Millat Education Society, V. Addl C.I.T.,

ITA 94/PAT/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93630 (ITAT-PATNA)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARCHANA SINHA SR S C
• Assessee Lawyers: D V PATHY
• Keywords: Charitable institution; Maximum Marginal Rate
• Section: 80G; 12A; 11

Judgement Text

, PATNA IN THE INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA . . . , , BEFORE SHRI A.D. JAIN (JM) AND SHRI SANJAY ARORA (AM) ./ I.T.A. N O S . 9 4 TO 96 /PAT/20 1 2 ( / ASSESSMENT YEARS: 2 00 6 - 0 7 TO 2008 - 09 ) M ILLAT EDUCATION S OCIETY, MARUAM MANZIL, ANISABAD, PATNA. / VS. D CIT,RANGE - 1, PATNA. ./ ./ PAN/GIR NO. : AA AA M2037J ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI D.V. PATHY , ADV. / RESPONDENT BY : S MT. ARCHANA SINHA, SR.S.C. / DATE OF HEARING : 1 6 /4/2015 / DA TE OF PRONOUNCEMENT : 06 / 5 /2015 / O R D E R PER SANJAY ARORA, AM: THIS IS THE SET OF THREE A PPEALS BY THE A SSESSEE FOR TH RE E CONSECUTIVE YEARS , BEING A.Y S . 2006 - 07 TO 2008 - 09, ARISING OUT OF A COMMON ORDER BY THE COMMISSIONER OF INCOME - TAX ( APPEALS), DHANBAD ( CIT(A) FOR SHORT ), DISMISSING THE ASSESSEES APPEALS CONTESTING ITS ASSESSMENT S U/S. 143 (3) OF THE INCOME T AX ACT, 1961(THE ACT HEREINAFTER) FOR THE SAID YEARS . 2. THE APPEALS RAISING A COMMON ISSUE , WERE POSTED FOR HEARING AND , AC CORDINGLY , HEARD TOGETHER , AND ARE BEING DISPOSED OF VIDE A COMMON , CONSOLIDATED ORDER , EVEN AS WAS DONE BY THE FIRST APPELLATE AUTHORITY. THE ONLY ISSUE ARISING IN THE INSTANT APPEALS IS 2 ITA NOS. 94 TO 96 /PAT/2012 (A.YS. 2006 - 07 TO 2008 - 09) MILLAT EDUCATION S OCIETY VS. DCIT AS TO THE IMPACT OF THE APPLICABILITY OF SECTION 13(1)(D) ; THE APPEL LANT TRUST ADMITTEDLY HOLDING SHARE OF COMPANIES OTHER THAN PUBLIC SECTOR COMPANIES, SO THAT IT THEREBY VIOLATES THE PRESCRIPTION OF SUB - CLAUSE (III) THEREOF ; THE PROVISIONS READING AS UNDER: SECTION 11 NOT TO APPLY IN CERTAIN CASES 13 (1) N OTHING CONTAI NED IN SECTION 11 OR SECTION 12 SHALL OPERATE S O AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF - (A) (B) - (BB) - (C) - (D) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOME THEREOF, IF FOR ANY PERIOD DURING THE PREVIOUS YEAR - (I) - (II) - (III) ANY SHARES IN A COMPANY, OTHER THAN - (A) SHARES IN A PUBLIC SECTOR COMPANY; (B) SHARES PRESCRIBED AS A FORM OR MODE OF INVESTMENT UNDER CLAUSE(XII) OF SUB - SECTION(5) OF S ECTION 11, ARE HELD BY THE TRUST OR INSTITUTION AFTER THE 30 TH DAY OF NOVEMBER, 1983 . 