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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI PAVAN KUMAR GADALE, JM
These are two appeals filed by Saifee Bujhani 01. Upliftment Trust [Assessee/ Appellant] for A.Ys. 2016-17 and 2017-18 against the order u/s 263 of The Income Tax Act [The Act] [Revisionary order] passed by the learned Commissioner of Income Tax (Exemption), Mumbai [Ld. CIT] dated 9th March, 2021, wherein it has been held that respective assessment orders passed by the learned Assessing
` Page | 2 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 Officer u/s 143 (3) of The Act are erroneous so far as prejudicial to the interest of the Revenue. The reasons given by the LD CIT for these years are identical therefore, these appeals were argued by the parties raising similar arguments for both the years, and hence, we disposed those appeal by this consolidated order.
We first state the facts for AY 2016-17. For that year revisionary order u/s 263 of the Act says that the order passed under Section 143(3) of the Income-tax Act, 1961 (the Act) on 31st December, 2017, by the Dy. Commissioner of Income-tax, Circle 2(1), Mumbai (The Learned AO) is erroneous and so far prejudicial to the interest of the Revenue.
3. Assessee has raised following grounds of appeal:-
“1. That the order under section 263 is without jurisdiction unwarranted and bad in law Tax effect-Nil
2. That assumption of jurisdiction by CIT under section 263 is based on misinterpretation of the order of the Assessing Officer Tax effect-Nil
That CIT has misdirected himself by treating the reasons given by AO as conclusions and by substituting his opinion to that of the Assessing Officer- Tax effect - Nil
4. That the CIT has passed the order under section 263 in violation of principles of natural justice and liable to be quashed.- Tax effect-Nil
` Page | 3 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 5. That in the absence of reasons as to how the order of the AO is erroneous and prejudicial to the interests of revenue the order U/S 263 is bad in law and liable to be quashed- Tax effect-Nil
6. That the CIT has erred in law to ignore the fact that section 11 of the Act mandates the AO to calculate the exemption allowable there under and not to compute the deficit and therefore assessment at Nil was in accordance with law- Tax effect – Nil
7. That the CIT has ignored the fact that if contradictory reasons recorded by AO for reaching to the conclusion that deficit is not to be allowed in this case are taken as conclusions then the order of the AO is erroneous in far as it is prejudicial to the interests of the assessee and not of the revenue - Tax effect Nil
8. That the CIT has ignored the fact that even after the effect is given to his directions the income will be computed at Nil and quantum of deficit has lost its shine in view amendment to section 11 by Finance Act 2021- Tax effect – Nil
9. That the Assessment order in respect of which action under section 263 has been taken is itself invalid and consequently order under 263 is bad in law- Tax effect - Nil
10. That the finding of the AO in respect of which proceedings have been initiated are subject matter of appeal before CIT (A) therefore action under section ` Page | 4 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 263 in respect of the same is unwarranted and bad in law- Tax effect - Nil
11 Without prejudice to the above grounds CIT was wrong in not directing the AO to give effect to the Appellate orders in working out the income of the Trust for the year under appeal. - Tax effect – Nil”
Brief facts of the case shows that assessee is a public charitable Trust registered under Section 12AA of the Act and accordingly, entitled to claim exemption under Section 11 of the Act. For AY 2016-17 28th Assessee filed its return of income on September, 2016 showing a deficit of ₹140,62,55,570/-. The case was picked up for scrutiny and assessment order u/s 143 (3) of The Act was passed on 31st December, 2018, denying the credit of above deficit and determining the total income of the assessee at ₹ nil.
