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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI GAGAN GOYAL,AM
2 and Others Shree Hazarimal Somani Memorial Trust आदेश / O R D E R
Per Amit Shukla, Judicial Member:
1. The aforesaid cross appeals have been filed by the assessee as well as by the revenue against separate impugned orders dated 23.11.2021 for AY 2017-18 and dated 13.07.2022 for AY 2018-19 & 2019-20, passed by Ld. CIT (A)-53 Mumbai for the quantum of assessment passed u/s 143(3) of the Act.
Since the issues involved in all the appeals are common arising out of identical set of facts, therefore the same were heard together and is being disposed of by way of this consolidated order.
As a lead case, we are taking cross appeals for AY 2017-18 wherein the revenue has raised the following grounds:-
(1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the addition made by the AO by disallowing the claim of exemption u/s 11 of the Act. as the assessee has violated the provisions of Sec. 13(1)(c) of the Act.?" (2) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in one hand accepting that the assessee has violated the provisions of Sec. 13 (1) (c) of the Act and on the other directing the AO to restrict the addition to the 3 and Others Shree Hazarimal Somani Memorial Trust income on which there is violation of provisions of section 13(1)(c) of the act such income? (3) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in restricting the travelling expense to 50% i.e., Rs. 23,11,452/- despite acknowledging that the assessee has violated the provisions of Sec. 13 (1) (c) of the Act? (4) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in ignoring the decision of Hon'ble Supreme Court in the case of In the case of DIT Vs Bharat Diamond Bourse (259 ITR 280) (2003), wherein the Hon'ble Supreme court had held that the Assessee would lose the benefit u/s 11 of the Act by falling within the mischief of section 13(3) r.w.s. 13(1)(c) of the IT Act.?" (5) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in restricting the disallowance made by the AO on account of Corpus Donation of Rs. 47,96,726/-, expenses for purchase of additional fixed assets of Rs. 1,14,69,794/-, donation of Rs. 12,50,37,100/-, expenses being payment made towards educational aid of Rs. 87,800/-, expenses being payment made towards medical relief of Rs. 3,32,576/-, donation towards relief of poverty of Rs. 1,05,000/-, despite the Ld.CIT(A) has accepted that the assessee has violated the provisions of Sec. 13 (1) (c) of the Act?"
4 and Others Shree Hazarimal Somani Memorial Trust (6) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the disallowance made by the AO, relying upon those judicial pronouncements, the facts of which are completely different from the instant case.?" (7). The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal
, if need be.
4. Whereas the assessee has raised the following grounds:-
1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the action of Ld. A.O. in holding that the appellant had violated the condition prescribed in section 13(1)(c) of the Act, for the reasons mentioned in the impugned order or otherwise.
2. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of Id. AO in denial of exemption u / s 11 of the Act to the extent of Rs. 11,55,726/-, on account of foreign travelling expenditure for the reasons mentioned in the impugned order or otherwise. 3. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of ld. AO in denial of exemption u/s 11 of the Act to the extent of Rs. 40,00,000/-, for non-charging of rent in respect of trust's property for the reasons mentioned in the impugned order or otherwise. 5. The facts in brief are that Assessee’s trust is registered as a Charitable Organization with DIT (E) Mumbai u/s 12A vide 5 and Others Shree Hazarimal Somani Memorial Trust registration No. TR/01 dated 26.03.1975. The Trust is engaged in charitable activities in the field of education. Accordingly, the assessee’s income and expenditure was subjected to computation u/s 11 to 13 and benefit of section 11 was applicable. As noted by the AO, a survey action u/s 133A was conducted on 04.06.2019 and during the survey, it was found that various other concerns /companies in which the trustees are interested were running their operations from the premises belonging to the trust and no rent was paid by these concerns to the trust. Thus, it was deduced that property of the trust was used for benefit of concerns in which trustees were having substantial interest. It was further found that Ms Aaradhana Somani, trustee of the Shree Hazarimal Somani Trust has undertaken foreign visits on many accounts and the total of such expenses from AY 2015-16 to 2019-20 aggregated to Rs. 1,23,98,534/-. It has also been noted that Shrikant Somani has voluntarily admitted that Rs. 2 crores as rent receivable from the companies operating from the trust premises and also admitted the foreign travelling expenses incurred in respect of Smt. Aaradhana Somani, the Trustee of the trust to the extent of 50% of the foreign travelling expense is personal.