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 3.1 THE ISSUE ARISING FOR OUR CONSIDERATION IS THUS PURELY LEGAL . T HAT THE FACTS FOR ALL THE YEARS A RE IDENTICAL, I.E., IN - SO - FAR AS THE ISSUE UNDER REFERENCE IS CONCERNED, IS ADMITTED ; T HE ONLY DIFFERENCE BEING THAT THE PROSCRIBED SHARES A RE CLAIM ED TO HAVE BEEN SOLD, IN TOTO , TO WARD THE END OF THE LAST YEAR , I.E., THE PREVIOUS YEAR RELEVANT TO A. Y. 20 08 - 09, RETURNING A HUGE CAPITAL GAIN (RS.116.68 LACS) FOR THAT YEAR, WITH THE SALE PROCEEDS (RS.183.01 LACS) BEING HELD IN THE DE - MAT ACCOUNT AS AT THE YEAR - END. THE CONDITION BEING TOWARD NOT INVESTING IN SHARES OTHER THAN THE STIPULATED SHARES AT ANY TIM E DURING THE YEAR, THE SAID LI QUIDATI ON WOULD BE OF NO MOMENT. ANOTHER A SPECT NEEDS MENTION. THE ASSESSEES CASE ON THE VERY SAME ISSUE HAS BEEN DISMISSED BY THE FIRST APPELLANT AUTHORITY FOR A. Y. 2004 - 05. THIS WAS NOT DIVULGED BY THE PARTIES DURING HEARI NG, AND HAS COME TO LIGHT ONLY UPON READING THE ORDERS BY THE R EVENUE AUTHORITIES . 3 ITA NOS. 94 TO 96 /PAT/2012 (A.YS. 2006 - 07 TO 2008 - 09) MILLAT EDUCATION S OCIETY VS. DCIT A S WE GATHER FROM THEIR ORDERS, THE ASSESSEE HAS NOT PREFER RED ANY APPEAL THER E - AGAINST. THE MATTER BEING LEGAL, IT WILL NOT IMPACT THE ASSESSEE IN ANY MANNER IN - AS - MUCH AS THERE IS NO ORDER BY THE TRIBUNAL OR ANY OTHER HIGHER APPELLATE FORUM FOR THAT YEAR , OR OTHERWISE IN THE ASSESSEES CASE. 3 . 2 WE SHALL ENLIST THE RESPECTIVE CASES OF BOTH THE PARTIES. THE ASSESSEES CASE IS THAT IT IS FOR THE RELEVANT YEARS REGIST ERED U/S . 12A /12AA, SO THAT ITS CREDENTIAL S A S A CHARITABLE INSTITUTION A RE UNDISPUTED, WITH IT RUNNING AN E NGINEERING C OLLEGE BY THE NAME , MAULANA AZAD COLLEGE OF ENGINEERING AND TECHNOLOGY , AT PATNA. THE ONLY IMPORT, THEREFORE, OF HAVING HELD SHARES IN CONTRAVEN TION OF SECTION 13(1)(D)(III) (A) OR SECTION 11(5) , WHICH FORMS THE SUBJECT MATTER OF THE CONDITION U/S.13 (1)(D)(III) (B) , WOULD BE TO IMPACT THE INCOME ARISING FROM THE SAID SHARES, AS HELD BY THE TRIBUNAL IN GURDAYAL BERLIA CHARITABLE TRUST VS. FIFTH IN OME - TAX OFFICER [1990] 34 ITD 489 (BOM) . IT WOULD BE A TRAVESTY OF JUSTICE TO S UBJECT THE ENTIRE INCOME TO TAX. THE HONBLE BOMBAY HIGH COURT IN DIT (EXEMPTION) VS. SETH MAF ATLAL GAGALBHAI FOUNDATION TRUST [2001] 249 ITR 533 ( B OM) CLARIFIED THAT SUCH INCOM E ONLY SHALL BE SUBJECT TO THE MAXIMUM MARGINAL RATE OF TAX U/S. 164(2). THE R EVENUE, ON THE OTHER HAND, BAS E S ITS CASE ON THE LANGUAGE OF THE ACT ITSELF, STATING IT TO BE PLAIN AND AMBIGUOUS AND , FURTHER , P LAC ING RELIANCE ON THE DECISION S IN THE CASE OF M UNDAKAPADAM MANDIRAMS SOCIETY VS. C IT [ 2002 ] 258 ITR 395 (KER) ; CIT VS. CHANDRIKA EDUCATIONAL TRUST [ 1997 ] 224 ITR 449 (KER); AND TELE PROLU BAPANAIAH VIDYAD HARMA NIDHI TRUST VS. CIT [ 1987 ] 167 ITR 482 (AP) . 3.3 WE ARE AT L O S S TO U NDERSTAND THE CONTROVERS Y , I.E., IN VIEW OF THE CLEAR AND PLAIN LANGUAGE OF THE PROVISION. IT UNEQUIVOCALLY PROVIDES FOR THE BENEFIT OF SECTIONS 11 AND 12 AS SUBJECT TO THE PRESCRIPTION OF SECTION 13. SECTION 13(1)(D)(III) PRESCRIBES A CONDITION OF HOLDING THE SHARES ON LY IN PUBL IC SECTOR COMPANIES , SO THAT THERE IS A CLEAR AND ADMITTED VIOLATION OF ITS TERMS ; THE ASSESSEE S SHARE - HOLDING IN PRIVATE COMPANIES BEING AT RS.77.50 LACS FOR THE RELEVANT