DCIT (EXEMPTION), GHAZIABAD vs. OM CHARITABLE TRUST, MEERUT

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’ NEW DELHI

BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER

ITA No. 4961/Del/2015 Assessment Year: 2011-12

DCIT(Exemption) vs Om Charitable Trust Room No. 208, 47/L-4, Jawahar Quarters, 2nd Floor, CGO-1, Meerut. Hapur Road, AAATO1865D Ghaziabad. APPELLANT RESPONDENT

CO No. 185/Del/2016 (In ITA No. 4961/Del/2015) Assessment Year: 2011-12

Om Charitable Trust vs DCIT(Exemption) 47/L-4, Jawahar Quarters, Room No. 208, Meerut. 2nd Floor, CGO-1, AAATO1865D Hapur Road, Ghaziabad. APPELLANT RESPONDENT

Revenue by Smt. Naina Soin Kapil, Sr. DR Assessee by Sh. K. Sampath, Adv. Sh. V. Raja Kumar, Adv.

Date of Hearing 13.12.2018 Date of Pronouncement 01.01.2019

2 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust

ORDER PER SHRI BHAVNESH SAINI, J.M. The Departmental appeal as well as cross objection by assessee are directed against the order of Ld. CIT(A)-Meerut dated 08.05.2015 for AY 2011-12.

3 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust centres, etc. The AO on the basis of the details filed on record noted that assessee has made investment in purchase of land and flats amounting to Rs. 3,44,27,160/- and Rs. 20,25,000/-. Assessee trust has also given advance of Rs. 48,10,240/- for flat. The AO issued notice to assessee as to why the amount of Rs. 48,10,240/- should not be added to the income of the assessee, which was not invested for charitable purposes. The assessee in the written submission submitted before AO that besides the opening balance of Rs. 40,24,000/- brought forward from the preceding year, assessee trust has further given a sum of Rs. 7,86,240/- as another installment in advance to M/s Jay Pee Greens, Greater Noida for booking a flat therein to be used for housing the Vice Chancellor of the proposed University. It was explained that trustees are mainly Doctors with established practice and have settled nursing home in Meerut and do not stay in Greater Noida, hence, the fears expressed during hearing that they are investing in this flat for a house for themselves are unconfirmed and remain a mere suspicion only. It is premature to hold a prejudice that the land purchased and the flats subscribed are not going to serve the interest of the objects of the trust especially in the absence of any evidence to the contrary. The investments in immovable properties are made in furtherance of objects of the trust. The AO asked the explanation of the assessee that till March, 2014 no education activities have been started. The assessee explained that it is on the look out to establish a Private University under the aegis of the trust. The establishment

4 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust of such a University is a gigantic effort and among other things begins with ownership of minimum 50 acres of land some of which assessee has acquired and the balance is further being acquired. The assessee has already submitted the details as per rules and bye laws of forming the University. Once the desired level of the land is available with the assessee, it intends to rope in existing educational institutions in their trust and thereby proceed to establish a University. Besides the above, the trust has taken various steps to run following programmes for benefit of the poor section of the society:

a) “Distributed vaccination medicines/injections for poor in a medical camp. b) Donated ration for poor people (copy of account as well as supporting bills as well as letter from Gram Pradhan certifying the narrated facts are placed on record). c) Organized teaching programme for various slum students. d) Ambulance is being run for the poor patients free of charge.” 5. The AO noted that since the assessee did not file any evidence in support of the claim that land and flats have been purchased for carrying out charitable activities, the assessee trust was asked to produce the evidence and also to explain whether activities mentioned in the deed can be done in these flats. The assessee reiterated the submissions before AO. The AO, therefore, noted that assessee did not produce any evidence in support of activities which have been started to open the Educational Institute. The assessee has not produce any evidence that activities of the trust as mentioned in the deed can be done in the

5 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust flats. Therefore, investment made in purchase of land, tube well, flat, etc. totaling to Rs. 2,67,51,128/- was disallowed as investment made is not for charitable purposes. The assessee made similar advance of Rs. 7,86,240/- given during AY 2011-12 for purchase of flat was also disallowed, as it was not for charitable purpose. The AO, therefore, noted that assessee has violated provisions of section 13(1)(d) of the Act and consequently the benefit of provisions of section 11(5)(x) of the Act cannot be granted. The AO computed the income of assessee at Rs. 2,22,04,300/- and treated the assessee as AOP.

6 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust produced books of accounts to get verified the entries of the corpus donation from the bank account of the donor. Copy of the confirmation letter from the donor was also filed. The confirmation and bank account revealed that assessee has received corpus amount of Rs. 2,25,50,000/-. The corpus donation cannot be added to the income of the assessee. Investment in immovable property is not barred under Income Tax Act. Therefore, entire addition is liable to be deleted.

