BALMOHAN VIDYAMANDIR TRUST,MUMBAI vs. ITO (E) I(1), MUMBAI

Sub-section (1) of Section 253 of Income-tax Act provide specific category of person i.e. “Any assessee” aggrieved by the orders provided under Clause (a) to (f) to file appeal before the Appellate Tribunal, there is no further scope for any other aggrieved person or person(s) interested in the outcome of appeal to approach the Tribunal as intervener. No contrary law is brought to our notice which may entitle the applicant to become intervener before this Tribunal. Hence, the application of the intervener has no force in the eyes of law. However ld. AR who is representing the applicant is allowed to assist the ld. AR of the assessee (Trust). With these observations, the application of intervener is disposed off.

First we shall take up Appeal No. 5127/Mum/2013 wherein the assessee has raised following Grounds of appeal:

The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the learned assessing officer of invoking eh provisions of Section 148 of the Income Tax Act 1961.

Brief facts of the case are that the assessee is a Trust established in 1940 and is governed by the deed of trust dated 28.03.1955. The Trust is registered u/s. 12A of the Income Tax Act. Consequent upon the registration u/s. 12A of the Act, certificate u/s. 80G was granted to the Trust. A notice u/s. 148 dated 14.01.2010 was issued to the assessee/Trust after recording the following reasons: “The above trust is assessed in the charge of ITO(E)-1(1) under the PAN AAATB0099C. While going through the past records of the assessee it is seen that the income of the assessee in the past years, before claiming deduction u/s. 11, was more than the taxable income and as such the assessee is liable to file its return of income every year. However, the assessee has not filed the return of income for A.Y. 2008-09 till date. In this regard the provisions of Explanation 2 to sec. 147, which are reproduced below are clearly applicable in the assessee’s case. For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this act during the previous year exceeded the maximum amount which is not chargeable to income-tax; The assessee has not filed its return of income for AY. 2008-09, till date. In view of the above provision I am convinced that income has escaped assessment in the assessee’s case as per the provision of section 147 of the Income Tax Act, 1961. Issue notice u/s 148.”

In response to the notice u/s. 148 it was contended before AO that there was some dispute among the Trustee since 2007, due to which return could not be filed for FY-2007-08, 2008-09 & 2009-10. Assessee filed return of income on 03.12.2010 in respect of relevant year under consideration declaring total deficit of Rs. 88,89,512/- after claiming exemption u/s. 11 of the Act. During the assessment the statement of Shri Girish Rege was recorded wherein he admitted that he is residing in the school preemies with his parents and family without giving any compensation to the Trust. His wife is allotted an office premises belonging to the Trust and that his relative are also getting benefit from the trust in the form of remuneration, salary which has been disclosed in form 10B filed with the return of income. After considering the contention of Shri Girish Rege, AO invoke the provision of section 13(1) (c)(ii) and concluded that the person referred in section 13(3) obtained direct and indirect benefit of the Trust. Assessee failed to get the account of trust audited and filed the return of income in accordance with the provision of the Act. The AO further concluded that the assessee trust is running school, collecting fees, disbursing salary of employee without any interruption and when it come to filing of return of income the assessee makes excuses of dispute among the trustee and thus denied the exemption u/s. 11 of the Act, in its order dated 27.12.2010.

Aggrieved by the order of AO, assessee filed appeal before CIT(A) but without any success, hence, the present appeal is filed before us.

We have heard Shri Anil J. Sathe, ld. AR of assessee and Shri K. Gopal, ld. AR for intervener (Shri Girish Rege) and Shri P.D. Reddy, ld. CIT(DR) and perused the material available on record. Ld. AR of the assessee argued that the assessee-trust was established in 1940, besides other objects with an objective of imparting education and furthering education amongst the children. The trust is running three Schools and is a well-known Education Trust. The founder of Trust Late Shri Dadasaheb Rege was conferred the best teacher award by the then President of India, Late Shri Radhakrishnan. The Government of Maharashtra was also conferred the award of excellence in the field of education and community welfare upon the school declaring it a Premier Educational Institution. The Trust is subject to litigation from 2008. While making submission ld. AR of assessee referred a number of documents related with litigation, before Charity Commissioner, Bombay High Courts and the Hon’ble Supreme Court. Ld. AR of the assessee further argued that the notice u/s. 148 does not specify about the violation of section 13(1) (c)(ii) or about withdrawal of exemption u/s. 11 of the Act. Whereas in the order, AO invoke the provision of section 13(1)(c)(ii) and denied the exemptions u/s. 11 of the Act, while assessing the income. The AR of assessee further argued that the Trust has passed Resolution to remove the persons from the occupation of premises and the premises are now in possession Trust since January 2016. To buttress his submission relied upon the judgment of Karnataka High Court in CIT vs. Fr. Mullers Charitable Institution, 363 ITR 230 (Karn.). Ld. DR for revenue argued that all actions taken against the person occupying the property of trust, and documents filed and relied by assessee are subsequent to the service of notice u/s. 148 of the Act and are not help full to the assessee. The assessee has not disputed the possession of the trust-property in contravention of section 13(1)(c)(ii) of the Act. The property of trust is being used for commercial purpose which is other than the object of the Trust.

