ADHIKAR,BHUBANESWAR vs. ITO, WARD-2(1), BHUBANESWAR

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ITA 254/CTK/2017Status: DisposedITAT Cuttack24 September 2018AY 2011-1210 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Revenue failed to provide evidence that trustees had a substantial interest in the company as required by section 13(3). It also found that the Revenue did not prove the remuneration paid to trustees was excessive or unreasonable.

What were the facts?

The assessee, a charitable trust, was denied exemption under sections 11 & 12 for making advances to a private limited company and paying remuneration to trustees. The Assessing Officer and CIT(A) held that these actions violated sections 13(1)(c) and 13(1)(d) of the Income Tax Act.

What were the issues?

Whether advances to a company and remuneration to trustees violated provisions that deny exemption to charitable trusts, and if the Revenue discharged its onus to prove such violations.

Which sections of the Income-tax Act were involved?

Section 11,Section 12,Section 13(1)(c),Section 13(1)(d),Section 13(3)

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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK

Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE

For Appellant: Shri S.C.Bhadra, AR
For Respondent: Shri Subhendu Datta, DR
Hearing: 05/09Pronounced: 24/09

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.253 & 254 /CTK/2017 Assessment Years : 2010-2011 & 2011-2012

Adhikar , Plot No.113/2524, Vs. Income Tax Officer, Ward- Khandagiri Vihar, 2(1), Bhubaneswar Khandagiri, Bhubaneswar. PAN/GIR No. AAATA 3160 D (Appellant) .. ( Respondent)

Assessee by : Shri S.C.Bhadra, AR Revenue by : Shri Subhendu Datta, DR

Date of Hearing : 05/09/ 2018 Date of Pronouncement : 24/09/ 2018

O R D E R Per N.S.Saini, AM These are appeal filed by the assessee against the order of

the CIT(A)-3, Bhubaneswar dated 29.3.2017 for the assessment

year 2010-2011 and 2011-2012, respectively.

2.

The common ground of appeal raised by the assessee in

both the appeals is that the CIT(A) erred in confirming the order

of the Assessing Officer in not allowing exemption u/s.11 & 12 of

the Act on the ground that the assessee has violated the

provisions of section 13(1)(c) of the Act on account of payment to

P a g e 1 | 10 Adhikar Micro Finance Ltd., and Adhikar Grameen Products Pvt

Ltd., and also the assessee has violated the provisions of section

13(1)(d) of the Act by making payment of remuneration to the

Secretary and President of the assessee society.

3.

We have heard the rival submissions, perused the orders of

lower authorities and materials available on record. The assessee

is a charitable trust registered under section 12A of the Act on

21.12.1995. For the assessment year 2010-2011 from the ledger

account of the assessee, the Assessing Officer observed that a

sum of Rs.1,52,00,000/- was receivable from M/s. Adhikhar Micro

Finance (P) Ltd., as on 1.4.2009 and during the year , a sum of

Rs.50,00,000/- was advanced by the assessee society as interest

free temporary loan on 29.9.2009. The Assessing Officer

observed that Mr N. Amin is the President of the assessee society

and also Shri Manmath Kumar Bhanjdeo is the trustee of the

assessee society. Both have held shares in the company Adhikar

Micro Finance Pvt Ltd., Therefore, he held that the assessee has

violated the provisions of section 13(1)(c) of the Act. Further, he

observed that the assessee has paid salary and consultancy fees

to the following persons:

P a g e 2 | 10 Sl Name of the Designation/relation Nature of Amount No. trustee/relative ship with the society payment paid (Rs.) of trustee

1.

Md N. Amin President Salary 6,45,600

2.

Manmath Kr Secretary Salary 1,63,000 Bhanjdeo 3. T. Mumtaz Wife of President Salary 93,600

4.

Md Aquill Brother of President Salary 1,47,900

S.C.Jena Consultancy 24,500 5. Member

6.

S.K.Abdul Member Education 16,000 Safique Charity

Therefore, he held that the assessee has violated the provisions of

section 13(1)(d) of the Act.

