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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 27th DAY OF NOVEMBER 2013
PRESENT
THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MRS. JUSTICE RATHNAKALA
I.T.A. NO.242/2007 C/W. I.T.A. NO.101/2007
BETWEEN :
The Commissioner of Income-tax, Central Circle, C.R.Building, Queens Road, Bangalore.
The Deputy Director of Income-Tax, (Exemptions), C.R.Building, Queens Road, Bangalore. ...APPELLANTS (Common in both)
(By Sri.G.Kamaladhar, Adv. for Sri.K.V.Aravind, Adv.)
AND :
KSRTC Employees Death-Cum- Retirement Benefit Fund, Transport House,
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Central Offices, Shanthinagar, Bangalore. …RESPONDENT (Common in both)
(By Sri.S.Parthasarathi, Adv.) . . . .
I.T.A. No.242/2007 is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.2710/Bang/2004 dated 08.09.2006 confirming the order of the Appellate Commissioner and confirm the order passed by the Deputy Director of Income Tax, (Exemptions), Bangalore in the interest of justice and equity.
I.T.A. No.101/2007 is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.165/Bang/2005 dated 23.06.2006 confirming the order of the Appellate Commissioner and confirm the order passed by the Deputy Director of Income Tax, (Exemptions), Bangalore in the interest of justice and equity.
These I.T.As. coming on for hearing, this day, N.Kumar J., delivered the following:
JUDGMENT
As in these two appeals a common question of law is involved, they are taken up for consideration together and disposed of by this common order.
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The assessee in both the appeals is one and the same. These two appeals pertain to the assessment years 2000-01 and 2001-02. The assessee is KSRTC Employees Death-cum-Retirement Benefit Fund. The assessee filed the return of income for the assessment year 2000-01 on 18.09.2000 declaring total income as Nil by claiming exemption under Section 11 and 12/10(23AAA). Similarly, the returns of the year 2001- 02 was also filed on 16.08.2001 claiming the said benefit. The case was taken up for scrutiny. On perusal of the Income and Expenditure Statement and Balance Sheet, it was noticed that the assessee had made deposits with M/s. Veerashaiva Sahakara Sangha and M/s. Karnataka Veerashaiva Vidyabhivrudhi Samsthe Ltd. The Assessing Officer was of the view that the said two Institutions do not fall under the purview of Section 11(5) of the Income Tax Act, 1965 (for short, hereinafter referred to as `the Act’). Therefore, a notice under Section 148 was issued calling upon them to file a revised return. On receipt of the same, the assessee filed a letter requesting them to treat the original return,
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as return filed in response to the notice under Section 148 of the Act. The Assessing Authority held that the assessee had claimed its income to be exempt under Section 11 in view of the registration obtained by it under Section 12A. The assessee has invested Rs.1,40,00,000/- with M/s. Veerashaiva Sahakara Sangha and M/s. Karnataka Veerashaiva Vidyabhivrudhi Samsthe, which is in violation of Section 11(5) of the Act. He called upon the assessee to withdraw the deposits and regularize the same by investing the amount in the modes prescribed under Section 11(5) of the Act in order to avail the benefit under Section 10(23AAA) of the Act. Therefore, he disallowed the claim for exemption. However, he held that the assessee has obtained the necessary approval under Section 10(23AAA) of the Act. Assessee is an Association having the employees of Karnataka State Road Transport Corporation as its member. The return of Income is filed in the status of AOP. The object of the Association is to render monetary assistance to the members of the Trust/Fund on the eve of retirement
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due to superannuation, retirement, termination of service on medical grounds and to render help to the nominee or nominees of the deceased member. As the deposits of that amount was not made as specified under Section 11(5) of the Act, the assessee is not entitled to the benefit under the said provision also and therefore, he proceeded to pass an assessment order denying the exemption.
Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Appeals. The Appellate Authority held that the violation of Section 11(5) is due to the mistaken impression of the Secretary of the Fund. Then he relied on the judgment of the Madras High Court, which has held that in the event of such violation, the income arising from the said violation to that extent shall be denied exemption under Section 10(23AAA) of the Act and therefore, he directed the Assessing Authority to restrict the denial of exemption under Section 10(23AAA) to the amount of income generated out of the Investment of
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Rs.1,40,00,000/- in violation of Section 11(5) of the Act. Accordingly, the appeal was partly allowed.
Aggrieved by the said order of the Appellate Authority, the Revenue preferred an appeal to the Tribunal. The Tribunal held that the Lower Appellate Authority was justified in denying the exemption to the extent of income generated on the Investment made in violation of Section 11(5) and not to the entire income of the Trust and therefore, the appeal came to be dismissed. Aggrieved by the said order, the Revenue is in appeal.
Therefore, the substantial question of law which arises for consideration in these two appeals is: Whether the Lower Appellate Authorities were justified in holding that the assessee would be entitled to the exemption in respect of investment of Rs.1,40,00,000./- though the investment was in contravention of Section 11(5) of the Act?
The assessee is assessed as AOP. The assessee has obtained registration under Section 12A of the Act.
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By virtue of the same, the assessee is claiming exemption under Section 11 as well as under Section 10(23AAA) of the Act. The assessee has obtained the necessary approval under Section 10(23AAA) of the Act. Section 10 in Chapter III deals with Incomes which do not form part of total income. Section 10(23AAA) of the Act reads as under 10(23AAA) Any income received by any person on behalf of a fund established, for such purposes as may be notified by the Board in the Official Gazette, for the welfare of employees or their dependants and of which fund such employees are members if such fund fulfils the following conditions, namely :— (a) the fund— (i) applies its income or accumulates it for application, wholly and exclusively to the objects for which it is established; and (ii) invests its funds and contributions and other sums received by it in the forms or modes specified in sub-section (5) of section 11;
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(b) the fund is approved by the Commissioner in accordance with the rules made in this behalf: Provided that any such approval shall at any one time have effect for such assessment year or years not exceeding three assessment years as may be specified in the order of approval;
A reading of the aforesaid provision makes it clear that any income received by any person on behalf of a fund established for such purpose, for the welfare of the employees or their dependants and fulfills the conditions that the fund applies its income or accumulates it for application, wholly and exclusively to the objects for which it is established and invests the funds and contributions and other sums received by it in the forms or modes specified in sub-Section (5) of Section 11 and the fund is approved by the Commissioner in accordance with the rules made in this behalf, the same would be exempted from payment of income tax as the said income do not form part of the total income.
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Section 11(5) of the Act deals with the forms and modes of investment or depositing the money referred to in Clause (b) of Sub-Section 2. Admittedly, in this case, both the financial institutions namely Veerashiva Sahakara Sangha and Karnataka Veerashaiva Vidyabhivrudhi Samsthe do not fall within Section 11(5) of the Act. Therefore in view of Section 10(23AAA) of the Act, the assessee would not be entitled to the benefit of the said provision insofar as the income received by any person on behalf of the fund established. That is what precisely, the Appellate Authorities have held. But once the fund is approved by the Commissioner in accordance with the Rules made in this behalf, the contribution made by the employees to the said fund do not form part of the total income and consequently, it does not attract tax under the Act. Therefore, both the Appellate Authorities were justified in holding that Rs.1,40,00,000/- which represents that contribution is not liable for tax. In that view of the matter, the order passed by the Appellate Authorities
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cannot be found fault with. There is no merit in this appeal. Appeals stand dismissed. The substantial question of law is answered in favour of the assessee and against the Revenue.
Sd/- JUDGE
Sd/- JUDGE
SPS