6 and Others Shree Hazarimal Somani Memorial Trust 6. Ld. AO after detailed discussion, denied the entire exemption claimed u/s 11 and also added the foreign travelling expenses in the books of the trust in different assessment years which are as under:-
Assessment year Amount 2015-15 20,49,511 2016-17 15,54,467 2017-18 23,11,452 2018-19 28,92,218 2019-20 35,90,886 Total 1,23,98,534/-
Before the Ld. CIT(A), assessee had stated that operations of the business of the company belonging to the trustee from the premises of trust was due to request made by the other trustees, since Shrikant Somani had offered to quit in light of his commitments towards the management of the said companies. Since the trust insisted for continuing the leadership of Shrikant Somani and his assistance thereto for the trust, it was decided that the part of the portion can be used by Shrikant Somani as office of his business concerns. There is no actual benefit to the trustees. As an alternative, it was submitted that disallowance of exemption u/s 11 should be restricted to the extent of violation u/s 13, for which 7 and Others Shree Hazarimal Somani Memorial Trust various judgments were filed and relied on. The Ld. CIT(A) after referring to the catena of judgment including the judgment of Hon’ble Bombay High Court in the case of CIT(E), Pune Vs. Audyogik Shikshan Mandal, Pune (101 taxamann.com 247) (bom) wherein Hon’ble Court has held as under:- ".... We find that the impugned order of the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the decision of the Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only the income diverted as loans to a person specified under Section 13 of the Act, which was denied the benefit of Section 11 of the Act or the entire income was denied the benefit of exemption under Sect ion 11 of the Act. We have closely read the decision of the Apex Court in Bharat Diamond Bourse (supra) and it does not extend the benefit of Section 11 of the Act to the Trust. However, it is not clear whether it is only to the extent of income diverted or the entire income. This, for the reason that the dispute between the parties therein was not as arising in this case. The basic dispute in the above case was - whether the objects of the Trust were charitable and whether the person to whom the loan was given was a person covered by Section 13 of the Act. The decision of the Karnartaka High Court in Fr. Mullers Charitable Institutions (supra), dealt with the very issue herein viz. the denial of exemption of entire income under Section 11 of the Act, or is the 8 I.T.A. No. 1444/Mum/2022 and Others Shree Hazarimal Somani Memorial Trust denial restricted only to the quantum of diverted funds. This, as it is hit by Section 13 of the Act. The Court held that the benefit of Section 11 of the Act will not be available only in respect of the diverted income. The above decision of Karnataka High Court was the basis for the view in the impugned order of the Tribunal. Moreover, we note that the order of Karnataka High Court in case of Fr. Mullers Charitable Institutions (supra) inter alia, places reliance upon the decision of this Court in DIT(Exemption) v. Sheth Mafatlal Gagalbahai Foundation Trust [2001] 114 Taxman 19/249 ITR 533 (Bom.) and the Delhi High Court in the case of IT (Exemption) v. Agrim Charan Foundation [2002] 253 ITR 593/[2001] 119 Taxman 569. Moreover, on a plain reading of Sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial the benefit of Section 11 of the Act to the entire income of the Trust. If the interpretation sought to be advanced by the Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving a small amount takes place by the Trust, the consequence would be denial of the benefit of exemption to the entire income otherwise admittedly used for charitable purposes. It is pointed out to us that the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra) was carried by the Revenue to the Supreme Court and its SLP was dismissed on 19th September, 2014 Fr. Mullers Charitable Institutions (supra).
In the above view, the view taken by the Tribunal in the impugned order is in accord with the view of the Karnataka High 9 and Others Shree Hazarimal Somani Memorial Trust Court in Fr. Mullers Charitable Institutions (supra), Delhi High Court in AgrimCharan Foundation (supra) and this Court in Sheth Mafatlal Gagalbahai Foundation Trust (supra). Hence, the proposed question does not give rise to any Thus, not entertained..”
8. Further Ld. CIT(A) has also referred to other various judgments of Hon’ble Bombay High Court and other High Courts wherein it has been held that the exemption u/s 11 should be restricted to the income on which there is violation of provision of section 13(1)(c) of the Act for AY 2017-18 which was Rs. 51,55,726/-. Similarly for AY 2018-19 regarding foreign travelling expenses, he restricted the disallowance 50%, i.e., Rs. 11,55,726/-. Similar restriction of exemption was restricted to the income in which violation of provision of section 13(1)(c) had occurred for AY 2018-19 and 2019-20 also.
We have heard the rival submissions, perused the relevant finding given in the impugned orders and the material referred before us. We find that the entire basis for disallowance or denying the benefit of exemption u/s 11 by the AO was that, firstly, during the course of survey, it was found that, from the premises of the Trust, certain business concern of the managing trustee, Shrikant Somani was operating business activities from the said premises 10 and Others Shree Hazarimal Somani Memorial Trust which fact has been accepted by the employees of the companies and also by Shrikant Somani who had made an admission of Rs. 2 crores as rent receivable from the companies operating from the trust premises from AY 2015-16 to 2019-20. Another ground for denying the exemption was that certain foreign travelling expenditure have been incurred in respect of Mrs. Aradhana Somani, trustee of the trust to which she herself offer 50% would be reimbursed by her. Once the exemption u/s 11 has been denied by the AO has made various additions. Ld. CIT (A) has denied the exemption only to the extent of income which was found in violation of section 13(1)(c) after relying on various judgments.