YEARS. AS REGARDS ITS CONSEQUENCE, THE SAME 4 ITA NOS. 94 TO 96 /PAT/2012 (A.YS. 2006 - 07 TO 2008 - 09) MILLAT EDUCATION S OCIETY VS. DCIT STANDS PROVIDED FOR IN SECTION 13(1)(D) ITSELF IN - AS - MUCH AS IT STATES ANY INCOME THEREOF . T HE WORD THEREOF QUALIFYING ANY INCOME IMPLIES ANY INCOME OF THE ENTIT Y WHOSE INCOME , I.E., THE CHARITABLE OR RELIGIOUS INSTITUTION, WHICH IS UNDER ASSESSMENT AND IS BEING CONSIDERED FOR EXEMPTION U/S . 11 R / W S . 12. HOW COULD , THEN , ANY INCOME , WE WONDER , BE RESTRICTED TO ANY INCOME FROM THE OFFENDING SHARE S, AS THE LD. C OUNSEL , SHRI D. V. PATHY, ADVOCATE, WOULD ARGUE BEFORE US. THERE IS NOTHING IN THE CLEAR LANGUAGE OF THE PROV ISIONS TO SO SUGGEST. THERE IS AS SUCH LITTLE SCOPE FOR INTERPRETATION, AND FOR WHICH WE MAY REFER TO THE GOLDEN RULE OF INTERPRETATION (REFER, INTER ALIA , CIT VS. CALCUTTA KNITWEARS [2014] 362 ITR 673 (SC) ). THAT APART, EVEN T HE RATION A L E IS NOT FAR TO SEE K . A CHAR ITABLE IN STITUTION IS A PUBLIC INSTITUTION, MEANT TO SERVE THE PUBLIC AT LARGE , WITH THE LAW ACCORDING A BENEVOLENT TREATMENT TO ITS INCOME BY WAY OF EXEMPTION FROM TAX UPON APPLICATION FOR ITS STATED OBJECTS. IT , ACCORDINGLY , CANNOT SUPPORT PRIVATE BUSINESS BY INV ESTMENT THEREIN, AND WHICH ALSO HAS THE POTENTIAL OF JEOPARDIZING ITS RESOURCES IN - AS - MUCH AS SHARE MARKET IS VOLATILE. IN FACT , PER SECTION 11 (5), THE ACT PROVIDES FOR A COMPLETE MODE AND MANNER OF INVESTMENT OF I T S SURPLUS FUNDS BY SUCH AN INSTITUTION. BANKS, PUBLIC SECTO R UNDERTAKINGS AND OTHER REGULATED BODIES ARE ALSO PROHIBITED BY LAW TO INVEST IN SHARE S . THE L D. CIT (A) HAS, TO HIS CREDIT, TAKEN PAINS TO CULL OUT THE NOTE S EXPLAINING THE PROVISION AS WELL AS THE FINANCE MINISTER S SPEECH EXPLAINING T HE LEGISLATIVE INTENT, WHICH IS CLEARLY EXPRESSED, SO THAT, AS AFORE - STATED , THERE IS LITTLE SCOPE FOR INTERPRETATION. RATHER, VERY FACT THAT THE ASSESSEE MADE A HUGE PROFIT BY DISPOSING OF ITS SHARES ITSELF UNDER LINES THE LEGISLATIVE CONCERN AGAINST PROFI TEERING, EXHIBITING THE NEED FOR AN EMBARGO ON INVESTMENT IN PRI VA T E E NTERPR ISE, LEST IT BECOMES A READY AND LU CRATIVE SOURCE FOR PROPELLING PRIVATE BUSINESS . I NVESTMENT IN PUBLIC SECTOR COMPANIES IS, ON THE OTHER HAND , PERMITTED, IN - AS - MUCH AS THE SAME IS CONSIDERED AS TOWARD A PUBLIC CA USE . PUBLIC SECTOR COMPANIES ARE , EVEN OTHERWISE , CON SIDERED AS AN ORGAN OF OR, IN ANY CASE , AN EXTENSION OF THE S TATE. AS SUCH, TO SUGGEST A WITHDRAWAL OF EXEMPTION UNDER S ECTION S 5 ITA NOS. 94 TO 96 /PAT/2012 (A.YS. 2006 - 07 TO 2008 - 09) MILLAT EDUCATION S OCIETY VS. DCIT 1 1 AND 12 TO OPERATE ONLY TO THE INCOME FR OM THE OFFENDING SHARES IS N EITHER CONSISTENT WITH THE RATIONAL E OF THE PROVISIONS NOR THE CLEAR PROVISION OF THE STATUTE. 