Ramanaidu Charitable Trust, CHENNAI V. ITO, CHENNAI

MA 38/CHNY/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7014 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 09-01-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G D JAYANTHI
• Assessee Lawyers: T BANUSEKAR
• Keywords: Charitable institution
• Section: 12A; 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C BENCH, CHENNAI [ , . , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER, AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER MISCELLANEOUS PETITION NOS.389/CHNY/2017 & 37 TO 41/CHNY/2018 IN I.T.A.NOS.917 TO 922/MDS/2015 & CO NOS.55 TO 58/MDS/2015 ( [ [ / ASSESSMENT YEARS :2005-06 TO 2010-11) M/S. RAMANAIDU CHARITABLE TRUST, NO.15, A-BLOCK, PRINCE VILLA, RAJAMANAR STREET, T.NAGAR, CHENNAI 600 017. VS THE INCOME TAX OFFICER(EXEMPTIONS), WARD-4, CHENNAI PAN: AAATR0554J ( / APPLICANT) ( / RESPONDENT) / APPLICANT BY : SHRI T.BANUSEKAR, CA /RESPONDENT BY : MS.G.D. JAYANTHI, JCIT /DATE OF HEARING : 31.08.2018 /DATE OF PRONOUNCEMENT : 31.08.2018 / O R D E R THESE MISCELLANEOUS PETITIONS ARE FILED BY THE ASSESSEE PRAYING FOR RECTIFYING THE MISTAKE APPARENT ON RECORD BY RECALLING THE ORDER OF THE TRIBUNAL PASSED IN I.T.A. NOS.917 TO 922/MDS/2015 & CO NOS.55 TO 58/MDS/2015 DATED 28.04.2017 FOR THE ASSESSMENT YEARS 2005-06 TO 2010-11. 2. THE ASSESSEE HAS SUBMITTED AN ELABORATE WRITTEN SUBMISSION WHICH IS EXTRACTED HEREIN BELOW FOR REFERENCE:- 2 MP NOS.389/CHNY/2017, 37 TO 41/CHNY/2018 THE PETITIONER IS A PUBLIC CHARITABLE TRUST FORMED IN THE YEAR 1990, REGISTERED AS A CHARITABLE INSTITUTION UNDER SECTION 12A OF THE ACT. IT HAS SINCE INCEPTION PUT UP OLD AGE HOMES, EYE HOSPITAL, MEDICAL DISPENSARY, SPORTS STADIUM, DRINKING WATER FACILITIES, IMPROVED IRRIGATION FACILITIES IN RURAL AREAS, DONATED FOR EDUCATION, FLOOD RELIEF FUND ETC. ALONG WITH THESE, THE PETITIONER TRUST IS ALSO RUNNING A FILM TRAINING INSTITUTE TO IMPART KNOWLEDGE AND MAKE PEOPLE FIT FOR EMPLOYMENT. THE PETITIONER TRUST WAS SETTLED VIDE A SETTLEMENT DEED DATED 15.02.2002 BY M/S. SREE SURESH PRODUCTIONS, A PROPRIETARY CONCERN OF SHRI. D. RAMANAIDU, RIGHTS IF THEATRICAL EXHIBITION AND EXPLOITATION OF A FEATURE FILM, FOR WHICH THE PETITIONER TRUST PAID THE COST INCURRED BY THE SETTLOR AND AGREED TO PAY A FURTHER SUM OF RS.12,00,OOOI- FOR A FURTHER PERIOD OF 25 YEARS. THE ASSESSING OFFICER HAS STATED THAT THE PROVISIONS OF SECTION 13(1)(C) WERE ATTRACTED SINCE THE TRANSACTION INVOLVED PERSONS REFERRED TO IN SECTION 13(3). FURTHER FROM ASSESSMENT YEAR 2009-10 ONWARDS THE ASSESSING OFFICER