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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF SEPTEMBER 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.415 OF 2011 c/w I.T.A.NO.407 OF 2011 I.T.A.NO.415/2011
BETWEEN:
THE DIRECTOR OF INCOME TAX
EXEMPTIONS, C.R. BUILDING
QUEENS ROAD, BANGALORE.
THE DY. DIRECTOR OF INCOME TAX
EXEMPTIONS, CIRCLE-17(1)
C.R. BUILDINGS, QUEENS ROAD
BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)
AND:
ISKCON CHARITIES 8TH MILE, KANAKAPURA ROAD DODDAKALLASANDRA BANGALORE. ... RESPONDENT (BY SMT. VANI H, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 13.05.2011 PASSED IN ITA NO.313/BANG/2009 FOR THE ASSESSMENT YEAR 2004-05, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT, BANGALORE IN ITA NO.313/BANG/2009 DATED 13-05-2011 AND CONFIRM THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX, EXEMPTION, CIRCLE-17(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.
I.T.A.NO.407/2011
BETWEEN:
THE DIRECTOR OF INCOME TAX
EXEMPTIONS, C.R. BUILDING
QUEENS ROAD, BANGALORE.
THE DY. DIRECTOR OF INCOME TAX
EXEMPTIONS, CIRCLE-17(1)
C.R. BUILDINGS, QUEENS ROAD
BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)
AND:
ISKCON CHARITIES 8TH MILE, KANAKAPURA ROAD DODDAKALLASANDRA BANGALORE. ... RESPONDENT (BY SMT. H. VANI, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 13.05.2011 PASSED IN ITA NO.314/BANG/2009 FOR THE ASSESSMENT YEAR 2005-06, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN.
(I) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT, BANGALORE IN ITA NO.314/BANG/2009 DATED 13-05-2011 AND CONFIRM THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX, EXEMPTION, CIRCLE-17(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.
THESE ITAs COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
COMMON JUDGMENT
These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) have been preferred by the revenue. The subject matter of I.T.A.No.415/2011 pertains to Assessment Year 2004-05, whereas, the subject matter of I.T.A.No.407/2011 pertains to the Assessment year 2005-06. Since, common substantial questions of law arise for consideration in these appeals, they were heard analogously and are being decided by this common judgment. The appeals were admitted by a bench of this Court vide order dated 17.09.2012 on the following substantial questions of law: (i) Whether the appellate authorities were correct in holding that the Assessing Officer had no locus standi to examine the
activities of the assessee trust in order to find out whether they were carrying charitable activity as the assessee had already been granted exemption under Section 11 of the Act?
(ii) Whether the Tribunal was correct in holding that the provisions for doubtful debts of Rs.1,98,818/- should be allowed as a expenditure even though the same is not written off and the same is continued as a provision in the assessee’s books?
(iii) whether in the facts and circumstances of the case, the re-opening of assessment under Section 147 of the Act is justified when the time limit for initiation of regular assessment under Section 143(3) of the Act has not expired?
For the facility of reference, facts from I.T.A.No.415/2011 are being referred to. Facts leading to filing of these appeals briefly stated are that the assessee is a Trust and has been incorporated with an object to provide educational, medical relief to the poor
and to provide services of general public utility. For the Assessment Year 2004-05, the assessee filed the return of income on 31.03.2006, by which total expenditure of Rs.23,46,79,122/- was shown over income. The assessee claimed a sum of Rs.17,04,250/- being a provision for bad and doubtful debts. The assessment was re-opened under Section 147 of the Act by issuance of notice under Section 148 of the Act dated 31.01.2007, which was served on the assessee on 02.02.2007. The assessee by a communication dated 28.02.2007, requested return of income filed on 31.03.2006 as response to notice under Section 148 of the Act. The Assessing Officer by an order dated 31.12.2007 inter alia held that free food, which was claimed to have been distributed to the weaker section of public in general by the assessee was not substantiated by producing any evidence. It was further held that the assessee distributed ‘Prasada’ to the visitors who belonged to middle class and the donations,
which were collected were not expended for the purposes of which the Trust was incorporated. It was further held that sum of Rs.13,26,099/- was paid to Jadu Works Private Limited, which was shown as a provision and the same cannot be treated as provision for bad and doubtful debts. Accordingly, the Assessing Officer completed the assessment and levied tax and penalty. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 19.01.2009 inter alia held that the activities carried on by the assessee were charitable in nature and bad debts were found to be allowable deduction as the party to whom the amount was advanced was not traceable. Thereupon the assessee approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order 13.05.2011 inter alia held that the Assessing Officer had no locus standi to examine the activities carried on by
the Trust while passing an order of assessment and once an order of exemption has been passed under Section 11 of the Act, the Assessing Officer is bound by the same. It was further held that provision for bad and doubtful debt is a necessary charge as per accounting principle and even if Section 11 of the Act is not applicable, the same has to be allowed. Accordingly, the Tribunal allowed the appeal preferred by the assessee. In the aforesaid factual background, these appeals have been filed.