4.

Further, for the assessment year 2011-12, the Assessing

Officer observed that the assessee has given interest free advance

on various dates aggregating to Rs.3,95,00,000/- to M/s. Adhikar

Micro Finance (P) Ltd., and Rs.7,48,851/- to M/s. Adhikar

Grameen Products ltd. The Assessing Officer observed that Mr N.

Amin is the President of the assessee society and also Shri

Manmath Kumar Bhanjdeo is the trustee of the assessee society.

Both have held shares in the company Adhikar Micro Finance Pvt

Ltd. and M/s. Adhikar Grameen Products ltd, thereby violated the

provisions of section 13(1(c) of the Act. The assessee has paid

remuneration to the following persons:

P a g e 3 | 10 Sr. Name Designation Project Purpose Amount(R No. Designation s.)

1.

Md N Amin President CEO Salary 1,33,800

2.

Manmath Secretary Proj.Coordin- Salary 1,92,000 Ku ator Bhanjadeo 3. Subash Board Consulta 36,500 Chandra Member ncy Jena 4. S.K.Abdul Board -do- 76,000 Safique Member

Therefore, he held that the assessee has violated the provisions of

section 13(1)(d) of the Act.

5.

During the assessment year 2010-11, the assessee has

surplus of Rs.4.85,680/- and for the year 2011-12, the assessee

has surplus of Rs.1,17,22,200/-. In view of above, he denied

exemption u/s.11 & 12 of the Act to the assessee society on the

ground that the assessee has violated the provisions of section

13(1)(c) and 13(1)(d) of the Act. Therefore, he levied tax at

maximum marginal rate on the entire income of the trust.

6.

On appeal, the CIT(A) confirmed the action of the Assessing

Officer.

7.

Before us, ld A.R. submitted that for the assessment year

2010-11, there was opening receivables of Rs.1,52,00,000/- as on

1.4.2009 and during the year, the assessee has further paid

P a g e 4 | 10 Rs.50,00,000/- to the said company M/s. Adhikar Micro Finance

(P) Ltd., but the assessee has also received Rs.4,72,25,113/-

during the year from the said company and at the end of the year,

the assessee has received Rs.2,70,25,113/- in excess from the

said company, which was the liability of the assessee trust to the

said company.

8.

Similarly, during the assessment year 2011-12, the

assessee has paid Rs.2,33,94,176/- and there was balance at the

end of the year of Rs.36,30,937/- in excess from the said

company, which was the liability of the assessee trust to the said

company.

9.

Moreover, no material has been brought on record by the

lower authorities to show that any provision referred to in section

13(3) of the Act, the trustee had substantial interest in the said

company. We find that Hon’ble Allahabad High Court in the case

of CIT vs. Kamla Town Trust, 279 ITR 089 (All) has held as under:

“For ready reference cls. (a) & (c) of sub-s. (1) of s. 13, cl. (b) of sub-s. (2) of s. 13, cls. (a), (b), (c), (cc) (d), and (e) of sub-s. (3) of s. 13 & cls. (i) & (ii) of Expln. 3 to s. 13 of the Act are reproduced below :

"13. (1) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof—

(a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public;

P a g e 5 | 10 (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste;

(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof—

(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or

(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied,

directly or indirectly for the benefit of any person referred to in sub-s. (3):

Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-cl. (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-s. (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution :

Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-cl. (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-s. (3), insofar as such use or application relates to any period before the 1st day of June, 1970;

(2) Without prejudice to the generality of the provisions of cl. (c) of sub-s. (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-s. (3),—

P a g e 6 | 10 (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-s. (3) for any period during the previous year without either adequate security or adequate interest or both;

(b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-s. (3), for any period during the previous year without charging adequate rent or other compensation;

(3) The persons referred to in cl. (c) of sub-s. (1) and sub-s. (2) are the following, namely :

(a) the author of the trust or the founder of the institution;

(b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds five thousand rupees;

(c) where such author, founder or person is an HUF, a member of the family;

(cc) any trustee of the trust or manager (by whatever name called) of the institution;

(d) any relative of any such author, founder, person, member, trustee or manager as aforesaid;

(e) any concern in which any of the persons referred to in cls. (a), (b), (c), (cc) and (d) has a substantial interest.......