Reason for denial of the credit was that assessee has shown corpus donation with specific direction of ₹101,20,54,000/- and claimed on it exemption under Section 11(1) (d) of the Act. Assessee has also loan of ₹ 90 crores from Dawat – E _ Hadiyaah, Kolkata and Mumbai. Assessee has meager income of rent of ₹72,000/- and assessee has claimed application of income of ₹140,62,55,570/-. Thus, the deficit of ₹140 Cr. was carried forward by the assessee. The learned Assessing Officer denied the same stating that assessee is getting unusual high corpus
` Page | 5 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 donation with specific direction and also raising use loans, utilizing the above sum and showing application of income of huge sum and claiming huge deficit. He tabulated a chart at page no. 26 of his order and stated that for A.Y. 2010-11 to 2016-17, assessee has applied funds towards the object of the trust of ₹1090 Cr, and has meager income but corpus donations of ₹758 Cr and loans of ₹417 Cr. Thus, trust has carried forward deficit of ₹1087 Cr.
With respect to corpus donation received by the assessee trust, AO noted that major portion of the corpus donation was received from Dawat E Hadiyahh, USA – a non-profit organization registered at Cyprus, United States, and Dawat E Hadyahh, UK at trust registered at Northolt, United Kingdom. He found that the donation is been received from the trust which are under the same management and control as that of the assessee trust. He found that from assessment year 2010 – 11 to 2016 – 17 a total donation of ₹ 7,584,762,652/– was received out of that from the trust registered in UK and USA are some of ₹ 6,209,141,000 was received. Similarly, the loan received from the trust at Calcutta and Mumbai Under the same management is to the extent of ₹ 417 crores from assessment year 2011 – 12 to 2016 – 17. He further noted that all the corpus donation and the loans have been obtained are not only connected but they are Under the unified control of his Holiness Dai al Mutalaq or his
` Page | 6 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 successor in his office were the sole trustee is of Dawat E Hadiyahh. The trust deed is also made and drawn under the direction of his Holiness. He has also the power to appoint, transfer, or remove any of the trustees or office bearers of the assessee trust. The absolute power to amend the trust deed of the assessee trust also lies with his Holiness along with an absolute power to overrule or cancel any decision, a resolution, or action of the trustees of the assessee trust. His Holiness has also power to supersede even the provisions of the trust deed of the assessee trust therefore all these trust/entities/institutes including the assessee trust are under the direct control of only one person his Holiness Dia al- Mutalq. He further examined the receipt of the donation with respect to the foreign contribution regulation act and found that the purpose of the receipt of the foreign donation was only ‘trust fund or corpus”. He therefore held that the purpose for which the trust fund donations received a not clear. For this proposition, he referred to clause 2.8 of the trust deed. He therefore was of the view that any fund coming to the trust fund or shown as a trust fund itself cannot be treated as a corpus donation or corpus fund. Therefore, the nature of the trust fund as it comes from the definition of the same, its utilization and other surrounding facts and circumstances, is not same as corpus. He further held that any donation towards trust funds,
` Page | 7 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 therefore, does not fit in the definition of corpus which is eligible for deduction u/s 11 (1) (d) of the act even if it comes from donors with a direction that the donation should be treated as corpus, despite the fact that it is allowed to be part of the trust fund of about nature. After analyzing the object of the trust, the utilization of the trust fund, income and expenditure account submitted Under foreign contribution regulation act and receipt and payment account, he held that the entire donation by way of a foreign contribution is actually in the nature of regular voluntary contribution rather than corpus donation, which is evident for the purpose for which it has been received as an specified in FC-4 as well as its utilization. In the end in paragraph number 5.1.4 he reached at a conclusion that corpus donation claimed exempt u/s 11 (1) (d) is actually regularly voluntary contribution and does not qualify for exemption under that Section.
With respect to the loan received by the assessee trust, he held that the amount received by the assessee trust shown as a loan are also quite unusual because (1,) these are interest free loans taken without any security, (2) borrowing is from a related party Under unified control from year to year but not a single rupee has been repaid. Therefore, according to him the loan is also in the nature of voluntary contribution or assistance. The learned assessing officer also enquired about the statutory
` Page | 8 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 permission obtained. He therefore held by the showing transaction in the aforesaid manner as a loan and the nature of loan and the parties involved he held that this transaction is not of loan but part of the income derived from the property as voluntary contributions.
