COMMISSIONER OF INCOME TAX (EXEMPTIONS) vs. RAJKOT DIOCESE TRUST

This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, 'the Act 1961') is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot, dated 21st October 2019 in the ITA No.79/RJT/2019 for the Assessment Year 2011-12. 2. The Revenue has proposed the following substantial questions of law for the consideration of this Court : “(A) Whether on the facts and circumstances of the case and in law, the Appellate Tribunal has erred in directing the Assessing Officer to restrict the disallowance of accumulation instead of deciding whether the proceedings u/s 263 of the Act was rightly invoked by the CIT(E) ? (B) Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in not deciding the issue of proceedings initiated under Section 263 of the Act on the ground that order passed by the Assessing Officer u/s 143(3) rws 147 was erroneous in so far as it is prejudicial to the interest of the Revenue ? (C) Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in disallowing exemption under Section 11 of the Act limited only to the amount diverted for purchase of car in the name of trustee without appreciating that the order passed by the Assessing Officer was erroneous in so far as it is prejudicial to the interest of the Revenue and that the assessee has forfeited all the exemptions under Section 11 and 12 of the Act as provisions of Section 13(1)(c) of the Act are applicable ? (D) Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in restricting the disallowance of accumulation u/s 11(1)(a) to the extent of Rs.9,56,175/- without appreciating the fact that the assessee has forfeited all the exemption under Section 11 and 12 of the Act as the provisions of Section 13(3) are applicable ?”

It appears from the materials on record that the assessee filed its return of income for the Assessment Year 2011-12 on 18th August 2011, declaring the total income at Rs.NIL in the status of Association of Persons (Trust). The return was proposed under Section 143(1) of the Act 1961 on 13th March 2013. Thereafter, the case was selected for scrutiny by issuing the notice under Section 143(2) of the Act. The assessment came to be finalized under Section 143(3) of the Act 1961 on 7th February 2014 by accepting the return of income as the assessed income. It appears that thereafter the case was reopened under Section 147 of the Act 1961 by issuing a notice under Section 148 of the Act 1961. The reassessment proceedings came to be finalized under Section 143(3) read with Section 147 of the Act 1961 on 6th December 2016, determining the total income at Rs.NIL after disallowing Rs.8,82,707=00 on account of the expenditure made for the purpose of a car in the name of the trustee, namely Rev.Bishop Gregory Karotemprel.

The record further reveals that the CIT (Exemptions) invoked its revisional powers under Section 263 of the Act 1961. The CIT(E) noticed that the Assessing Officer had disallowed the expenditure of Rs.8,82,707=00 on account of the accumulation under Section 11(1)(a) of the Act 1961 in respect of the car purchased in the name of the trustee which ought to have been Rs.9,56,175=00. Thus, there was a less disallowance to the tune of Rs.73,468=00. 5. The CIT(E) held that the assessment had been made by the Assessing Officer without application of mind. In such circumstances, the CIT(E) held that the assessment order dated 6th December 2016 passed under Section 143(3) read with Section 147 of the Act 1961 was erroneous and prejudicial to the interest of the Revenue.

The assessee, being dissatisfied with the decision of the CIT(E), filed appeal before the appellate tribunal. The appellate tribunal directed the Assessing Officer to restrict the disallowance to the extent of Rs.9,56,175=00 and not disallow the entire accumulation as held by the CIT(E).

Ms.Mauna Bhatt, the learned senior standing counsel appearing for the Revenue submitted that, in accordance with the provisions of Section 13(1)(c)(ii) read with Section 13(2) of the Act 1961 if any part of the income or any property of the Trust or Institution is directly or indirectly used or applied for the benefit of any specified person referred to in sub-section (3) of Section 13 of the Act 1961, then the entire income of the assessee would not be eligible for exemption under Section 11 of the Act 1961. Ms.Bhatt would submit that the assessee lost all its exemption under Section 11 of the Act 1961 which are otherwise available to a charitable trust. It is pointed out that while finalizing the assessment, the Assessing Officer had assessed the income under the normal provisions and the benefits entitled to the Trust were denied.

Ms.Bhatt would further submit that the decision of the appellate tribunal is erroneous and deserves to be quashed and set-aside.

In the last, Ms.Bhatt clarified that the tax effect involved is Rs.11,92,860=00, which is below the prescribed monetary limited under the Circular No.17 of 2019 dated 8th August 2019 issued by the CBDT. However, as the case falls under the exception clause as provided in paragraph 10(c) of the Circular, this Appeal has been filed by the Revenue.

Having heard Ms.Bhatt, the learned senior standing counsel appearing for the Revenue, and having gone through the materials on record, the only question that falls for our consideration is, whether the Tribunal could be said to have committed any error in passing the impugned order.

The Tribunal, while partly allowing the appeal filed by the assessee herein, observed as under : “We have heard both the sides and perused the material on record. In this case order u/s. 143(3) of the Act was passed on 7th February 2014 determining the total income at Rs.Nil. The case was reopened u/s 147 and the re-assessment was finalized on 6th December 2016 determining the total income at Rs.Nil after disallowing Rs.8,82,707/-, the expenditure made for the purpose of a car in the name of trustee. During the course of re-assessment proceedings, the Assessing Officer has disallowed the expenditure of Rs.8,82,707/- on account of accumulation u/s. 11(1)(a) which could have been at Rs.9,57,175/-, therefore, there have been less dis-allowance to the extent of Rs.73,468/-, however, the Ld. CIT(E) vide order u/s. 263 of the Act dated 22nd March 2019 has held that if any part of income or any property of other trust or the institution is directly or indirectly used or applied for the benefit of any specified person referred to u/s. 13(2) of the Act, then the entire income of the assessee is not eligible for exemption u/s. 11 of the Act. Therefore, the Ld. CIT(E) has directed the Assessing Officer to invoke the provision of Section 13(1)(c) and disallow the entire accumulation made during the Assessment Year 2010-11 u/s. 11(1)(a) of Rs.38,60,391/-. With the assistance of Ld. representatives, we have gone through the judicial pronouncements relied upon by the Ld. counsel as cited above. We have noticed that the Hon'ble Charitable Institution has held as under :

We are of the view that no error, not to speak of any error of law, could be said to have been committed by the Tribunal in passing the impugned order. The Tribunal has relied upon one decision of the Karnataka High Court and another decision of the Bombay High Court.

We are in agreement with both the decisions relied upon by the Tribunal in its impugned order.

In the result, this Appeal fails and is hereby dismissed. (VIKRAM NATH, CJ.) (J. B. PARDIWALA, J.) /MOINUDDIN