THE N M PETIT CHARITY FUND,MUMBAI vs. DY CIT (EXEM.) 19(1), MUMBAI

आदेश / O R D E R

PER M. BALAGANESH (A.M):

2. The assessee has raised the several grounds before us challenging the validity of revisionary jurisdiction u/s.263 of the Act by the ld. PCIT both on technical ground as well as on merits.

3.1. This assessment was sought to be revised by the ld PCIT by invoking revisionary jurisdiction u/s 263 of the Act by stating that the order passed by the ld AO is erroneous in as much as it is prejudicial to the interests of the revenue on the following grounds :- a) No enquiries were carried out on certain expenditure with regard to application amount of Rs.10.33 Crores which includes application on account of education of Rs.9.19 Crores. The ld. PCIT also observed that the application amount includes donation for education of Rs.2.52 Cores and that out of this, expense to the tune of Rs.1.62 Crores has been incurred on account of donation for salary besides the expenditure already debited under the head „salary‟ of Rs.4.31 Crores. According to ld. PCIT, these salary expenses have been accepted by the ld. AO as such, without any verification. b) No enquiries about capital gains in respect of transfer of two plots of the land by the assessee for which assessee received Rs.65 Crores and Rs.

6. Crores. According to ld. PCIT, the ld. AO had not examined the chargeability of capital gains in respect of transfer of two plots of land.

3.2. We find that assessee gave detailed submissions in response to show-cause notice on 12/02/2020 before the ld. PCIT. The assessee submitted that relevant and requisite enquires were indeed carried out by the ld. AO in the original assessment proceedings itself in detail and the very basis of ld. PCIT‟s show-cause notice for invoking revisionary jurisdiction u/s.263 of the Act is devoid of merit. The assessee submitted necessary evidences in support of its contentions that relevant enquiries were already carried out by the ld. AO. The ld. PCIT however ignored the submissions of the assessee and held that the ld. AO had not carried out any enquiries with regard to the issues pointed out in the show-cause notice and concluded that the order passed by the ld. AO was erroneous in as much as it is prejudicial to the interest of the revenue. Accordingly, he set aside the order of the ld. AO by invoking revision jurisdiction u/s.263 of the Act.

3.3. The short point that arises for our consideration in the instant appeal is as to whether the ld. PCIT has validly invoked revision jurisdiction u/s.263 of the Act in the facts and circumstances of the instant case. The primary facts that are narrated in para 3 hereinabove remain undisputed and hence the same are not reiterated herein for the sake of brevity. The main argument of the ld. AR is that relevant and sufficient enquiries were indeed carried out by the ld. AO in the original assessment proceedings on the impugned issues involved in the show-cause notice u/s.263 of the Act. To buttress this argument, he drew our attention to the questionnaire issued by the ld. AO in the original assessment proceedings and the replies filed before the ld. AO by the assessee vide letters dated 09/03/2017, 05/05/2017, 23/05/2017, 30/05/2017 & 05/06/2017 together with the relevant annexures. We find that the return of the assessee filed for the A.Y.15-16 was selected for „limited scrutiny‟ to examine the following issues:- iii) Deposits in Co-operative bank iv) Mismatch in income / capital gain on sale of land or building v) Tax credit mismatch vi) Charity expenses.

3.4. We find that assessee during the course of original assessment proceedings vide its letter dated 09/03/2017 had explained all the aforesaid six issues. The assessee had also vide letter dated 05/05/2017 furnished the details in response to AIR statement furnished by the ld. AO to the assessee. The assessee vide further letter dated 23/05/2017 again gave further details in respect of accumulation of income by the trust, computation of capital gains, advance of Rs.71 Crores received by the assessee together with a detailed note attached thereon for the receipt of Rs.71 Crores. These details were admittedly filed by the assessee pursuant to queries raised by the ld AO during the course of various personal hearings from time to time. We find from the records that the ld. AO vide notice u/s.142(1) of the Act dated 21/02/2017 had indeed sought for details of charity expenses in consonance with the requirement mandated in the „limited scrutiny‟ as stated supra. The assessee had indeed filed details of charity expenses vide its letter dated 09/03/2017. We find that assessee had on 30/05/2017 again filed further details of all the expenses including the education expenses and salaries as called for by the ld. AO. We also find that assessee had filed further letter dated 05/06/2017 furnishing details of fixed assets along with xerox copies of all the bills for the additions to fixed assets made during the year. We find that assessee had applied an amount of Rs.10.33 Crores towards objects of the trust which includes educational expenses of Rs.9.19 Crores. The details of the total expenditure of objects of the trust are as under:-

A) Religious - Rs. 5,31,255/- b) Educational - Rs. 9,19,39,199/- c) Medical relief - Rs. 36,07,051/- d) Relief of Poverty - Rs. 26,41,400/- e) Other Charitable Objects - Rs. 46,20,000/- ================ Total Rs.10,33,38,905/- ================ 3.5. The assessee also furnished the break-up of educational expenses of Rs.9,19,39,199/- as under:-

SCHEDULE J - EDUCATION EXPENSES Rs. Rs.

