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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMIT SHUKLA
आदेश ORDER
अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against impugned order dated 28.03.2014, passed by Director of Income Tax (Exemptions) DIT u/s 263 setting aside the assessment order dated 22.12.2011 passed u/s 143(3) for the assessment year 2009-10, on the ground that it is erroneous and prejudicial to the interest of the revenue and directed the AO to pass fresh assessment order. In the grounds of appeal, the assessee has raised various grounds of appeal challenging various facets of the impugned order, cancelling the assessment order.
2 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 2. The brief facts of the case are that, assessee that is, “Slum Rehabilitation Authority” (SRA), is a local Authority created by the Government of Maharashtra by enacting SRA Act, 1971. SRA enjoyed complete exemption from Income Tax u/s 10(20) and 10(20A) as a local authority since its inception till AY 2003-2004. However, after the amendment made in the said sections w.e.f. 1.4.2003, the assessee was required to seek registration u/s 12AA of the Act to seek exemption u/s 11, on the ground that the objects enumerated in the SRA Act was for carrying out legal obligations which fell within the definition and ambit of “charitable purposes” as defined in section 2(15). The assessee was duly recognized as a “Charitable Institution” and Registration u/s 12AA was granted, w.e.f. AY 2003-04 onwards. Since then, the assessee was liable for benefit of exemption u/s 11. However, in all the assessments years since AY 2003-04, the consistent view of the AO had been that, the assessee is not a valid trust and therefore, the exemption/benefit available u/s 11 will not be applicable to the assessee. The Ld. AO for the impugned assessment year i.e. AY 2009-10 also, following the similar pattern and reasoning denied the assessee, claim for exemption u/s 11 completely and taxed the entire surplus amount of Rs. 83,98,10,894/- as per income & expenditure account. Such an exemption was denied by the AO in the assessment order on the following grounds which were akin to the reasoning given by the respective assessing officers in the earlier years :-
(1) Within the meaning of preamble to the SRA Act, 1971, the handing over of ownership, control, management of the SRA hitherto belonging to the State Government is considered not to have created a lawful Trust within the meaning of term used for the purpose of section 11, 12,12A, 12AA and 13 of the I.T. Act, 1961. (2) The SRA was created as a Local Authority within the meaning of term “person” for the purpose of Income- tax Act, 1961 and with effect from its exception to 2002. The SRA continues to be the Local Authority in the eyes of law. It cannot be considered as a Public Trust or Charitable Trust or Trust of any other kind.
3 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 (3) On a proper interpretation of the intention behind the enactment of the provision of sections 11, 12,12A, 12AA and 13 of the I.T. Act, 1961, it appears that the tax incentive-proposed in the scheme of exemption from charge of income tax is more applicable to the cases of private individual and groups and association who create valid Public Trust and dedicate its income for the purpose of general public welfare. The scheme of section 11 to 13, specifically the restrictive provision of section 13 cannot be made applicable to the case of public enterprise / public sector undertakings / public sector utility service provider. The basic incentive provided in the exemption section cannot be intended for utilization of public property and application of income of public property administrated through Government reaching the people as a whole. (4) The absence of profit motive in the functioning of the SRA does not by itself create a situation of total exemption from the charge of Income tax in respect of income which has earned or likely to earn form it activities comprising of providing various infrastructural facilities and also deriving income ancillary to its principal activities such as rental income from let out property / sale of Land and TDR to its customers, income from investments, etc. In view of the nature and activities being carried out by the authority as well as legal status discussed in the foregoing paragraphs, its claim for exemption u/s 11 of the I.T. Act cannot be entertained”.
