DCIT, CHENNAI vs. M/S. WILLINGDON CHARITABLE TRUST, CHENNAI

All the appeals of the Revenue and assessee are directed against the common order passed by the Commissioner of Income Tax (Appeals) -17, Chennai, dated 05.08.2016 and pertain to assessment years 2006-07, 2009-10, 2010-11, 2012-13 and 2013- 14. Since common issues arise for consideration in all these appeals, we heard these appeals together and disposing of the same by this common order.

Let’s first take the assessee’s appeal for assessment year 2006-07 in I.T.A. No.3021/Chny/2016.

The only issue raised by the assessee is reopening of assessment under Section 147 of the Income-tax Act, 1961 (in short 'the Act').

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that for the assessment year 2006-07, the assessment was completed under Section 143(3) of the Act after examining all the material filed by the assessee. According to the Ld. counsel, the Assessing Officer subsequently found that the assessee set off excess application of income brought forward to the extent of ₹1,03,58,210/- from the assessment year 2005-06. According to the Ld. counsel, the required material was already available before the Assessing Officer and the Assessing Officer allowed the claim of the assessee on the basis of the material. According to the Ld. counsel, no fresh material came into the possession of the Assessing Officer, therefore, reopening of assessment in the absence of any new material is not justified.

On the contrary, Smt. Ruby George, the Ld. Departmental Representative, submitted that the assessee made a wrong claim of set off before the Assessing Officer. Therefore, according to the Ld. D.R., the Assessing Officer is justified in reopening the assessment after recording his reasons. Since the Assessing Officer has not considered the claim of set off which was claimed by the assessee, according to the Ld. D.R., the Assessing Officer has rightly reopened the assessment for assessing the income which was escaped from taxation in view of wrong claim of set off.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the original assessment was completed under Section 143(3) of the Act. Subsequently, the Assessing Officer found that the assessee had set off excess application brought forward to the extent of ₹1,03,58,210/- from the assessment year 2005-06. This claim of set off by the assessee was very much available before the Assessing Officer when the assessment was made under Section 143(3) of the Act. Admittedly, no fresh material came into the knowledge / notice of the Assessing Officer.

The question arises for consideration is when the assessee had furnished all the required details and the Assessing Officer completed the assessment under Section 143(3) of the Act, can the Assessing Officer reopen the assessment in the absence of any new material or information into his possession? An identical question was considered by the Madras High Court in TANMAC India v. DCIT in Tax Case (Appeal) No.1426 of 2007 dated 19.12.2016. The Madras High Court found that when the entire material was available before the Assessing Officer, in the absence of any new material, the Assessing Officer cannot reopen the assessment under Section 147 of the Act. The Madras High Court further found that Section 147 of the Act is not to extend the period of limitation provided for completing the assessment. Unless and until a new material was found on record by the Assessing Officer, the completed assessment cannot be reopened on the basis of very same material available on record. In view of this judgment of Madras High Court, this Tribunal is of the considered opinion that reopening of assessment for the assessment year 2006-07 is not justified. Therefore, the consequential order passed by the Assessing Officer cannot stand. Hence, the orders of both the authorities below are set aside and the addition made after reopening of assessment is deleted.

In the result, the assessee’s appeal for assessment year 2006-07 is allowed.

The Revenue also filed an appeal for the assessment year 2006-07 in I.T.A. No. 2984/Chny/2016. Since the reopening of assessment is held to be not valid in the assessee’s appeal, this Tribunal do not find any reason to entertain the Revenue’s appeal.

Now coming to assessment year 2009-10, the assessee alone filed appeal in I.T.A. No.3022/Chny/2016.

The only ground raised by the assessee is with regard to addition of accumulated income of ₹1,23,41,310/-.

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that this Tribunal for the assessment year 2009-10 in dated 15.05.2015 found that the matter needs to be examined afresh. According to the Ld. counsel, the Tribunal further found that the issue of application of accumulated income for the assessment year 2004-05 upto 31.03.2008 is to be examined while framing the fresh assessment. In view of above, the CIT(Appeals) found that the issue raised by the assessee is premature and infructuous. According to the Ld. counsel, when the assessee has raised a specific issue, the CIT(Appeals) is not justified in rejecting the same as premature and infructuous.

On the contrary, Smt. Ruby George, the Ld. Departmental Representative, submitted that this Tribunal in the assessee's own case for assessment year 2009-10 in found that the matter needs to be re-examined. Accordingly, it is pending before the Assessing Officer. Therefore, according to the Ld. D.R., remitting this issue once again to the Assessing Officer is a premature one and the CIT(Appeals) has rightly rejected the ground raised by the assessee.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that in the first round of litigation, this Tribunal in I.T.A.

In the result, the assessee’s appeal for assessment year 2009-10 is dismissed.

Now coming to assessment year 2010-11, the assessee has filed appeal in against the original assessment order.

The only ground raised by the assessee is with regard to depreciation of certain assets the cost of which was allowed as application of income under Section 11 of the Act.