As the money has been spent for the object of the trust from the corpus donation and loan obtained from the parties who are having a unified control and there is no voluntary contribution or income from the property held by the trust but you application of funds have been claimed as deduction, resulting into deficit, which could be allowed as adjustment against the future income of the assessee trust out of voluntary contribution, according to him, the deficit is not allowable.
Therefore, he held that carried forward deficit of earlier years is not allowable as the entire source of expenditure is mainly corpus donation and loan funds.
The learned CIT (E), Mumbai examined the records and found that the order of the learned Assessing Officer is erroneous and prejudicial to the interest of the Revenue for reason that [1] Ld AO has not verified whether the corpus donation is on voluntary contribution for the reason that all the persons involved in the ` Page | 9 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 transactions are related persons and under unified control.
[2] Further, the loan amount received by the assessee is also needs to be examined.
Notice under Section 263 of the Act was issued to assessee’s trust on 24 February 2021. However, it was not complied with and therefore, the learned CIT passed an order holding that learned Assessing Officer has passed an order without carrying forward his findings and applying the same to the computation of income with respect to corpus donation and loans . Therefore, the order was set aside with direction to the learned Assessing Officer to re-compute the total income of the trust after including the amount on account of corpus donations and loans as voluntary contributions. Such order was passed on 9 March 2021.
Assessee is aggrieved with that order and has preferred this appeal.
The learned Authorised Representative furnished a detailed paper book containing 37 pages. His argument was that the order passed by the learned CIT is not sustainable, as it has given finding to the learned Assessing Officer to include the corpus donation and loan as income of the assessee for the purpose of computation.
` Page | 10 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 014. He also submitted that the order is not prejudicial to the interest of the Revenue as even if the corpus donation were treated as voluntary donation there would be nil income. Therefore, he submitted that the order is not sustainable in law. He also submitted two different paper books wherein identical 20 pages submission was attached therein. Therefore, he submitted that the order is not sustainable in law. He also submitted two different paper books wherein identical 20 pages submission was attached therein. Therefore, he submitted that the order deserves to be set aside.
The learned CIT Departmental Representative vehemently supported the order of the learned CIT. It was stated that before CIT, despite proper notice the assessee did not submit anything and neither perused his adjournment request and therefore, now assessee does not have any say to contest the order of the CIT. Even on the merits, he submitted that assessee is taking huge donations from persons who are controlled the above trusts. All these donations are claimed as exemption under Section 11(1) (d) of the Act. He submitted that for A.Y. 2016-17, the income of the assessee is merely ₹ 72,000 where, the assessee has claimed application of income of ₹140 Crs. He further stated that the corpus donation in that year is ₹101 crores. Though the learned Assessing Officer has stated that the donation is from the persons specified and related parties and he
` Page | 11 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 has categorically held that the above donation received by the assessee are not a corpus donation and the loan received by the assessee also is in the form of voluntary contribution is not a single rupee has been repaid despite taking the usual on, both these amount should have been added as voluntary contribution which the assessing officer has not done despite giving a detailed finding. He submitted the learned assessing officer should have considered the amount of corpus donation as well as loan as voluntary contribution and exemption should not have been given to the assessee u/s 11 (1) (d) of the act with respect to the corpus donation and loan should also have been included in the income of the assessee trust. He stated that the learned assessing officer has given a finding in the assessment order but has not computed the income and therefore the order passed by the learned assessing officer is erroneous and prejudicial to the interest of revenue. He further stated that for A.Y. 2016-17, the voluntary contribution received by the assessee other than with specific direction is ₹ nil. In these circumstances and because of the several observation of the learned Assessing Officer which clearly hints that the corpus donation received by the assessee trust are without any specific direction and therefore, they should be taxed as voluntary contribution. He specifically referred to Para no. 4.5 of the order. Therefore, he stated that the learned
` Page | 12 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 Assessing Officer wanted to disallow the deficit but his observation with respect to the corpus donation and loan clearly shows that those are voluntary contribution and therefore it should have been included in the computation of total income. Therefore, the order passed by the learned assessing officer is erroneous and insofar as prejudicial to the interest of revenue and therefore no infirmity can be found in the order of the learned Commissioner of income tax.
