ANDS FOUNDATION,DELHI vs. ITO, WARD- 1(1), EXEMPTIONS, NEW DELHI

The basic grievance of the assessee is against denial of assessee’s claim of exemption under Section 11 and 12 of the Income- Tax Act, 1961.

Briefly the facts are, the assessee is a charitable trust created by a registered trust deed. As observed by the Assessing Officer, the assessee runs an educational institution in the name of Gurukul Public School and Anand Samriddhi Vidyapitha. The Assessing Officer has also accepted that the assessee was granted registration under Section 12A of the Act vide order dated 23.6.2008 and approval under Section 80G of the Act vide order dated 19.3.2010.For the assessment year under dispute, assessee filed its return of income on 30.9.2015 declaring nil income after claiming exemption under Section 11 of the Act.

In course of assessment proceeding, the Assessing Officer while examining assessee’s claim of exemption under Section 11 of the Act called for various details and after examining them, particularly the balance sheet of the assessee, noticed that the assessee had made investment in shares amounting to Rs.5,50,000. Being of the view that investment in shares is not in accordance with the provisions of section 11(5) of the Act, the Assessing Officer held that the assessee had violated the provisions of Section 13(1)(d) of the Act. Thus, he concluded that the assessee is not eligible to claim exemption under Section 11 and 12 of the Act. Accordingly, he proceeded to compute assessee’s income by determining income at Rs.18,58,700. Though, the assessee filed an appeal against the assessment order so passed, however, the appeal was dismissed.

Before me, learned counsel appearing for the assessee submitted that the assessee had not made any investment in shares, rather, the shares were received as gift in the years 2006 and 2008. He submitted, the assessee had been showing the shares under the head ‘investment’ in the balance sheet since 01.04.2008. In this regard, he drew our attention to balance sheet for the preceding years placed in the paper book. Proceeding further, he submitted, 55,000 shares having face value of Rs.10 per share of a company, namely, M/s. Ands Lite (P)

Further, he submitted, in assessment year 2016-17, while making scrutiny assessment, the Assessing Officer has allowed assessee’s claim of exemption under Sections 11 and 12 of the Act. As regards the allegation of the Assessing Officer, that the assessee has modified its object without prior approval of the competent authority, learned counsel submitted, unless registration granted under Section 12A of the Act is cancelled by the competent authority, exemption claimed under Section 11 and 12 cannot be denied. He submitted, as on date, assessee’s registration under Section 12A of the Act is continuing.

The learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).

I have considered rival submissions and perused the material available on record. I have gone through the decisions relied upon.

Undisputedly, the assessee was granted registration under Section 12A of the Act and approval under Section 80G of the Act, which is still continuing. Therefore, assessee’s status as a charitable trust is established.

On a perusal of the impugned assessment order, it is very much clear, the Assessing Officer has declined assessee’s claim of exemption under Section 11 and 12 of the Act, primarily for two reasons. Firstly, the assessee had invested in shares amounting to Rs.5,50,000, not in the mode and manner prescribed under Section 11(5) of the Act, thereby, violated the provisions of section 13(1)(d) of the Act. Secondly, the assessee had modified the objects of the trust deed without seeking approval of the competent authority.

As regards, the issue relating to investment in shares, it is observed that the assessee had received the shares as gift from two persons in the year 2006 and 2008. The value of shares is appearing in the balance sheet of the assessee from past many years. The balance sheet for the assessment years 2011-12, 2012-13, 2013-14 and 201-15 placed in the paper book bears testimony to this fact. Thus, it is evident, the assessee had not made any investment in shares in the impugned assessment year in violation of section 11(5) of the Act, as alleged by the Assessing Officer. In any case of the matter, it is fairly well settled legal principle that for violation of section 13(1)(d) of the Act, disallowance of exemption can be made only with reference to the income derived from investment made in violation of section 11(5) read with section 13(1)(d) of the Act. In the facts of the present case, admittedly, the assessee has not derived any income from the investment in shares. Therefore, assessee’s claim of exemption under Section 11 of the Act in respect of other items of income cannot be denied.

As regards, the allegation of the Assessing Officer that the assessee has modified the object without taking prior approval of the competent authority, suffice to say, inspite of such alleged violation, the registration granted under Section 12A of the Act still subsists. It is further relevant to observe while completing scrutiny assessment in assessment year 2016-17, the Assessing Officer has allowed claim of exemption under Section 11 and 12 of the Act.

Thus, in my view, the reasons based on which the Assessing Officer rejected assessee’ claim of exemption under Section 11 and 12 of the Act for the impugned assessment year, are unsustainable.

Accordingly, I direct the Assessing Officer to allow assessee’s claim of exemption under Section 11 and 12 of the Act.