Income-tax Officer, V. Sanjivani Rural Education Society, Ahmednagar

ITA 780/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0914 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: PRASANN A L JOSHI
• Keywords: Charitable institution; Maximum Marginal Rate; Notional interest; Benefit of exemption
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 780 & 781/PN/2014 %' ( ')( / ASSESSMENT YEARS : 2008-09 & 2009-10 INCOME TAX OFFICER, WARD 4, AAYAKAR BHAVAN, BEHIND NATRAJ HOTEL, AURANGABAD ROAD, AHMEDNAGAR ....... / APPELLANT ' / V/S. SANJIVANI RURAL EDUCATION SOCIETY, A/P : SAHAJANANDNAGAR, TAL : KOPERGAON, DISTT. AHMEDNAGAR PAN : AABTS1966J / RESPONDENT ASSESSEE BY : SHRI PRASANNA L. JOSHI REVENUE BY : SHRI B.C. MALAKAR / DATE OF HEARING : 09-09-2015 / DATE OF PRONOUNCEMENT : 06-11-2015 * / ORDER PER VIKAS AWASTHY, JM : THESE SET OF TWO APPEALS FOR THE ASSESSMENT YEARS 2008 -09 AND 2009-10 HAVE BEEN FILED BY THE REVENUE AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DATED 27 -01-2014 COMMON FOR BOTH THE IMPUGNED ASSESSMENT YEARS. THE CO MMON GROUNDS RAISED BY THE REVENUE IN APPEALS ARE AS UNDER: 2 ITA NOS. 780 & 781/PN/2014, A.YS. 2008-09 & 2009-10 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DIRECT ING THE ASSESSING OFFICER TO GRANT THE EXEMPTION U/S 11 TO THE ASSESS EE AND ACCEPT THE COMPUTATION OF INCOME SURPLUS DEFICIT AS COMPUTED B Y THE ASSESSEE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN FAILIN G TO APPRECIATE THAT THE ASSESSEE SOCIETY HAS PAID EXCESSIVE AND ABNORMA L ADVANCE RENT FOR FIVE YEARS TO THE HUF OF THE TRUSTEES AND THEREBY V IOLATED PROVISIONS OF SECTION 13(1)(C) R.W.S. 13(2) AND 13(3) OF THE INCO ME-TAX ACT, 1961. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT CO NSIDERING THE FACT THAT THE ENTIRE INCOME OF A TRUST SHALL NOT BE ENTI TLED FOR EXEMPTION U/S 11 OF THE INCOME-TAX ACT, 1961 IF ANY PART OF INCOME O F THE TRUST ENURES DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY TRUST EE OF THE TRUST. 2. THE ASSESSEE IS A REGISTERED PUBLIC CHARITABLE TRUST AND IS ENGAGED IN IMPARTING EDUCATION BY RUNNING SCHOOLS AND COLL EGES. THE ASSESSEE IS RECEIVING GRANT FROM THE GOVERNMENT OF MAHAR ASHTRA, UNIVERSITY GRANT COMMISSION ETC. DURING THE SCRUTINY ASSE SSMENT PROCEEDING FOR THE ASSESSMENT YEAR 2008-09, THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAD TAKEN A FURNISHED RESID ENTIAL FLAT ON RENT FROM ONE OF ITS TRUSTEES, SHRI BIPINRAO KOLHE. APART FROM THE PAYMENT OF RENT, THE ASSESSEE MADE DEPOSIT OF RS.2 LAKHS AND ADVANCE OF RS.9 LAKHS TO THE SAID TRUSTEE. THE ASSESSING OFFICER GOT THE ENQURIRY