Explanation 3.—For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,—

(i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in sub-s. (3);

(ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-s. (3) are entitled in the aggregate, at any time during the

P a g e 7 | 10 previous year, to not less than twenty per cent of the profits of such concern."

11.

From a bare reading of the aforesaid provisions, it will be seen that for applicability of cl. (c) of sub-s. (1) r/w cl. (b) of sub-s. (2) of s. 13 of the Act, conditions mentioned in sub-s. (3) r/w Expln. 3 have to be fulfilled. The exemption can be denied only where all the conditions mentioned in the aforesaid provisions are fulfilled. In the present case, there is nothing on record to show that in the institutions/companies to which land was let out or funds were invested, the voting power of not less than twenty per cent was held by the beneficiaries. The Tribunal as a matter of fact has recorded the following findings which had remained unchallenged/uncontroverted by the Revenue and, therefore, they are binding upon this Court in reference proceedings :

"The Department has to be specific about the name of the beneficiary and thereafter, has to place facts on record to establish that such a person falls in the category of prohibited persons. No such attempt has been made by the Departmental authorities. One has not even cared to find out the number of shares of M/s J.K. Synthetics which might be held by the trustees or settlor or both of them combined together and whether the said holding would bring M/s J.K. Synthetics within the provisions of s. 13(3)."

12.

It may be remembered that s. 13 carves out an exception to the general exemption granted under ss. 11 and 12 of the Act to incomes derived by trusts/charitable institutions. The onus lies on the Revenue to bring on record, cogent material/evidence to establish that the trust/charitable institution is hit by the provisions of s. 13 of the Act. In the present case, we find that as held by the Tribunal from the passage reproduced above, the Revenue has miserably failed to bring any material on record to establish that the trust in question fell within the prohibited category enumerated in s. 13 of the Act. In our considered opinion, therefore, the Tribunal was justified in holding that the aforesaid provisions were not attracted.

13.

In view of the foregoing discussions, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.” 10. In the instant case also no material has been brought on

record before us by the department to show that according to the

P a g e 8 | 10 provisions referred to in section 13(1)(c) of the Act, the trustee

has substantial interest either singly or jointly in M/s. Adhikar

Micro Finance Pvt Ltd and M/s. Adhikar Grameen Products ltd.

Therefore, respectfully following the above decision, the allegation

of the department of violation of provisions of section 13(1)(c) is

not sustainable .

11.

Further, on a bare perusal of provisions of section 13(1)(d)

of the Act show that to attract these provisions, it is not enough

that remuneration has been paid to trustees but it has to be also

shown that the remuneration paid is excessive or unreasonable

as compared to the services rendered by those persons.

12.

In the instant case, nowhere the Assessing Officer has even

alleged that the remuneration paid to four persons stated above

were excessive or unreasonable. The Assessing Officer proceeded

on the assumption that section 13(1)(d) of the Act is attracted

merely on making of payment of remuneration to the trustees

whereas the legal position is not such. In absence of any material

brought before us by the revenue to show that the remuneration

paid to the four persons in question were excessive or

unreasonable having regard to the services rendered by them, in

our considered view, the allegation of the Assessing Officer that

there was violation of provisions of section 13(1)(d) is also

P a g e 9 | 10 unsustainable. We, therefore, set aside the orders of lower

authorities and direct the Assessing Officer to allow exemption

u/s.11 & 12 of the Act to the assessee as per law.

13.

In the result, appeals of the assessee are allowed.

Order pronounced on 24/09/2018. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 24/09/2018 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Revenue: ITO, Ward 2(1), Bhubaneswar.

2.

The Assessee: Adhikar, Bhubaneswar. 3. The CIT(A)-3, Bhubaneswar 4. Pr.CIT-3, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order

Sr. Pvt. Secretary, ITAT, Cuttack

P a g e 10 | 10

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