3.3 “I have carefully gone through the assessment order as well as the written submission of the AR of the appellant. From a study of the written submission of the AR and the assessment order, it seems to that the Assessing Officer has computed the total income of the appellant on the basis of following two considerations: 1. That the investment made in land and flat is in violation of section 11(5)(x) of the I.T. Act. 2. 85% or more of the receipts of the trust have not been applied to charitable purpose. 3.4 The AR had explained during the assessment proceeding that the main focus of the trust during the concerned assessment year was for establishing institution to promote higher education. For this purpose land has been purchased. The AR had further mentioned that for establishing a university there is a minimum land requirement of 50 acres and that is something which cannot be done in one go. Apart from this the AR had also submitted evidence before the AO to show that it has run

7 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust various programs for the benefit of poor section of the society. It is a fact that section 11(5)(x) authorizes investment in immovable property. The AO has not considered that investment in land and flat has been done for the purposes of charity. He has not accepted the arguments of the appellant that the investment in immovable property has been done as preliminary steps towards establishment of university. It seems that the AO was under an impression that in order to qualify for charitable purpose the trust has to spend the money here and now on charitable activities. By this logic no long term investment would be qualified as being done for charitable purpose. Clearly this is not the position of law in section 11(5)(x). The clause 5 of section 11 says “the forms and modes of investing and depositing the money referred to in clause (b) of sub section (2) shall be the following, namely;”…….The sub clause (x) simply says “investment in immovable property”. Thus there is no violation of section 11(5)(x) and consequently section 13(1)(d). 3.5 There is another line of argument which has been taken up by the AR. The question of applying 85% of the income will arise only when contributions received by the trust are not forming part of the corpus of the trust. The AR has given documentary evidence before the AO that the amount of Rs. 2,25,50,000/- which has been taken as total receipts of the trust by the AO is in fact towards corpus donation. Letter of the donor confirming this fact has been produced before the AO. In the balance sheet of the trust also Rs. 2,25,50,000/- has been shown as part of capital received during the year. Further, in the income and expenditure account Rs. 2,25,50,000/- has not been shown as income or receipt. The donation has been made through banking channel. The donor is an income tax assessee and its PAN and copy of acknowledgement of IT return for AY 2010-11 has been produced before the AO. It is clear from facts that the AO did not accept that the receipt of Rs. 2,25,50,000/- are part of corpus donation of

8 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust the trust even though the facts clearly points towards it. Thus neither of the grounds taken by the AO as mentioned in para 3.3 above succeeds. Consequently, the grounds of appeal 1 to 6 and 8 are allowed. The AO is accordingly directed to re-compute the income of the appellant by allowing the exemption claimed by it.” 8. Ld. DR relied upon order of the AO and submitted that assessee did not produce any evidence for carrying out any charitable activities. Therefore, addition was rightly made by the AO.

8.1 On the other hand, Ld. Counsel for assessee reiterated the submissions made before authorities below and submitted that issue is covered in favour of assessee by order of ITAT Delhi ‘G’ Bench in the case of M/s The Scientific and Educational Advancement Society in ITA No. 4944/Del/2012 and 4430/Del/2012 dated 15/10/2018. Copy of the order is placed on record.

9 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust Private University. In reference thereto assessee made investment in land and flats which were ultimately to be converted into source of opening of a Private Educational University. It is a fact that section 11(5)(x) authorizes investment in immovable property. The AO has not considered the investment in land and flat has been done for charitable purposes. He has not accepted the explanation of assessee that investment in immovable property has been done as preliminary steps towards establishment of University. The AO was under the impression that in order to qualify for charitable purpose, the trust has to spend the amount on charitable activities only. However, section 11(5)(x) of the Act clearly authorize investment in immovable property for claiming exemption u/s 11 of the Act. If the findings of the AO are accepted then no investment would be qualified u/s 11(5) of the Act. Since the investment in immovable property is permitted as per section 11(5)(x) of the Act, therefore, there was no necessity for the assessee to prove that it was done so for charitable purposes. Section 11(5) provides that accumulated amount u/s 11(2) has to be kept in specified moods of investment which include investment in immovable property. It does not provide such immovable property must be meant for any specific purposes. Therefore, there is nothing wrong committed by assessee so as to violate any provisions of law. The identical issue was considered and decided by ITAT Delhi ‘G’ Bench in the case of M/s The Scientific & Educational Advancement Society (supra) in which in para 13 it was held as under:

10 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust “13. We have heard the Ld. Representatives of both the parties and perused the material available one record. The Ld.CIT(A) recorded in the order that land at Dhokra was purchased by the assessee-society in the years 2001 and 2003. It was sold for a consideration of Rs. 9.11 crores in AY 2007-08 which resulted into profit/income at Rs. 8.44 crores which was claimed as exempt u/s 11(1A) of the I.T. Act, 1961, in AY 2007-08. The assessee-society also filed Form-10 along with return of income in which income to the extent of Rs. 7,22,67,210/- was set apart for utilization in future pursuant to the resolution dated 31.10.2007 wherein it was resolved that money received after sale of the above property may be reinvested for purchase of land in Gurgaon for Educational/Vocational purposes. The assessee-society, out of the sale consideration, made investment in immovable properties at Sadhrana, Aravalli, Gopalpura and Lohari. It is not in dispute that land at Village-Dhokra held for educational purposes which is also evident Lohari. It is not in dispute that land at Village-Dhokra held for educational purposes which is also evident from the orders passed under section 10(23C)(vi) by CCIT for A.Ys. 2002-2003 to 2004-2005 and for A.Y. 2005-2006. The Ld. CCIT would not have granted approval under this provision if such land had not been meant for educational purposes. Similarly, the assessment order for A.Y. 2006-2007 was passed under section 143(3)/148, but, proceedings under section 148 have been dropped vide Order dated 16.12.2010 by verifying that assessee-society is registered under section 12A of the I.T. Act. Similarly, assessment order for A.Y. 2007-2008 was passed under section 143(3) which was appealed before Ld. CIT(A) who has granted benefit under sections 11 and 12 of the I.T. Act to the assessee-society. The order of Ld. CIT(A) have been upheld by the Tribunal. The Ld. CIT(A) in the order for A.Y. 2007-2008 has specifically noticed that in respect of unutilized amounts, assessee-society has for the purpose of Section 11(1) set apart/accumulated profits of Rs.7,22,67,210/- filed Form No. 10 along with return of

11 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust income and also subsequently, made investment in purchase of land to the extent of Rs.8,71,42,582/-. Hence, the income to the extent of Rs.7.22 crores was treated to have been applied for charitable purposes. It is well settled law that exemption under section 11(1A) for capital gains for a charitable trust has been upheld in the case of CIT vs. Aurobindo Memorial Fund Society (2001) 247 ITR 93 (Mad.) and DIT (Exemptions) vs. DLF Qutab Enclave Complex Medical Charitable Trust (2001) 248 ITR 41 (Del.) (supra). If the land at Dhokra village was not meant for charitable purposes, the assessee-society would not have got benefit of Sections 11 and 12 for all these years. We, therefore, held that the land at Village- Dhokra which was sold in A.Y. 2007-2008 was meant for educational purposes only. Copy of Form No. 10 is filed at page-146 of the paper book and copy of the resolution of assessee- society is filed at page-147 of the paper book and contention of assessee-society has been accepted by Ld. CIT(A) in A.Y. 2007-2008 above and his view have been confirmed by the Tribunal. It is also not in dispute that assessee-society purchased lands at Sadhrana, Gopalpura and Lohari aggregating to Rs.7,20,56,368/-. Therefore, short fall of Rs.2,10,842/- is the income remaining to be applied to five years period allowed under section 11(2) which has not been expired in assessment year under appeal i.e., A.Y. 2008-2009. Therefore, this amount also cannot be brought to tax. Since the assessee- society purchased the lands for a sum of Rs.7.20 crores for educational purposes, therefore, there is nothing wrong in the explanation of assessee-society. The Ld. CIT(A) already found that land at Sadhama have been used for educational purposes. The remaining two properties at Gopalpura and Lohari cannot be treated as not for charitable purposes merely for the reasons that these have not been used. Non-user or passiveness of the lands purchased cannot be treated as user for non-charitable purposes. Section 11(5) provides that accumulated amount under section 11(2) has to be kept in specified modes of investment, which include investment in immovable

12 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust property. It does not provide that such immovable property must be meant for any specific purpose. ThereforeMhere is nothing wrong in explanation of assessee-society in purchasing the properties. In the case of Shri SUrat Panjarapole Trust vs. AC IT (supra), it was helcTthat non- use of the land or passiveness of land is not equal to its holding the land for non-charitable purposes. Thus, in our view, the assessee- society having purchased the abovementioned land, has used the accumulated amount for charitable and educational purposes. No evidence have been brought on record by the Revenue to prove that land at Gopalpura and Lohari were used for non-educational and non-charitable purposes. The Ld. CIT(A) made a reference to two properties at Aravalli which have got no bearing on the issue, as the said two properties according to the explanation of assessee-society, are not utilised for accumulated profits under section 11(2) of the I.T. Act because the accumulation have been made under section 11(2) in respect of three properties only i.e., Sadharna, Gopalpura and Lohari. Ld. CIT(A) wrongly applied Section 11(1B) of the I.T. Act as the assessee-society accumulated its income under section 11(2) and in that situation Section 11(1B) is not applicable. Accumulation was under section 11(2) and not under Explanation to sub-section 11(1) as is clear from the order passed by the Ld. CIT(A) and the Tribunal in AY 2007-2008 and it was clearly noticed that Form-10 have been filed in A.Y. 2007-2008 which is applicable for accumulation of income under section 11(2) only. The findings of the Ld. CIT(A) at Section 11(3) is applicable is also not correct because income accumulated under section 11(2) was applied for educational purposes. Considering the totality of the facts and circumstances of the case noted above in the light of finding of fact recorded by the Ld. CIT(A) and Tribunal in A.Y. 2007-2008, it is clear that no addition could be made against the assessee- society of such nature. The order of the Ld. CIT(A), therefore, cannot be sustained in law for enhancing the income of assessee-society of Rs.6,77,16,875/- and that too by invoking Section 11(1B) and Section 11(3) of the I.T.

