Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, F BENCH, MUMBAI
Per Rahul Chaudhary, Judicial Member:
These are cross appeals pertaining to the Assessment Year 2012-13 arising from order, dated 23.02.2018, passed by the Ld. Commissioner of Income Tax (Appeals)-1, Mumbai [hereinafter referred to as „the CIT(A)‟], whereby appeal filed by the Assessee against the Assessment Order, dated 26.03.2015, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] was partly allowed.
Since the issues raised in both the appeals arise out of common facts, the appeals were heard together and are being disposed by way of common order. For the sake of brevity the relevant facts have been mentioned in the appeal filed by the Assessee.
The Assessee has raised following grounds of appeal in ITA No. 3081/Mum/2018:
“1. On the facts and under the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of Income-tax Officer (Exemptions)-2(2)(„the learned Assessing Officer‟) in concluding that the assessee has violated provisions of Section 13(1)(d) and 13(2)(h) of the Income-tax Act, 1961 [“the Act”).
The Appellant prays that the conclusion reached by the learned CIT(A) and the learned Assessing Officer, holding the Appellant violative of Section 13(1)(d) and 13(2)(h) of the Act, be declared as erroneous. Assessment Year: 2012-13
On the facts and under the circumstances of the case and in law, the learned Assessing Officer has erred in levying interest under section 234A of the Act without appreciating the fact that the Appellant had filed the return of income within the time limit prescribed under the Act.
The Appellant prays that the learned Assessing Officer be directed to delete the interest levied under section 234A of the Act.
Each ground is independent and without prejudice to the other.”
Brief facts of the case are that the Assessee is a public charitable trust registered with the Charity Commissioner under the Bombay Public Trust Act, 1950 and holding a valid registration under Section 12A of the Act during the relevant previous year. The Assessee filed return of income for Assessment Year 2012-13 on 27.09.2012 declaring „Nil income after claiming exemption under Section 11 of the Act. The case of the Assessee was selected for scrutiny, and notices under Section 143(2)/142(1) of the Act were issued. During the assessment proceedings, the Assessing Officer noted that the Assessee had disclosed total receipts of INR 10,13,23,413/- consisting of (a) Dividend income earned on shares of Tata Sons Ltd. amounting to INR 7,07,04,000/- [claimed by the Assessee to be exempt under Section 10(34) of the Act], (b) interest income earned on bonds amounting to INR 41,08,778/- (c) interest income earned on fixed/term deposits and savings bank interest amounting to INR 1,21,79,148/- and tax refund of INR 1,43,30,009/-. However, out of the aforesaid receipts the Assessee claimed that only receipts to the extent of INR 2,56,20,869/- were to be applied for the objects of the ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 Assessee-Trust. Whereas the Assessee had actually applied INR.6,71,29,722/- for the objects of the trust during the relevant previous year and claimed the carry forward of the deficit in income of INR.4,15,08,853/- from claiming the same as application on income during the subsequent assessment years. Vide order sheet noting, dated 09.01.2015, the Assessee was asked to explain why dividend income claimed to be exempt under Section 10(34) of the Act should not be added to the income of the Assessee to be applied for charitable purposes. Subsequently, vide order sheet noting, dated 26.02.2015, the Assessee was also asked to explain why Assessee should be permitted to carry forward the deficit of INR 4,15,08,853/- to the subsequent assessment years. In response to the same, the Assessee filed reply dated 22.01.2015 and 02.03.2015. However, the Assessing Officer, not being satisfied by the explanation furnished by the Assessee, completed assessment under Section 143(3) of the Act vide order, dated 26.03.2015, at taxable income of INR 1,86,48,950/-. The Assessing Officer disallowed exemption claimed by the Assessee under Section 11 of the Act on the ground that the Assessee had made investment in shares of Tata Sons Ltd. which was a prohibited mode of investment as per the provisions of Section 13(1)(d) read with Section 11(5) of the Act. Further, the Assessee had also violated the provisions of Section 13(2)(h) of the Act as the Assessee-Trust had invested funds in Tata Sons Limited - a company in which Mr. Ratan N. Tata, a trustee of the Assessee-Trust at the relevant time, was a chairman. Further, Tata Sons Ltd. had contributed more than INR 50,000/- to the Assessee-Trust and therefore, Tata Sons Ltd. was an interested party in terms of Section 13(3)(b) of the Act. The relevant extract of the assessment order reads as under:
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13
“5. By investing in shares of Tata Sons Ltd., Tata Chemicals Ltd., the assessee has also violated section 13(2)(h) of the Act. Section 13(2)(h) states that if any funds of the trust are invested or continue to remain invested in any concern in which interested person (as mentioned in section 13(3)) of the trust has substantial interest. The assessee trust was founded by Shri J.R.D.Tata. Shri Ratan N. Tata was the chairman of Tata Group from 1991 to 2012 (source: Wikipedia). He stepped down as chairman of Tata Sons Ltd. on 28/12/2012 and now holds the position of chairman Emeritus of the Group which is a honorary and advisory position. During the relevant assessment year, Shri Ratan N. Tata was one of the trustees of the assessee trust. In other words, the founder trustee has invested funds in a concern where he was chairman.
