DDIT (E) - I,KOLKATA, KOLKATA vs. SASHA ASSOCIATION FOR CRAFT PRODUCTS, KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-Jalpaiguri dated 20.02.2013. Assessment was framed by ITO(Exemp.)-II Kolkata u/s 143(3)/13(1)(c)/13(1)(d) r.w.s.13(2)(b) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 20.12.2010 for assessment year 2008-09. Grounds raised by Revenue are reproduced below:- “1. That on the facts and the circumstances of the case and also in the question of law, the Ld. CIT(A)/Jalpaiguri erred in holding that though no resjudicata or estoppels applies in Income Tax proceedings, consistency should be maintained in assessments.

ITA No.914/Kol/2013 A.Y. 2008-09 DIT(E)- Kol. v. Sasha Asso. For Craft Products. Page 2 2. That on the facts and the circumstances of the case, the Ld. CIT(A)/Jalpaiguri erred in holding that investment in the Share Capital of a private Limited Company out of income set apart us. 11(20(b) does not violate the provision of Section 11(5) o the IT Act.”

The inter-connected issue raised by Revenue in its appeal is as regards that Ld. CIT(A) erred in holding that investment in the share capital of a Private Limited Company out of income that set apart under section 11(2)(b) of the Act does not violate the provisions of Section 11(5) of the Act.

Shri S.M.Suran, Ld. Authorized Representative appearing on behalf of assessee and Shri Rajat Kr. Kureel, Ld. Departmental Representative appearing on behalf of Revenue.

ITA No.914/Kol/2013 A.Y. 2008-09 DIT(E)- Kol. v. Sasha Asso. For Craft Products. Page 3 investment of Rs. 10 lacs made by the assessee in the company is in contravention of the provisions of Section 11(5) of the Act and amounts to violation of the provision of Section 13(1)(d) of the Act. Accordingly the AO issued show cause notice to the assessee for the withdrawal of the exemption u/s 11 of the Act. In compliance thereto the assessee submitted that 1) The purpose to form a private Limited company by way to joint venture is to help the artisans and craftsmen by getting them good remuneration for their work of art and craft in the national and international market. 2) By way of this joint venture it was possible to have the perfect knowledge about the requirement and information regarding the design of the product and reasonable pricing of the product in foreign market. 3) The directors of the company Shri P.S. Chawla and Smt. Roop Mehta are the representative of the society and they have no substantial interest in the company so there is no violation of section 13(2)(h) of the Act.

2.1 However the AO disregarded the plea of the assessee by holding that as per the provisions of section 13(3) of the Act the company is an interested person to the assessee Society. As per section 13(2)(h) of the Act the exemption benefit u/s 11 of the Act will not be available to the society if any fund is invested for any period during the previous year in any concern in which any person referred to in sub section 13(3) has a substantial interest. So there is a clear violation of the provisions of section 13(1)(d) r.w.s 13(2)(h) of the Act. Accordingly the exemption benefit u/s 11 of the Act was denied to the assessee.

ITA No.914/Kol/2013 A.Y. 2008-09 DIT(E)- Kol. v. Sasha Asso. For Craft Products. Page 4 “… …. I have also considered the submissions of the appellant that the contribution to share capital was made in the assessment year 2005-06 and in all the assessments thereafter except the AY in question, on same set of facts, the AO has not denied the exemption u/s 11. I find that the assessment for the AY 2007-08 was completed u/s. 143(3) and the fact that the investment was made in earlier years have not been denied by the AO. The as for the subsequent year i.e. AY 2009-10 was also completed u/s. 143(3) wherein also the contribution to share capital continued but exemption has been allowed to the appellant society. The society is engaged in the same activities as in all the earlier years. Therefore, on the principles laid down by the Hon Supreme Court, in the case of Radho SamiSatsang 193 ITR page 321, consistency should have been maintained. In the said judgment the Hon Supreme Court laid down that the principles of resjudicata or estoppels does not applied to income tax proceedings but a decision taken in other years on same set of facts should not be disturbed and the principles of consistency should be followed. In view of the above, the AO is directed to allow the exemption u/s. 1 of the appellant society and re-compute the income accordingly. In the result, the appeal is allowed.”

Being aggrieved by this order of Ld CIT(A) Revenue is in appeal before us.