13 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust Act, which are not applicable to the case of the assessee- society. The decisions relied upon by the Ld. D.R. are not applicable to the facts of the case. In view of the above discussion, we set aside the Order of the Ld. CIT(A) and delete the addition of Rs.6,77,16,875/-. Accordingly, appeal of the assessee-society is allowed.” 10. Following the above order of the Tribunal, we do not find any justification to interfere with the order of the Ld. CIT(A). We may also note that assessee has explained that out of the addition in question as made by AO, the amount of Rs. 2,25,50,000/- was in fact towards corpus donation. The assessee produced confirmation and bank account and relevant details to prove it was a corpus donation. Therefore, it could not be added to the income of the assessee. The Ld. CIT(A) correctly directed to delete the addition. The Revenue did not challenge the deletion of addition on account of corpus donation. Therefore, findings of fact recorded by Ld. CIT(A) are confirmed. If the corpus donation is excluded nothing would survive against the assessee so as to make any addition. In this view of the matter, there is no merit in Departmental appeal. Same is accordingly dismissed.

14 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust 2. That the Ld. CIT(A) has failed to appreciate that income has to be computed commercially even in cases covered u/s 11-13 of the Act and resultant loss, if any, arising due to surplus application of income, has to be computed and carried forward to next year to be set off therein accordingly. 3. The Ld. CIT(A) has also failed to appreciate that neither section 11 nor section 72 of the Income Tax Act, 1961 have a mutual rider for computation of income or for its carry forward and set off and hence the impugned order deserves to be quashed.” 12. The Ld. CIT(A) noted that this issue relates to carry forward of loss amounting to Rs. (-) 4,15,70,160/- to the AY 2012-13. The AO has not made any comment on the same. The assessee explained before the Ld. CIT(A) that return was filed on 28.09.2011 claiming a loss of the above amount to be carry forward in subsequent AY 2012-13. Copy of the return filing the receipt as well as computation of income was filed. The assessee in the return of income as declared loss of Rs. 2,30,09,033/- being surplus invested in charitable activities which was to be set off against the income of the subsequent year. Therefore, carry forward loss to be allowed in next year. The AO should have computed the income in commercial manner and if according to him any income resulted, AO should have set it off against the brought forward loss. The deficit/surplus which has been shown as a loss is actually the result of expenditure/investment of capital nature such as erecting the building so that charitable activities could be conducted thereon. The capital investment of this nature has consistently being held to be application for the purpose of

15 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust Income Tax Act. Hence, the same is treated as expenditure done towards charitable activities. The assessee relied upon several decisions in support of the same proposition i.e. CIT vs. St. George Forana Church 170 ITR 62, S.R.M. M.Ct.M. Tiruppani Trust vs. CIT 230 ITR 636 (SC)

16 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust this Court on 13.12.2017. However, the following question was also raised in the instant appeal which was not the subject matter of those appeals: “(a). Whether any excess expenditure incurred by the trust/charitable institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking section 11 of the Income Tax Act, 1961?” To this extent, Mr. K. Radhakrishnan, Learned Senior Counsel appearing on behalf of the applicant/appellant is correct. Therefore, we have heard him on the aforesaid question of law as well but did not find any merit therein.” 14.1 On the other hand, Ld. DR relied upon orders of the authorities below.

17 ITA No. 4961/Del/2015 & CO No. 185/Del/2016 AY 2011-12 Om Charitable Trust above. We, accordingly, set aside the orders of the CIT(A) and restore this issue to the file of the AO with direction to allow the claim of assessee after verifying the facts on record. The AO shall give reasonable sufficient opportunity of being heard to the assessee. In the result, Cross Objection of the assessee is allowed for statistical purposes.

Order pronounced in the open court. Sd/- Sd/-

(O.P. KANT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 01.01.2019 *Kavita Arora