In view of this, it can be observed that Tata Sons Ltd is interested party in terms of Section 13(3)(b) as it has contributed to assessee trust more than Rs. 50,000/-. There is no iota of doubt that this transaction is not hit by section 13(2)(h) of the Act.”
Being aggrieved, the Assessee preferred appeal before CIT(A) against the Assessment Order, dated 26.03.2015. The CIT(A), vide order dated 23.02.2018, confirmed the order of the Assessing Officer as regards invocation of provisions of Section 13(1)(d) and Section 13(2)(h) of the Act. The CIT(A), however, granted relief to the Assessee by limiting the disallowance of exemption under Section 11 of the Act to the amount of income derived from investment in the shares of Tata Sons Ltd. in contravention of provision of Section 11(5) of the Act. Further, the CIT(A) allowed Assessee‟s claim of exemption of dividend income amounting to INR 7,07,04,000/- under Section 10(34) of the Act by following the decision of Hon‟ble Bombay High Court in ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 the case of DIT(E), Mumbai vs. Jasubhai Foundation: 374 ITR 315 (Bombay) and also granted the benefit of carry forward of deficit of INR 4,15,08,853/- to the subsequent assessment years by following the decision of Hon‟ble Bombay High Court in the case of CIT vs. Institute of Banking Personnel Selection (IBPS): 264 ITR 110 (Bombay).
Now, both, the Revenue as well as the Assessee are before us in cross-appeals against the order passed by the CIT(A) dated 23.02.2018. Ground No. 1
The Ld. Counsel for the Assessee appearing before us, at the outset, submitted that while the CIT(A) has limited the amount of disallowance of exemption under Section 11 of the Act to the extent of income earned from the investments in the shares of Tata Sons Ltd. as per the provisions of Section 13(1)(d) read with Section 11(5) of the Act, the CIT(A) has allowed the exemption claimed by the Assessee under Section 10(34) of the Act in respect of dividend income of INR 7,07,04,000/- earned on investments made in the shares of Tata Sons Ltd. Therefore, the Assessee would not be pressing the grounds raised to the extent the same relate to violation of provisions of Section 11(5) and the applicability of Section 13(1)(d) of the Act. Therefore, he would restrict submissions in his appeal to the applicability and/or interpretation of provisions of Section 13(2)(h) read with Section 13(3) of the Act.
The Ld. Counsel for the Assessee submitted that the finding returned by the Assessing Officer are based upon incorrect
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 appreciation of facts and are contrary to the settled legal position. Referring to the details/documents submitted along with letter, dated 12.03.2015 and 17.03.2015 filed during the course of assessment proceedings, the Ld. Counsel for the Assessee submitted the Assessee-Trust was formed on 29.03.1990 when shares of Tata Sons Ltd. were donated by JRD Tata Trust towards the corpus of the trust. During the year 1994-95, 68 shares each were donated by JRD Tata Trust and JRD & Thelma J. Tata Trust. Apart from this, there has been no variation in the number of shares held by the Assessee in Tata Sons Ltd. except on account of issue of bonus shares. The Assessee had never utilized its own funds for purchasing or investment in the shares of Tata Sons Ltd. There was no positive act on the part of the Assessee for purchasing the shares of Tata Sons Ltd. Therefore, the provisions of Section 13(2)(h) of the Act are not attracted. In regard, he relied upon the following judgments/decisions – CIT Vs. Trustees of Kasturbai Scindia Commission Trust: 207 ITR 332 (Bombay) and CIT Vs Sir Shri Ram Foundation: 250 ITR 55 (Delhi).
