3.2011 DIT(E) ISSUED A SHOW CAUSE N OTICE TO THE ASSESSEE UNDER SECTION 263 OF THE ACT. AS PER THE DIT(E), THE DETAILS FILED ALONG WITH RETURN DID SHOW THAT M/S IFA HAD T RANSFERRED FOUR IMMOVABLE PROPERTIES DURING THE RELEVANT PREVIOUS Y EAR THROUGH SALES. AS PER THE DIT(E), WHEN THE SALE OF THE PRO PERTIES WERE EFFECTED, THE PROPERTIES WERE HELD IN THE NAME OF I FA THOUGH THE PURCHASE CONSIDERATION AT THE TIME OF PURCHASE OF P ROPERTIES WERE PAID BY THE ASSESSEE. AGAIN AS PER DIT(E), ENTIRE AMOUNT RECEIVED ON THE SALE OF PROPERTIES WAS RETURNED BY IFA ALONG WITH INTEREST TO THE ASSESSEE. BASED ON THIS, DIT(E) PUT THE ASSESS EE ON NOTICE AS TO WHY THE ABOVE TRANSACTIONS COULD NOT BE CONSIDER ED A REVOCABLE TRANSFER AND WHY PROVISIONS OF SECTIONS 60 TO 63 SH OULD NOT BE APPLIED. AS PER LD. DIT(E), THE TOTAL INCOME ARISI NG OUT OF SUCH I.T.A. NO. 669/MDS/11 5 REVOCABLE TRANSFER COULD NOT BE GIVEN EXEMPTION UND ER SEC. 11 OF THE ACT, SINCE SECTION 11 STARTED WITH THE WORDS SUBJE CT TO THE PROVISIONS OF SECTIONS 60 TO 63. 4. ASSESSEE IN ITS REPLY DATED 25 TH MARCH, 2011 SUBMITTED THAT THERE WAS NO TRANSFER WHATSOEVER WITHIN THE MEANING OF SEC. 60 TO 63 OF THE ACT. AS PER THE ASSESSEE, M/S IFA, WHICH WA S ALSO AN ORGANIZATION REGISTERED UNDER SEC. 12A(A) OF THE AC T, WAS HOLDING THE PROPERTIES FOR THE BENEFIT OF THE ASSESSEE ONLY. A SSESSEE BROUGHT TO THE NOTICE OF THE DIT(E) THAT THE ISSUE REGARDING H OLDING OF ASSETS OF THE ASSESSEE BY IFA WAS RAISED FREQUENTLY BY VARIOU S ASSESSING OFFICERS OVER VARIOUS EARLIER ASSESSMENTS SPANNING MORE THAN 25 YEARS AND THE DETAILS WERE ALSO SUBMITTED TO THEIR SATISFACTION. AS PER THE ASSESSEE, WHEN THE PROPERTIES WERE HANDED OVER TO IFA, THERE WAS NO TRANSFER OF OWNERSHIP AND THE IFA WAS ONLY H OLDING THE PROPERTIES IN TRUST FOR THE BENEFIT OF THE ASSESSEE . ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE LD. DIT(E) THAT SUCH A N ARRANGEMENT WAS IN LINE WITH OBJECT CLAUSE OF THE ASSESSEE AS WELL AS THAT OF M/S IFA. FURTHER, AS PER THE ASSESSEE, SEC. 11 WAS ONLY SUB JECT TO SECTIONS 60 TO 63 AND THIS COULD NOT BE INTERPRETED TO MEAN THAT OPERATION OF I.T.A. NO. 669/MDS/11 6 SEC. 60 TO 63 WOULD RESULT IN DENIAL OF EXEMPTION U NDER SECTION 11 OF THE ACT. ASSESSEE CONCEPTUALIZED TWO SITUATIONS ONE WHEN THE ORGANIZATION ITSELF WAS FORMED BY A REVOCABLE TRANS FER AND ANOTHER WHERE THE PROPERTIES OF AN ORGANIZATION WERE TRANSF ERRED TO ANOTHER THROUGH A REVOCABLE TRANSFER. AS PER THE ASSESSEE, EVEN IF IT WAS PRESUMED THAT THE LATTER SITUATION APPLIED, THE ONL Y IMPLICATION WAS THAT THE INCOME ARISING TO THE BENEFICIARY COULD BE CONSIDERED IN THE HANDS OF TRANSFEROR, BUT, IT WOULD NOT RESULT IN DE NIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT. THEREFORE, AS PER THE ASSESSEE, THERE WAS NO ERROR IN THE ORDER OF THE ASSESSMENT PASSED BY THE ASSESSING OFFICER MUCH LESS ANY ERROR WHICH WAS PREJUDICIAL T O THE INTERESTS OF THE REVENUE. 