Learned counsel for the revenue submitted that order of re-opening of the assessment was justified and additional substantial question of law cannot be examined at the instance of the assessee. It is argued that the Assessing Officer has examined the issue whether the assessee has incurred expenditure to achieve objects of the trust and therefore, the Tribunal erred in holding that the Assessing Officer had no locus to examine the activities of the Trust. It is also
submitted that burden was on the assessee to prove the fact that the expenses incurred were towards object of the trust and the assessee has failed to discharge the same. It is also pointed out that the Tribunal has proceeded on erroneous assumption that the assessee has questioned the objects of the Trust. It is also argued that the Tribunal ought to have appreciated that purpose of making an advance to a party has to be made in the course of business and then only the assessee is entitled to write off the same as expenditure as provision for bad and doubtful debt. In the instant case, the assessee has failed to demonstrate that the amount paid to Jadu Works Private Limited was made in course of business. In support of his submissions, reliance has been placed on decision of the Supreme Court in ’VIJAYA BANK VS. COMMISSIONER OF INCOME-TAX AND ANOTHER’, (2010) 323 ITR 166 (SC).
On the other hand, learned counsel for the
assesses submitted that prior to amendment of Section 153 by Finance Act, 2005 which came into force with effect from 01.04.2006, the aforesaid provision mandated that no order of assessment shall be made under Section 143 or Section 144 at any time after expiry of two years from the end of Assessment Year, in which income was first assessable. It is further submitted that the amendment incorporated by Finance Act, 2005 with effect from 01.04.2006 is not applicable to the fat situation of the case as the Assessment Years in question are 2004-05 and 2005-06. It is further submitted that the Finance Act, 2005 by which proviso has been inserted in Section 153 is prospective in nature. It is also argued that notice under Section 148(1) of the Act was issued on 31.01.2007 by taking recourse to Section 143(2) of the Act and without completing the assessment, notice under Section 148 cannot be issued. It is pointed out that the assessee had filed the return on 31.03.2006 and within 12 months,
notice under Section 143(2) could be issued i.e., upto 31.03.2007 and the assessment had to be completed under Section 143(3) of the Act before 31.12.2006 as required under Section 153 of the Act. However, notice was issued under Section 148 of the Act on 31.03.2007 without completion of the proceeding pending on the basis of the return, which was already filed and therefore, the notice issued under Section 148(1) on 31.03.2007 is per se without jurisdiction.
It is further submitted that assessee had given donation to another Trust having similar objects and in this regard, additional documents were filed before Commissioner of Income Tax (Appeals) and the remand report from the Assessing Officer was called for. However, in the remand report, Assessing Officer did not offer any comments to the additional documents produced by the assessee. It is also argued that even if benefit is given to a section of the society, the object of charity is fulfilled and depreciation has to be allowed to
the assessee viz., a Charitable Trust also, as expenditure on acquisition of assets, which has to be computed in commercial manner even though, the Trust may not be carrying on any business. In this regard, our attention has also been invited to the Circular issued by Central Board of Direct Taxes dated 19.06.1968. In support of aforesaid submissions, reliance has been placed on the decisions in ‘TRUSTEES OF H.E.H. THE NIZAM’S SUPPLEMENTAL FAMILY TRUST VS. COMMISSIONER OF INCOME-TAX’, (2000) 3 SCC 501, ‘ COMMISSIONER OF INCOME-TAX VS. J.K.CHARITABLE TRUST’, (1992) 196 ITR 31 (ALL), ‘ASSISTANT COMMISSIONER OF INCOME-TAX VS. THANTHI TRUST’, (2001) 247 ITR 785 (SC), ‘AHMEDABAD RANA CASTE ASSOCIATION VS. COMMISSIONER OF INCOME-TAX, GUJARAT’, (1971) 82 ITR 704 (SC), ‘COMMISSIONER OF INCOME TAX-III, PUNE VS. RAJASTHANI AND GUJARATI CHARITABLE FOUNDATION, POONA’,
(2018) 7 SCC 810, ‘CIRCULAR NO.5-P(LXX-6) OF 1968, DATED 19.06.1968, ‘COMMISSIONER OF INCOME-TAX, KARNATAKA-I VS. SOCIETY OF THE SISTERS OF ST.ANNE’, (1984) 146 ITR 28 (KAR), and ‘K.P.VARGHESE VS. INCOME-TAX OFFICER, ERNAKULAM AND ANOTHER’, (1981) 131 ITR 597 (SC).