HAS CONTENDED THAT THE SAID TRANSACTION BEING COMMERCIAL IN NATURE THE PETITIONER TRUST HAS UNDERTAKEN BUSINESS AND THEREBY IT WOULD FALL WITHIN THE EXCLUSION OF CHARITABLE ACTIVITIES AS PER PROVISO TO SECTION 2(15). THEREBY, THE ASSESSING OFFICER DENIED EXEMPTION U/S.11 AND 12 FOR THE ASSESSMENT YEARS 2005-06 TO 2010-11. AGGRIEVED THE PETITIONER TRUST PREFERRED APPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEARS 2005-06 TO 2010-11. THE COMMISSIONER OF INCOME TAX (APPEALS) HAD HELD THAT THE PROVISIONS OF SECTION 13(1 )(C) WERE NOT ATTRACTED SINCE THERE WERE NO UNDUE BENEFIT THAT HAS BEEN CONFERRED ON THE SPECIFIED PERSON BY THE PETITIONER TRUST. THE REVENUE PREFERRED AN APPEAL BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL FOR THE IMPUGNED YEARS. THE PETITIONER TRUST FILED CROSS OBJECTIONS QUESTIONING THE VALIDITY OF THE REASSESSMENT SINCE THE SAME WAS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE HON'BLE INCOME TAX APPELLATE TRIBUNAL VIDE ITS ORDER DATED 28.04.2017 DISPOSED OFF THE APPEALS AND CROSS OBJECTIONS. IN DOING SO, THE HON'BLE BENCH UPHELD THE REOPENING AND ON UPHELD THE DENIAL OF EXEMPTION U/S.11 AND 12. THE HON'BLE BENCH HAS IN RESPECT OF THE SETTLEMENT OF THEATRICAL RIGHTS BY M/S. SURESH PRODUCTIONS ON THE PETITIONER TRUST, HAS STATED THAT AT PAGE 7 OF THE ORDER THAT THE PETITIONER TRUST BY ACCEPTING THE SETTLEMENT HAS ENTERED INTO A BUSINESS TRANSACTION AND HAS ASSUMED BUSINESS RISKS. IT HAS BEEN FURTHER STATED THAT THE SETTLEMENT IS NOT VOLUNTARY WHICH BEING AN ESSENTIAL INGREDIENT FOR A CONTRIBUTION TO BE EXEMPT FROM TAX. RELEVANT PART OF THE ORDER IS AS FOLLOWS: 3 MP NOS.389/CHNY/2017, 37 TO 41/CHNY/2018 'THE SETTLEMENT OF RIGHTS ITSELF CANNOT BY ITSELF BE SAID TO RESULT IN ANY ACCRETION TO THE CAPITAL OF THE ASSESSEE SO AS TO MAKE IT AN ACT OF CONTRIBUTION THERETO BY THE PERSON/S 'SETTLING' THE RIGHTS, MUCH LESS VOLUNTARY. BE IT TOWARD CORPUS OR OTHERWISE, VOLUNTARINESS IS AN ESSENTIAL INGREDIENT FOR A CONTRIBUTION TO BE EXEMPT - EITHER PER SE (S. 11 (1 )(D) OR ON ITS APPLICATION (S. 11 (1 )(A)). IN OTHER WORDS, HERE IS, FIRSTLY, NO CONTRIBUTION, BEING ONLY A BUSINESS TRANSACTION AT A PRICE, REASONABILITY OF WHICH IS A MARKET DRIVEN PHENOMENON, TO WHICH THERE IS NO REFERENCE NOR THE ASSESSEE QUALIFIED TO ASSESS. ' IT IS MOST HUMBLY SUBMITTED THAT SETTLEMENT BY THE CONCERN IS AN ACT BORNE OUT OF VOLUNTARINESS FROM THE SETTLOR. FURTHER, MERELY BECAUSE THE PETITIONER TRUST HAS ACCEPTED THE SETTLEMENT IT CANNOT BE SAID TO HAVE ENTERED INTO A BUSINESS TRANSACTION. THE THEATRICAL RIGHTS