3.4 WE MAY NEXT ALSO CONSIDER THE CASE LAW RELIED UPON BY THE PARTIES. IN MUNDAKAPADAM MANDIRAMS SOCIETY (SUPRA), DENIAL OF REGISTR ATION TO THE TRUST U/S. 80G ON ACCOUNT OF INVESTMENT IN MODE S OTHER THAN THAT SPECIFIED U/S. 11(5) OF THE ACT, WAS UPHELD. SIMILARLY, IN TALAPROLU BAPANAIAH VIDYA DHARMA NIDHI TRUST (SUPRA), THE DENIAL OF EXEMPTION U/S. 11 ON INTEREST INCOME WAS UPHELD IN VIEW OF IT HAVING BEEN DERIVED FROM TRUST PROPERTY NOT ENTITLED TO EXEMPTION, BEING BY WAY OF INVESTMENT IN A FIRM IN WHICH THE SETTLOR OF THE TRUST, A PERSON SPECIFIED U/ S. 13(3), HAD INTEREST. THE DEBILITY ATTRACTED IN VIEW OF SECTION 13(2) R/W S. 13(3), EXTEND S TO THE INCOME USED OR APPLIED FOR THE BENEFIT OF THE PERSONS SPECIFIED U/S.13 (3). IN SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (SUPRA), THE ISSUE WAS WITH REGARD TO THE RATE OF TAX. SECTION 164 PROVIDES FOR THE CHARGE OF TAX WHERE THE SHARE OF THE BENEFICIARIES IS UNKNOWN. SUCH INCOME BEING DEFINED THEREIN AS THE RELEVANT INCOME, SUBJECT TO THE PROVISIONS OF SUB - SECTIONS (2) & (3) OF SECTION 164, ATTRACTS MAXIMUM MARGINAL RATE (SECTION 164(1)). SECTION 164(2) APPLIES TO SO MUCH OF THE RELEVANT IN COME AS IS DERIVED FROM THE PROPERTY HELD WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, AS IF IT WERE THE SOLE INCOME OF AN ASSOCIATION OF PERSONS. PROVISO THERETO CARVES AN EXCEPTION FOR SO MUCH OF THE RELEVANT INCOME AS IS NOT EXEMPTED BY VIRTUE OF THE PR OVISIONS OF SECTION 13(1)(C) OR 13(1)(D). IT WAS IN THIS CONTEXT THAT THE HONBLE COURT HELD THAT THE MAXIMUM MARGINAL RATE SHALL APPLY ONLY TO THE DIVIDEND INCOME OF THE SHARES, BEING THE RELEVANT INCOME FROM THE PROPERTY HELD UNDER TRUST. EVEN AS OBSERVE D DURING HEARING, THE SAID DECISION APPLIES ONLY TO THE RELEVANT INCOME, AS SPECIFIED THEREIN. THE DECISION, WHICH SHALL APPLY TO A CASE WHERE SEC. 164(1) R/W S. 164 ( 2) IS APPLICABLE, I S WITHOUT DOUBT IN CONSONANCE WITH THE PROVISIONS OF LAW. IN THE INSTAN T CASE, THERE IS NO ISSUE WITH REGARD TO THE RATE OF TAX WITH REFERENCE TO SECTION 164. THE SAID DECISION IS OF NO RELEVANCE TO THE SUBJECT MATTER OF THE INSTANT APPEAL AND, ACCORDINGLY , HAS NO APPLICATION THERETO . IN SUM, T HE CITED CASE LAW ALSO SUPPORT S THE CASE OF THE REVENUE. 6 ITA NOS. 94 TO 96 /PAT/2012 (A.YS. 2006 - 07 TO 2008 - 09) MILLAT EDUCATION S OCIETY VS. DCIT 4. IN VIEW OF THE FOREGOING (PARA 3), WE HAVE NO HESITATION IN CONFIRMING THE DENIAL OF EXEMPTION U/S.11 OF THE ACT TO THE ASSESSEE S INCOME FO R THE RELEVANT YEARS. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES IS DISM ISSED . ORDER PRONOUNCED BY LISTING THE RESULT ON THE NOTICE BOARD OF THE BENCH UNDER RULE 34 OF THE APPELLATE TRIBUNAL RULES, 1963. SD/ - SD/ - ( A.D. J AIN ) (S ANJAY ARORA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER / DATED : 06/05 /2015 . ./ S,SINHA , PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT: 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - PATNA 4. / CIT , PATNA 5. , , PATNA 6. / GUARD FILE. / BY ORDER, PS/SR. PRIVATE SECRETARY ITAT, PATNA