The Ld. Counsel for the Assessee took us through the relevant portions of the orders passed by the Assessing Officer and the CIT(A) to support his contention that the authorities below had failed to consider the provisions contained in Explanation 3 to Section 13 of the Act while invoking provisions of 13(2)(h) of the Act. He submitted that as per Explanation 3 to Section 13 of the Act a person qualifies as a person having substantial interest in a company provided shares carrying not less than 20% of the voting power of such company are beneficially owned by such person. In this regard, he referred to paragraph 13 of the order dated 13.09.2019 passed by the Tribunal in the case of JRD Tata Trust Vs ITO : ITA 3082/Mum/2018 for the Assessment Year 2012- Assessment Year: 2012-13 13 and submitted that the Tribunal has returned a factual finding that Mr. Ratan N. Tata did not even hold 5% of the share capital of Tata Sons Limited (one of the four companies being examined in that case) during the Assessment Year 2012-13 and has held that being chairman of a company does not amount to holding „substantial interest‟ in such company. He further submitted that even the finding that Tata Sons Limited had made contribution of more than INR 50,000/- is without any basis. During the assessment proceedings neither any information in this regard was sought from the Assessee nor was the Assessee confronted with this information. In this regard the Ld. Counsel for the Assessee referred to Paragraphs 14-17 of the aforesaid order of the Tribunal in case of JRD Tata Trust (supra). He further submitted that in identical facts and circumstances taking note of the aforesaid findings, the Tribunal has allowed the appeal of the Navajbhai Ratan Tata Trust for the Assessment Years 2011-12 to 2013-14, vide order dated 10.03.2022, passed in ITA No. 1301, 1302, 2115 & 2116/MUM/2018. The Ld. Counsel for the Assessee concluded his submissions by placing reliance on the judgment of the Hon‟ble Bombay High Court in the case of Jasubhai Foundation (Supra) to support the decision of the CIT(A) of restricting the disallowance of the exemption under Section 11 of the Act to the amount of income derived from investments made in violation of provisions of Section 13(1)(d) of the Act, and upon the judgment of Hon‟ble Bombay High Court in the case of Institute of Banking Personnel Selection (supra) to support the decision of the CIT(A) of allowing carry forward of the deficit of INR 4,15,08,853/- to subsequent years.
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13
Per contra, Learned Departmental Representative submitted that Assessing Officer was justified in invoking provisions of Section 13(1)(d) and 13(2)(h) of the Act since the Assessee held investments in the share of Tata Sons Limited which was a group company. Mr. Ratan N. Tata was a trustee of the Assessee-Trust and also held substantial interest in Tata Sons Ltd. being its chairman and shareholder. He submitted that the assessing officer was justified in denying deduction to the Assessee-Trust under Section 11 of the Act and in this regard he relied upon the assessment order in support of his contentions.
We have perused the material on record and given thoughtful consideration to the rival submission. As per the provisions of Section 11 of the Act, a trust registered under Section 12A of the Act is entitled to exemption under Section 11 of the Act in respect of income to the extent the same is applied for the charitable objects of the Trust. Section 13(1)(c) of the Act provides that benefit of Section 11 shall not be available in respect of income of the trust applied for the direct or indirect benefit of person specified in Section 13(3) of the Act. Section 13(2)(h) of the Act creates a deeming fiction by virtue of which the income of a trust is deemed to have been applied for the benefit of persons specified in Section 13(3) of the Act where any funds of the trust are invested, or continue to remain invested for any period during the previous year in any concern in which any person referred to in Section 13(3) has a „substantial interest‟. Explanation 3 to Section 13 creates another deeming fiction by virtue of which a person is deemed to have „substantial interest‟ in a concern being a company if the shares carrying not less than 20% voting rights in such company are beneficially owned by such person(s). Thus, in order to invoke the provisions of Section 9
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 13(2)(h) of the Act, it is necessary that the funds are invested in a concern in which person specified in Section 13(3) has „substantial interest‟.
