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Income Tax Appellate Tribunal, DELHI BENCH “B”, NEW DELHI
Before: SHRI L. P. SAHU & SMT. BEENA A. PILLAI
ORDER
PER BEENA A. PILLAI, JM:
The present appeal has been preferred by the revenue 1. against order dated 05.02.2013 passed by Ld. CIT (A) 21 for assessment year 2007-08 on the following grounds of appeal:
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing exemption to the assessee ignoring the fact that there was continued violation of the provisions of section 11(5) read with section 13(1)(d) of the Act in Asstt. Year 2007-08.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in concluding that the assessee was restrained from disposing off the said investment as the restraining order of the Hon'ble Delhi High Court was never established to be applied to the assessee.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the amount of Rs.3,33,57,0007- paid by the assessee as advance to M/s Delhi Guest House Pvt. Ltd. (DGHPL) was for charitable purposes, ignoring the fact that the expenditure for conversion of property owned by DGHPL was the responsibility of DGHPL and not of the assessee.
4. The appellant craves leave to add, to alter or amend any ground of appeal
raised above at the time of hearing.
2. The brief facts of the case are as under:
Assessee is a charitable trust set up on 28.07.2004 and was registered under section 12A of the Act. For the year under consideration return was filed by assessee, declaring nil income after claiming exemption under section 11 of the Act. Thereafter the return was processed under section 143(1) on 19.03.2009. Subsequently, the assessment was reopened under section 147, and notice under section 148 was issued to the assessee on 30.03.2011. Ld. AO at the time of issuance of the notice under section 148 was of the opinion that the investment in shares of the trust property is prohibited under section 13 (1) (d) (ii a) of the Act and that the assessee had failed to make necessary compliance in regard to section 11(5) and continued to hold shares held in a private limited company being M/s Delhi Guesthouse Private Limited. Ld. AO after denying the exemption under section 11 for the alleged violation of section 13 (1) (d) (iia) of the Act made addition of Rs.19,21,84,249/-to the corpus donations.
Aggrieved by the assessment order, assessee preferred an appeal before the Ld. CIT (A) who allowed the contentions of the assessee and deleted the additions made by the assessing officer. Ld. CIT (A) also held that there was no case of denying exemption under section 11 and 12 as the assessee was able to demonstrate that that there was no violation committed by it.
Aggrieved by the order of Ld. CIT (A) the revenue is in appeal before us now. As all the grounds are interlinked with each other they are taken up together for the sake of convenience.
Ground No. 1 and 2
Ld. DR submitted that assessee has shown investments of shares in the Delhi Guesthouse Private Limited at Rs.14,99,800/- in balance sheet as on 31.03.2007. She submitted that investment of trust funds in shares of private limited companies are not an approved mode or form of investment or depositing money as per section 11(5) of the Act. Ld. DR took us through the facts of the case and submitted that trust deed was registered on 28.07.2004, by virtue of which assessee had acquired 1,33,880/- equity shares of Rs.10/- each comprising about 53.36% of the total paid up share capital of Delhi Guesthouse Pvt. Ltd. She further submitted that besides this Mr. Analjeet, being a trustee donated 15,600/- shares to the corpus fund. It has been submitted that total investment held by trust in the Delhi Guesthouse Pvt. Ltd., was 1,49,480/- shares of Rs.10 each aggregating to Rs.14,94,800/-.
Ld. DR took us through the provisions of section 11 and 13. She submitted that as per the provisions contained in Proviso to section 13 (1)(d), assessee should have converted the investments in private limited company into any of the forms or modes specified u/s Section 11(5) on or before expiry of one year from the end of the previous year in which assessee had acquired such investments. She submitted that assessee acquired the investments in the private limited company in the assessment year 2004-05 and therefore the investment should have been converted as per the mandate of section 11 (5), on or before 31st of March 2006. However, said shares were converted in the year 2012, and assessing officer was right in denying the exemption claimed by the assessee under section 11 and 12 of the Act.
Ground No. 3
She further highlighted that in the balance sheet assessee as on 31.03.2007 had shown under the head other loans and advances, a sum of Rs.5,76,57,000/-, which included a sum of Rs.3,33,57,000/- as advanced to Delhi Guesthouse Pvt. Ltd., a company in which assessee was holding a stake of more than 53.36% by virtue of the trust deed, and the balance sum of Rs. 2,39,00,000/- as settlement amount paid to a tenant in respect of immovable property. Ld. DR at this juncture admitted that the revenue has not raised any ground before this tribunal in respect of the advances made to the tenant in respect of immovable property.
She submitted that the sum advanced to Delhi Guesthouse Private Ltd., amounts to application of corpus towards non-charitable purposes, and therefore cannot be held eligible for the benefit of exemption under section 11 and 12 of the Act. She thus submitted that assessee cannot claim benefit under section 12 which exempts corpus donations from purview of taxation.