Accordingly, the exemption u/s 11 was denied to the assessee and the whole of surplus income of Rs. 83,89,10,394/- was held to be taxable by the AO in the assessment order dated 22.12.2011, which is the subject matter of revision u/s 263 here in this appeal. 4. Aggrieved by the said assessment order dated 22.12.2011 denying exemption u/s 11, the assessee had preferred an appeal before the CIT(A)-I, Mumbai, who vide order dated 25.06.2012 allowed the assessee’s claim for exemption u/s 11 on the reasoning that, in the earlier years the first appellate authorities after following the decision of Hon’ble Supreme Court in the case of CIT vs Surat City Gymkhana [2008] 300 ITR 214 and CIT vs Gujarat Maritime Board [2007] 295 ITR 56, had allowed the assessee’s appeal on the ground that the registration u/s 12AA has not been
4 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 cancelled. Not only that the Tribunal has also decided this issue in favour of the assessee in the earlier years. The Ld. CIT(A) had referred and relied upon the order of the Tribunal for the AY 2007- 08. Thereafter, in the order giving effect to the first appellate order by the AO, the income of the assessee was revised and was determined at “nil”. Against the first appellate order, the revenue had preferred second appeal before the Tribunal for the impugned assessment year on the ground that the Ld. CIT(A) has erred in law in allowing exemption u/s 11 to the assessee. The Tribunal vide order dated 23.10.2013 in ITA No. 5281/Mum/2012, confirmed the order of the CIT(A) and dismissed the grounds raised by the revenue. It is also a matter of record that for the assessment years 2005-06, 2007-08 & 2008-09, the Department on similar issue had raised question of law in the appeal filed before the Hon’ble Bombay High Court u/s 260A, against such a allowing of exemption u/s 11 by the Tribunal. The Hon’ble High Court too has decided this issue in favour of the assessee. Not only that, the Department too has accepted the said decision of the High Court and no further SLP before the Hon’ble Supreme Court had been filed. This fact has also been acknowledged by the Ld. DIT(E) in his impugned order in para 2.
Now, when the entire assessment order dated 22.10.2011 wherein the exemption u/s 11 was denied, has attained finality and got merged finally with the second appellate order of the Tribunal, the Ld. DIT has sought to set-aside/revise the said assessment u/s 263 on the ground that, now in wake of insertion of ‘Proviso’ to section 2(15), the exemption u/s 11 granted to the assessee will not be applicable, because the assessee is carrying out “advancement of other object of general public utility” and such activity falls within the realm of nature of trade, commerce or business. He observed that the AO during the course of the assessment proceedings had not mentioned or required the assessee to justify its claim in view of proviso to section 2(15),
5 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 which was inserted by the Finance Act, 2008 w.e.f. AY 2009-10. Even in the course of First Appellate proceedings before the CIT(A) and in second appeal before ITAT, this issue was neither raised in the grounds of appeal nor was agitated or was decided by any other authority. Similar is the position before the Hon’ble High Court for the earlier years. Thus, Ld. DIT held that the entire assessment order has been rendered erroneous as it has not considered the amended provisions, which are applicable in the case of the assessee. Hence such an assessment order has lead to the loss of the revenue to the exchequer; therefore, such an order is prejudicial to the interest of the revenue. Thereafter, he analysed and dealt with the various objections raised by the assessee and also the amended proviso to section 2(15) and came to the conclusion that the assessment order is erroneous and prejudicial to the interest of the revenue and, therefore, has to be set aside and to be framed afresh after considering the proviso to section 2(15).
Before us Ld. Senior Counsel, Shri S.E. Dastur, after explaining the entire background of the case, submitted that, here in this case the assessment was completed u/s 143(3) after denying the exemption u/s 11 and taxing the entire surplus income. The assessment order as a whole was challenged before the CIT(A) which has been allowed in favour of the assessee completely. Thus, the whole of the assessment order got merged with the CIT(A)’s order. Thereafter, when the revenue had preferred an appeal before the Tribunal, no such ground on account of proviso to section 2(15) was raised even though it was there in the statute. The Tribunal too confirmed the order of the CIT(A). This inter alia means that the assessment order finally got merged with the order of the Tribunal. After giving effect to the appellate orders, the income has been determined at “nil”. At the time of issuing of the notice u/s 263 and passing of the impugned order, there was no assessment order in existence. What the Ld. DIT is trying, is to revise the order of the Tribunal in the garb of revision, because the
6 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 whole of the assessment order got merged with the order of the Tribunal and it is a case of a complete merger and not a case where only some of the issues have been subject matter of appeal or not being considered in such appeal. Clause (c) to Explanation 1 to section 263 which deals with the scope of merger of the order has extended the powers of CIT to the subject matter which has not been considered and decided in any appeal. The word “such matter” used in said explanation in the context of the present case is “exemption u/s 11”. The entire matter of exemption u/s 11 was subjudice and subject matter of appeal and, therefore, the entire assessment order and issue of exemption u/s 11 stood merged and such an order could not have been revised within the scope of section 263. Mr. Dastur, further submitted that, the Ld. DIT in his order has tried to find out the fault in the order of the CIT(A) inasmuch as he observes that, the Ld. CIT(A) had power to enhance or consider the newly inserted proviso to section 2(15), but he has not exercised. This shows that he wants to undo the order of CIT(A). In support of his contention that there is a complete merger of the matter, he strongly relied upon a decision of Hon’ble Gujarat High Court in the case of CIT vs Nirma Chemicals Pvt Ltd [2009] 309 ITR 67 and in the case of Shashi Theater Pvt Ltd [2000], 248 ITR 126. Referring to these decisions, he submitted that in these cases, the CIT(A) has allowed the assessee’s appeal directing the AO to grant relief u/s 80I as claimed by the assessee. Thereafter revisionary action u/s 263 was initiated to disallow the relief u/s 80IA on a different ground. In this background, the Hon’ble High Court held that CIT could not have exercised jurisdiction u/s 263 to undo the order of CIT(A) as the issue of deduction u/s 80I got merged.