ITA No.914/Kol/2013 A.Y. 2008-09 DIT(E)- Kol. v. Sasha Asso. For Craft Products. Page 5 reason that the investment made by the assessee in the shares of the Private Limited Company is in contravention of the provisions of that Section 11(5) of the Act. However the Ld CIT(A) granted the relief to the assessee on the ground that the investment in share capital was made in the assessment year 2005-06 and the exemption benefit has not been denied in the earlier assessment years also and subsequent assessment year 2009-10 so there is consistency in claiming the exemptions benefit u/s 11 of the Act. Now the question before us arises whether the investment made in the share capital of a Private Limited Company by the assessee is against the provision of Section 11(5) of the Act.

At this juncture, it is important to reproduce the relevant provisions of section 13 of the Act which reads as under : “13(1) Nothing contained in section 11 [or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste; (c) …. … (d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year - (i)any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or

(iii) any shares in a company, other than – (A) Shares in a public sector company;

ITA No.914/Kol/2013 A.Y. 2008-09 DIT(E)- Kol. v. Sasha Asso. For Craft Products. Page 6 (B) Shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th Provided that nothing in this clause shall apply in relation to – (i) Any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; (ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution;] (ii) Any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1std day of march, 1983; [(iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of march, [1993], whichever is later;] (iii) Any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation.- Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business.]

5.1 From the proviso we find that investment in shares in a Private Limited Company if made out of the profit of business then the exemption benefit shall not be denied to the assessee. In the instant case the assessee claimed to have made the investment out of the fund representing the profit and gains of assessee’s business and the Ld. DR failed to bring anything on record contrary to the point of argument of the ld. AR. Accordingly, in our considered view, we find that there is no violation of the provisions of Section 13 of the Act and the assessee is entitled for exemptions under section 11 of the Act. We also find that the Private Limited Company was formed for the furtherance of the objects of the assessee and both the societies were the shareholders in the company. None of the Director had any substantial interest in the

ITA No.914/Kol/2013 A.Y. 2008-09 DIT(E)- Kol. v. Sasha Asso. For Craft Products. Page 7 company. The members of the assessee society were the directors only in the representative capacity in the company. Therefore, in the instant case benefit under section 11 of the Act cannot be denied. In this connection we are also relying in the decision of High Court of Delhi in the case of Director of Income Tax (Exemption) vs. Acme Educational Society (2010) 326 ITR 0146 (Del) wherein it was held that “we are of the opinion that interest-free loan of Rs. 90,50,000 given by the assessee-society to Nav Bharti Educational Society does not violate s. 13(1)(d) r/w s. 11(5) of Act, 1961 as the said loan was neither an "investment" nor a "deposit". This is more so as both the societies had similar objects and were registered under s. 12A of Act, 1961 and had approvals under s. 80G of the Act, 1961. The fact that the loan was interest-free and had been subsequently returned is also significant. In view of the order passed by the CIT(A) in the case of Nav Bharati Educational Society, Ms. Bansal's allegation with regard to "entry scam" also does not survive. Consequently, there is no substantial question of law involved in the present appeal and accordingly, appeal is dismissed but with no order as to costs.”

Similarly, we also find that the assessee has been claiming the exemptions benefit under section 11 of the Act for the last several years but the same was not denied therefore in our view principle of consistency should be applied in the instant case. In this connection we are relying in the decision of Hon’ble Supreme Court in the case of Radhasoami Satsang vs. Commissioner of Income Tax (1992) 193 ITR 0321 (SC) “We are aware of the fact that, strictly speaking, res judicata does not apply to IT proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. One these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter-and, if there was no change, it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the CIT in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these

ITA No.914/Kol/2013 A.Y. 2008-09 DIT(E)- Kol. v. Sasha Asso. For Craft Products. Page 8 appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the IT Act of 1961.” After analyzing the provisions of the Act and different decisions of the Hon'ble courts, we find that the investment made by the assessee in the aforesaid Private Limited Company is out of the profit and gains of its business and same was made for achieving the objects of the assessee-society. In this view of the matter we find no infirmity in the order of Ld. CIT(A), hence, we uphold the order of Ld. CIT(A). The grounds raised by Revenue are dismissed.