OF THE FEATURE FILMS SETTLED IN FAVOUR OF THE TRUST IS THE PROPERTY OF THE PETITIONER TRUST FROM WHICH IT EARNS INCOME WHICH IT HAS APPLIED TO FULFILL ITS OBJECTS VIZ., CARRYING ON CHARITABLE ACTIVITIES. THIS IS CAN AT BEST BE EQUATED TO A SETTLEMENT OF AN IMMOVABLE PROPERTY TO THE TRUST FROM WHICH ITCAN EARN INCOME FOR CARRYING ON ITS CHARITABLE ACTIVITIES TO FULFILL ITS OBJECTS. IT IS THEREFORE MOST HUMBLY SUBMITTED THAT THE HON'BLE BENCH HAS ERRED IN STATING THAT THE PETITIONER HAS ENTERED INTO A BUSINESS TRANSACTION AND THAT THERE IS NO ELEMENT OF VOLUNTARINESS. FURTHER, THE LACK OF VOLUNTARINESS IS A MISTAKEN VIEW WHICH IS NOT BACKED BY ANY MATERIAL IN THAT REGARD. THE HON'BLE BENCH HAS AT PAGES 11 & 12 OF THE ORDER STATED THAT THE PETITIONER TRUST WAS INTRODUCED AS A MIDDLEMAN BY ROUTING BUSINESS THROUGH IT AND GAINING TAX ADVANTAGE AND CONCLUDED THAT PROVISIONS OF SECTION 13(1 )(C) ARE HIT. IN THIS CONNECTION IT IS MOST SUBMITTED THAT BY SETTLING THE THEATRICAL RIGHTS IN FAVOUR OF THE PETITIONER, THE CONCERN HAS NOT EARNED ANY INCOME LET ALONE PROFIT. SIMILARLY, THE PETITIONER HAS EARNED INCOME BY EXPLOITING THE THEATRICAL RIGHTS OF SOME MOVIES BY SELLING THEM TO CONCERNS THAT HAVE PAID A HUGE SUM FOR THE SAME CONFERRING BENEFIT TO THE TRUST. IN NO WAY HAVE THE SPECIFIED PERSONS EARNED OR GAINED ANY BENEFIT BUT HAVE ONLY WORKED TOWARDS TO CONFER BENEFITS FOR THE PETITIONER TRUST AND HENCE THE PROVISIONS OF SECTION 13(1)(C) ARE NOT ATTRACTED. IN LIGHT OF THESE FACTS IT IS A MISTAKE TO STATE THAT THE PETITIONER TRUST WAS USED AS A MIDDLEMAN FOR THE SPECIFIED PERSONS TO EARN BENEFIT, ESPECIALLY IN LIGHT OF THE ABSENCE OF ANY SUCH CONTRARY EVIDENCE. FURTHER THE HON'BLE BENCH HAS STATED THAT THIS WAS A CASE OF TAX FRAUD. IN THIS CONNECTION IT IS MOST HUMBLY SUBMITTED THAT THIS IS A MISTAKEN VIEW WHICH IS NOT BACKED BY ANY EVIDENCE. IN ANY CASE, IT CAN AT BEST BE A TAX PLANNING. WITHOUT PREJUDICE, EVEN IF ANY PERSON HAS BENEFITTED, THE SAME CANNOT BE BASIS FOR DENYING EXEMPTION IN THE HANDS THE PETITIONER TRUST. 4 MP NOS.389/CHNY/2017, 37 TO 41/CHNY/2018 SINCE THE ABOVE MENTIONED MISTAKES APPARENT FROM RECORD, IT IS MOST HUMBLY PRAYED THAT THE HON'BLE TRIBUNAL MAY BE PLEASED TO RECTIFY THE SAME ARISING FROM THE ORDER FOR THE ASSESSMENT YEARS 2005-06 TO 2010-11 AND CONCLUDE THAT THE PROVISIONS OF SECTION 13(1 )(C) ARE NOT ATTRACTED. THE HON'BLE BENCH HAS OBSERVED THAT THE ACTIVITIES OF THE TRUST ARE CHARITABLE IN NATURE AND HAS SPECIFICALLY LISTED THEM OUT AT PARA NO.2. IT IS AN UNDISPUTED FACT THAT THE PETITIONER TRUST