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Facts
The assessee, a charitable trust, filed its return of income at nil. The Assessing Officer (AO) reopened the assessment under Section 147, alleging that dividend income claimed as exempt and accumulation of 15% of income were improperly treated. The AO's reasons for reopening were based on the same material available during the original assessment.
Held
The Tribunal held that the reopening of assessment was bad in law as it was based on a mere change of opinion and not on any new tangible material. The Tribunal relied on the decision of the jurisdictional High Court in Jasubhai Foundation and the Supreme Court in Kelvinator India. Consequently, the reassessment order and the subsequent rectification order were quashed.
Key Issues
Whether the reassessment proceedings initiated under Section 147 were valid when based on a change of opinion and the same material as the original assessment. Whether dividend income claimed as exempt under Section 10 should be excluded from computation under Section 11.
Sections Cited
147, 148, 143(3), 154, 13(1)(d), 10(34), 10(35), 164(2), 11, 10(33), 10(38), 234B, 12A, 11(1)(a), 11(2), 11(6), 11(7), 2(45)
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Income Tax Appellate Tribunal, “E” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 Appeals in and ITA No. 4055/Mum/2024 are cross appeals filed by the revenue and assessee against the order of ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order no. ITBA/NFAC/S/250/2024-25/1065668175(1), dated 14.06.2024 passed against the assessment order by DCIT (Exemption) – 2(1), Mumbai, u/s. 143(3) r.w.s. 147 of the Income-tax Act (hereinafter referred to as the “Act”), dated 30.11.2016 for Assessment Year 2009-10. Appeal in is filed by assessee against the order of ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order no. ITBA/NFAC/S/250/2024- 25/1066306907(1), dated 01.07.2024 passed against the assessment order by DCIT (Exemption) – 2(1), Mumbai, u/s. 154 of the Act, dated 21.08.2019 for Assessment Year 2009-10.
2. Grounds taken by revenue in are reproduced as under: " 1. "Whether, on the facts and in the circumstances of the case, the ld. CIT(A) is justified in allowing the assessee appeal despite the fact that there is violation of provisions of section 13(1)(d) of the I.T. Act because of the investment by the Trust in prohibited mode of investment that it would lead?" 2. "Whether, on the facts and in the circumstances of the case, the ld. CIT(A) is justified in allowing the assessee appeal despite the fact that assessee cannot claim alternative exemption under section 10(34/35/38) because section 10(34/35/38) does not deal with income derived from property held under trust. Clearly in this case, section 164(2) is attracted". 3. "Whether the ld.CIT(A) is justified in ignoring that the investment made by the assessee in the shares of Tata Sons Ltd. is in clear violation of the provisions of the Section 13(1)(d) of the Income Tax Act, 1961 and ignoring the decision of Hon'ble Supreme Court in the case of Bharat Diamond Bourse, (259 ITR 280), wherein, in similar circumstances the complete denial of exemption u/s 11 of the Act. was upheld?
2.1 Grounds taken by the assessee in are reproduced as under: " 1. The learned Commissioner of Income-tax (Appeals) ["ld. CIT(A)'] erred in upholding the re-opening of assessment u/s 147 of the Act and rejecting the 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 submission of Trust that the jurisdictional conditions contained u/s 147 and 151 are not fulfilled before issuing the notice u/s 148.
2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in upholding the AO's order inasmuch as he had alleged that the provisions of section 13(2)(h) are attracted in the present case.
3. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in upholding denial of exemption u/s 10(34) of the Act to dividend income of Rs 10,55,25,000/- and inclusion of the same for the purpose of section 11 of the Act.
4. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in upholding that the MMR of tax be applied to the dividend income of the trust.
5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding levy of interest under section 234B of the Act on the additions not envisaged by the Appellant.”
2.2 Grounds taken by the assessee in " 1. The learned Commissioner of Income-tax (Appeals) ['ld. CIT(A)'] erred in dismissing the appeal without adjudicating on the grounds raised by the Appellant.
The Id. CIT(A) ought to have held that the impugned rectification order u/s. 154 of the Income Tax Act, 1961 ('Act') is time barred.
The Id. CIT(A) ought to have held that the impugned rectification order is bad in law as it does not contain a Document Identification Number ('DIN').