5. HOWEVER, THE DIT(E) WAS NOT IMPRESSED. ACCORDIN G TO HIM, AT THE TIME OF PURCHASING IMMOVABLE PROPERTY REGISTRAT ION WAS MADE IN THE NAME OF M/S IFA THOUGH THE PAYMENTS WERE MADE B Y THE ASSESSEE. HENCE, AS PER LD. DIT(E), THE TRANSFER W HICH WAS EFFECTED THROUGH BOOK ENTRIES WERE GENUINE AND SINCE ON THE SALE OF SUCH PROPERTY, MONEY WAS RETURNED TO THE ASSESSEE THE RE SULT WAS A REVOCABLE TRANSFER. FURTHER, AS PER LD. DIT(E), ON CE THERE IS A I.T.A. NO. 669/MDS/11 7 REVOCABLE TRANSFER, EXEMPTION UNDER SECTION 11 COUL D NOT BE GIVEN TO THE TRANSFEROR. CRUX OF THE FINDING OF LD. DIT(E) AS APPEARING IN PARA 7 OF HIS ORDER IS REPRODUCED HEREUNDER:- 7.1 IN THE INSTANT CASE REVOCABLE TRANSFER HAS TAKE N PLACE AT THE TIME OF PURCHASE OF PROPERTY ITSELF WHEN FUND IS TRANSFERRED BY THE ASSESSEE FOR PURCHASING PROPERTY IN THE NAME I FA AND ON SALE THE CONSIDERATION ARE RETURNED BACK TO THE ASS ESSEE. THEREFORE WHATEVER INCOME HAS ARISEN ON SUCH TRANSF ER FROM THE TIME OF PURCHASE OF PROPERTY TO THE SALE OF PROPERTY, SUCH INCOME IS TAXABLE IN THE HANDS OF THE TRANSFEROR I. E. THE ASSESSEE. IN THE PRESENT CASE, SINCE THE INCOME IS ACCRUING O N THE TRANSFER OF CAPITAL ASSET PROVISIONS OF CAPITAL GAIN IS APPL ICABLE ON ALL THE THREE PROPERTIES NAMELY :- SPICER COLLEGE, LAWRY MEMO RIAL COLLEGE AND KOLAR LAND. IN VIEW OF THE ABOVE, IT IS CONCLU DED THAT THE ASSESSMENT ORDER IN QUESTION IS ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE AS THE ASSESSMENT ORDER HAS NOT BEEN FRAMED IN ACCORDANCE WITH THE PROVISIONS OF INCOME TAX ACT AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS TAX D UE TO SUCH ERROR HAS NOT BEEN MADE PAYABLE BY THE ASSESSEE. HEN CE, PRESENT CASE IS SQUARELY COVERED WITHIN THE PROVISIO NS OF SEC.263 OF THE I.T. ACT. THE CAPITAL GAIN AS WORKED OUT FR OM THE TABLE AT PARA 6 IS GIVEN BELOW: PROPERTY NAME CAPITAL GAIN AS PER TABLE IN PARA-6 SPICER COLLEGE RS.14,93,35,436 LOWRY MEMORIAL COLLEGE RS.10,18,93,367 KOLAR LAND RS.9,06,692 I.T.A. NO. 669/MDS/11 8 THUS, HE REACHED AN OPINION THAT THE ASSESSMENT ORD ER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THE DIRECTIONS GIVEN TO THE A.O. BY THE LD. DIT(E) WERE AS UNDER: 7.2 THE ASSESSING OFFICER IS DIRECTED TO TAX THE AB OVE CAPITAL GAIN IN RESPECT OF THE ABOVE PROPERTIES AS PER COMP UTATION GIVEN ABOVE UNDER THE HEAD CAPITAL GAIN WITHOUT GIVING AN Y EXEMPTION U/S 1 ON SUCH CAPITAL GAIN, WHICH WILL AMOUNT TO EN HANCEMENT OF INCOME U/S 263. 