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Section 13(1)(c) in The Income- Tax Act, 1995
Section 13(1)(b) in The Income- Tax Act, 1995
Section 11 in The Income- Tax Act, 1995
The Income- Tax Act, 1995
Section 144A in The Income- Tax Act, 1995

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Income Tax Appellate Tribunal - Chennai
Paramartha Bhooshanam Sri ... vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL

"A" BENCH, CHENNAI

Before Shri N. S. Saini, Accountant Member and Shri George Mathan, Judicial Member

.....

I.T.A. Nos. 744, 745, 746, 747, 748 & 749/Mds/2011 Assessment Years :1986-87, 1987-88, 1988-89,

1991-92,1992-93 & 1993-94

The Deputy Director of Income-tax M/s. Paramartha Bhooshanam (Exemptions)-II, v. Sri Nathella Sampathu Chetty Chennai. Charities, No. 123, N.S,.C. Bose Road,

Sowcarpet, Chennai-600 079.

(PAN : AAAAP0065D)

(Appellant) (Respondent)

AND

C.O. Nos. 92, 93, 94, 95, 96 & 97/Mds/2011

(In ITA Nos. 744, 745, 746, 747, 748 & 749/Mds/2011) Assessment Years : 1986-87, 1987-88, 1988-89,

1991-92, 1992-93 & 1993-94

M/s. Paramartha Bhooshanam v. The Dy. Director of Income-tax, Sri Nathella Sampathu Chetty Charities, (Exemptions)-II, No. 123, N.S,.C. Bose Road, Chennai. Sowcarpet, Chennai-600 079.

(Cross Objector) (Respondent)

Department by : Shri Shaji P. Jacob Assessee by : Shri N. Devanathan

2

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

ORDER

PER BENCH:

ITA Nos. 744 to 749/Mds/2011 are appeals filed by the Revenue against the

orders of the learned CIT(Appeals)-XII, Chennai in ITA Nos. 452, 453, 454, 455,

456 & 457/07-08 dated 17-01-2011 for the assessment years 1986-87, 1987-88,

1988-89, 1991-92, 1992-93 and 1993-94 respectively. CO. Nos. 92 to

97/Mds/2011 are cross objections filed by the assessee against the Revenue's

appeals in ITA Nos. 744 to 749/Mds/2011 respectively.

2. Shri Shaji P. Jacob, learned Sr. DR represented on behalf of the Revenue and

Shri N. Devanathan, Advocate represented on behalf of the assessee.

3. It was submitted by the learned DR that the assessee is a trust registered

u/s 12A(a) of the Income-tax Act,. 1961. It was the submission that in the course

of assessment it was noticed that there was violation of the provisions of section

13(1)(c) of the Act. It was the submission that the facts as brought out by the

Assessing Officer in his order in regard to the violation under section 13(1)(c) had

not been disputed by the assessee nor was it adjudicated by the learned CIT(A).

It was the submission that the learned CIT(A) had held that the income earned by

the assessee trust by way of rentals and amenity charges for the running of the

marriage hall was incidental to the attainment of the objects of the trust and

therefore entitled to have continued exemption u/s.11 of the Act. It was the 3

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

submission that it was not the issue that continued exemption under section 11

which was decided by the Assessing Officer. It was the submission that the

exemption u/s 11 had been denied to the assessee as there was violation of the

provisions of sec. 13(1)(c) of the Act. It was the further submission that the

assessee had also not produced the books of accounts for the purpose of

assessment. It was the submission that the order of the learned CIT(A) was liable

to be reversed.

4. In reply, the learned authorised representative submitted that the allegation

of violation of the sec. 13(1) (c) was explained in the statement of facts filed

before the learned CIT(A). It was the further submission that this issue had

already been considered in detail by the Joint Director of Income Tax

(Exemptions) in an application filed u/s 144A of the Act. The learned authorised

representative placed before us copy of the directions granted under section 144A

by the Joint Director of Income-tax (Exemptions). It was the submission that as

the issue of violation under section 13(1)(c) has already been the subject matter,

the directions under section 144A for adjudicating the same in the assessment

proceedings was beyond the jurisdiction of the Assessing Officer. He vehemently

supported the order of the learned CIT(A).

5. We have considered the rival submissions. The directions of the Joint

Director of Income-tax (Exemptions) are extracted hereunder: 4

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

"ORDER U/S 144A of I.T.Act:

During the course of assessment proceedings for the A.Y. 1998-99 to 2003-04 the assessee made an application u/s 144A of the I.T.Act to call for an examine the records for issue of directions for the guidance of AO in completing the assessment proceedings for the above assessment years.

2. In the application filed by the assessee u/s 144A of the i.T.Act The assessee requested for issue of direction on the following issues:

A) Whether on the facts and circumstances of the case the Assessing Officer was right in reopening the assessments for the asst. years 1998-99 to 2003-04.