We note that the CIT(A) has, while concluding in Para 5.3.1. of his order that Mr. Ratan N. Tata an interested party in terms of Section 13(3)(b) having substantial interest in Tata Sons Limited, completely ignored the submission of the Assessee (reproduced in paragraph 5.2. of the order). As rightly pointed out by the Ld. Counsel for the Assessee, there is no discussion on Explanation 3 to Section 13 either in the order passed by the Assessing Officer or CIT(A). Further, in the case of JRD Tata Trust Vs ITO: ITA 3082/Mum/2018, dated 13.09.2019, for the Assessment Year 2012-13, the Tribunal had given a clear finding that during the previous year relevant to the Assessment Year 2012-13 Mr. Ratan N. Tata held less than 5% shares in Tata Sons Limited. These findings stand approved by the decision of Co-ordinate Bench of the Tribunal in the case of Navajbhai Ratan Tata Trust (supra). Nothing has been placed before us by the Revenue to contradict or challenge the aforesaid finding of the Tribunal. Thus, in the facts and circumstances of the present case Mr. Ratan N Tata cannot be deemed to be having „substantial interest‟ in Tata Sons Ltd. in terms of Explanation 3 to Section 13 of the Act. Further, per the Assessment Order two show cause notices dated 09.01.2015 and 26.02.2015 were issued to the Assessee-Trust and neither of the said notices sought for any explanation/information regarding contributions made by Tata Sons Limited to the Assessee-Trust, the shareholding of Tata Sons Limited or the status of Mr. Ratan N. Tata as a person specified in Section 13(3) of the Act having any substantial interest. We find merit in the contention advanced on behalf of 10
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 the Assessee that the findings returned by the Assessing Officer are devoid of any factual basis. Further, in the case of JRD Tata Trust Vs ITO: ITA 3082/Mum/2018, dated 13.09.2019, for the Assessment Year 2012-13, the Tribunal has, in the identical facts and circumstances, held that being chairman of Tata Sons Limited does not amount to holding „substantial interest‟ in Tata Sons Limited. Neither the Assessing Officer nor the CIT(A) has brought anything in record to establish that Mr. Ratan N. Tata had substantial interest in Tata Sons Limited before invoking provisions of Section 13(2)(h) of the Act.
Accordingly, in view of the aforesaid, we hold that the Mr. Ratan N. Tata did not hold „substantial interest‟ in Tata Sons Limited in terms of deeming fiction created by Explanation 3 to Section 13 of the Act or otherwise, and therefore, the authorities below erred in concluding that the provisions of Section 13(2)(h) would be attracted in the facts of the present case. Further, in the case of CIT Vs. Trustees of Kasturbai Scindia Commission Trust: 207 ITR 332 (Bombay) relied upon by the Learned Counsel for the Assessee, the juri ictional High Court has, in the identical facts and circumstances, held that provisions of Section 13(2)(h) of the Act are not attracted in the case of an assessee who has received donations in the form of shares in a company in which a person specified in Section 13(3) of the Act has substantial interest provided the trust‟s money is not utilized for the acquisition of such shares. For this reason as well the Assessee should succeed. Accordingly, Ground No. 1 raised by the Assessee is allowed and the Assessing Officer is directed not to deny exemption under Section 11 of the Act to the Assessee by invoking provisions of ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 Section 13(2)(h) of the Act as the same are not attracted in the facts and circumstances of the present case.
Ground No. 2
Ground No. 2 pertains to interest charged under Section 234A of the Act and is disposed off as being consequential in nature. We note that the return has been filed on 27.09.2012 within the time prescribed under Section 139 of the Act and the CIT(A) had given directions to the Assessing Officer to verify the records and charge interest as per law.
Ground No. 3
Ground No. 3 is disposed off as being general in nature.
The Revenue has raised the following grounds of appeal:
“1 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in holding that only the income derived from investments violative investment made in modes other than prescribed under section 11(5) r.w.s. 13(1)(d) of the I.T. Act is to be charged at maximum marginal rate and the entire exemption u/s 11 or 12 cannot be denied despite the clear and unambiguous language of section 13(1)(d) according to which nothing contained in section 11 or 12 shall operate so as to exclude total income of the previous year in the case of a trust for charitable or religious purposes, any income thereof, if the investment is in violation of clause (i) to (iii) of section 11(1)(d).
2 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in applying the ratio laid
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 down by the Hon'ble Supreme Court in the case of Director of Income Tax, Chennai Vs. Working Women's Forum [2015] 63 taxmann.com 324 (SC) in which the SLP of the department was rejected whereas the Hon'ble Apex Court has already held in Bharat Diamond Bourse reported in 259 ITR 280 (SC), that the benefits u/s 11 and 12 of the I.T. Act would be denied totally in the event of any violation of section 13 of the I.T. Act.
Whether, on the facts of the case and in law, the Ld. CIT(A) erred in allowing the carry forward of deficit of Rs.4,15,08,853/-, and directing the Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s.11(1)(a) or as corpus donation u/s 11(1)(d) in earlier years/current year and then as 'application' of income u/s 11(1)(a) in the subsequent years which was legally not permissible.?
Whether, on the facts of the case and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit by relying upon the judgment of Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection, ignoring the fact that the Department has not accepted the said decision of the juri ictional High Court on merit of the case, but due to smallness of tax effect appeal was not filed before Hon'ble Supreme Court. However, on this issue the department has filed SLPs in other cases before the Hon'ble Apex Court inclusive the case of MIDC(SLP (Civil) 9891 of 2014) in which leave has been granted and the issue is pending for adjudication before the Hon'ble Supreme Court and the case has not reached finality.