8. FOR THE FOURTH PROPERTY, I.E. AMBUR LAND ASSESSIN G OFFICER IS DIRECTED TO FIND COST OF ACQUISITION AND GIVE TH E INDEXATION BENEFIT TO THE ASSESSEE IT IS LONG TERM CAPITAL ASS ET AND TAX THE SAME UNDER THE HEAD CAPITAL GAINS WITHOUT GIVING EX EMPTION U/S 11 WHICH AMOUNTS TO ENHANCEMENT OF INCOME U/S 263. 6. NOW BEFORE US LEARNED A.R., STRONGLY ASSAILING T HE ORDER OF LD. DIT(E), SUBMITTED THAT THE REVISED RETURN OF THE AS SESSEE FILED ON 12.3.2008 THOUGH NOT TAKEN COGNIZANCE WAS CAREFULLY CONSIDERED BY THE ASSESSING OFFICER WHILE FRAMING THE ORIGINAL AS SESSMENTS, VIS-- VIS THE TRANSACTIONS SHOWN THEREIN. FURTHER, ACCOR DING TO HIM, THE REVISION OF RETURN HAD BECOME NECESSARY SINCE ASSES SEE COULD OBTAIN DETAILS OF THE TRANSFERS EFFECTED BY IFA ONLY LATER TO THE DATE OF FILING OF THE ORIGINAL RETURN AND ONCE SUCH TRANSFERS WERE TA KEN INTO CONSIDERATION, THERE RESULTED AN EXCESS OF INCOME O VER UTILIZATION, NECESSITATING FILING OF FORM NO.10 FOR ACCUMULATION . LEARNED A.R. I.T.A. NO. 669/MDS/11 9 POINTED OUT THAT THE APPLICATION BEFORE LD. DIT(E) FOR CONDONATION OF DELAY WAS FILED ON 4 TH DECEMBER, 2008 AND IN SUCH APPLICATION, ALL THE DETAILS REGARDING THE CONSTITUTION OF THE ASSESSEE AS WELL AS IFA, THE NATURE OF TRANSACTIONS RELATING TO THE IMMOVABLE PR OPERTIES AND THE OBJECTS OF BOTH THESE ORGANIZATIONS WERE WELL EXPLA INED. FURTHER, AS PER LEARNED A.R., THE DETAILS OF THE PROPERTIES HEL D BY IFA AND SOLD DURING THE RELEVANT PREVIOUS YEAR WHICH RESULTED IN SURPLUS WAS ALSO GIVEN TO DIT(E). AS PER THE LEARNED A.R., THE DIT( E) HAD CONSIDERED SUCH DETAILS FURNISHED AND BY HIS ORDER DATED 30.12 .2008 PLACED AT PAPER-BOOK PAGE NO.44, CONDONED THE DELAY. AGAIN, AS PER LEARNED A.R., THERE WAS NO TRANSFER OF ANY PROPERTY DURING THE RELEVANT PREVIOUS YEAR FROM THE ASSESSEE TO IFA NOR FROM IFA TO ASSESSEE AND HENCE, THERE WAS NO QUESTION OF THERE BEING ANY REV OCABLE TRANSFER. CONTINUING HIS ARGUMENTS, LEARNED A.R. SUBMITTED TH AT EVEN IF A REVOCABLE TRANSFER WAS PRESUMED, THERE WOULD BE NO PREJUDICE CAUSED TO THE REVENUE SINCE BOTH THE ORGANIZATIONS WERE ENJOYING EXEMPTION UNDER SECTION 11 OF THE ACT AND WHETHER I T WAS ASSESSEE OR IFA, THE INCOME WOULD REMAIN EXEMPT. LEARNED A. R. SPECIFICALLY POINTING OUT THE ORIGINAL ASSESSMENT ORDER PLACED A T PAPER-BOOK I.T.A. NO. 669/MDS/11 10 PAGES 45 