HAS BEEN CARRYING ON CHARITABLE ACTIVITIES VIZ., PROVIDING RELIEF TO POOR, MEDICAL RELIEF AND EDUCATION. FURTHER AT PAGE NO.11 THE HON'BLE BENCH HAS STATED THAT 'WE ARE NOT IN ANY MANNER, WE MAY CLARIFY, DOUBTING THAT THE FUNDS GENERATED IN THE TRUST'S HANDS ARE DEPLOYED FOR ITS PURPOSES AND OBJECTS, CHARITABLE IN NATURE'. HOWEVER, THE HON'BLE BENCH HAS AT PAGE 7 OF THE ORDER STATED THAT: ' IN AS MUCH THE ASSESSEE IS THUS UNDERTAKING A BUSINESS ACTIVITY, ITS CHARITABLE PURPOSE, WHICH FALLS UNDER THE CATEGORY 'ADVANCEMENT OF ANY OBJECT OF GENERAL PUBLIC UTILITY', WOULD STAND OUSTED UNDER SECTION 2(15) AS A CHARITABLE PURPOSE (FOR AY 2009-10 AND SUBSEQUENT YEARS).' IT IS MOST HUMBLY SUBMITTED THAT THE SECOND PROVISO TO SECTION 2(15) IS NOT APPLICABLE TO THE INSTANT CASE IN LIGHT OF THE UNDISPUTED FACT THAT THE PETITIONER TRUST HAS BEEN CARRYING ON CHARITABLE ACTIVITIES SINCE ITS INCEPTION AND THE INCOME GENERATED FROM THE THEATRICAL RIGHTS WAS UTILIZED ONLY FOR ITS OBJECTS OF CARRYING OF CHARITABLE ACTIVITIES. ATTENTION IS DRAWN TO THE CBDT CIRCULAR NO.11/2008 DATED 19.12.2008 THAT HAS STATED AS FOLLOWS: '2. THE FOLLOWING IMPLICATIONS ARISE FROM THIS AMENDMENT- 2.1 THE NEWLV INSERTED PROVISO TO SECTION 2(15) WILL NOT APPLY IN RESPECT OF THE FIRST THREE LIMBS OF SECTION 2(15), I. E., RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF CONSEQUENTL'L WHERE THE PURPOSE OF A TRUST OR INSTITUTION IS RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF, IT WILL CONSTITUTE 'CHARITABLE PURPOSE' EVEN IF IT INCIDENTALLY INVOLVES THE CARRYING ON OF COMMERCIAL ACTIVITIES. 2.2. 'RELIEF OF THE POOR' ENCOMPASSES A WIDE RANGE OF OBJECTS FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DISADVANTAGED OR NEEDY. IT WILL, THEREFORE, INCLUDE WITHIN ITS AMBIT PURPOSES SUCH AS RELIEF TO DESTITUTE, ORPHANS OR THE HANDICAPPED, DISADVANTAGED WOMEN OR CHILDREN, SMALL AND MARGINAL FARMERS, INDIGENT ARTISANS OR SENIOR CITIZENS IN NEED OF AID. ENTITIES WHO HAVE THESE OBJECTS WILL CONTINUE TO BE ELIGIBLE FOR EXEMPTION EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY, SUBJECT, HOWEVER, TO THE CONDITIONS STIPULATED UNDER SECTION 11 (4A) OR THE SEVENTH PROVISO TO SECTION 10(23C) WHICH ARE THAT 5 MP NOS.389/CHNY/2017, 37 TO 41/CHNY/2018 (I) THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE ENTITY.END (II) SEPARATE BOOKS OF ACCOUNT SHOULD BE MAINTAINED IN RESPECT OF SUCH BUSINESS. SIMILARLY, ENTITIES WHOSE OBJECT IS 'EDUCATION' OR 'MEDICAL RELIEF' WOULD ALSO CONTINUE TO BE ELIGIBLE FOR EXEMPTION AS CHARITABLE INSTITUTIONS EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY SUBJECT TO THE CONDITIONS MENTIONED ABOVE. 3. THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' I.E. THE FOURTH LIMB OF THE DEFINITION OF 'CHARITABLE PURPOSE' CONTAINED IN SECTION 2(15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR UNDER SECTION 10(23C) OF THE ACT IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY. ' FROM THE ABOVE IT IS CLEAR THAT THE SECOND PROVISO TO SECTION 2(15) WOULD BE APPLICABLE ONLY IN RESPECT OF THOSE ASSES SEES WHO FALL WITHIN THE LIMB 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. IN THE INSTANT CASE, THE PETITIONER TRUST FALLS WITHIN THE LIMBS 'RELIEF TO POOR, EDUCATION, MEDICAL RELIEF' SPECIFIED IN SECTION 2(15). THEREFORE EVEN IF THE PETITIONER TRUST IS HELD TO BE CARRYING ON BUSINESS, THEN THE INCOME EARNED FROM IT HAS BEEN DEPLOYED ONLY FOR THE PURPOSES OF CARRYING ON THE OBJECTS OF THE TRUST WHICH FALL WITHIN THESE LIMBS OF SECTION 2(15). IT IS THEREFORE MOST HUMBLY SUBMITTED THAT THE PETITIONER TRUST IS CARRYING ON 'CHARITABLE ACTIVITIES' AS PER SECTION 2(15) OF THE ACT. THE HON'BLE BENCH HAS ERRED IN STATING THAT THE PETITIONER TRUST FALLS WITHIN THE CATEGORY 'ADVANCEMENT OF ANY OBJECT OF GENERAL PUBLIC UTILITY' AND STANDS OUSTED AS 'CHARITABLE PURPOSE' FOR ASSESSMENT YEARS 2009-10 AND SUBSEQUENT YEARS. SINCE THIS IS A MISTAKE APPARENT FROM RECORD, IT IS MOST HUMBLY PRAYED THAT THE HON'BLE TRIBUNAL MAY BE PLEASED TO RECTIFY SAME ARISING FROM THE ORDER FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. THE PETITIONER ALSO PRAYS FOR A CONDONATION OF ANY DELAY THAT MAY HAVE OCCURRED IN THE FILING OF THIS PETITION. THE PETITIONER UNDERTAKES TO PRODUCE ALL THE NECESSARY MATERIAL BEFORE THE HON'BLE TRIBUNAL FOR IT TO DECIDE THE MATTER ON MERITS, IF THIS PETITION IS ALLOWED. 6 MP NOS.389/CHNY/2017, 37 TO 41/CHNY/2018 FROM THE ABOVE IT IS APPARENT THAT THE ASSESSEE HAD PRAYED FOR REVIEW OF THE ORDER PASSED BY THE TRIBUNAL WHICH IS NOT PERMISSIBLE UNDER THE PROVISIONS OF THE ACT. THIS TRIBUNAL HAVE POWERS ONLY TO RECTIFY ANY MISTAKE APPARENT IN THE ORDER OF THE TRIBUNAL. THEREFORE THE MISCELLANEOUS PETITIONS FILED BY THE ASSESSEE ARE DEVOID OF MERITS. 3. IN THE RESULT ALL THESE MISCELLANEOUS PETITIONS FILLED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2018 AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) / JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) /ACCOUNTANT MEMBER /CHENNAI, /DATED 31 ST AUGUST, 2018 RSR . /COPY TO: 1. / APPLICANT 2. / RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. [ /GF.