B) Whether on the facts and circumstances of the case, the Assessing Officer was right in holding that the provisions of section 13(1)(b) and 13(1)(c) are applicable to the facts of the case. In order to examine the issues involved, the case has been posted for hearing fixing the date of hearing to 8.03.06 and on request of the assessee's authorized representative, the case was taken up for hearing on 15-03-06 and the information furnished has been examined. The case was again discussed with the AR on 21.3.06. The brief facts of the case are as under :

3. Shri Nathella Sampathu Chetty made registered deed of settlement executed on 01-03-1958 in favour of Smt. Nathella Sulochana his second wife settling two immovable properties in her favour, inter alia, with the following objects: a) To provide for food and shelter to such of the lineal descendents male and female of the settler who may be in need 5

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

of the same on their application in writing to the trustees declaring that they are in actual need of such assistance. b) For performing Vysya Thathyaradhana that is feeding pilgrims belonging to the Vysya 108 Gothram Community in Tirumalai Allo India Vytsya Samajam Ramanuja Kootam during Brahmothsavam festival every year, and also offering donations to such Vysya Thathiaradhanas conducted in Thengalai Samprathayaka Divyaadesams out of 108 Divyadesams:

c) For providing educational scholarships or school books to students belonging to the Vysya 108 Gothrams Community and studying in any of the schools in the city of Madras.

d) For providing relief to the poor and indigent members of the Vysya 108 Gothram community residing in the city of Madras.

4. Subsequently, a registered deed of surrender was executed in favour of a trust comprising a board of three trustees of the same family, by Smt. Sulochana, wife of Sri Nathella Sampathu Chetty on 30-03-72 and the objects of the trust are as under:

"The income from and out of the Trust property shall be used by the Trustees for any of the following purposes, namely : a) For performing Vysya Thatheyaradhana that is feeding pilgrims belonging to the Vysya 108 Gothram community in Tirumalai All India Arya Vysya Samajam Ramanujakutam during Brahmothsavam festival every year and also offering donations to such Arya Vysya Thathiaradhana conducted in Thengalai Samperathayaka Vivyadesams out of 108 Divyadesams. 6

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

b) For providing educational scholarships or school books to students belonging to the Vysya 108 Gothram community and studying in any of the schools in the city of Madras. c) For providing relief to the poor and indigent members of the Vysya 108 Gothram community residing in the city of Madras."

5. The assessment in this case was reopened u/s 148 of the I.T.Act for the following reasons:

Two immovable properties belonging to Sri Nathella Sampathu Chetty were settled in favour of his second wife Smt. N. Sulochana by way of Deed of Settlement dt. 1.03.58 with the objectives that the income earned from these properties shall be used to provide food and shelter to lineal descendants of the settler and 108 Gothram community. Therefore no trust in effect was created through the Settlement Deed dt. 1.03.58 nor any property was bestowed on the trust. The actual trust was created only by Settlement Deed dt. 30.03.72 by Smt. Sulochana in which she extinguished her beneficiary ownership in immovable properties in favour of the trust governed by a Board of Trustees as mentioned in the Surrender Deed. Thus, the trust had been created only after the commencement of the I.T.Act 1961. The trust could not be granted exemption u/s 11 and 12 of the Act in view of the specific provisions contained in Sec. 13(1)(b) of I.T. Act.

6. The assessee's representative Shri N. Devanathan, Advocate, in his written submission stated that the provisions of Sec. 13(1)(b) are not applicable to the facts of the case and also filed a copy of the reply submitted to the DI(E) in which he objected to the proposed reopening of the assessments and cancellation of 7

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

registration granted u/s 12A of the I.T.Act. The AR of the assessee during the course of these proceedings requested to read the reply filed by the assessee before the DIT(E) as part and parcel of his explanation in these proceedings. In the representation submitted to the DIT(E) for the proposed cancellation of registration it was stated that the application for registration of the trust u/s assessee12A of I.T.Act was considered by the CIT and the registration was granted to the trust after considering the materials furnished by the assessee-trust. It was also submitted that since no fresh facts comes to light for cancellation of registration, cancellation of registration is not warranted. It was also submitted that the trust has been spending its income towards charitable purposes without caste or creed and the income has not been utilized for the purpose of any particular religious community. Therefore, the reopening of the assessment for the above assessment years by the ADIT(E) and the proposed cancellation of registration u/s 12AA of the I.T.Act are unwarranted.

7. The assessee's representative reiterated the same grounds and stated that the re-opening of assessments for the Asst. Years 1998-99 to 2003-04 is not correct and also stated that the provisions of Sec. 13(1)(b) and 13(1)(c) are not applicable to the facts of the case.