4. The ld. CIT(A) ought to have held that the order cannot be characterised as an order of assessment as it is not accompanied by a notice of demand.
5. The ld. CIT(A) erred in deciding the issues which arose out of the order u/s 143(3) r.w.s. 147 of the Act and not the order u/s 154 of the Act.
6. The Id. CIT(A) ought to have held that the levy of surcharge, education cess and interest u/s. 234B of the Act consequent to the disallowances made is bad in law.”
and 4055 are cross appeals both, by revenue and the assessee and are therefore taken up together. Appeal in is against an order passed u/s. 154 on the impugned assessment order made by the ld. AO against which both revenue and assessee are in appeal. We first take up appeal by assessee in to deal with
Brief facts of the case are that assessee is a trust which was set up in 1990 and is registered as a charitable organization with Director of Income-tax (Exemption), Mumbai u/s. 12A, vide registration No. TR/27967, dated 10.12.1990. Assessee is also registered with Charity Commissioner, Mumbai under the Bombay Public Trust Act, 1950, vide registration No. E-12969, Mumbai. Assessee claims to be engaged in charitable activities in the field of education. Return of income was filed on 29.09.2009 along with relevant documentary evidences and audit report in form 10B, reporting total income at nil. Assessee had filed its return with nil income based on the following computation of income.
4.1. During the year, assessee had earned dividend on shares and units aggregating to Rs.10,55,57,797/-. Assessee had claimed dividend income as exempt u/s. 10(34) and section 10(35) which was not included for computation of u/s. 11 of the Act. Original assessment u/s. 143(3) was completed by order dated 31.10.2010, wherein claim of depreciation for Rs.6,086/- was disallowed. Also, claim of shortfall in application of income amounting to Rs.9,01,54,203/- was not allowed to be carried forward. Based on these two disallowances, ld. AO had recomputed the income of the assessee in the original assessment which is tabulated below.
4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 4.2. From the above re-computation of total income made by the ld. AO in the original assessment made u/s. 143(3), it is noted that ld. AO had taken dividend income as being allowed as exempt u/s. 10 while computing the income exempt u/s.
11. Further, in respect of computing the accumulation up to 15%, the only effect which has been taken into account is in respect of disallowance of depreciation of amount of Rs.6,086/- which otherwise is same as what the assessee has claimed in its computation filed in the return of income.
4.3. Subsequently, notice for reopening of the case was issued by the ld. AO u/s. 148 dated 21.09.2015 which is beyond the period of 4 years. Since, the assessment was completed u/s. 143(3) and the notice u/s. 148 is issued after the period of 4 years, first proviso to section 147 becomes applicable in the case of the assessee. The reasons recorded by the ld. AO for the purpose of issuing notice u/s. 148 to invoke the reopening of the case deals with primarily 2 issues. The first one relates to accumulation of 15% which has taken place according to the ld. AO even when there was no surplus or where the trust has already spent more than 85% on the objects of the trust. According to the ld. Assessing Officer, there is an under assessment of income of Rs.31,74,705/- on account of accumulation up to 15% of income claimed by the assessee in its computation which was done before ascertaining the actual expenditure for the year. According to him, this has resulted in irregular accumulation of income where there was no surplus available. The other issue noted by the ld. AO in the reasons to believe is in respect of assessee claiming exemption u/s. 10(34) and section 10(35) of Rs. 10,55,57,797/- towards dividend income. According to the ld. AO the said income should have been offered as income for object of the trust. Thus, he recorded that there is a failure on the part of the assessee to make full and true disclosure of the 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 relevant material facts as far as these two issues are concerned and thus arrived at reasons to believe for invoking the impugned reassessment proceedings to issue notice u/s. 148.
