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Income Tax Appellate Tribunal, “B”, BENCH
Before: SHRI N. V. VASUDEVAN, JM &DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee, pertaining to Assessment Year 2002-03, is directed against an order passed by the CIT(Appeals)-XIV, Kolkata, in Appeal No.762/CIT(A)-XIV/2011-12, dated 18.03.2014, which in turn arises out of an order passed by the Assessing Officer u/s 254/143(3) of the Income Tax Act, 1961(hereinafter referred to as the ‘Act’) dated 14.11.2011.
The grounds of appeal raised by the assessee reads as under: “1.For that the order of assessment is void ab initio, bad in law and is neither tenable in law nor in facts. 2.For that the assessment order is opposed to requirement in law and without jurisdiction. 3.For that the assessment is made in arbitrary, violence of natural justice, without application of mind and not tenable in law. 4.For that the order of authorities below is grossly unjustified in disallowing the claim of Rs.54,83,854/- u/s 11(2) of the Act. The contention of the assessing officer is neither tenable in law nor in facts.
Shree Shree Mohanananda Brahmachari Medical Welfare Trust Assessment Year: 2002-03 5.For that the assessing officer was grossly unjustified in disallowing the claim u/s 11(1)(a) of the Act. opposed to requirement of law.The contention of the assessing officer is neither tenable in law nor in facts. 6.For that the appellant craves leave to amend, alter, add, delete or substitute any other grounds of appeal before or at the time of hearing of the appeal.” 3.However, in this appeal, the assessee has raised a multiple grounds of appeal,but, at the time of hearing, the main grievance of the assessee has been confined to the issue that AO was gross unjustified in disallowing the claim of Rs.54,83,854/- u/s 11(2) of the Act and claim U/s 11(1) (a) of the Act. 4.The brief facts qua the issue ( As per AO order U/s 254/143(3), dated 14.11.2011), are that, in the assessee`s case under consideration, the assessment wascompleted u/s 143(3) on 30.03.2005 wherein assessee’s claim of exemption u/s 11(2) for an amount of Rs.54,83,854/- and another claim of exemption u/s 11(1)(a) for Rs.18,55,221/- were disallowed. Aggrieved by the said disallowance, theAssessee preferred an appeal before the ldCIT(A). The Ld. CIT(A) allowed both the claims vide his order dated 30.10.2009 in Appeal No.53/CIT(A)-XXXIII/DDIT(E)-I/09-10. Being aggrieved, Department filed 2nd appeal before the ITAT and the Hon’ble ITAT, ‘B’ Bench, Kolkata vide order dated 10.12.2010 in ITANo.207/Kol/2010 restored the matter back to the file of the AO for fresh consideration. The assessing officer, following the decision of the Hon’ble ITAT, asked the assessee to file explanation, documents and evidences. The assessee filed documents and explanations to the assessing officer. The assessing officer on verification of assessment records of the two trusts found that assessee trust paid donation of Rs.8,00,211/- in A.Y. 2002-03 and Rs.9,69,846/- in Page | 2 Shree Shree Mohanananda Brahmachari Medical Welfare Trust Assessment Year: 2002-03 A.Y. 2003-04 to Shree ShreeMohananandaSamajSevaSamity and received donation of Rs.13,00,211 in A.Y. 2002-03, and Rs.15,15,114 in A.Y. 2003- 04 from said trust Shree ShreeMohananandaSamajSevaSamity having common trustees. The AO observed that giving and receiving funds between two trust having common trustees for mutual benefits is a clear violation of the provisions of section 13(1)(c) of the Act. The proviso to Sec.13(1)(c) puts a block to such effect and provides for forfeiture of tax exemption in such cases. This sub-section provides that a Charitable or religioustrust or institution created or established on or after 01.04.1962 shall forfeit tax exemption granted u/s 11, if any part of its income ensures for the benefit of any of the interested persons defined insection 13(3) or any part of its income or property is applied or used for the benefit of any such interested persons during the previous year. Here, the facts and circumstances of the case as detailed above severely hits the provision u/s. 13(1)(c) of the Act. The AO also relied on the decision of theHon'ble Bombay High Court in the case of Champa Charitable Trust Vs. CIT reported in 214 ITR 764 (Bombay] wherein it was held that