Donation for Education 2,52,64,805 Boarding Expenses 53,44,916

Educational Expenses Salary / Exgratia - School Staff 4,31,51,682 Provident Fund - Employers Contribution 37,55,581 Emp. Deposit Link Insurance A/C. No.21 81,391 Emp Deposit Link Insurance A/c No.22 Admin Chg 1,704 Family Pension A/c. No.10 13,09,665 Gratuity 12,53,327 Pension - Karkaria Minoo M. 2,29,200 P.F. Inspection Charges A/c. No. 70,476 4,98,53,026

Other Expenses Computer Expenses 5,96,103 Education Expenses 2,12,022 Examination Expenses 1,09,980 Function & Festival Expenses 9,87,016 Housekeeping Expenses 1,94,754 Expenses 80,564 Laboratory Expenses 1,643 Library Expenses 3,100 Online Admission form Fees 10,720 Pta Expenses 7,022 Sports & Games 14,69,668 Workshop Expenses 1,56,561

Advertisement Expenses 83,817 Bank Charges / Money order Charges 7,846 Conveyance Expenses 2,06,792 Electricity Charges 16,17,545 General Expenses 1,40,881 Infirmary Expenses 2,08,321 Late payment Charges of PT 24,000 Legal & Professional Fees 1,685 Magazine & Periodicals 3,30,981 Medical Expenses 7,376 Mediclaim Insurance 5,56,171 Motor Car Expenses 1,89,483 Motor Car Insurance 29,303 Printing, Stationery & Postage 17,49,447 Security Charges 22,53,306 Telephone Expenses 1,17,815 Water Charges 1,22,530 1,14,70,452

9,19,39,199 3.5. The educational expenses totalling to Rs.9.19 Crores includes donation for education of Rs. 2.52 crores and salaries /exgratia of Rs.4.31 cores which is subject matter of show-cause notice of ld. PCIT in section 263 proceedings. We further find that the assessee has also furnished the details of salaries / exgratia of Rs.4.31 crores before the ld. AO vide letter dated 09/03/2017 in the original assessment proceedings. We also find that the details of donation for educational expenses of Rs. 2.52 crores have also been furnished by the assessee before ld. AO vide letter dated 30/05/2017 in the original assessment proceedings. We also find that assessee again vide letter 30/05/2017 had furnished the details of Rs.4.31 cores of salaries and exgratia before the ld. AO as under:- 1. Salary / Exgratia for school staff - Rs.3,50,82,069/- 2. D. A. arrears - Rs. 16,10,138/- 3. Special Allowance to staff - Rs. 3,37,637/- 4. Salary to School Principal - Rs. 29,40,359/- 5. Part time staff - Rs. 31,81,479/- ===========

Total Rs.4,31,51,682/- =========== 3.6. From the above break-up, we find that the ld. AO had specifically called for the details of salary expenses of Rs.3,50,82,069/- and Rs.31,81,479/-. These details were furnished by the assessee vide its letter dated 30/05/2017 together with the copy of salary register giving the names of employees to whom salary has been given. Again the details of educational expenses of Rs.2.52 crores were also furnished by the assessee before the ld. AO vide letter dated 30/05/2017.

3.7. We also find that the ld PCIT had made an observation that the assessee trust had paid donations to other trusts and treated the same as applied for charitable purpose. In this regard, the ld AR filed a detailed reconciliation statement of transfer entries made from one bank account to another bank account with specific reference to the page numbers of the paper book filed before us as under:-

Sr. Date of Amount Page Date of Name of Account Amount Page No transfer transferred Number Receipt the Number Receipt number from Rs. of by transferee of paper Paper Bank Bank of transferee Book Book India Bank (Mumbai Main Branch) M. G. Road, Fort - Account No.00l 10100006 149