We have considered the rival contentions of the parties and gone through the voluminous document placed on record by AR of the assessee. First we shall take the ground no.1 raised in the present appeal. We have notice that all the records placed on record are related with the action/exercise undertaken by the assessee after service of notice dated u/s 148 dated 14.01.2010. Admittedly, the return of income was not filed by the assessee in its due course for the relevant AY. The records of return for the relevant year under consideration was not before the AO while issuing notice u/s. 148 which is clearly recorded in the reasons. The return of income was filed only on 13.12.2010. The argument of ld. AR is that notice u/s. 148 does not contain the reference of section 11 or about invoking the provisions of section 13(1)(c)(ii) has not force, as no return of income was filed by the assessee, hence, Ground no.1 raised in the present appeal is dismissed.

The ground nos. 2 & 3 are interconnected so both the grounds are discussed together. Section 13 of the Act is having overriding effect on section 1. Let us examine the scope of sub-clause (ii) of clause (c) of sub-section (1) of section 13 of the Act. The title of section 13 starts as (section 11 not to apply in certain cases). Section 13 (1).... (a) ..... (b) ...... (c) In case of trust for charitable or religious purposes or a chartable or religious institution, any income thereof- (i) If such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) If any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied.

Section 13 enumerates certain contingency, when section 11 will not apply. Sub-clause (ii) of clause (c) of sub-section (1) of section 13 of the Act provides that nothing contained in section 11 shall operate to exempt the income of trust for religious or charitable purposes, if any part of income or the property of the trust, during the previous used or applied directly or indirectly for the benefit of any person referred to sub-section (3) of section 13. Sub-section (3) of section 13 refers to various persons, the benefit derived by preclude the trust from claiming the benefit of exemption u/s. 11. In the present case, admittedly some part of the trust property was occupied by the person referred in sub-section (3) of section 13. There is no dispute that relatives of the trustee are getting some remuneration/salary from the income of the trust. The trust was registered prior to 1962.

The Hon’ble Apex Court in case of CIT vs. Ratan Trust reported vide 227 ITR 356 (SC) while dealing with almost identical issues held as under: “Section 13 of the Income-tax Act, 1961, provides for exigencies when the provisions of section 11 would not be applicable. Section 13 was amended by the Finance Act, 1970, with effect from April 1, 1971. Section 13 of the Income-tax Act was substituted by a new section by the Finance Act, 1970, with effect from April 1, 1971. It was stated that “under one of the proposed amendments, all charitable or religious-trusts or institutions created or established after March 31, 1962, will be denied the benefit of exemption from income-tax if any part of their income or property enures or is during the previous year, applied, directly or indirectly, for the benefit of the author, founder, substantial contributor or relative aforesaid or for the benefit of any concern in which any such author, founder, substantial contributor or relative

Now coming to the facts of the case in hand, the assessee trust was created in 1940 and is governed by trust deed dated 28.03.1955 i.e. the trust was created much prior to the enactment of the Income-tax Act, 1962. Thus, the case of assessee falls under the proviso attached with section 13(1)(c)(ii) of the Act. The proviso attached with section 13(1)(c)(ii) provides, if any, part of such income or any property of the trust is used by any person referred to in sub-section (3), if such use or application is by way of compliance with the term of the trust or a mandatory rule governing the trust, directly or indirectly, section 11 shall not apply. We have noticed that neither AO nor the CIT(A) referred the scope of proviso while considering the case of assessee. There is no reference in the order of AO or by Ld CIT(A) that mandatory term or Rules governing the trust was examined by them. The copy of trust-deed and its rules is not placed by any of the parties before us. The judgment cited by the ld. AR in CIT vs. Fr. Mullers Charitable Institution is in difference on the facts of the present case. In Fr. Mullers Charitable Institution was based on the section 13(1)(d), however, in present case the controversy is with regard to section 13(1)(c)(ii) of the Act.

In view of the above factual and legal discussion, we deem it appropriate to restore the case to the file of AO to examine the terms and conditions of trust- deed and the Rules governing it visa-a-vis in relation to the persons mentioned in sub-section (3) of section 13 of the Act. The assessee is directed to file the copy of trust-deed along with its Rules and Regulations and to show the original, if required by AO. And after examining the terms and conditions of the trust- deed, the AO may pass appropriate keeping in view, the judgment of Apex Court in case of CIT vs. Ratan Trust reported vide 227 ITR 356 (SC) and in accordance with law. 15. With these observations, the ground no. 2 & 3 raised in the present appeal are allowed for statistical purpose. 16. Now the ground no.4 was raised in alternative that section 10(23C)(iiiab) are applicable to the assessee. As we have already restored the ground no. 2 & 3 to the file of AO, which are the basic issues and goes to the root of the case, hence,