ITO TRUST WARD-IV vs. MISRA CHARITABLE TRUST,

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INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.1222/Del/2008 (Assessment Year: 2004-05) ITA No.2357/Del/2008 (Assessment Year: 2005-06)

Income Tax Office Misra Charitable Trust, (Exemptions), MCT House, Block-A, Vs. Trust, Ward-IV, Delhi Okhla Centre, Opp Holy Family Hospital, New Delhi-25 (Appellant) (Respondent)

Assessee by : Sh. P Dam Kanunjna, Sr. DR Revenue by: None Date of Hearing 21/06/2016 Date of pronouncement 21/06/2016

O R D E R PER PRASHANT MAHARISHI, A. M. 1. These appeals are filed by the revenue against the order of the ld CIT (A)-XXI, New Delhi dated 31.01.2008 and dated 11.04.2008 for the Assessment Year 2004-05 and 2005-06. The Income Tax Officer (Exemption), New Delhi V Misra Charitable Trust ITA no 2357/ & 1222/Del/2008 A Y 2004-05 & 2005-06

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fact that the assessee trust has been introduced as conduit only. The timing of the creation of the trust and the collaboration agreement dated 08.11.2000 and agreement dated 24.11.2000, respectively, clearly established that the trust has been created not to carry on any genuine activity as enshrined in the trust deed but only to help the company M/s. GG promoters and Developers Pvt. Ltd. to escape its tax liability arising on account of development of the property in question. 2.On the facts and in the circumstances of the case, ld CIT(A) has erred in allowing the benefit of section 11 and 12 without appreciating the fact that the assessee has violated the provisions of section 13(1)(c) by advancing loans to M/s. GCG Tranglobal Pvt. Ltd in which the sons of the trustees were interested parties.”

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the matter could not be heard for paucity of time but was adjourned to shorter date on 21.06.2016 and counsel for the assessee was also informed about the next date of hearing. Despite the information of date of hearing available to the assessee none appeared on 21.06.2016 and therefore, the matter was heard in absence of any representation from the assessee. 5. For both the appeals the issue involved is identical and therefore both the appeals are disposed off by this consolidated order. 6. For AY 2004-05 assessee is a trust registered u/s 12A and also under the Societies Registration Act, filed its return of income declaring Nil income along with the audit report u/s 12A and annual accounts. During the course of assessment proceedings an amount of Rs. 7443742/- is shown in the income and expenditure account and building purchases to the extent of income received and utilized during the year. The assessee has acquired an asset being an office block and the land for which been allotted to the Delhi Society for the Welfare of Mentally Retarded Children (DSWMC). For the development of this property the DSWMC and M/s. GG Promoters and Developers Pvt. Ld. entered into an agreement on 19.02.1998 wherein the promoters will develop the vacant plot of land and that party will incur all expenses for the development. The total structure of 1.40 lacs sq ft would be constructed divided between 70% of institutional block and 30% of office block. The office block would be given exclusively to the promoters. There is another agreement executed between The Income Tax Officer (Exemption), New Delhi V Misra Charitable Trust ITA no 2357/ & 1222/Del/2008 A Y 2004-05 & 2005-06

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the appellant trust and developer on 24.11.2000 wherein the developer shall be entitled to possession of ground floor, fifth floor and some part of the fourth floor of the office block totaling to 10018 sq ft. on the basis of above agreements the conclusion arrived by the ld AO was that the appellant trust was never form for the purpose of carrying on any genuine charitable activity but for the development of the property. On the basis of the balance sheet of the appellant it was noted by ld AO that the appellant has given loans and advances of Rs. 29 lacs to a concern wherein the sons of the trustees are interested. On query appellant explained that this sum was given for purchase of property, however, no evidences were produced. Based on this ld Assessing Officer came to the conclusion that benefit of sections 11 and 12 should not be available to the appellant trust in view of the violation contain u/s 13 of the Income Tax Act. Hence, the ld AO asses the appellant trust at Rs. 9286230/- and apply maximum marginal rate of taxation. 7. Aggrieved by the order of the ld Assessing Officer the assessee preferred an appeal before the ld CIT(A) wherein ld CIT(A) decided the issue as per Para No. 5 as under:- “5. I have considered the submissions of the appellant as well as the facts brought on record by the AO. After considering the various facts and also the details filed during the course of appellate proceedings, I am of the view that the transaction that was entered into was to acquire a property and there was no scope for any income to arise to any consequently question of tax evasion or escaped tax did not arise at all. Above all, the aforesaid transaction was entered in the financial year 2000-01 and has no relevance in the year under consideration. The

The Income Tax Officer (Exemption), New Delhi V Misra Charitable Trust ITA no 2357/ & 1222/Del/2008 A Y 2004-05 & 2005-06