We have considered the submissions made by learned counsel for the parties and have perused the record. Admittedly, the assessee is a charitable institution registered under Section 12A of the Act. The Supreme Court in ‘COMMISSIONER OF INCOME TAX VS. ANDHRA CHAMBERS OF COMMERCE’, (1965) 55 ITR 722 held that an object beneficial to a section of public is an object of general public utility. It has further been held that in order to serve a charitable purpose, it is not necessary that the object should be to the benefit of whole of mankind or all the persons in particular country or state and it is sufficient, if the
intention is to benefit a section of the public as distinguished from a specified individual is present. The aforesaid view was reiterated with approval in AHMEDABAD RANA CASTE ASSOCIATION supra. On the touchstone of aforesaid well settled legal position, even if the order of the Assessing Officer is seen, it can be deciphered from para 7 of the order that ‘prasadam’ has been distributed to the visitors. The Commissioner of Income Tax (Appeals) in paragraph 5.2 has held that the Assessing Officer has ignored the submission made by the assessee that the assessee provides free meals to the general public on every Sunday morning in free distribution hall and therefore, the finding recorded by the Assessing Officer that assessee has not carried any charitable activity is perverse. The aforesaid finding has also been affirmed by the Income Tax Appellate Tribunal by holding that all the pilgrims who visit ISKON Temple are served with ‘Prasadam’ without probing into their caste, creed, religion and nationality. Thus, the
expenditure has definitely been incurred on a section of the society and therefore, the same would tantamount to a charitable purpose. The aforesaid concurrent findings of fact have been recorded by the Commissioner of Income Tax (Appeals) as well as Income Tax Appellate Tribunal on the basis of meticulous appreciation of evidence on record. No perversity could be pointed out in the aforesaid concurrent findings of fact. Therefore, in the fact situation of the case, the first substantial question of law in fact, does not arise for consideration as the assessee was carrying on charitable activity.
It is well settled in law that income of the trust has to be computed in a normal commercial manner and only the real income has to be taken into account. The loss of sale of investment is not allowable in computing the income for the purposes of Section 11 of the Act. [See: ‘COMMISSIONER OF INCOME TAX- III vs. RAJASTHANI AND GUJARATI CHARITABLE
FOUNDATION, POONA supra]. In the context of the aforesaid well settled legal principle, the second substantial question of law may be examined. It is pertinent to note that the Assessing Officer during the course of assessment did not ask for any document from the assessee for making the advance. The assessee before the Commissioner of Income Tax (Appeals) had filed an application under Rule 46A of the Income Tax Rules, 1962 on 25.02.2008. The aforesaid paper was forwarded to the Assessing Officer. The Assessing Officer submitted a remand report, however, the Assessing Officer did not offer any comment with regard to additional evidence adduced by the assessee before the Commissioner of Income Tax (Appeals). The purchase of immovable properties for the purposes of objects of the Trust is the application of income and even if the assessee has earned income from selling the land for achieving objects of the Trust, the same would be allowable under Section 11 of the Act. The Tribunal
has also held that as per prevalent accounting principles which clearly lay down that loss on sale of investment should be taken into account while determining the commercial income, the assessee is entitled to expenditure in respect of provision for doubtful debt. Accordingly, the aforesaid substantial question of law is answered against the revenue and in favour of assessee.
The concurrent findings of fact on both the substantial questions of law have been recorded by the Commissioner of Income Tax (Appeals) as well as Income Tax Appellate Tribunal on the basis of meticulous appreciation of evidence on record. No perversity could be pointed out in the aforesaid concurrent findings of fact. It is well settled in law that until and unless perversity is pointed out in the concurrent findings of fact, this court in exercise of powers under Section 260A of the Act cannot interfere with the concurrent findings of fact.
In view of our answer to the common questions of law involved in both the appeals, it is not necessary to answer the additional substantial question of law. In the result, we do not find any merit in these appeals. The same fail and are hereby dismissed
Sd/- JUDGE
Sd/- JUDGE ss