such type of inter trust donation between two trusts are not allowable and provision of Sec 13(1)(c) will be attracted in these cases. It was held by the Hon’ble Apex Court in CIT Vs. Rattan Trust (1997) 227 ITR 356 (SC), that any diversion of income other than those authorized by the trust would lead to attraction of Section13(1) ( c) of the Act. Based on these facts, the AO disallowed the claim of exemption U/s 11 (2) and 11 (1) (a) of the Act. 5.Aggrieved by the order passed by the AO, the assessee filed an appeal before the ld. CIT(A), who has confirmed the addition made by the AO. The ld. CIT(A) held that there was no any object of the Trust to donate to sister Trust. It was also seen that the purpose of accumulation are not specific i.e. it is not for all the purposes for which the Trust was set up but only for the objects mentioned at clause 1 to 6 of the object clause which was all related to medical purposes. Therefore, ld. CIT(A) held that the purpose of Page | 3 Shree Shree Mohanananda Brahmachari Medical Welfare Trust Assessment Year: 2002-03 accumulation was not specific and therefore, AO had rightly disallowed the exemption u/s 11 of the Act and this way, he confirmed the order passed by the AO. 6.Not being satisfied with the order of the ld. CIT(A), the assessee is in appeal before us. The ld. DR for the Revenue pointed out that the ld. CIT(A) was wrong in allowing accumulation u/s 11(2) of I.T Act without appreciating the fact that the purpose of accumulation was not specific, which is mandatory for accumulation u/s 11(2) of the I.T Act.The ld. DR for the Revenue relied on the judgment of Hon’ble Supreme Court in CIT Vs. Rattan Trust (1997) 227 ITR 356(SC) wherein it was held that the mandate regarding investment of income of trust with the persons prohibited by section. 13(3) having been introduced subsequent to 1st April, 1962 by amendment of trust by the trustees in exercise of power conferred on them, the first proviso to Section 13(1)(c)(ii), lifting the bar of s. 13 would not apply. The ld DR for the Revenue also relied on the judgment of Trustees of Singhania Charitable Trust, 199 ITR 819 ( Cal), wherein it was held that for purposes of accumulation of income under section 11(2), assessee must specify in the notice in Form 10 the concrete nature of the purpose(s) for which accumulation is being made.The ld DR further relied on the judgment ofChampa Charitable Trust Vs. CIT [214 ITR 764(Bombay), wherein it was held that Bar of s. 13(1)(ii) applied where the assessee applied its income for the benefit of a trust which was a substantial contributor to the assessee itself. In addition to this, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
7. On the other hand, ld Counsel for the assessee has submitted before us that, the trust had expendedsubstantial part of the incomefor charitable purposes. Therefore, when substantial part of the income was found to be Page | 4 Shree Shree Mohanananda Brahmachari Medical Welfare Trust Assessment Year: 2002-03 expended for charitable purposes and exemption u/s 11 allowed partially in the original assessment, how the same expenditure is found to be spent for non-charitable purposes in the re-assessment proceedings? When the Assessing Officer finds that the income which was set apart in any Assessment Year for future expenditure for charitable purposes, has not been utilized for the charitable purpose, then he has to bring such non- charitable expenditure to tax in the year of its expenditure as per the provisions of section 11(3). The ld Counsel also pointed out that such expenditure for non-charitable purpose cannot be the basis for denial of exemption u/s.11 for any subsequent year. The assessee has been filing the returns of income for all subsequent assessment years and the details of expenditure of incomes set apart in earlier years are mentioned in these returns and on the basis of which, the assessee is allowed exemption under section 11 of the Act. Therefore, the observation of the Assessing Officer that the assessee is not expending the set apart incomes of the earlier years in subsequent years for charitable purposes, is not borne out of facts.Apart from this, the ld. Counsel for the assessee has relied on the judgment of Hon’ble ITAT in assessee’s own case, in ITA No.1822/Kol/1996, A.Y.1995- 