Mr. Dastur’s second limb of argument was that, now in the present case, whether the assessment order can be at all held to be erroneous in so far as it is prejudicial to the interest of the revenue, because when the assessment has been made denying the entire
7 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 exemption u/s 11 and assessing the entire surplus income of Rs. 83.98 crores, then again setting aside the entire assessment order to complete the fresh assessment again at the same figure, cannot be in any manner held to be prejudicial to the interest of the revenue. Here in this case, whether it can be said the assessment has been completed at a lesser tax, the answer would be negative, because in both the assessments the tax on the assessed income would be the same. Hence, no prejudice is caused to the revenue. In support of this contention, he relied upon a decision of Madras High Court in the case of CIT vs Shakti [2002] 244 ITR 246.
Mr. Dastur’s third limb of argument was that, during the course of the original assessment proceedings, the assessee had submitted a detailed reply before the AO with regard to the amended section 2(15), that is, with reference to the proviso itself. This fact he pointed out is evident from the letter submitted before the AO on 30th November, 2011, a copy of which has been placed at pages 32 to 35 of the Paper book, wherein the assessee has specifically dealt with the amended provisions of section 2(15); Finance Minister’s speech explaining the purpose of proviso to section 2(15) while introducing the said ‘amendment’ and also the CBDT Circular of 11 of 2008 dated 19.08.2008 explaining the scope of proviso to section 2(15). Thus, this issue was clarified and explained in detail before the AO. If the AO chose to deny the exemption to the assessee on a different footing this does not inter alia leads to inference that AO has failed to consider the assessee’s submission or has not examined the issue. In fact AO in para 4 at page 3 of the order has taken note of the assessee’s contention regarding absence of ‘profit motive’, which has a huge relevance while considering the Proviso to section 2(15). Thus, the AO after considering the entire material has applied his mind and has taken a possible view, therefore, the Ld. DIT has completely erred himself in holding that the AO has not considered the newly inserted proviso to section 2(15). In support of this contention, he relied
8 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 upon the decision of Hon’ble Apex Court in the case of CIT vs. Max India Ltd., reported in [2007] 295 ITR 282. Lastly, he submitted that now there are catena of decisions, wherein the Proviso to section 2(15) has been explained that “profit motive” is not a sole criteria for denying the exemption. He strongly relied upon the decision of Delhi High Court in the case of India Trading Promotion Organization vs DIT reported in [2015] 371 ITR 333, wherein the entire concept of proviso to section 2(15) have been explained and dealt with. Thus, he submitted that it cannot be held that order of the AO is erroneous in so far as it is prejudicial to the interest of the revenue.
On the other hand, Ld. CIT DR submitted that, once there was a specific amendment brought in section 2(15) by enacting a new Proviso, explaining the scope of “charitable purposes” in the case of institutions / trusts advancing the objects of general public utility and such an activity has been held to be non-charitable, if they are involve in carrying out any activity which are in the nature of trade, commerce or business then, it was incumbent upon the AO to examine the assessee’s case from such a statutory and legal angle, which admittedly he has failed to do so. There is no whisper or mention about proviso to section 2(15) in the assessment order or in assessment records. The AO has just picked up the issues and grounds that were coming from the earlier years and has not tried to analyze the things independently or applied his mind on the proviso which he was required to do so. Thus, to this extent, the order of the AO is definitely erroneous. The phrase “prejudicial to the interest of the revenue” has to be seen from the broader perspective and cannot be narrowed down in the terms of tax effect only as canvassed by Ld. Sr. Counsel, because ultimately if the matter goes against the assessee on Proviso, then the assessee would be liable to pay the tax on surplus. Here, the assessee might have submitted the reply to the AO on proviso to section 2(15), but the AO has neither raised any query nor applied his mind.