Section 13 spells out certain circumstances in which exemption provided u/s 11 & 12 is not applicable. Further section 164(2) and 164(3) provided that income of the trust would be taxable at a maximum marginal rate, which reads as under:-
[(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2, or which is of the nature referred to in sub-section (4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant 11 and Others Shree Hazarimal Somani Memorial Trust income not so exempt were the income of an association of persons : Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub- section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. (3) In a case where the relevant income is derived from property held under trust in part only for charitable or religious purposes or is of the nature referred to in sub-clause (iia) of clause (24) of section 2 or is of the nature referred to in sub-section (4A) of section 11, and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminate or unknown, the tax chargeable on the relevant income shall be the aggregate of— (a) the tax which would be chargeable on that part of the relevant income which is applicable to charitable or religious purposes (as reduced by the income, if any, which is exempt under section 11) as if such part (or such part as so reduced) were the total income of an association of persons; and (b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are 12 I.T.A. No. 1444/Mum/2022 and Others Shree Hazarimal Somani Memorial Trust indeterminate or unknown, at the maximum marginal rate ……………………
The aforesaid sections provide that income of trust will be taxable at ‘maximum marginal rate of tax’ on following event: i. If any fund of the organization has been invested or deposited, for any part of the year, as per section 13(1)(d) read with section 11(5) of the Act; ii. If any part of income has been applied directly or indirectly for the benefit of any of the excluded persons under section 13(1)(c) r.w.s. 13(3) of the Act. However, the section categorically provides that tax shall be charged on the ‘relevant income’ or ‘part of relevant income’ which has forfeited exemption at the maximum marginal rate.
Thus, on a conjoint reading of section 13(1) and section 164 of the Act, it can be seen that taxability of the income of an organization forfeiting exemption under section 13(1)(c) or 13(1)(d), shall be charged at maximum marginal rates of tax only on that part of income which has forfeited exemption. Thus, where the trust contravenes the provisions of section 13(1)(c) or (d) of the Act, the 13 and Others Shree Hazarimal Somani Memorial Trust maximum marginal rate will apply only to that part of the income which has forfeited exemption.
Further, the language of section 13(1)(c) and (d) also supports this view which provides to exclude from the total income, ‘any income thereof’ which as a whole or in part has forfeited exemption. The word "such" used in the section 13(1)(c)(ii) is important and refers to only that part of income which goes to the benefit of specified persons. Further, similar treatment should be given in respect of cases covered under clause (d) of section 13(2) providing for disallowance in respect of services of the trust given to specified persons.
Further as noted by Ld. CIT(A) and also the various Hon’ble High Courts have held that the entire exemption cannot be forfeited and only to the extent of violation of the income u/s 13(1)(c), should alone be disallowed. This proposition was held by the following decision of Hon’ble High Courts:-
Decision of Karnataka High Court CIT Vs Fr.Mullers Charitable Institutions [2014] 363 ITR 230 (Karn) and SLP dismissed by SC reported 51 taxmann.com 378 14 and Others Shree Hazarimal Somani Memorial Trust 2. Decision of Bombay High Court in Audyogik Shikshan Mandal 101 taxmann.com 247 (Bom) 3. Decision of Bombay High Court in Director of Income-tax (Exemption) v. Sheth Mafatlal Gagalbhai Foundation Trust [2001] 249 ITR 533 (Bombay), 4. Decision of Madras High Court in CIT v. Working Women's Forum [2015] 53 taxmann.com 85/[2014] 365 ITR 353 (Mad.) 5. Decision of Rajasthan High Court in Commissioner of Income-tax, (Exemptions) v. Santokba Durlabhji Trust Fund [2018] 93 taxmann.com 324 (Rajasthan) 6. Decision of Madras High Court in St. Xavier Educational Trust V Commissioner of Income-tax Exemption) [2021] 128 taxmann.com 198 (Madras) 15. Thus the order of Ld. CIT(A) restricting the denial of exemption u/s 11 to the extent of section 13(1)(c) is upheld. Accordingly, the grounds raised by the revenue are dismissed.
Similarly with regard to foreign travel expenses of the trust, we find no reason to deviate from the findings given by the Ld. CIT(A) when during the course of survey it has been duly admitted that all these expenses were incurred by the trustees and no evidence has been produced as it would done for the purpose of business activity
Now coming to the assessee’s appeal wherein assessee has challenged the disallowance sustained by the Ld. CIT(A). We find that once it has been found that this is a violation of section 13(1)(c) and the premises of the trust was used for the business concerns of the trustees for which trust has no benefit, then there is clear violation of section 13. Accordingly, benefit of exemption u/s 11 has to be denied to the extent of violation of section 13(1)(c). Therefore, the grounds raised by the assessee are dismissed.
Since, the similar issues are involved in other two appeals filed by assessee and revenue in AY 2018-19 and 2019-20, therefore our aforesaid findings are applicable in these cases also.
In the result, all the appeals filed by the revenue and assessee are dismissed.