We heard Shri S. Sridhar, the Ld.counsel for the assessee and Smt. Ruby George, the Ld. Departmental Representative. The Apex Court in the case of CIT v. Rajasthan And Gujarati Charitable Foundation Poona in Civil Appeal No.7186 of 2014 found that the assessee is eligible for depreciation even though the cost of the asset was allowed as application of income under Section 11 of the Act. In view of the above, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to allow depreciation.

In the result, the assessee’s appeal for assessment year 2010-11 stands allowed.

Now coming to Revenue’s appeal for assessment year 2010-

The only ground raised by the Revenue is with regard to carry forward the excess application of ₹6,94,54,741/- to the subsequent years.

Smt. Ruby George, the Ld. Departmental Representative, submitted that the CIT(Appeals), by following the judgment of Madras High Court in CIT v. Matriseva Trust (2000) 242 ITR 20, allowed the claim of the assessee by holding that the deficiency in one year can be set off against the excess application of subsequent year. According to the Ld. D.R., the excess application of income, in a particular year cannot be adjusted with deficiency in another year.

We heard Shri S. Sridhar, the Ld.counsel for the assessee also. The CIT(Appeals) by placing reliance on the judgment of Madras High Court in Matriseva Trust (supra) found that the assessee is eligible for carry forward the excess application of income against the shortfall in the succeeding year. We have carefully gone through the judgment of Madras High Court in Matriseva Trust (supra). The Madras High Court by placing its reliance on the judgment of Rajasthan High Court in CIT v.

In the result, the Revenue’s appeal for assessment year 2010-11 is dismissed.

Both the assessee and Revenue filed appeals for the assessment year 2010-11 after reopening of assessment under Section 147 of the Act.

Let’s first take Revenue’s appeal in I.T.A.

The first ground of appeal is with regard to activity of the assessee.

Smt. Ruby George, the Ld. Departmental Representative, submitted that the assessee is running two Kalyana Mandapams in the name of Rajah Muthiah Hall and Rani Meyammai Hall.

On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee is registered under Section 12AA of the Act as charitable institution. According to the Ld. counsel, the assessee can have business under trust. The income of the business has to be applied only for charitable activity.

We have considered the rival submissions on either side and perused the relevant material available on record. We have also carefully gone through the provisions of Section 11 of the Act. It is not in dispute that Rajah Muthiah Hall and Rani Meyammai Hall were held under trust by the assessee-charitable institution. The income of the trust was applied for running women’s hostels for working women and girl students mostly studying in Ethiraj Women’s College. The CIT(Appeals) referred the judgment of Madras High Court in DIT v. Willington Charitable Trust (2011) 330 ITR 24. The High Court found that when the assessee established that the income derived from business was utilised towards fulfilment of object of the trust, then the assessee is entitled for exemption under Section 11 of the Act. We have carefully gone through the provisions of Section 11(4) and 11(4A) of the Act. It is not the case of the Revenue that the income from two Kalyana Mandapams is not used for charitable activity. The CIT(Appeals) in the impugned order has held as follows:-

As rightly found by the CIT(Appeals), the income generated is incidental to the charitable activity. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

The next ground of appeal is with regard to addition of ₹46.05 Crores towards construction of building known as “Sigappi Aachi building”.

Smt. Ruby George, the Ld. Departmental Representative, submitted that the assessee spent ₹46.05 Crores towards construction of 10-storeyed building known as “Sigappi Aachi building” over a period of five years from financial year 2006-07 to 2010-11. Subsequently, it was let out to corporate companies.

On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the object of the trust is education and medical relief besides other charitable activities as described in the trust deed. The conclusion of the Assessing Officer, according to the Ld. counsel, that the assessee is predominantly involved in advancement of general public utility is not supported by any material evidence. According to the Ld. counsel, the assessee was registered as charitable institution which continues to carry on educational and medical relief to poor besides other activities as described in the trust deed. According to the Ld. counsel, in the assessment year 2004-05, for the purpose of accumulated income, the assessee filed Form No.10B showing the purpose for which the income was accumulated. According to the Ld. counsel, the assessee clearly disclosed in Form 10B that the surplus income was accumulated for the purpose of constructing building for carrying out charitable activities. Therefore, according to the Ld. counsel, proviso to Section 2(15) of the Act has no application in the case of the assessee. According to the Ld. counsel, letting out the building to corporate companies and running of Kalyana Mandapams, auditorium, hostel for students and working women are incidental to the main object of the assessee-trust. Therefore, according to the Ld. counsel, proviso to Section 2(15) of the Act has no application at all. Referring to proviso to Section 2(15) of the Act and CBDT circular, the Ld.counsel submitted that proviso to Section 2(15) of the Act will not be applicable to educational and medical trust. It is applicable only in respect of the trusts which are rendering service in trade, commerce or business. In this case, the main object of the trust is not business, trade or commerce or rendering any service to trade. Therefore, according to the Ld. counsel, the amendment made by the Parliament by inserting the proviso to Section 2(15) of the Act is not applicable at all.