On the contrary, Ld. Counsel for assessee submitted that issue of violation of section 13 (1) (d) (iia) read with section 11(5) would arise only when there is acquisition of such shares by the assessee immediately in the F.Y 2004-05. It has been submitted that assessee was restrained from disposing of shares of Delhi Guesthouse Pvt. Ltd., within the stipulated time, as there arose a dispute regarding partition of assets amongst the family members of Dr. Bhai Mohan Singh which included the shareholding in Delhi Guesthouse Pvt. Ltd., and a suit for declaration and permanent injunction was filed by one of the family members against the rest of the family members and assessee. Ld. Counsel for assessee submitted that Hon’ble Delhi High Court passed an interim order on 29.09.2004 wherein it was noted that 53.56% of the shares of Delhi Guesthouse Pvt. Ltd., held by Dr. Bhai Mohan Singh had already been transferred to the assessee on 29th of July 2004. The court restrained assessee from any further alley nation of such shares until the next date of hearing. Ld. Counsel for assessee drew our attention to the order passed the Hon’ble Delhi High Court which is placed at pages 39 to 41 of the paper book. Further, Ld. Counsel for assessee submitted that another suit was filed on 31.08.2006 by Bhai Manjit Singh against other legal hairs as well as Delhi Guesthouse Private Limited wherein Hon’ble Delhi High Court wide order dated 4th December 2009, directed parties thereto to maintain status quo, regards the title and possession of the suit property until further orders. He thus submitted that that as a result of these suits pending before the Hon’ble Delhi High Court and the restraining order passed therein, the assessee was unable to comply with mandate required under section 13 (1) (d) read with section 11 (5) of the Act within the limitation period.
As regards the amount of Rs. 3.33 crores, it has been submitted by Ld. Counsel that during the relevant previous year, there was a scheme of Land and Development Office, Ministry of Urban Development and poverty alleviation, Government of Indi,a that if any lessee wanted to convert property from leasehold to freehold, the same could be done by paying conversion charges and damages. He submitted that in view of the aforesaid scheme Delhi Guesthouse Private Ltd., decided to pay charges aggregating to Rs. 5,22,48,022/- to convert the property from leasehold to freehold and the share of the assessee in respect of the conversion fee amounted to Rs. 3.33 crores. Ld. Counsel submitted that the said amount was advanced to assessee by one of the executor of the estate of Dr. Bhai Mohan Singh, temporarily which was paid by the assessee towards conversion charges. He vehemently submitted that no part of the corpus or trust property was applied by the assessee for non charitable purposes by making such aforesaid payment. The assessee received the funds from the executor of estate of Dr Bhai Mohan Singh, which was in turn used to discharge the obligation towards the payment of conversion charges to Delhi Guesthouse Pvt. Ltd., It has been submitted by Ld. Counsel that the aforesaid payment was in the interest of assessee as it was a major shareholder in Delhi Guesthouse Pvt. Ltd., and such conversion would enhance the value of the property held by Delhi Guesthouse Pvt. Ltd., which in turn could enhance the value of shares held by assessee in Delhi Guesthouse Pvt. Ltd., He thus submitted that assessee should be allowed exemption of such amount as the conversion of the property would give an endearing benefit to the assessee to perform its objects.
We have perused the records placed before us in the light of the arguments advanced by both the sides and the judgments relied upon by the.
We find that assessee has received shares of Delhi Guesthouse Pvt. Ltd., from the settler of the trust and could not be disposed off immediately due to the conflict that arose amongst the legal hairs of the settler in respect of the partition of the assets which included the impugned shares of Delhi Guesthouse Private Limited. The legal heirs approached Hon’ble Delhi High Court by way of a civil suit in which Hon’ble court had passed an order restraining the parties from de-alienating from any of the assets held by them. In our considered opinion, under such circumstances assessee could not be considered to be a legal owner of the shares during the period F.Y 2000-04 As the word used in the section 13(1)(d)(iii) is “held”, it implies ownership of the assessee to the exclusion of all others which is not the case here. Ld. CIT (A) has considered the issue at length and has held as under:
5.1 I am in full agreement with the contention of the Ld. AR of the appellant as mentioned above. Besides this, the appellant has demonstrated that there is no violation of the provisions of the section because by virtue of interim order of Hon'ble Delhi High Court dated 29.9.2004 which is available at page No. 41 to page No. 43 of the Paper Book, as per which Hon'ble Delhi High Court has held that any further alienation of shares shall not taken place until the next date of hearing. Finally vide order dated 27-4-2012 Hon'ble Delhi High Court cancelled all the interim orders including the order putting restraint on disposal of shares of DGHPL. Pursuant to aforesaid order the appellant has sold its entire shareholding in DGHPL on 16-7-2012 to BAS Enterprises Pvt. Ltd. This fact has been demonstrated by the Id. AR of the appellant during the course of the appellate proceedings and all the materials are