TO 49, ARGUED THAT THE LD. A.O. HAD CONSID ERED ALL ASPECTS OF THE TRANSFERS AND EVEN REQUIRED THE ASSESSEE TO REC ONCILE THE DIFFERENCE IN THE AMOUNTS APPEARING IN THE BALANCE SHEET OF IFA AND AS SHOWN BY THE ASSESSEE IN THE REVISED RETURN. TH EREFORE, ACCORDING TO HIM, ASSESSING OFFICER HAD ALLOWED THE ASSESSEE EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT ONLY AFTER PROPER APPLICATION OF MIND. THE DIT(E) WAS TRYING TO SUBS TITUTE HIS VIEW TO THE LAWFUL VIEW TAKEN BY THE A.O. LEARNED A.R. POI NTED OUT THAT BOTH ASSESSEE AS WELL AS IFA HAVE BEEN EXISTING SINCE LO NG AND HAVE BEEN ENJOYING EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT WITHOUT BREAK FOR ALL THE YEARS. ACCORDING TO HIM, THE SUB JECT PROPERTIES WERE ALL PURCHASED DURING THE PERIOD 1961 TO 1969 EXCEPT ONE PROPERTY WHICH WAS PURCHASED IN 1988 AND ALL SUCH PROPERTIES ALL ALONG WERE HELD UNDER THE NAME OF M/S IFA. IN NONE OF THE EAR LIER YEARS, THERE WAS ANY DENIAL OF EXEMPTION THOUGH SIMILAR TRANSACT IONS WERE THERE. LEARNED A.R. ALSO BROUGHT TO OUR ATTENTION DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN I.T.A. NO. 1514 TO 1518/M DS/85 DATED 7 TH JULY, 1987 PLACED AT PAPER-BOOK PAGES 87 TO 88, WHE REIN IT WAS HELD THAT M/S IFA WAS ELIGIBLE FOR EXEMPTION UNDER SECTI ONS 11 AND 12 OF I.T.A. NO. 669/MDS/11 11 THE ACT. LEARNED A.R. POINTED OUT THAT JURISDICTIO NAL HIGH COURT IN TAX CASES NO. 28 TO 32 OF 1996 (PAPER-BOOK PAGES 89 TO 90) HAD UPHELD THIS DECISION OF THE TRIBUNAL THROUGH A SPEAKING OR DER. HENCE, ACCORDING TO HIM, NOT ONLY THE ASSESSING OFFICER HA D TAKEN A LAWFUL VIEW, BUT EVEN IF SUCH VIEW WAS CONSIDERED ERRONEOU S IT WOULD NOT CAUSE ANY PREJUDICE TO THE REVENUE. ACCORDING TO H IM, LD. DIT(E) WAS WRONG IN INTERPRETING SEC.60 TO 63 TO HOLD THAT THE RE WAS REVOCABLE TRANSFER WHEN THERE WAS NO TRANSFER WHATSOEVER IN T HE RELEVANT PREVIOUS YEAR DONE BY THE ASSESSEE. 7. PER CONTRA, LEARNED D.R. SUBMITTED THAT THE CIRC UMSTANCES OF THE PURCHASE MADE IN THE NAME OF IFA, THOUGH THE MO NEY WAS PAID BY THE ASSESSEE AS ALSO THE RETURN OF THE MONEY BY M/S IFA ON EFFECTING SALE OF THE PROPERTY, CLEARLY SHOWED THE EXISTENCE OF A REVOCABLE TRANSFER. ONCE THERE WAS REVOCABLE TRANS FER, ACCORDING TO HIM, EXEMPTION UNDER SEC.11 OF THE ACT COULD NOT BE GIVEN SINCE SEC. 11 STARTED WITH THE WORDS SUBJECT TO THE PROVISION S OF SEC.60 TO 63. LD. D.R. POINTED OUT THAT THE ASSESSING OFFICER HAD NOT CONSIDERED THIS ISSUE REGARDING EXISTENCE OF A REVOCABLE TRANS FER AND THEREFORE, I.T.A. NO. 669/MDS/11 12 THE ORDER OF THE