9 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 Therefore, the order of the DIT setting aside the assessment is well within the scope and jurisdiction of section 263. Thus, Ld. DR strongly relied upon the impugned order of the DIT.
We have heard the rival contentions, perused the relevant finding given in the impugned order and the material placed on record. It is an undisputed fact that the entire exemption of claim u/s 11 was denied by the AO in the assessment order passed u/s 143(3) which is the subject matter of revision u/s 263 here in this appeal. As a result of such an order, the entire surplus amount revealed from income and expenditure account of Rs. 83.98 crores was assessed. The entire assessment order and the assessed income was subject matter of appeal before the CIT(A), wherein the entire exemption u/s 11 stood allowed. In the order giving effect to the appellate order, the income has been finally assessed at “nil”. In the second appeal also the subject matter and the issue of exemption u/s 11 again got merged. Now, in the revisionary jurisdiction u/s 263, the Ld. DIT is trying to set aside the original assessment order u/s 143(3) dated 22.12.2011 on the ground that, AO has failed to consider the amended provisions of section 2(15), that is, the Proviso inserted by Finance Act, 2008 w.e.f. assessment year 2009-10 has not been considered and examined. If the proviso would be applied then there might be a situation where assessee’s activity may not be held to be for “charitable purposes” and exemption u/s 11 may not be available. In other words exemption u/s 11 is being sought to be denied on the ground of newly inserted Proviso to section 2(15). Even if such an exercise is done, then the result would be same, that is, again the entire assessment would be completed on the same income of Rs. 83,98,10,894/-. There would be no deviation of the income at all what was assessed originally u/s 143(3) and the income which is now being sought to be assessed as per the order of the Ld. DIT. In such a situation, two aspects needs to be seen, firstly, whether the assessment order which has been completely merged with the
10 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 order of the Tribunal can be set aside by the Ld. DIT u/s 263; and secondly, whether the impugned order can be considered to be erroneous in so far as it is prejudicial to the interest of the revenue, because even after giving effect to the impugned order, there is no revenue effect.
On both counts, we are inclined to agree with the contention of the Ld. Senior Counsel. Because, firstly, when the entire basis of the assessment and the whole of the surplus amount has been challenged before the CIT(A), then the entire assessment order including taxing of the entire exempt income u/s 11 is the subject matter of appeal and there is complete merger with the order of the CIT(A) within the terms and ambit of section 263 read with clause (c) Explanation 1. Thus, if the subject matter of revision u/s 263 is again the denial of exemption u/s 11, though on different footing, then same is beyond the scope of section 263. On these facts, it can be very well held that the issue of exemption u/s 11 which was the subject matter of appeal before CIT(A) and then before the Tribunal, the Ld. DIT do not have the power to consider and decide “such matter” within the scope of section 263. On the second aspect also, which is purely academic, it is seen that, so far as tax effect is concerned, there is no difference at all between the income which was assessed in the original assessment order and the income which is now being sought to be assessed in wake of order u/s 263. Under both the assessments the surplus amount of Rs. 83.98 crores will get taxed. Hence, no prejudice is caused to the revenue so far as tax effect is concerned, except for the fact that section 11 is being sought to be examined from a different perspective. Accordingly, we hold that, firstly, the subject matter of revision u/s 263 has been merged with the order of the Tribunal, therefore, Ld. DIT is precluded to revise or set aside such order as it is beyond the second of section 263; and secondly, such an order cannot be held to be ‘prejudicial to the interest of the revenue’, because the income which has been sought to be assessed in
11 Slum Rehabilitation Authority ITA No. 2435/Mum/2014 pursuance of order u/s 263, is the same which was originally assessed by the AO. Thus on both the counts, the impugned order passed u/s 263 is cancelled and the grounds raised by the assessee are thus allowed. Other arguments of ld. Sr. Counsel are not being adjudicated upon.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 30th October, 2015.
Sd/- Sd/- (िड. क�नाकर राव) (अिमत शु�ला) लेखा सद�य �याईक सद�य (D. KARUNAKARA RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 30th October, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The DIT (E)___concerned /CIT(A) –concerned____, Mumbai. 4) The DIT/DDIT/CIT –concerned _____, Mumbai. 5) िवभागीय �ितिनिध “सी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “C” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च�हान व.िन.स *Chavan, Sr.PS