DONE ON THE DIRECTIONS OF ADDL. COMMISSIONER OF INCOME TAX THROUGH INSPECTOR. THE INSPECTOR AFTER VISITING THE FLAT ON 23-11 -2010 REPORTED, THAT THE FLAT WAS LOCKED BUT THE NAME OF SHRI BIPINRAO KO LHE WAS WRITTEN AT THE ENTRANCE OF THE FLAT. ENQUIRIES WERE MADE FROM SHRI DESHPANDE, ONE OF THE NEIGHBORS. HE CONFIRMED THAT THE FLA T IN QUESTION IS OWNED BY SHRI BIPINRAO KOLHE. NOBODY LIVES THER E PERMANENTLY AND THE OWNER SOMETIMES USES THE FLAT FOR H IMSELF. THE 3 ITA NOS. 780 & 781/PN/2014, A.YS. 2008-09 & 2009-10 ASSESSING OFFICER HELD THAT THE TRUST HAS ADVANCED RS.11 LAKHS AS INTEREST FREE FUNDS IN THE GUISE OF DEPOSIT AND OBSERVED A DVANCE RENT TO ONE OF ITS TRUSTEES. THE ASSESSING OFFICER OBSERVED THAT EVEN IF THE RENT OF THE FLAT IS ASSUMED TO BE RS.15,000/- PER MONTH, THE TR USTEE WOULD BE BENEFITED BY THE INTEREST ACCRUING ON THE AMOUNT PAID AS ADVANCE RENT AND DEPOSIT. THE ASSESSING OFFICER HELD THAT THE REN T AND INTEREST PUT TOGETHER WILL BE MORE THAN WHAT ASSESSEE WOULD HAVE PAID AS RENT. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT AND THUS IS NOT ENTITLED FOR E XEMPTION U/S. 11 OF THE ACT. FOR THE SIMILAR REASONS THE ASSESSING OFFICE R WITHDRAWS THE BENEFIT OF EXEMPTION U/S. 11 TO THE ASSESSEE IN THE A SSESSMENT YEAR 2009-10. AGGRIEVED BY THE ASSESSMENT ORDER IN THE RESPECTIVE AS SESSMENT YEARS, THE ASSESSEE PREFERRED APPEALS BEFORE THE COMMIS SIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPE ALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT IT IS NOT A CASE FOR WITHDRAWING EXEMPTION U/S. 11 AND ACCEPTED THE APPEA L OF THE ASSESSEE. AGAINST THE FINDINGS OF THE COMMISSIONER OF INCOM E TAX (APPEALS), THE REVENUE HAS FILED APPEALS FOR BOTH THE ASSES SMENT YEARS BEFORE THE TRIBUNAL. 3. SHRI B.C. MALAKAR REPRESENTING THE DEPARTMENT SUBMITTE D THAT THE ASSESSEE HAS ALLEGEDLY PAID ADVANCE RENT @ RS.15,000 /- PER MONTH FOR 5 YEARS TO ONE OF THE TRUSTEES. IT IS A CLEAR CASE OF DIVERSION OF FUNDS OF THE TRUST. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE WITHOUT VERIFYING THE F ACTS. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT T HE MARKET RENT OF THE FLAT IS RS.30,000/-. HOWEVER, ON WHAT BASIS TH E MARKET RENT 4 ITA NOS. 780 & 781/PN/2014, A.YS. 2008-09 & 2009-10 HAS BEEN ASSUMED BY THE COMMISSIONER OF INCOME TAX (APP EALS) IS NOT CLEAR FROM THE IMPUGNED ORDER. THE RATE OF INTEREST APPLIE D BY THE COMMISSIONER OF INCOME TAX (APPEALS) @ 12% IS ALSO UNJUSTIFIED AND ARBITRARY. THE ASSESSEE HAS ADVANCED RS.11 LAKHS TO ONE OF ITS TRUSTEES IN VIOLATION OF THE PROVISIONS OF SECTION 13(1)(C) OF T HE ACT. THE LD. DR VEHEMENTLY SUPPORTED THE ASSESSMENT ORDER AND PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS). 