A.O. WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. FOR APPLICATION OF SEC.263 OF THE ACT, TWO CONDITIO NS THAT ARE TO BE SATISFIED ARE THAT THE ORDER OF THE ASSESSING OFFIC ER SHOULD BE ERRONEOUS AND AT THE SAME TIME PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. IT HAS BEEN OFTEN HELD BY HON'BLE APEX CO URT THAT WHEN THE ASSESSING OFFICER HAS TAKEN A LAWFUL VIEW WHERE TWO VIEWS WERE POSSIBLE, SUCH AN ORDER CANNOT BE CONSIDERED ERRONE OUS. HERE, THE QUESTION IS WHETHER THE ASSESSING OFFICER HAD APPLI ED HER MIND REGARDING THE ISSUE OF HOLDING OF THE PROPERTY BY I FA, WHEN MONEY FOR PURCHASE OF THE PROPERTY WAS PAID BY ASSESSEE. A L OOK AT THE ASSESSMENT ORDER FOR THE IMPUGNED ASSESSMENT YEAR P LACED AT PAPER-BOOK PAGES 45 TO 48 WOULD CLEARLY ANSWER THIS QUESTION. PARAS 2 TO 7 OF THE ASSESSMENT ORDER ARE REPRODUCED HEREU NDER:- 2. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASST. YEAR 2006-07 ON 12.02.2007 ADMITTING INCOME OF RS.59,07, 96,658/-. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF TH E INCOME- TAX ACT, 1961 ON 28.01.2008. THE CASE WAS TAKEN UP FOR SCRUTINY AS PER BOARDS NORMS AND NOTICE U/S 143(2) OF THE I NCOME-TAX ACT, 1961 WAS ISSUED ON 07.02.2008. I.T.A. NO. 669/MDS/11 13 3. SUBSEQUENTLY, A REVISED RETURN WAS FILED BY THE AS SESSEE ON 12.03.2008 ADMITTING INCOME OF RS.82,80,82,366/- . THE ASSESSEES REPRESENTATIVES, SHRI LEROY SAMUEL, ASSOC IATE TREASURER, SHRI M. SELVAKUMAR, CONTROLLER OF ACCOUN TS, SHRI V.R. RAGHUNATHAN, CA AND SHRI V. SUNDARARAMAN, CA FROM M /S S. VISWANATHAN & CO. APPEARED AND THE CASE WAS DISCUSS ED. THE DETAILS FURNISHED BY THE ASSESSEE WERE VERIFIED. 4. THE IMMOVABLE PROPERTIES OF THE FOLLOWING FOUR T RUSTS GET TRANSFERRED TO INDIA FINANCIAL ASSOCIATION (IFA): I) SERVICES ASSOCIATION OF SEVENTH DAY ADVENTIST (P) LTD. (SERVSDA) II) THE COUNCIL OF SEVENTH DAY ADVENTIST EDUCATIONAL INSTITUTIONS (CSDA) III) THE MEDICAL TRUST OF SEVENTH DAY ADVENTIST (MSDA) IV) EDUCATIONAL TRUST OF SEVENTH DAY ADVENTIST (ESDA) 5. DURING THE ASSESSMENT PROCEEDINGS FOR THE AY 200 6-07, IT WAS NOTED THAT IMMOVABLE PROPERTIES WORTH RS.16,92,30,947 /- WERE TRANSFERRED FROM THE ASSESSEE TRUST TO INDIA F INANCIAL ASSOCIATION OF SDA (IFA). ON PERUSAL OF THE RETURN OF INCOME FILED BY THE IFA, IT WAS NOTICED THAT ONLY IMMOVABLE PROPERTIES WORTH RS.3,36,11,598/- WERE REFLECTED IN THE BALANC E SHEET. THE ASSESSEE WAS ASKED TO CLARIFY THE DIFFERENCE OF RS.13,56,19,349/-. 