Shri S. Sridhar, the Ld.counsel for the assessee, further submitted that the assessee-trust was established in the year 1924.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee invested its funds in construction of building known as “Sigappi Aachi building” and let out the same to corporate companies. The Assessing Officer holds that construction of building known as “Sigappi Aachi building” and letting out the same to various corporate entities amounts to engaging in business activity. This Tribunal is of the considered opinion that when the assessee constructed a building and let out the same to corporate entities and received rental income and the same was applied for object of the trust, it cannot be said that the assessee is carrying on business activity.

Charitable activity cannot be carried on without money. In other words, to carry out the object of the trust, the assessee needs money and income. Therefore, it is for the assessee to generate income from the property held under trust. When the assessee exploited the land by putting up a construction and letting out the same with an intention to generate income for the purpose of carrying on the object of the trust, this Tribunal is of the considered opinion that the construction of such building and letting out the same cannot be considered to be a commercial activity. Therefore, the CIT(Appeals) has rightly found that the assessee is eligible for exemption under Section 11 of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. A similar view was taken by this Tribunal in the case of DDIT(E)-II v. Sri Narayana Guruviah Chetty Estate in dated 09.01.2015.

In the result, Revenue’s appeal in is dismissed.

Now coming to the assessee’s appeal for assessment year 2010-11 in after reopening of assessment, the first issue arises for consideration is validity of reopening of assessment.

We heard Shri S. Sridhar, the Ld.counsel for the assessee and Smt. Ruby George, the Ld. Departmental Representative. From the orders of the lower authorities it appears that an amount of ₹1,25,00,000/- accumulated under Section 11(2) was added back under Section 11(3) of the Act to the total income on the ground that the assessee had not applied for the purpose for which it was accumulated. While passing revisional order under Section 263 of the Act for the assessment year 2005-06 pursuant to the order of the High Court, according to the Ld. counsel for the assessee, the accumulated income for assessment year 2004-05 was deducted from the application of income made by the trust for assessment year 2005-06 and hence the very same accumulated income cannot be subject matter of taxation.

On the contrary, Smt. Ruby George, the Ld. Departmental Representative, submitted that though the assessee claimed that the accumulated income was used for charitable purpose, the Assessing Officer found that the application was made out of the donation, therefore, the assessment was rightly reopened.

We have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer found that the assessee applied the income out of donation. But the information regarding donation was not available before the Assessing Officer. Moreover, consequent to the order of the High Court, the Principal Commissioner revised the order of the Assessing Officer. In those circumstances, this Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority for reopening the assessment under Section 147 of the Act.

In the result, the assessee’s appeal in I.T.A.

Now coming to Revenue’s appeals for assessment years 2012-13 and 2013-14 wherein common issues arise for consideration.

The first issue arises for consideration is regarding the activity of the assessee.

While considering the Revenue’s appeal for assessment year 2010-11, this Tribunal found that the activity of the trust is education and medical relief besides other activities. The assessee was also granted registration under Section 12AA of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

The next common issue is with regard to construction of building known as “Sigappi Aachi building” and the expenditure incurred thereon. The Revenue has also raised an issue with regard to income from Kalyana Mandapams. This issue was also elaborately considered in the earlier part of this order. This Tribunal found that it is incidental to the main activity of the assessee. For the same reason, the order of the CIT(Appeals) is confirmed.

The next issue raised by the Revenue is with regard to exemption claimed by the assessee under Section 80G of the Act.

We heard Smt. Ruby George, the Ld. Departmental Representative and Shri S. Sridhar, the Ld.counsel for the assessee. From the material available on record it appears that the assessee made donation in respect of the trust which was granted approval under Section 80G of the Act, from and out of current profit. When the assessee has advanced money to the trust which has similar object and approved under Section 80G of the Act, from and out of current profit, this Tribunal is of the considered opinion that the assessee is eligible for exemption under Section 11 of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, both the appeals of the Revenue are dismissed.

Now coming to the assessee’s appeals for assessment years 2012-13 and 2013-14 in & 3026/Chny/2016, the only common issue arises for consideration in both the appeals is with regard to claim of depreciation in respect of the asset on which the cost was allowed as application of income under Section 11 of the Act.

We heard Shri S. Sridhar, the Ld.counsel for the assessee and Smt. Ruby George, the Ld. Departmental Representative. In view of the judgment of Apex Court in CIT v. Rajasthan And Gujarati Charitable Foundation Poona in Civil Appeal No.7186 of 2014, the assessee is eligible for depreciation even on the asset on which the cost was allowed as application of income under Section 11 of the Act. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to allow the depreciation.

In the result, both the appeals of assessee stand allowed.

To sum up the result, The assessee’s appeals in 3024, 3025 and 3026/Chny/2016 are allowed and all other appeals of the assessee are dismissed, and all the appeals of the Revenue are dismissed.