4. SHRI PRASANNA L. JOSHI APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED THAT THE ORDER OF COMMISSIONER OF INCOME TAX ( APPEALS) IS WELL REASONED AND JUSTIFIED. NO ENQUIRIES WERE CONDUCTED B Y THE ASSESSING OFFICER BEFORE REJECTING THE CONTENTIONS OF THE A SSESSEE. THE INSPECTOR WHO ALLEGEDLY VISITED THE FLAT MADE NO EFFORT TO D ETERMINE THE MARKET RENT OF THE FLAT IN QUESTION. THE LD. AR SUBMITTED T HAT THE ASSESSEES OFFICE IS LOCATED AT SAHAJANANDNAGAR ABOUT 3 KM FROM KOPARGAON. THE COLLEGES RUN BY THE ASSESSEE TRUST A RE AFFILIATED WITH PUNE UNIVERSITY, THEREFORE, THE OFFICIALS OF THE ASSESSEE TRUS T HAVE TO FREQUENTLY VISIT PUNE UNIVERSITY. IT WAS NOT POSSIBLE TO C OMMUTE FROM KOPARGAON TO PUNE UNIVERSITY AND BACK ON THE SAME DAY . THEREFORE, ACCOMMODATION WAS REQUIRED IN PUNE FOR STAY OF THE OFFICERS . MOREOVER, FOR RECRUITMENT OF NEW STAFF INTERVIEWS WERE REQUIRED TO B E CONDUCTED AT PUNE, ACCORDINGLY, IT WAS DECIDED TO TAKE ACCOMMODATION ON RENT IN PUNE. A VACANT FURNISHED FLAT OF SHRI BIPINRAO KOLHE (HUF) WA S LOCATED NEAR THE PUNE UNIVERSITY, IT WAS DECIDED TO TAKE THE SAID FLAT ON RENT FOR USE AS GUEST HOUSE. THE RENT OF THE FLAT WAS FIXED AT RS.15,000/- PER MONTH INCLUSIVE OF FURNISHING WITH NO ESCALATIONS. THE ASSES SEE PAID RENT IN ADVANCE FOR 5 YEARS ALONG WITH THE DEPOSITED OF R S.2 LAKHS. THE 5 ITA NOS. 780 & 781/PN/2014, A.YS. 2008-09 & 2009-10 ASSESSEE HAD TAKEN FLAT AT 20% - 25% LOWER RENT THAN T HE MARKET RATE. THUS, THERE WAS NO UNDUE BENEFIT WHICH HAD BEEN PASSED ON TO THE TRUSTEE IN VIOLATION OF THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS ERR ED IN WITHDRAWING THE ENTIRE EXEMPTION U/S. 11 OF THE ACT. IF A T ALL DISALLOWANCE WAS TO BE MADE IT SHOULD HAVE BEEN TO THE E XTENT OF ONLY EXCESS BENEFIT THAT HAS BEEN PASSED ON TO THE TRUSTEE . IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS: I. CIT VS. ORPAT CHARITABLE TRUST, 55 TAXMANN.COM 211 (GUJ. HC); AND II. ITO, WARD-3, AHMEDNAGAR VS. NOBLE MEDICAL FOUNDATION & RESEARCH CENTRE, 57 TAXMANN.COM 333 (PUNE-TRIB.). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ASSESSING OFFICER HAS WITHDRAWN THE BENEFIT OF EXEMPTION U/S . 11 OF THE ACT TO THE ASSESSEE TRUST IN THE IMPUGNED ASSESSMENT YEARS ON THE GROUND THAT THE ASSESSEE HAS ADVANCED A SUM OF RS.11 LAKHS AS INTEREST FREE FUNDS IN THE GUISE OF ADVANCE RENT AND DE POSIT TO ONE OF THE TRUSTEES. THE COMMISSIONER OF INCOME TAX (APPEALS) H AS HELD THAT THE AMOUNT PAID BY ASSESSEE IS REASONABLE AND JUSTIFIED A ND DIRECTED THE ASSESSING OFFICER TO GRANT EXEMPTION U/S. 11 OF THE AC T TO THE ASSESSEE. 