6. IN RESPONSE TO THE QUERY, THE ASSESSEE VIDE ITS L ETTER DT 04.12.2008, HAD TAKEN THE STAND THAT NO PROPERTY WAS TRANSFERRED BUT IT WAS ONLY HANDED OVER FOR HOLDING IN TRUST, WHILE THE POSSESSION CONTINUES TO BE WITH THE ASSES SEE. THE ASSESSEE ALSO STATED THAT IT IS THE ENTIRE CAPITAL EXPENDITURE INCURRED DURING THE YEAR, WHICH IS TREATED AS APPLIC ATION OF INCOME IN TWO PARTS, I.E., PART ACCOUNTED AS TRANSFER TO IFA AND PART AS DIFFERENCE BETWEEN CLOSING WIP AND OPENING WIP , AFTER DUE VALUATION BY IFA. THE ASSESSEE FILED A RE CONCILIATION STATEMENT GIVING THE DETAILS OF THE TRANSFER OF PRO PERTY TO IFA FROM SERVSDA, SPREAD OVER THREE YEARS. I.T.A. NO. 669/MDS/11 14 7. THE ASSESSEE HAS FILED THE ORIGINAL RETURN OF IN COME ON 12.02.2007, I.E. AFTER THE TIME ALLOWED U/S 139(1) AND HENCE, THE REVISED RETURN OF INCOME FILED ON 12.03.2008 CANNOT BE TAKEN COGNIZANCE OF. IN THE REVISED WORKING FOR FORM 10B , SALE CONSIDERATION OF RS.23,22,16,084/- AND INTEREST OF RS.49,04,735/- HAS BEEN ADMITTED. HOWEVER, AS PER THE SALE DEEDS, THE GROSS SALE CONSIDERATION RECEIVED WAS RS.25,49,72,937/-. A RECONCILIATION OF THE SAME WA S CALLED FOR AND THE ASSESSEE VIDE ITS LETTER DATED 19.12.2008, STATED THAT RS.1,79,49,892 WAS ALREADY ADMITTED IN THE ORIGINAL RETURN. THE ASSESSEES REPRESENTATIVE WAS INFORMED THAT THE DIF FERENCE OF RS.48,06,961/- WHICH HAD NOT BEEN EXPLAINED WOULD A LSO BE TREATED AS INCOME. THUS, THE ASSESSING OFFICER WAS WELL AWARE THAT THE IMMOVABLE PROPERTIES OF THE ASSESSEE WERE HELD BY IFA. ASSES SING OFFICER WAS ALSO AWARE OF THE DIFFERENCE IN FIGURES BETWEEN IFA AND ASSESSEE WITH REGARD TO CONSIDERATION RECEIVED. ASSESSING O FFICER HAD ALSO SOUGHT RECONCILIATION AND MADE AN ADDITION FOR THE DIFFERENCE. BOTH THE ASSESSEE AND IFA ARE ORGANIZATIONS WHICH HAVE B EEN ENJOYING EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT FOR A LONG PERIOD. IFA HAS BEEN EXISTING SINCE 1908 AS EVIDENT FROM ITS ME MORANDUM OF ASSOCIATION PLACED AT PAPER-BOOK PAGES 82 TO 85, WH EREAS, ASSESSEE HAS BEEN IN EXISTENCE SINCE 1895. BOTH ASSESSEE AS WELL AS IFA HAVE BEEN ENJOYING EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT ALL THROUGH AND THE METHOD FOLLOWED FOR HOLDING OF THE IMMOVABLE I.T.A. NO. 669/MDS/11 15 PROPERTIES WAS ALSO CONSISTENTLY THE SAME. THE PRO PERTIES IN QUESTION, THE TRANSACTIONS RELATING TO WHICH WERE C ONSIDERED BY LD. DIT(E) AS TO HAVE RESULTED IN A REVOCABLE TRANSFER, WERE ACQUIRED LONG BACK DURING THE YEARS 1965 TO 1969 AND 1988. SO, T HE POSITION IS A CONTINUING ONE AND METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WHEREBY ITS IMMOVABLE PROPERTIES WERE HELD BY IFA, PERMEATED OVER A LARGE NUMBER OF YEARS. NOTHING UNLAWFUL HAS BEEN FOUND BY