20th 1. 19th May, 10,00,000 241 State 1104507 10,00,000 229 2014 May,201 Bank 9320 4 of India 22nd May, 3rd June, 2. 20,00,000 241 State 1104508 20,00,000 229 2014 2014 Bank 5801 of India 23rd June, 242 3. 15,00,000 24th State 1104508 15,00,000 229 2014 June,201 Bank 5801 4 India 21st July, 24th July, 4. 242 15,00,000 State 1104508 15,00,000 229 2014 5801 2014 Bank 22nd 27th 5. 12,00,000 248 State 1104508 12,00,000 229 August, August, Bank of 5801 2014 2014 India 18th 24th 6. 15,00,000 248 State 1104508 15,00,000 229 September Septembe Bank of 5801 2014 r, 2014 India 9th October, 13th 7. 10,00,000 248 Bank 0001101 10,00,000 229 2014 October, of India 0000612 2014 9 2nd January 6th 8 9,76,440 256 Bank 0001101 9,76,440 230 0000612 2015 of India January, 9 2015 23rd 28th 9. 15,00,000 257 State 1104508 15,00,000 230 January, January, Bank of 5801 2015 2015 India ________ 11 th 13th 10. 20,00,000 257 Bank 0001101 20,00,000 230 0000612 February, February, of India 9 2015 2015 23rd 25th 11. 20,00,000 257 State 1104508 20,00,000 230 February, February, Bank of 5801 2015 2015 India TOTAL : 1,61,76,440 1,61,76,440 'Wrongly stated in Paper Book as 17th May, 2014.

3.8. The above facts clearly prove that detailed examination has been carried out by the ld. AO with regard to entire expenditure incurred on the objects of the trust (charity expenses). We find that the ld. AO on examination of various details filed from time to time together with the supporting evidences, was indeed satisfied with the replies given thereon and had taken a plausible view in the matter and assessment completed accordingly u/s.143(3) of the Act. While this is so, in our considered opinion, it is incorrect on the part of the ld. PCIT to conclude that no enquiries were carried out by the ld. AO with regard to the impugned issue. In these facts and circumstances, we have no hesitation in quashing the revision order passed u/s.263 of the Act by the ld. PCIT on the issue of expenditure incurred for objects of the trust amounting to Rs. 10.33 Crores.

3.9. With regard to transfer of two plots of land and alleged capital gains resulting thereon, we find that in the original assessment, the case was selected under „limited scrutiny‟. One such point of examination under „limited scrutiny‟ was “mismatch in income / capital gain on sale of land or building”. The ld. AO had duly questioned the assessee in the original assessment proceedings regarding the same vide notice u/s.142(1) of the Act date 22/01/2017. We find that assessee had given a preliminary reply on 09/03/2017 giving the details of receipt of advance of Rs. 71 Crores on transfer of land together with copy of order of Charity Commissioner dated 18/02/2012 and 22/06/2016 and consent terms dated 23/12/2014. It was specifically pointed to the ld. AO by the assessee that, as assessee has received only advance against sale of land, the advance receipt of Rs.71 Crores has been shown as liability in balance sheet as on 31/03/2015. It was also pointed out that the purchasers of the said property had deducted tax at source u/s.194IA while making payment of advance. Accordingly, the said amount is reflected in Form 26AS of the assessee. By this process, the assessee had explained the mismatch between the entry in Form 26AS and the income of the assessee. Later, vide letter dated 23/05/2017, the assessee enclosed a detailed note exclusively on receipt of advance of Rs. 71 Crores pursuant to a specific query raised by the ld. AO during the course of personal hearing. For the sake of convenience, the note filed by the assessee before the ld. AO with regard to the non-chargeability of capital gains on sale of two plots of land are reproduced hereunder:-