4.4. Against these reasons to believe, assessee raised its objection vide submission dated 11.07.2016 and strongly contended that on the first issue, the accumulation to the extent of 15% of income is statutorily permitted u/s. 11 (1)(a). This accumulation is unconditional and is different from the accumulation of income as provided u/s. 11(2). According to the assessee, as long as it has spent at least 85% of the income, the balance is allowed to be accumulated under the Act. According to it, there is no under assessment of income as recorded by the ld. AO in the reasons to believe for an amount of Rs. 31,74,705/-. On the second issue relating to claim of dividend as exempt u/s. 10(34) and section 10(35) which according to the ld. AO should have been offered to tax, assessee relied on the decision of Hon’ble Jurisdictional High Court of Bombay in the case of DIT vs. Jasubhai Foundation [2015] 58 taxmann.com 218 (Bom), whereby it was held in under similar set of facts that income exempt u/s. 10 has to be excluded while computing income of charitable institutions exempt u/s.
11. The assessment year dealt by the Hon’ble Court in this judgment is Assessment Year 2007-08. Out of the five substantial questions of law framed by the Hon’ble Court, the first three substantial questions of law relate to this issue of dealing with treatment of income claimed exempt u/s. 10(33) and section 10(38) for the purpose of computing claim of exemption u/s. 11.
4.5. The said substantial questions of law are reproduced for ready reference. (A) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in granting exemption u/s, 10(33) and 10(38) to 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 the tune of Rs. 25.96 lakhs and Rs. 3.21 lakhs respectively, when this income forms a part of the income from property held under trust and therefore can only be claimed to be exempt u/s. 11, if applied for charity and not u/s. 10 of the Act?
(B.) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in holding that the entire foundation of section 11 is based on the premise that the income is otherwise chargeable to tax, which is not supported by the provisions of the Act ?
(C.) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in granting exemption u/s. 10, when the same amounts to allowance of exemption within exemption whereby dividend income and long term capital gain derived from property held under trust but not applied for purposes of the trust is held to be exempt?
4.6. Hon’ble Court gave its finding in para 7, 8 and 9 by holding that the Tribunal was right in its conclusion that income which in this case of the assessee trust was not included by virtue of section 10 then that cannot be considered u/s.
According to the Hon’ble Court, there is nothing in the language of section 10 or 11 which says that what is provided by section 10 or dealt with is not to be taken into consideration or omitted from the purview of section 11. Relevant paragraphs from the said judgment are reproduced for ready reference. “We have, with the assistance of the counsel appearing for both sides, perused the appeal paper-book and the impugned orders. The Assessing Officer was of the view that the return of income which was filed along with income and expenditure account, balance sheet, audited report and by assessee claiming to be a charitable organization needs scrutiny in the light of the legal provision and namely section 11 of the Income Tax Act The Assessing Officer noted that a sum of Rs. 25,96,287/- received on account of dividend income is claimed as exempt under section 10(33) of the Income Tax Act. However, this income forms a part of the income from trust property and, therefore, can only be claimed to be exempt under section 11 of the Income Tax Act if applied for charity and not under section 10(33) of the Income Tax Act. Claim of exemption under section 10(33) of the Income Tax Act is, therefore, not allowable. Similar is the position with regard to the sum received of Rs. 3,21,124/- on account of long term capital gain on redemption of mutual fund investment. That cannot be claimed as exempt under section 10(38) of the Income Tax Act. This finding of the Assessing Officer is based only on reading of sections 10, 11, 12 and 13. In his view, if the provisions of section 11, 12, and 13 of the Income Tax Act are the governing provisions and relate to exemption claimed by charitable institutions, then, the assessee has no option to choose whether it wants to avail the exemption under section 10(33) or section 11 of the Income Tax Act, 1961. He relied upon a circular of 1968 issued by the Central Board of Direct Taxes. He also relied upon the language of section 11(1) and the expression "total income" defined in section 2(45) of the Income Tax Act, 1961, as the total amount of Income computed in the manner laid down in 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 this Act. The Assessing Officer was of the view that the word "income" used in section 11(1)(a) does not have the same meaning as has been specifically assigned to the expression "total income" vide section 2(45) of the Act.