ANY ASSESSING AUTHORITY OR HIGHER FORUMS IN THIS REGARD . IN FACT, THIS TRIBUNAL WITH REGARD TO REVENUES APPEAL IN THE CAS E OF M/S IFA AND VIDE ITS ORDER DATED 7 TH JULY, 1987 IN I.T.A. NO. 1514 TO 1518/MDS/85 (PAPER-BOOK PAGES 87 TO 88), CLEARLY HELD AS UNDER: - WE MUST, THEREFORE, DISREGARD ALL THOSE CLAUSES WHI CH STATE MERELY THE POWERS OF THE ASSESSEE AND CONFINE OURSEL VES TO THE SPECIFIC CLAUSES THAT RELATE TO THE OBJECTS OF THE ASSOCIATION. THE PRIMARY OBJECT IS CONTAINED IN CLAUSE (A) AND I S ELUCIDATED BY CLAUSES (E) AND (F). THESE CLAUSES SHOW THAT THE P RIMARY OBJECT OF THE ASSESSEE IS TO MANAGE THE AFFAIRS OF OTHER C HARITABLE INSTITUTIONS OF THE SEVENTH DAY ADVENTIST DENOMINATI ON. CLEARLY THIS PRIMARY OBJECT IS A CHARITABLE OBJECT INASMUCH AS ADMITTEDLY THE OBJECTS OF THE TRUSTS WHICH ARE MANAGED BY THE A SSESSEE ARE THEMSELVES CHARITABLE IN NATURE. THE SECOND OBJECT ION OF THE REVENUE IS THAT THE OBJECTS EXTENDED TO THE TERRITO RIES OF BURMA AND CEYLON AND TO THE EXTENT TO WHICH THEY TRAVEL BEYO ND THE SHORES OF THE NATION THE ASSESSEE WOULD NOT BE ENTI TLED TO THE EXEMPTION. SUCH A SITUATION HAS, HOWEVER, NOT ARIS EN BECAUSE IT I.T.A. NO. 669/MDS/11 16 IS NOT IN DISPUTE THAT THE ASSESSEE HAD NOT UNDERTA KEN ANY ACTIVITIES ABROAD AND THE QUESTION OF DENYING THE EX EMPTION WILL APPLY ONLY TO THE EXTENT TO WHICH THE INCOME IS APPLI ED TO THE PURPOSES BEYOND THE BOUNDARIES OF THE COUNTRY. THE T HIRD OBJECTION IS THAT INCOME DERIVED FOR MANAGING THE P ROPERTIES OF OTHERS COULD NOT BE CONSIDERED AS ELIGIBLE FOR EXEM PTION U/S.11. BUT THEN, THE INCOME OF THE ASSESSEE WAS ONLY THE IN COME DERIVED BY WAY OF INTEREST ON DEPOSITS AND DONATIONS. THE AS SESSEE HAS NOT CHARGED OR RECEIVED ANY FEES FOR MANAGING THE PR OPERTIES OF OTHER TRUSTS AND THERE IS NO INCOME DERIVED FOR MAN AGING PROPERTIES WHICH IS CLAIMED TO BE EXEMPTED. SINCE ALL THESE OBJECTIONS OF THE REVENUE ARE UNTENABLE AS AGAINST THE ACCEPTED HISTORY OF THE ASSESSMENTS IN THIS CASE OF EXEMPTION FOR ABOUT EIGHT DECADES, WE FAIL TO SEE ANY REASON FOR INTERFE RING WITH THE ORDER OF THE CIT(APPEALS) GRANTING EXEMPTION. HIS ORDER IS CONFIRMED. IN OUR OPINION, A QUESTION WHETHER THERE WAS A REVO CABLE TRANSFER DID NOT ARISE, SINCE ASSESSEE HAD NOT INDULGED IN ANY T RANSFERS DURING THE RELEVANT PREVIOUS YEAR. AS PER THE REVENUE ITSELF THE PROPERTIES SOLD WERE HELD IN THE NAME OF M/S IFA. EVEN OTHERWISE, IF WE HAVE LOOK AT SECTION 63 OF THE ACT DEFINING WHAT IS TRANSFER A ND WHAT IS REVOCABLE TRANSFER, IT READS AS UNDER:- 63. FOR THE PURPOSES OF SECTIONS 60, 61 AND 