6. THE ASSESSEE HAS TAKEN ON RENT A FURNISHED FLAT OF SH RI BIPINRAO KOLHE ONE OF THE TRUSTEES OF THE ASSESSEE ON MONTHLY R ENT OF RS.15,000/-. THE ASSESSEE PAID RS.2 LAKHS AS DEPOSIT AND PAID ADVANCE RENT OF RS.9 LAKHS WITH NO ESCALATIONS. THE SAID FLA T WAS TO BE 6 ITA NOS. 780 & 781/PN/2014, A.YS. 2008-09 & 2009-10 USED BY THE ASSESSEE AS GUEST HOUSE FOR ITS OFFICERS WHO WERE VISITING PUNE UNIVERSITY AND FOR CONDUCTING RECRUITMENT INTERVIEWS. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR OF THE ASSESSEE HAS PRODUCED COPY OF ADVERTISEMENT PUBLISHED IN NEWSPAPERS IN RESPECT OF ONE SUCH INTERVIEWS CONDUCTED FOR CAMPUS RECRUITMENT IN THE SAID FLA T. THE ASSESSEE ALSO PLACED ON RECORD VISITORS REGISTER MAINTAINE D AT THE FLAT. THE ASSESSING OFFICER DEPUTED ONE INSPECTOR TO INSPECT T HE FLAT WHO FOUND THE FLAT LOCKED AT THAT TIME. HOWEVER, ENQUIRIES FROM THE NEIGHBOR REVEALED THAT THE FLAT IS LOCKED MOST OF THE TIMES AND IS SOMETIME USED BY THE OWNER HIMSELF. THAT APART NO EFFORT WAS MADE BY THE INSPECTOR TO FIND THE MARKET RENT PREVAILING OF THAT TIME OF THE FLAT IN QUESTION. THE ASSESSING OFFICER WHILE DEVOLVING ON THE IS SUE HAS ALSO TAKEN INTO CONSIDERATION THE NOTIONAL INTEREST ON THE AMOUNT OF ADVANCE GIVEN BY THE ASSESSEE TO THE TRUSTEE. 7. THE ASSESSING OFFICER HAS ERRED IN NOT VERIFYING THE PR EVAILING MARKET RENT OF THE FLAT TO DETERMINE THE EXCESS OUT FLOW OF BENEFIT TO THE TRUST. THE ASSESSING OFFICER DISALLOWED THE ENTIRE AMOUNT O F EXEMPTION U/S. 11. IT IS A WELL SETTLED LAW THAT EXEMPTION U/S. 11 C AN BE DENIED ONLY TO THE EXTENT OF INVESTMENT IN VIOLATION OF THE PROV ISIONS OF SECTION 11(5) R.W.S. 13(1) OF THE ACT. THE HON'BLE GUJARAT HIGH CO URT IN THE CASE OF CIT VS. ORPAT CHARITABLE TRUST (SUPRA) WHILE DEALING WITH A SIMILAR ISSUE HAS OBSERVED AS UNDER: 7. HEARD, LEARNED COUNSEL FOR THE PARTIES AND PERU SED THE MATERIAL ON RECORD AS WELL AS THE ORDERS PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND THE TRIBUNAL. AS STATED BY MR. PATEL, HEREIN AB OVE, THE ISSUES INVOLVED IN THIS MATTER ARE NO MORE RES INTEGRA AND WE HAVE ALREADY DECIDED THE SAME IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVE NUE BY OBSERVING AND HOLDING AS UNDER IN PARAS-5 AND 6 OF THE AFORESAID DECISION; 7 ITA NOS. 780 & 781/PN/2014, A.YS. 2008-09 & 2009-10 '5. HAVING HEARD LEARNED ADVOCATES FOR THE PARTIES WE ARE OF THE OPINION THAT THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE OR DER PASSED BY COMMISSIONER (APPEALS). THE COMMISSIONER (APPEALS) H AS VERY CLEARLY OBSERVED