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assessing officer has ignored the basic fact that the appellant trust created an immovable property which is charitable in nature i.e. the asset or any income earned from it can be utilized only for charitable objects. As stated in the assessment order, the funds available with the appellant trust were applied to the objects of the trust. 5.1 I am also of the view that Charitable trusts can carry out commercial activities as was decided by a full bench of the Supreme Court in the case of Thiagarajar Charities v. Addl. CIT (1997) 225 ITR 1010, relying on decisions in the cases Addl. CIT v. Surat Art Silk Cloth Manufacturers’ Association (1980) 121 ITR 1 & Dharmadeepti v. CIT (1978) 114 ITR 454. Repayment of loan should be considered as application of income in view of the decision of the Karnataka High Court in the case o/Commissioner of Income Tax vs. Janmabhumi Press Trust [(2000) 242 ITR 703]. The assessing officer has ignored the representation of the appellant in this respect without adducing any reasons and has not given any justification for not considering the repayment of loan as application, of income in accordance with sections 11 and 12 of the Income Tax Act, 1961. There is no correlation between approval granted to a trust under section 80G and carrying out Variable activities by the trust. 5.5 The appellant turst had submitted the agreement between itself and. GCG Transglobal Housing Projects Pvt. Ltd. to buy a property on 13.12.2006 vide letter dated 12.12.2006to the assessing officer. Again in their submission the appellant trust has of that letter and copy of the agreement; however the assessing officer has not given" any "finding even in his remand report. Findings in respect of aforesaid transactions were factually incorrect. The assessing Officer has not stated any reason for treating all the receipts as income without deducting expenses incurred to earn the income. However, tax can be levied only on net income i.e. gross receipts minus expenses as held in the cases referred by the appellant. The appellant trust has disclosed all the transactions entered into in its financial statements and Return of income regularly submitted with the Income Tax Department and has been complying with all the conditions levied while giving approval for exemption under section 12A of the Income "Tax Act, 1961 and has done nothing which justifies withdrawal of benefits of sections 11 and 12 of the Income Tax Act, 1961 and therefore the same are allowed to the appellant.” The Income Tax Officer (Exemption), New Delhi V Misra Charitable Trust ITA no 2357/ & 1222/Del/2008 A Y 2004-05 & 2005-06

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to be lent from FY 2000-01 till the impugned assessment year, according to us the provisions of section 13 have been rightly invoked by the Assessing Officer. However, no facts have been brought on record with respect to the amount of loan given by assessee to a concern that the sons of the trustees were not interested. Despite query by the ld Assessing Officer no evidence or whatsoever produced before the Assessing Officer about any advance towards purchase of property. In fact it was also not established by the assessee that in fact whether the property was ever purchased by the trust from this party. Before the ld CIT(A) and agreement was submitted between the appellant and the company dated 13.12.2006 vide letter dated 12.12.2006 to the Assessing Officer. It is a mindless statement by the ld CIT(A) how an agreement dated 13.12.2006 can be submitted before the Assessing Officer on 12.12.2006. On the details submitted by the assessee ld CIT(A) without application of mind has accepted and allowed the claim of the assessee. The assessment order passed by the ld Assessing Officer has brought on record several agreements and has also stated that assessee trust is not carrying on any activity in the nature of charitable activities and for this ld AO has tabulated the various income and expenditure earned and incurred by the trust. The nature of such expenditure does not show that any charitable activities are carried on by the trust for which it enjoys tax exemption. Before us the facts are also not available that whether the trust continues to enjoys the exemption u/s 12A of the Act or not. However, the ld The Income Tax Officer (Exemption), New Delhi V Misra Charitable Trust ITA no 2357/ & 1222/Del/2008 A Y 2004-05 & 2005-06

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CIT(A) has stated that the trust is complying with all the conditions on which the exemption u/s 11 and 12 is granted to the assessee and nothing has been done which justifies withdrawal of the benefit u/s 11 and 12 of the Act. He has further stated that these transactions were continues to be disclosed in the income tax return filed by the assessee. However, he has completely ignored that this is the first year in which the case of the appellant trust has been picked up for scrutiny. Further, the ld CIT(A) has not at all considered the provisions of section 13 of the Income Tax Act and merely believed that the advances were given in earlier years and they are for the purpose of purchase of property. However, ld Assessing Officer has also not brought on record that when the amount of loan was given and what is the maximum outstanding during the year. The ld Assessing Officer has also not given reasons about how the whole income of the appellant trust can be taxed at the maximum marginal rate. Further, ld AO has also not brought on record the relationship between the company and the trustees by making an independent enquiry. In view of all these facts we set aside both the appeals to the file of ld Assessing Officer for making a complete enquiry with respect to the provisions of sections 11, 12 and 13 and decide issue afresh after granting reasonable opportunity of hearing to the assessee. 10. In the result both the appeals of the revenue are allowed for statistical purposes. Order pronounced in the open court on 21/06/2016.

The Income Tax Officer (Exemption), New Delhi V Misra Charitable Trust ITA no 2357/ & 1222/Del/2008 A Y 2004-05 & 2005-06

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-Sd/- -Sd/- (H.S.SIDHU) PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:21 /06/2016 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

The Income Tax Officer (Exemption), New Delhi V Misra Charitable Trust ITA no 2357/ & 1222/Del/2008 A Y 2004-05 & 2005-06