62 AND OF THIS SECTION, - (A) A TRANSFER SHALL BE DEEMED TO BE REVOCABLE IF - (I) IT CONTAINS ANY PROVISION FOR THE RE-TRANSFER DIRECTLY OR INDIRECTLY OF THE WHOLE OR ANY PART OF THE INCOME OR ASSETS TO THE TRANSFEROR, OR I.T.A. NO. 669/MDS/11 17 (II) IT, IN ANY WAY, GIVES THE TRANSFEROR A RIGHT TO RE-ASSUME POWER DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART OF THE INCOME OR ASSETS; (B) TRANSFER INCLUDES ANY SETTLEMENT, TRUST, COVENANT, AGREEMENT OR ARRANGEMENT. SO, FOR A TRANSFER TO BECOME A REVOCABLE TRANSFER , THERE HAS TO BE A PROVISION WHEREBY THE TRANSFEREE AGREES TO, DIRECTL Y OR INDIRECTLY, TRANSFER ANY PART OF THE INCOME OR ASSETS TO THE TR ANSFEROR. ALTERNATIVELY, THE TRANSFER SHOULD BE SUCH THAT THE TRANSFEROR HAS A RIGHT TO RESUME POWER OVER THE TRANSFERRED ASSETS. IN OUR OPINION, BOTH THESE CONDITIONS WERE NOT SATISFIED. WHEN M/S IFA TRANSFERRED THE PROPERTIES TO ULTIMATE PURCHASER, THERE WAS NO PROVISION FOR ANY RE-TRANSFER. THERE WAS NO AGREEMENT BETWEEN THE AS SESSEE AND IFA, FOR ANY RE-TRANSFER OF PROPERTIES OR ANY INCOME TO THE ASSESSEE. JUST BECAUSE IFA HAD SOLD THE PROPERTIES AND GIVEN THE M ONEY TO THE ASSESSEE, WOULD NOT BE SUFFICIENT TO HOLD THAT THER E WAS AN AGREEMENT IN NATURE OF A REVOCABLE TRANSFER BETWEEN THEM. NONE OF THE RELEVANT CONVEYANCE (PAPER-BOOK PAGES 90 TO 107 AND 108 TO 145) WOULD SHOW THAT THE ASSESSEE HAD ANY RIGHT TO RE-ASSUME POWER OVER THE TRANSFERRED PROPERTIES. IN OUR OPINION, T HERE WAS NEITHER ANY TRANSFER EFFECTED BY THE ASSESSEE DURING THE RELEVA NT PREVIOUS YEAR, I.T.A. NO. 669/MDS/11 18 MUCH LESS ANY TRANSFER WHICH WAS REVOCABLE. SO, NO T ONLY HAD THE ASSESSING OFFICER TAKEN A LAWFUL VIEW AFTER CONSIDE RING THE ISSUES RELATING TO HOLDING OF THE PROPERTY, BUT THE VIEW W ITH WHICH THE DIT(E) WAS TRYING TO SUBSTITUTE WAS A PATENTLY UNLAWFUL ON E. BOTH THE ASSESSEE AS WELL AS M/S IFA WERE ENTITLED TO CLAIM EXEMPTION UNDER SECTION 11 OF THE ACT AND HENCE THERE COULD NEVER H AVE BEEN ANY PREJUDICE CAUSED TO THE REVENUE, THIS WAY OR THAT W AY. WE ARE OF THE OPINION THAT THERE WAS NOTHING IN ASSESSMENT ORDER WHICH COULD BE CONSIDERED AS ERRONEOUS AND/OR PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. WE ARE, THEREFORE, OF THE OPINION THAT AS SESSEE HAS TO SUCCEED IN THIS APPEAL. ORDER OF THE DIT(EXEMPTION S) PASSED UNDER SECTION 263 OF THE ACT STANDS QUASHED. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 22 ND JULY, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 22 ND JULY, 2011. KRI. COPY TO: APPELLANT/RESPONDENT/DIT(EXEMPTIONS)/D.R. / GUARD FILE