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13
Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit, ignoring the fact that there was no express provision in the IT Act, 1961 permitting allowance of such claim.” Ground No. 1 and 2
Ground No. 1 and 2 raised by the Revenue are directed against the relief granted by the CIT(A) to the Assessee by restricting the disallowance of exemption under Section 11 of the Act to the amount of income earned from investment made in violation of Section 11(5) of the Act. The stand of the Revenue is that the Assessing Officer was justified in disallowing exemption under Section 11 of the Act in respect of entire income of the Assessee- Trust.
We have perused the material on record and considered the rival submission. We note that the issue before us stands decided in favour of the Assessee by the judgment of the Hon’ble Juri ictional High Court in the case of CIT v. Audyogik Shikshan Mandal: (2019) 261 Taxman 12 (Bombay) and DIT(Exemption) v. Sheth Mafatlal Gagalbhai Foundation Trust: 249 ITR 533 - followed by the CIT(A). In our considered view, reliance by the Revenue on the judgment of Hon‟ble Supreme Court in the case of Director of Income Tax vs. Bharat Diamond Bourse: 259 ITR 280 is misplaced. In that case of Bharat Diamond Bourse (supra) the benefit of exemption under Section 11 of the Act was denied as per the provisions of Section 13(1)(a) read with 13(1)(c)(ii) of the Act since substantial amount was not utilized for the charitable objects and was given to the founder of the without adequate security or interest. The issue before is entirely
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13 different and stands decided in favour of the Assessee as per the abovesaid judgments. Further, CIT(A) was justified in placing reliance on the judgment in the case of Director of Income Tax, Chennai Vs Workings Women‟s Forum [2015] 235 Taxman 516 (SC) whereby the Hon‟ble Supreme Court had dismissed the special leave petition filed by the Revenue against the decision of Hon‟ble Madras High Court wherein it was held that only the part of income which is violative of Section 13(1)(d) can be brought to tax at maximum marginal rate and not the entirety of income claimed to be exempt under Section 11 of the Act.
In view of the above, we do not find any infirmity in the order passed by the CIT(A) on this issue. Accordingly, Ground No.1 & 2 raised by the Revenue are dismissed.
Ground No. 3 to 5
Ground No. 3 to 5 raised by the Revenue are directed against the relief granted by the CIT(A) permitting carry forward of excess application/deficit of INR.4,15,08,853/- to subsequent assessment years.
During the relevant previous year, the Assessee had claimed carry forward of deficit of INR.4,15,08,853/- to subsequent years being excess of amount actually applied for the objects of the trust over receipts required to be applied for the objects of the trust during the relevant previous year which was denied by the Assessing Officer. However, the CIT(A) allowed carry forward of the aforesaid deficit following the decisions of the Hon‟ble juri ictional High Court in the case of CIT Vs Institute of Banking Personnel Selection (supra).
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13
We note that the issue stands decided in favour of the Assessee by the judgment of Hon‟ble Supreme Court in the case of CIT(E) Vs Subros Education Society [2018] 303 CTR 1 (SC), and the judgment of Hon‟ble Bombay High Court in the case of CIT Vs Institute of Banking Personnel Selection 264 ITR 10 (Bombay). The aforesaid judgments were followed by the Co-ordinate Bench of the Tribunal while granting relief to the assessee in the case of Assistant Commissioner of Income Tax, Circle 17(2) Mumbai Vs Navajbhai Ratan Tata Trust (ITA No. 1314/MUM/2018, decided on dated 10.03.2022, vide common order).
Respectfully following the abovesaid judgments/decision, we decline to interfere in the order passed by the CIT(A) on this issue. Accordingly, Ground No.3 to 5 raised by the Revenue are dismissed.
In result, appeal filed by the Assessee (ITA No. 3081/MUM/2018) is party allowed, and the appeal filed by the Revenue (ITA No. 3155/MUM/2018) is dismissed.
Order pronounced on 17.06.2022. (Om Prakash Kant) Judicial Member
म ुंबई Mumbai; दिन ुंक Dated : 17.06.2022 Alindra, PS
ITA. No. 3155 & 3081/Mum/2018 Assessment Year: 2012-13
आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
आिेश न स र/ BY ORDER, सत्य दपि प्रदि //// उप/सह यक पुंजीक र /(Dy./Asstt.