Upon a perusal of the order of the Assessing Officer and that of the Commissioner upholding it, we are of the view that the Tribunal was correct in setting aside these concurrent orders. The language of the two sections is plain and clear. The provisions, namely, sections 10 and 11 fall under a Chapter which is titled "Incomes Which Do Not Form Part of Total Expenditure" (Chapter III). Section 10 deals with incomes not included in total income whereas section 11 deals with Income from property held for charitable or religious purposes. We have not found anything in the language of the two provisions nor was Mr. Malhotra able to point out as to how when certain income is not to be included in computing total income of a previous year of any person, then, that which is excluded from section 10 could be included in the total income of the previous year of the person/assessee. That may be a person who receives or derives income from property held under trust wholly for charitable or religious purposes. Thus, the income which is not to be included in computation of the total income is a matter dealt with by section 10 and by section 11 the case of an assessee who has received income derived from property held under trust only for charitable or religious purposes to the extent to which such income is applied to such property in India and that any such income is accumulated or set apart for application for such purposes in India to the extent of which the income so accumulated or set apart in computing 15% of the income of such property, is dealt with. Therefore, it is a particular assessee and who is in receipt of such income as is falling under clause (a) of sub-section (1) of section 11 who would be claiming the exemption or benefit. That is a income derived by a person from property. It is that which is dealt with and if the property is held in trust for the specified purpose, the income derived therefrom is exempt and to the extent indicated in section 11(1)(a) of the Income Tax Act, 1961 There is nothing in the language of sections 10 or 11 which says that what is provided by section 10 or dealt with is not to be taken into consideration or omited? from the purview of section 11. If we accept the argument of Mr. Malhotra and the Revenue, the same would amount to reading into the provisions something which is expressly not there. In such circumstances, the Tribunal was right in its conclusion that the income which in this case the assessee trust has not included by virtue of section 10, then, that cannot be considered under section 11.
9. In the circumstances and when the income from property held for charitable or religious purpose is not a matter covered or dealt with by section 10 that the Tribunal's view cannot be termed as perverse or vitiated by any error or law apparent on the face of the record. The clear language of these provisions enables us to uphold the order of the Tribunal. It is, accordingly, upheld. The Revenue's appeal does not raise any substantial question of law.
On the strength of this decision of Hon’ble jurisdictional High Court of Bombay, assessee submitted that the reopening is bad in law. Further, assessee submitted that it was by amendment brought in by Finance Act 2014 which provided that a registered trust would be 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 entitled to claim exemption only u/s. 11 and not u/s. 10, corroborates the stand taken by the assessee which comes into force only by Finance Act 2014 and not to the years prior to that. Thus, there was no irregularity in the claim of exemption made by the assessee. Assessee contended that it is a case of mere change of opinion which is not permissible under the provisions of section 147. Assessee had furnished all the details and documents and explanation which are on record to explain its case and were duly considered by the ld. AO while completing the assessment u/s. 143(3). In the objection so raised, assessee placed reliance on the decision of Hon’ble Supreme Court in the case of Kelvinator of India Limited, 320 ITR 521 SC, which held that the concept of change of opinion on the part of ld. AO to reopen an assessment does not stand obliterated after the substitution of section 147 of the Act by the Direct Tax Laws (Amendment)Acts, 1987 and 1989. According to the Hon’ble Court, the concept of change of opinion must be treated as an inbuilt test to check the abuse of power. Hence, after 01.04.1989, the Assessing Officer has power to reopen an assessment provided there is tangible material for coming to the conclusion that there was escapement of income from assessment. Reasons must have a live link with the formation of the belief. Assessee thus submitted that ld. AO did not have power to review in the garb of reopening. Assessing Officer cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment. The Assessing Officer rejected the objections filed by the assessee by passing an order dated 18.10.2016 and completed the reassessment proceeding after taking into consideration the submissions made by the assessee.
Assessee contested the reopening of the assessment before ld. CIT(A) also which was dismissed by observing that assessee cannot raise objections with respect to initiation of reassessment at appellate 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 stage because objections were disposed of by the ld. AO. Assessee, if was aggrieved, could have assailed before the competent court of law. Aggrieved, by the dismissal of ground raised on reopening by the ld. CIT(A), assessee is in appeal before the Tribunal challenging the same.
6.1. Contention of the assessee is that there is no new tangible material referred by the ld. AO for invoking the provisions of section 148 r.w.s.