THAT THE PROVISIONS OF SECTION 11(1)(A) AR E VERY CLEAR AND PROVIDE THAT THE INCOME DERIVED FROM THE PROPERTY H ELD UNDER TRUST SHALL NOT BE INCLUDED IN THE INCOME TO THE EXTENT IT IS A PPLIED FOR THE CHARITABLE OR RELIGIOUS PURPOSES (EXPENSES INCURRED DURING THE YEAR) OR ACCUMULATED/SET APART TO BE APPLIED FOR THAT PURPOS E IN FUTURE OUT OF 75% TO WHICH THE RESTRICTION UNDER SECTION 11(5) APPLIE S. THE TRIBUNAL HAS RELIED UPON ITS OWN DECISION ON A SIMILAR ISSUE REN DERED IN ITA NO. 644 TO 646/RJT/2003 DATED 22-12-2003. WE ARE IN COMPLET E AGREEMENT WITH THE REASONINGS ADOPTED BY THE COMMISSIONER (APPEALS ) AS WELL AS TRIBUNAL. 6. EVEN OTHERWISE, THE LAW ON THE SUBJECT IS ALSO W ELL SETTLED. IN THE CASE OF FR. MULLERS CHARITABLE INSTITUTIONS (SUPRA) THE KARNATAKA HIGH COURT HAS HELD THAT A PERUSAL OF SECTION 13(1)(D) OF THE INCOME-TAX ACT, 1961 MAKES IT CLEAR THAT IT IS ONLY THE INCOME FROM SUCH INVESTMENT OR DEPOSIT WHICH HAS BEEN MADE IN VIOLATION OF SECTION 11(5) O F THE ACT THAT IS LIABLE TO BE TAXED AND VIOLATION UNDER SECTION 13(1)(D) DO ES NOT RESULT IN DENIAL OF EXEMPTION UNDER SECTION 11 TO THE TOTAL INCOME O F THE ASSESSEE AND THAT WHERE THE WHOLE OR PART OF THE RELEVANT INCOME IS NOT EXEMPTED UNDER SECTION 11 BY VIRTUE OF VIOLATION OF SECTION 13(1) (D) OF THE ACT, TAX SHALL BE LEVIED ON THE RELEVANT INCOME OR PART OF T HE RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE. THEREFORE, WE DO NOT SEE ANY REASON IN INTERFERING WITH THE IMPUGNED ORDERS.' 8. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ASSUMED T HE PREVAILING RENT IN THE LOCALITY @ 20% PER SQ. FT. I.E. RS.30,000/- PER MONTH FOR THE SIMILAR PROPERTY, WHEREAS THE RENT ACTUALLY PAID IS AT THE RATE OF RS15,000/- PER MONTH. THE COMMISSIONER OF INCOM E TAX (APPEALS) HAS HELD THAT EVEN IF NOTIONAL INTEREST ELEMENT IS SEPARATELY CONSIDERED AS PAYMENT TOWARDS RENT EVEN THEN BY APPL YING INTEREST @ 12% PER ANNUM ON INTEREST FREE FUNDS OF RS.11 LAKHS, THE T OTAL RENT PAID WOULD BE RS.26,000/- PER MONTH. WE ARE OF THE CON SIDERED VIEW 8 ITA NOS. 780 & 781/PN/2014, A.YS. 2008-09 & 2009-10 THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IS WELL REASONED AND JUSTIFIED. ESPECIALLY IN THE LIGHT OF FACT THAT THE FLAT IS FURNISHED AND THE RENT IS WITHOUT ESCALATION. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 06 TH DAY OF NOVEMBER, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 06 TH NOVEMBER, 2015 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-IT/TP, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, //TRUE COPY// %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE