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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
आयकर अपील�य अ�धकरण मुंबई पीठ “एसएमसी”, मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI �ी रमेश सी. शमा�, लेखा सद�य एवं �ी �वकास अव�थी, �या�यक सद�य के सम� BEFORE SHRI RAMESH C. SHARMA, ACCOUNTANT MEMBER & SHRI VIKAS AWASTHY, JUDICIAL MEMBER आअसं. 777/मुं/2019 (�न. व.2013-14) ITA NO.777/MUM/2019 (A.Y.2013-14)
KWA Trust, 52, 5th Floor, Maker Tower ‘F’ Cuffe Parade, Colaba, Mumbai 400 005 PAN:AAATK 0114F ...... अपीलाथ� /Appellant बनाम Vs. Income Tax Officer (Exemptions)-1(4), Room No.507, 5th Floor, Piramal Chambers, Lalbaug, ..... ��तवाद�/Respondent MUMBAI 400 012.
अपीलाथ� �वारा/ Appellant by : Shri V. Mohan ��तवाद� �वारा/Respondent by : Shri Amit Pratap Singh सुनवाई क� �त�थ/ Date of hearing : 10/02/2020 घोषणा क� �त�थ/ Date of pronouncement : 16/07/2020 आदेश/ ORDER PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-3 Mumbai (in short ‘the CIT (A)’) dated 15/10/2018 for the assessment year 2013-14.
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The assessee in appeal has assailed the finding of CIT (A) by raising following grounds:-
“Each of the following Grounds is independent of and without prejudice to one another.
1) On the facts and in the circumstances of the case, Ld. CIT (Appeals) erred in enhancing the taxable income by Rs.13,30,716/-
2) On the facts and in the circumstances of the case, Ld. CIT (Appeals) erred in not allowing indexation on the sale of long term investments;
3) On the facts and in the circumstances of the case, Ld. CIT (Appeals) erred in confirming that the deficit of the earlier years cannot be set off against the current year's income;
4} Appellant craves leave to amend or alter the existing grounds or add further grounds of appeal at the time of hearing.”
Shri V. Mohan, appearing on behalf of the assessee submitted that the assessee is a charitable trust registered under section 12A of the Income Tax Act, 1961 (in short ‘the Act’). The assessee filed its return of income for the impugned assessment year on 27/09/2013 declaring total income as ‘Nil’. During the period relevant to the assessment year under appeal, the assessee had sold mutual funds for a total consideration of Rs.1,33,30,716/-. After reducing the indexed cost of acquisition of the mutual funds, the assessee suffered long term capital loss of Rs.4,84,222/-. In scrutiny assessment, the Assessing Officer disallowed the benefit of section 11 to the assessee as the assessee had made investments in violation of the provisions of section 11(5) of the Act, as well as, denied the benefit of indexation. The ld. Authorized Representative for the assessee fairly admitted that by making investment in mutual funds, the assessee has violated the provisions of section 11 of the Act. However, benefit of indexation cannot be denied to the assessee as the
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assessment is made in the case of assessee for the impugned assessment year under regular provisions. The ld. Authorized Representative for the assessee contested that while computing long term capital gain/loss the assessee should be treated as individual and not as trust. In support of his contention the ld. Authorized Representative for the assessee placed reliance on the decision of Hon'ble Bombay High Court in the case of Director of Income Tax (Exemptions) vs. Shardaben Bhagubhai Mafatlal Public Charitable Trust reported as 247 ITR 1. The ld. Authorized Representative for the assessee submitted that since the benefit of section 13 has been withdrawn, the assessee should be granted benefit of indexation. The assessee cannot be deprived of both the benefits. The ld. Authorized Representative for the assessee further contended that the CIT(A) has erred in denying the benefit of set-off of deficit of the earlier years against income of current year. Since the assessment has been made in the case of assessee under normal provisions, the benefit of carry forward and set- off of earlier deficit should be allowed to the assessee.
On the other hand, Shri Amit Pratap Singh, representing the Department vehemently defended the impugned order. The ld. Departmental Representative submitted that the assessee trust is registered under section 12A of the Act. The assessee made investment in mutual funds in violation of the provisions of section 11(5) of the Act. Thus, the assessee is not eligible for the benefit of section 13 of the Act. Since the assessee had sold mutual funds with a motive to earn commercial income, the profit on sale of mutual funds is computed as real income in commercial sense.
We have heard the submissions made by rival sides and have perused the orders of authorities below. It is an admitted fact that the assessee in the
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impugned assessment year has sold mutual funds and had not applied funds of the trust in accordance with the provisions of section 11 of the Act. The authorities below have rightly denied the benefit of section 13 of the Act to the assessee.
The Assessing Officer after withdrawing the benefit of Section 13 of the Act completed the assessment under normal provisions. The assessee while computing capital gain/loss on sale of mutual funds claimed the benefit of indexation on the cost of acquisition. The long term capital gain/loss computed by the assessee on sale of mutual funds is as under:-
Long term Capital Gain (without STT) Sale Proceeds Rs.1,33,30,716/- Less: Indexed cost of acquisition Rs.1,38,14,938/- Long term capital Loss Rs. (4,84,222)/-
The Assessing Officer and the CIT (A) rejected assessee’s computation of capital loss on sale of mutual funds on the premise that the assessee being charitable trust is not eligible for indexation on cost of acquisition. The denial of indexation has caused double whammy to the assessee. The assessee loses the benefit of section 13 and is assessed under normal provisions of the Act. At the same time under normal provisions, the assessee is denied the benefit of indexation.
The Hon’ble Jurisdictional High Court in the case of Director of Income Tax (Exemptions) vs. Shardaben Bhagubhai Mafatlal Public Charitable Trust (supra) in a somewhat similar case, where the trust had made investments in violation of the provisions of section 11(5) and was denied the benefit of
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section 13; the assessee’s claim of deduction under section 80L was also denied by the Revenue. The Hon’ble High Court following the judgement rendered in the case of CIT v. Marsons Beneficiary Trust reported as 188 ITR 224 (Bom.) upheld the decision of Tribunal in directing the Revenue to make assessment by treating the assesse as an individual. The relevant extract of the judgement reads as under:
“12. ……………..…… In the case of Sodra Devi (supra), the Supreme Court was considering the scope of section 16(3) of the Indian Income-tax Act, 1922. In the said judgment, the Supreme Court has held that the word 'assessee' was wide enough to cover not only an individual but also an HUF, company, local authority, firm and an AOP or the partners of the firm or the members of the AOP. That, the word 'individual' has not been defined in the Act. That the word 'individual' did not mean only a human being but it included a group of persons forming a unit. In the case of Marsons Beneficiary Trust (supra), the Division Bench of this Court has held that all kinds of income of a trust have to be assessed under section 161(1). That, the trustees are authorised to carry on business under a deed of trust. They do not derive their authority from the beneficiaries. They derive their authority from the settlor under the deed of trust. The beneficiaries are merely recipients of the income earned by the trust. They have not come together for a common purpose to earn income. Therefore, they cannot be considered as AOP or a BOI. In the said judgment, the Division Bench of this Court rejected the contention of the department that the beneficiaries constituted an AOP. The trustees did not carry on business on behalf of the beneficiaries just as the receivers. The beneficiaries are merely recipients of the income earned by the trust. Accordingly, it was held that the trustees were not assessable as an AOP. In view of the above judgments, the Tribunal was right in coming to the conclusion that the assessee-trust ought to have been assessed in the status of an individual”.
After taking into consideration facts of the case and above decision by the Hon’ble Bombay High Court, we hold that while completing assessment under normal provisions of the Act, the assesse should be treated as individual. Since, benefit of section 13 has been withdrawn from the assessee, the benefit of indexation while computing capital gain/loss should be allowed. The assessee succeeds on ground No.2 of the appeal.
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As we have allowed alternative claim of the assessee, ground No.1 of the appeal is dismissed.
As far as benefit of carry forward of earlier year deficit and set off against current year income is concerned, we hold that since assessment is made under regular provisions, the assessee is allowed to carry forward deficit of earlier years and set off against current year income, in accordance with the provisions of the Act. The ground No.3 of the appeal is allowed, accordingly.
The ground No.4 of the appeal is general in nature, hence, needs no adjudication.
In the result, appeal by the assessee is partly allowed.
This appeal was heard on 10/02/2020. As per Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963, (ITAT Rules, 1963), the order was required to be “ordinarily” pronounced within a period of 90 days from the date of conclusion of the hearing of appeal. The instant appeal was heard prior to the lockdown declared by the Hon’ble Prime Minister on 24-03-2020 in view of COVID-19 pandemic. The lockdown was forced due to extra ordinary circumstances caused by world wide spread of COVID-19. Thereafter, the lockdown was extended from time to time. Therefore, the pronouncement of order beyond the period of 90 days from the date of hearing is not under “ordinary” circumstances. The Co-ordinate Bench of the Tribunal in the case of DCIT vs. JSW Ltd., ITA No.6264/Mum/2018 for A.Y 2013-14 decided on 14/05/2020, under identical circumstances, after considering the provisions of Rule 34(5) of the ITAT Rules, 1963, judgements rendered By Hon’ble Apex Court and the Hon’ble Bombay High Court on the issue of time limit for
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pronouncement of orders by the Tribunal and the circumstances leading to lockdown held:- “10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only inconsonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which ITA No. 6103 and lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.”
Thus, in light of above facts and the decision of coordinate Bench, the present order is pronounced beyond the period of 90 days.
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The appeal of the assessee is partly allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.
Order pronounced on Thursday the 16th day of July, 2020.
Sd./- Sd./- (R. C. SHARMA) (VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
मुंबई/ Mumbai, �दनांक/Dated 16/07/2020 Vm, Sr. PS(O/S)
��त�ल�प अ�े�षतCopy of the Order forwarded to : 1. अपीलाथ�/The Appellant , 2. ��तवाद�/ The Respondent. 3. आयकर आयु�त(अ)/ The CIT(A)- 4. आयकर आयु�त CIT 5. �वभागीय ��त�न�ध, आय.अपी.अ�ध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file.
BY ORDER, //True Copy//
(Dy./Asstt. Registrar) ITAT, Mumbai