It is a case where the reassessment proceedings have been invoked on the basis of same material which were available at the time of assessment u/s. 143(3). Case of the assessee is covered by first provision to section 147 where there has to be an effective demonstration by the ld. AO to the fact that there is a failure to disclose any specific fact for which recording is done in the reasons to believe. It is a case of change of opinion since details of investments and exempt income were duly disclosed by the assessee in all of its submissions in the return filed in Form 10B placed on record as well as financial statements. Further ld. AO in the original assessment u/s. 143(3) had taken cognizance of dividend income as well as accumulation of 15% u/s. 11(1)(a), while re-computing the income of the assessee to take effect of disallowance of depreciation and carry forward of the accumulation. Further, it is a case which is squarely covered by the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Jasubhai Foundation (supra) which deals with the assessment year prior to the amendment brought into section 11(6)/(7). The impugned year that is AY 2009-10 is also prior to the aforesaid amendment brought into section 11 and therefore, is covered by the decision of Hon’ble Bombay High Court in the case of Jasubhai Foundation (supra).
6.2. Assessee thus, made out a case that the reassessment has been initiated merely on the basis of change of opinion on the same set of 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 facts and records which were available at the time of original assessment u/s. 143(3) which is certainly not permissible u/s. 147, more importantly, the issues raised by the ld. AO in the reasons to believe recorded for initiating proceedings u/s. 148 is squarely covered by the decision of Jasubhai Foundation (supra) which carries the force of binding nature being jurisdictional High Court. Also, ld. AO did not recognize the distinction between the accumulation contemplated u/s. 11(1)(a) and the accumulation u/s. 11(2). What assessee has claimed while computing its income is accumulation to the extent of 15% u/s. 11 (1)(a) which is contrary to what ld. AO has observed in the reasons to believe recorded by him as it refers to ascertainment of actual expenditure incurred by the assessee.
We have heard both the parties and perused the material on record and given our thoughtful consideration to the submissions made before us as well as to the binding precedence of Hon’ble Jurisdictional High Court of Bombay in the case of Jasubhai Foundation (supra). Admittedly, the position of law as is stand prior to the amendment brought in by Finance Act, 2014 is covered in favor of the assessee taking into account the binding precedence of Jasubhai Foundation (supra). Also, it is a fact on record that ld. AO in the original assessment u/s. 143(3) had taken cognizance of the treatment of dividend income while computing the total income of the assessee while claiming exemption u/s. 11. Further, accumulation to the extent of 15% was also given effect to by the ld. AO himself when he re-computed the total income of the assessee while completing the assessment u/s. 143(3). Thus, the reasons to believe recorded by the ld. AO for invoking re- opening proceedings tantamount to mere change of opinion on the basis of same material which was available at the time of assessment. There is no tangible material which has been brought on record afresh for 4055 and 4413/MUM/2024 Tata Education Trust AY 2009-10 invoking the impugned proceedings of re-opening. Case of the assessee is fortified by the decision of Hon’ble Supreme Court in the case of Kelvinator India (supra) whereby re-opening is not permissible on a mere change of opinion which tantamount to review of the order passed by ld. AO himself.
7.1. Accordingly, the re-opening proceedings initiated by ld. AO by recording the reasons to believe are not in accordance with the provisions of law and therefore, the reassessment so completed is also bad in law, liable to be quashed ab initio. We accordingly hold so, to quash the impugned reassessment order passed u/s. 147 r.w.s. 143(3). Accordingly, ground no. 1 raised by the assessee in its appeal is allowed. Since the appeal of the assessee is allowed on the jurisdictional ground, other grounds raised by the assessee are rendered academic and therefore, are not adjudicated upon.
7.2. Also, appeal by the revenue is a cross appeal in respect of part relief granted by the ld. CIT(A). Since the impugned reassessment order itself has been quashed ab initio, the appeal filed by the revenue is also rendered infructuous. Accordingly, the appeal of the revenue is dismissed as infructuous. is against an order passed u/s.154, pursuant to rectification of mistake apparent from record in respect of the reassessment order passed u/s.147 which has been quashed in terms of our aforesaid observations and findings. Since the reassessment order itself has been quashed, the rectification order passed u/s.154 for the same has no legs to stand and therefore, the appeal filed by the assessee against the order passed u/s.154 is
In the result, appeal of the assessee in is allowed and appeal in by the revenue and appeal by the assesse in ITA No. 4413 are dismissed.