96, dated 28.02.2002 wherein it was held that the assessee is a Public Charitable Trust existing since long back and in the earlier years and in subsequent years also, it was allowed the benefits of exemption. During the relevant Assessment Year, the assessee has filed Form No.10 on 27th October, 1995 as per which fund has been accumulated for the purpose of public charitable purpose like Hospital, educational institution and Tirthashram. The Assessing Officer was of the view that the purposes mentioned in Form No.10 was vague in nature and held that in the scheme of the Act, which is applicable for public charitable trust u/s.11(2) has to be for specific purposes for which the assessee wants to apply its funds. The Assessing Officer relied on the judgment reported in D.I.(Exemption) –Vs.- Trust of Singhania Charitable Trust (199 ITR 819). The judgment relied on by the Assessing Officer is not applicable to the facts and circumstances of Page | 5 Shree Shree Mohanananda Brahmachari Medical Welfare Trust Assessment Year: 2002-03 the case, in so far as in the abovementioned case, the resolution passed by the Board of Trustees of the Trust was as follows:- “That consent be and is hereby accorded that, out of the balance of unapplied income of Rs.94,125/- for the years, the sum of Rs.68,814/- be accumulated and/or not apart for the purpose of application to any one of the objects of the trust, as set out in Items no.(i) to (xvi) under paragraph-1 of the deed of trust till the previous year ending on March 31, 1994.” It was apparent from the above that the purposes for which the fund was actually vague and not specified. In so far,it is fixed for anyone or more of the objects of the Trust set out in the Trust deed, whereas in the present case, out of the other objects, the fund was clearly earmarked for public charitable purposes like Hospital, education institutions and Trithashram in the Form 10 filed by the assessee on 27.10.1995.However, the Hon’ble Supreme Court in the case of CIT, A.P.-Vs- Andhra Pradesh State Road Transport Corporation (159 ITR 1) held that the test is “what is the predominant object of the society – whether it is to carry out a charitable purpose or to earn profit? If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity. 8.Having heard the rival submissions and perused the materials available on record, we are of the view that when the Assessing Officer finds that the income which was set apart in any Assessment Year for future expenditure for charitable purposes has not been utilized for the charitable purpose, then he has to bring such non-charitable expenditure to tax in the year of its expenditure as per the provisions of section 11(3). But such expenditure for non-charitable purpose cannot be the basis for denial of exemption u/s.11. Therefore, the observation of the Assessing Officer that the assessee is not expending the set apart incomes of the earlier years in subsequent years for charitable purposes is not borne out of facts. Page | 6 Shree Shree Mohanananda Brahmachari Medical Welfare Trust Assessment Year: 2002-03 The ld DR for the Revenue relied on the judgment of Trustees of Singhania Charitable Trust, 199 ITR 819 ( Cal), wherein it was held that for purposes of accumulation of income under section 11(2), assessee must specify in the notice in Form 10 the concrete nature of the purpose(s) for which accumulation is being made. In the assessee`s case under consideration, the assessee trust filed the Form no.10 and made the compliance and there is no any mistake on the part of the assessee. Therefore, the facts of the said judgment do not apply to the facts of the assessee under consideration. Apart from this, other two judgments cited by ld DR viz: CIT Vs. Rattan Trust (1997) 227 ITR 356(SC)and Champa Charitable Trust Vs. CIT [214 ITR 764(Bombay) (supra), do not apply to the assessee`s facts under consideration. In addition to this, the assessee’s issue is squarely covered in favour of the assessee by the decision of Kolkata ITAT in assessee’s own case, in ITA No.1822/kol/1996, A.Y.1995-96,(supra), and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings. Therefore, we are of the view that the order passed by the ld. CIT(A) is not justified. Considering the factual position explained above, we allow the appeal of the assessee.