available in the Paper Book, which were forwarded to AO for submitting the Remand Report, in compliance to which AO has submitted one Remand Report dated 8.10.2012, but has not offered any comment on this aspect. The AO has merely relied on the finding given in the assessment order. In this regard, it is pertinent to mention that remand proceedings is an opportunity to AO to make comment on the submission of the appellant before the Appellate Authority as well as on the documents furnished before the Appellate Authority during the course of the appellate proceedings. But, AO has made a report in a very mechanical manner. By virtue of the restraint order of the Hon'ble Delhi High Court, it cannot be said that appellant was holding shares for more than the period and has violated the provisions of Sec. 11(5) read with Sec. 13(l)(d) of the IT Act, as per which he was supposed to dispose off the shares within one year or by the date 31.3.2006, as has been observed at page 4 of the order. In the instant case appellant was prevented to dispose off the shares by virtue of order of Hon'ble Delhi High Court as per which there was restraint so as to dispose off the shares. As soon as Hon'ble Delhi High Court has lifted the restraint by order dated 27.4.2012, appellant has sold its entire shareholding as on 16.7.2012. So, after considering these documents, this is the finding of the fact that there is no violation as per provisions of Sec. 11(5) read with Sec. 13(l)(d) of the IT Act and this is a finding of the fact that appellant was prevented by the interim order of Hon'ble Delhi High Court, as discussed above. In this regard after considering the submission of the Ld. AR of the appellant and after perusing the documents submitted, as discussed above, I am of the considered opinion that there is no violation of section 13(l)(d). Furthermore, there is no case of denying exemption u/s. 11 and 12 of the IT Act because appellant has been able to demonstrate that there is no violation committed by it.
In a considered view, the assessee was not physically in rightful possession of the shares so as to enable it to comply with the provisions of section 11 (5) of the Act. The assessee was not in a position to dispose of these shares due to lis pendence before Hon’ble Delhi High Court though the shares were bequeathed to assessee by way of a Will in the F. Y. 2004-05. Under such circumstances we do not find any necessity to interfere with the findings of the Ld. CIT (A) and the same is upheld.
In the result ground No. 1 and 2 raised by the revenue stands dismissed.
In respect of Ground Nos. 3, Ld. Counsel for the assessee brought to our notice the correspondences between Delhi guesthouse Pvt. Ltd., and executor of the estate of Dr Bhai Mohan Singh which is placed at pages 97 to 103 of the paper book. It has been submitted by the Ld. Counsel assessee that the payment has been made for the purposes of conversion from leasehold to freehold of the property, which has been made by way of account payee cheques dated 29.09.2006. The Ld. CIT (A) has considered the issue at length and has held as under:
6.1 In view of the reliance on the above mentioned judgment of the Hon'ble Delhi High Court, documents submitted during the course of appellate proceedings, as discussed above, re being admitted as these documents are found to be very necessary so as to adjudicate the matter. After admitting the additional evidence, it is found that amount of Rs.2,39,00,000/- was paid to the tenant of property at Chandigarh, which was provided to appellant trust by Dr. Bhai Mohan Singh, through a registered 'WILL' dated 24.8.2005 and various documents are available at page No.72 to 95 of the Paper Book. So, finding of the AO that payment of Rs.2,39,00,0007- is for business consideration and for non-charitable purpose, is found to be totally misconceived. Accordingly, payment of Rs.3,33,57,0007- in form of advance to DGHPL, the Id. AR of the appellant has submitted copy of correspondences which are available at page no. 65 to 71 of the Paper Book. In this regard, it is found that the payment has been for conversion from lease hold to free hold of the property and payment has been made as per details available at page no 71, wherein, it has been mentioned that it is on behalf of Bhai Mohan Singh Foundation towards full and final settlement of their share of conversion charges of the property. The payment has been made vide three cheques dated 29.9.2006, totaling Rs.3,33,57,000/-. I have gone through the correspondence in this regard, which are the clinching evidence so as to prove that for conversion of property from lease hold to free hold, the appellant trust being a shareholder, has contributed towards share of such charges to the tune of Rs.3,33,57,000/-. It is further noticed that Executor of estate Dr. Bhai Mohan Singh granted temporary loan of Rs. 3,33,57,000/- to the appellant trust, which was paid by the appellant trust towards conversion charges which cannot be said as payment has been made for non-charitable activities and for commercial consideration. In view of the above discussion, I am fully convinced that appellant deserves relief on this account and ground No. 4, 4.1, 4.2, 5 and 5.1 deserve to be allowed.
Under such circumstances we do not find any necessity to interfere with the findings of the Ld. CIT (A) and the same is upheld.
In the result ground No. 3 raised by the revenue stands dismissed. Accordingly appeal filed by the revenue stands dismissed. Order pronounced in the open court on 11th January, 2017.