We have carefully considered the rival contention and perused the orders of the lower authorities. We have also carefully gone through the paper book submitted by the assessee.
On perusing the order of the learned CIT and learned assessing officer, with respect to the loan amount and corpus donation, CIT has given a clear-cut finding that the learned assessing officer based on his own finding in the assessment order should have denied the exemption u/s 11 (1) (d) of the act with respect to the corpus donation and should have included the loan amount as voluntary contribution for the reason that these are received from entities controlled by same authority. We find that after giving the conclusive decision by the learned assessing officer that the corpus donation as well as the loan is voluntary contribution, allowing the exemption u/s 11 (1) (d) of the act with respect to ` Page | 13 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 the corpus donation and not including the loan amount as income derived from the property, makes the order passed by the learned assessing officer erroneous and prejudicial to the interest of the revenue.
The learned authorised representative has submitted that even if, the corpus donation is taken as voluntary contribution, thereafter also the computation of the trust results into a deficit and hence it cannot be said that any prejudice is caused to the revenue. We do not find any force in this argument because the movement the corpus donation is taken as a voluntary contribution, the quantum of deficit will definitely come down. Therefore, for subsequent years such deficit would be available of lesser amount for set of. Therefore, non-treating of corpus donation as voluntary contribution is definitely prejudicial to the interest of revenue.
The learned authorised representative has also stated that the learned CIT has failed to show that how the order of the AO is erroneous. This argument does not merit the consideration for the simple reason that, the learned assessing officer in the assessment order has categorically held that the donation received towards the corpus is not eligible for exemption u/s 11 (1)(d) of the act therefore naturally he should not have granted this exemption
` Page | 14 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 to the assessee. The learned CIT has merely directed the AO to take his findings to the logical conclusion in the computation of income. Therefore, giving a finding in the assessment order and not including the same in the computation of total income makes the order passed by the learned assessing officer is erroneous.
Though in grounds, the assessee has challenged that the assessment order in respect of which action u/s 263 of the act has been taken is itself invalid and consequential order passed u/s 263 is bad in law, no arguments were advanced before us, hence, it is rejected.
Therefore, we do not find any infirmity in the order of the learned CIT in exercising his jurisdiction u/s 263 of the act. Thus, we uphold the order passed by the learned CIT.
However, before parting, we also make it clear that provisions of Section 11 (1) (d) excludes the income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. Nomenclature of disclosing voluntary contribution in the returns and forms prescribed under foreign contribution regulation act would not be determinative of the nature of the donation, though, they would be persuasive. Therefore at the time of passing assessment order u/s 143 (3) read with Section 263
` Page | 15 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 of the act, It would also be necessary for the learned assessing officer to verify what kind of specific direction the donor has given stating the object of utilizing corpus donation. With respect to the loan, there is a specific claim by the learned authorised representative that there is no utilization of loan received by the assessee against the application of income claimed in the computation of income. The AO also needs to verify the same before reaching any conclusion with respect to the above two receipts. The assessee may be granted an opportunity of hearing as the order of the learned CIT was passed wherein assessee did not avail such opportunity. The AO may decide about inclusion of both these receipts and its taxability in accordance with the law.
Accordingly, appeal of the assessee for assessment year 2016 – 17 is partly allowed with above direction.
The facts relating to assessment year 2017 – 18 are also identical. Therefore, for the similar reasons we also uphold the action of the learned CIT u/s 263 of the act, however, while passing the order u/s 143 (3) read with Section 263 of the income tax act, the learned assessing officer is directed to follow the similar direction as given by us in appeal of the assessee for assessment year 2016 – 17.
` Page | 16 &590/Mum/2021 Saifee Bujhani upliftment trust; A.Y. 16-17 & 17-18 025. Accordingly, appeal of the assessee for assessment year 2017 – 18 is partly allowed with above direction.
Order pronounced in the open court on 07.07.2022.