1) The assessee Trust is the owner of a plot of land which forms part of the larger property described in the Indenture of Lease dated 14th April, 1950 duly confirmed by the Hon’ble Bombay High Court in its order dated 12th March, 1951 in Suit No. 202 of 1951. In other words the said Property was given on lease in 1951. The said Lessees in turn created various Sub-Leases and also created third party rights, resulting in the entire property being encumbered by duly developed societies as also slum dwellers. 2) Due to various breaches committed by the Lessees, the assessee Trust filed a Suit in the Small Causes Court against 41 Defendants. Due to the intervention of various parties, the suit was settled out of Court and consent terms were executed between the parties on 23rd December, 2014. 3) Under the said consent terms, a lumpsum consideration of Rs.65 crores is to be received by the Trust for sale of Reversionary Rights of the property in favour of the Purchasers. The entire amount of Rs.65 crores has been received at the time of execution of the consent terms, to safeguard the interest of the Trust. However, the transaction is. subject to the permission of the Charity Commissioner, the property being a Trust Property. A copy of the consent terms is already on record. 4) Subsequent to the execution of the consent terms, the permission of the Charity Commissioner, was applied for and obtained on 22nd June,2016. A copy of the Order of the Charity Commissioner is also on record. In view of the provisions of section 36 of the Bombay Public Trusts Act, 1950 the transaction cannot be completed without the permission of the Charity Commissioner and hence the conveyance has been executed only subsequent to the receipt of the permission of the Charity Commissioner. It is for this reason that the amount received from the Purchasers is reflected as advance in the books of the assessee Trust for Assessment Year 2015-16. 5) In case of another property also leased in 1951 and which is completely encroached by slum dwellers, the assessee Trust had agreed to sell the said property in terms of the Agreement dated 3rd March, 2008. Subsequent to the execution of the said Agreement with Hilla Builders Private Limited, an application was made to the Charity Commissioner u/s.36(1)(a) of the Bombay Public Trusts Act, 1950 for prior permission to sell the said Property. However, due to certain objections, the said permission was received by Order dated 18th February, 2012. Under the said Order of the Charity Commissioner the Trust is entitled to receive the consideration in the form of built up area of 6000 sq.ft. or in the alternative Rs. 6 crores, if opted by the Trust. It is only when the first transaction took place by signing the consent terms that in 2014 the assessee Trust opted to receive the monetary consideration of Rs.6 crores, however, before the conveyance could be executed, the validity of the Order of the Charity Commissioner lapsed. In view of this, the Trust has applied to the Charity Commissioner for extension of time, which application is pending. It is for this reason that the amount of Rs.6 crores received by the Trust has also been shown as advance.

3.10. From the aforesaid note it was very clearly explained by the assessee before the ld. AO that since the approval of the Charity Commissioner was obtained by the assessee trust only on 22/06/2016, the conveyance deed has been executed by the assessee thereafter and accordingly, there was no taxable capital gain that arises in A.Y.2015-16. Based on this explanation, the ld. AO on due examination of the documents, took a plausible view and the correct view that capital gains does not arise in A.Y.2015-16 to the assessee. Hence, we hold that the order of the ld. AO in this regard cannot be termed as erroneous so as to invoke revision jurisdiction u/s.263 of the Act. These facts were further explained before the ld. PCIT in the 263 proceedings by the assessee. The ld. AR before us filed a note mentioning the event together with the note submitted before the ld. AO and the details of the relevant page of the paper book as under:-

Sr Event Facts/Material before the No. A.O. Page Nos. of Paper Book

4. Pursuant to an application made by the Charity Commissioner’s order Assessee Trust, the Joint Charity dated 18/02/2012 at pages 69 to Commissioner, Maharashtra State 89 Mumbai, vide his Order dated 18th February 2012 sanctioned the sale of the Slum Portion. Under the said Order of the Joint Charity Commissioner the Assessee Trust had the option to accept the consideration in the form of money i.e. Rs.6 crores or receive certain percentage of the area in the newly constructed buildings. The said Order was valid for a period of 3 years i.e. up to 17th February 2015. It may be noted that the sale contemplated in the said Order is on as is where is basis i.e. subject to the subsisting lease. In other words, the Assessee Trust was permitted to sell its reversionary rights in respect of slum portion 5. Subsequently, the Assessee Trust Note submitted to A.O. noticed various breaches of the Pages 227 and 228 Indenture of Lease dated 14th April 1950, the said breaches being in the form of illegal assignments, breach of covenants, etc. committed by the 7 Lessees, the sub-lessees and their respective successors in title/assignees. This resulted in the Assessee Trust filing a suit for eviction in the Small Causes Court at Bombay against 41 defendants.

3.12. We find that the ld. PCIT, in the impugned order dated 20.3.2020 has referred to a conveyance deed and observed that "on a perusal of the conveyance deed, it is seen that the amount has come to the assessee and possession was already with transferee against which consideration have been received”. In this regard, we find that the conveyance deed was executed only after the Order of the Charity Commissioner ; that the assessee trust was never in possession, that the possession of the Purchaser in respect of certain portions was in their capacity as lessees.

3.13. With regard to applicability of provisions of 2(47)(v) of the Act as stated by the ld PCIT in his section 263 order, we hold that the possession referred to in Section 53A of the Transfer of Property Act, 1882, should be in part performance of the contract under which the transfer is intended to take place. In the present case, the possession of the purchasers i.e. the said 6 Defendants, was in their capacity as Lessees and that too only in respect of their respective portions occupied by them. In fact there are almost 41 Lessees / Sub-lessees against whom the Suit was filed, only 6 of the Defendants have agreed to purchase the Remaining Property on „as is where is basis‟ i.e. subject to the possession of the 41 Lessees/sub-lessees. This is not a case where the property in its entirety is sold to a sitting Lessee. Even otherwise Section 53A of Transfer of Property Act, 1882 , refers to possession in part performance of the very same contract under which the transfer is agreed to take place. Here the possession is under the Lease of 1950 and not in part performance of the Consent Terms, the same being subject to the sanction of the Charity Commissioner.

3.13.1. We further find that Sub-section (1A) was inserted in the Indian Registration Act of 1908 with effect from 2002, which provides that-

"the documents containing contracts to transfer for consideration any immovable property for the purpose of Section 53A of the Transfer of Property Act 1882 shall be registered if they have been executed on or after the commencement of the Registration and other Related Laws (Amendment) Act 2001 and if such documents are not registered on or after such commencement then they shall have no effect for the purposes of the said Section 53A. (emphasis supplied).

3.14 In the present case, the agreement i.e the Consent Terms is not registered and hence the doctrine of part performance cannot be applied and consequently section 2(47)(v) of the Act cannot be made applicable. Reliance in this regard has been rightly placed by the ld. AR on the decision of Hon‟ble Supreme Court in the case of CIT vs. Balbir Singh Maini reported in 251 Taxman 202 (SC). We find that the ld. AR also placed reliance on the decision of Hon‟ble Jurisdictional High Court in the case of Madhukar Sunderlal Sheth and Others vs. S.K. Laul and Others reported in 198 ITR 594 (Bom), wherein, in the context of acquisition proceedings of immovable property by Central Government under erstwhile Chapter XXC of the Act, it was categorically held that the property belonging to a public trust cannot be validly sold without the permission of Charity Commissioner. Hence, such an agreement of sale cannot be acted upon by the Income Tax authorities. Therefore, where a statement is filed in terms of 269UC in form No. 37-I without obtaining the approval of the Charity Commissioner, it would be invalid.

3.15. This decision of Hon‟ble Jurisdictional High Court was rendered much prior to the completion of assessment proceedings and very much available in public domain before the ld. AO. Hence, it could be reasonably presumed that the ld. AO after due examination of the documentary evidences submitted by the assessee that no capital gain arises in A.Y.2015-16, and after considering the decision of Hon‟ble Jurisdictional High Court had taken a possible view on the matter. That cannot be disturbed by the ld. PCIT in revision jurisdiction u/s.263 of the Act by trying to substitute his view in the place of view already taken by the ld. AO. Reliance in this regard is placed on the celebrated decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Gabriel India Ltd., reported in 203 ITR 108 (Bom). In view of the aforesaid observations, the argument advanced by the ld. DR that approval of the Charity Commissioner is not relevant for the purpose of levy of capital gains tax under the Income Tax Act, stands dismissed.

3.16. Hence, we hold that the ld. AO having taken a possible view in the matter after making adequate and requisite enquiries thereon and after examining the relevant documents, had framed the assessment u/s.143(3) of the Act, which in our considered opinion, cannot be termed as erroneous at all on the impugned issues. The law is now very well settled that for the purpose of exercising revisionary jurisdiction u/s.263 of the Act by the ld. PCIT, the twin conditions i.e. i) order of the AO must be erroneous ii) order of the AO should be prejudicial to the interest of the revenue; should be cumulatively satisfied. Reliance in this regard is placed on the decisions of the Hon‟ble Supreme Court in the case of Malabar Industrial Company Ltd., reported in 243 ITR 83 (SC) and Max India Ltd., reported in 295 ITR 282 (SC). Accordingly, we hold that revision jurisdiction u/s.263 of the Act invoked by the ld. PCIT on the alleged applicability of capital gains on transfer of two plots of land, is devoid of merit and against the provisions of the Act and decided judicial precedents thereon.

3.17. In view of our aforesaid detailed observations on both the issues that are subject matter of section 263 proceedings, we have no hesitation in holding that the ld. PCIT grossly erred in invoking revision jurisdiction u/s.263 of the Act in the facts and circumstances of the instant case. Accordingly, the revision order passed by the ld. PCIT u/s.263 of the Act is hereby quashed. The grounds raised by the assessee are allowed.

Order pronounced on 30/08/2021 by way of proper mentioning in the notice board.