8. During the course of hearing of the case for direction u/s 144A of the I.T.Act before the undersigned, the authorized representative vehemently argued that the provisions of Sec. 13(1)(b) and 13(1)(c) are not applicable since the assessee-trust is a public charitable and religious trust and the provisions of Sec. 13(1)b) attracts only in the case of charitable trust or institution 8

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

created for the benefit of any particular religious community yor caste and Sec. 13(1)(c) attracts in those cases where the income of the trust is utilized for the benefit of any individual trustee or relatives of the trustees. In support of this the authorized representative relied on the decision of the Gujarat High Court in the case of CIT vs. Barkate Saiofiyah Society reported in 213 ITR

492. On going through the facts of the case, there is no evidence to show that the trust of the assessee was registered as religious and charitable trust. Even after going through the returns of income filed or the accounts, statements, or audit reports filed along with the return of income, it does not indicate it is a charitable and religious trust. It is basically a public charitable trust. As could be seen from the objects of the trust as per trust deed dated 30.03.72 cited supra, basically the trust was created for the benefit of the following:

"The income from and out of the Trust property shall be used by the Trustees for any of the following purposes, namely

a) For performing Vysya Thathayaradhana that is feeding pilgrims belonging to the Vysya 108 Gothram community in Thirumalai All India Arya Vysya Samajam Ramanujakutam during Bramothsavam festival every year.

b) For providing educational scholarships or school books to students belonging to the Vysya 108 Gothram community and studying in schools in the city of Madras. 9

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

c) For providing relief to the poor and indigent members of the Vysya 108 Gothram community residing in Madras."

9. Therefore, the creation of trust and its objectives are paramount importance than the actual spending of income of the trust. Section 13(1)(b) speaks of charitable institution/trust created or established for the benefit of any particular community or caste. This section does not speak how the money is spent and to whom the money was spent. Even if the money has been spent to persons other than a specific group of people mentioned in the objectives of the trust as claimed, there is violation since the very purposes of creation or establishment of the charitable trust is for the benefit of a particular religious community or caste mentioned in the trust deed. There is nothing on record to show either in the objectives of the trust or in the activities of the trust that it is a religious and charitable trust. Therefore the claim of the assessee that it is a charitable and religious trust is not supported by any evidence on record. It has been registered as a "public charitable trust" and accordingly assessable to tax.

10. Therefore the case relied upon by the assessee is not applicable to the facts of the case. After considering the written submissions as well as the argument put forth by the assessee's advocate, I am of the opinion that there is a clear violation u/s 13(1)(b) of the I.T.Act and therefore the reopening of assessments for the Asst. Years 1998-99 to 2003-04 is justified. Further since the assessee-trust was created with the objects of utilizing its income for the benefit of a particular religious community to which 10

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

the trustees belong namely, Vysya 108 Gothram community, there is a violation of the provisions of Sec. 13(1)(b) of the Act. I find no reason to interfere with the reopening of the assessments by the ADIT(E) for the assessment years 1998-99 to 2003-04. The ADIT(E) is accordingly directed to assess the income of the trust for the Asst. Years 1998-99 to 2003-04 taking into account the violation of Sec. 13(1)(b) of the I.T.Act.

Sd/- (S. Samuel Prasad)

Joint Director of Income Tax

(Exemptions)

Chennai."

A perusal of the directions clearly shows that the Joint Director of Income-tax

(Exemptions) under section144A has categorically held that there is violation of

section 13(1)(b). This has been followed by the Assessing Officer and the same

has not been adjudicated upon by the learned CIT(A).

6. At the outset it is noticed that the Assessing Officer has specifically made an

allegation that there has been a violation of section 13(1)(c). This finding of the

Assessing Officer as also the finding of the Assessing Officer that the assessee

had not produced its books of accounts for verification have not been adjudicated

by the learned CIT(A). In fact, the learned CIT(A) is only mentioning that the

assessee's income is entitled for exemption u/s.11. Undisputedly, the Assessing

Officer himself has mentioned that the assessee is a trust registered u/s 12A(1) of

the Act. This finding itself makes the income of the assessee-trust exempt u/s.11.

However, the registration u/s. 12A(a) does not give a blanket approval to the 11

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

trust that its income is exempt. The Assessing Officer is duty bound to verify

violations, if any, in regard to sections 11 and 13. Once the Assessing Officer has

made a finding in regard to the violations, then such finding would have to be

dislodged before the income in relation to the violation is granted the benefit of

exemption u/s 11. Here, the Assessing Officer has specifically mentioned that the

books of accounts were not produced for verification. The Assessing Officer has

also specifically mentioned violation in regard to the provisions of sections

13(1)(b) and 13(1)(c). This finding of the Assessing Officer has not been

adjudicated by the learned CIT(A) even though it is a subject matter of the appeal

before the learned CIT(A). The learned CIT(A) has only adjudicated upon the

issue as to whether the business of running the Kalyanamandapam is incidental to

the attainment of the objects of the trust and therefore it is entitled to the

exemption under sec.11. In the circumstances as it is noticed that the learned

CIT(A) has not adjudicated on the issue of violation of sections 11 and 13(1)(b)

and 13(1)(c), the issues in the appeals are restored to the file of the learned

CIT(A) for re-adjudication after granting the assessee adequate opportunity to

substantiate its claim. In the circumstances, the appeals of Revenue are allowed

for statistical purposes.

7. In the cross objections the assessee has vehemently supported the order of

the learned CIT(A). As we have restored the issues in the Revenue's appeals to 12

I.T.A. Nos. 744-749/Mds/2011 & CO 92-97/Mds/2011

the file of the learned CIT(A) for re-adjudication, the cross objections filed by the

assessee have become infructuous and are dismissed as infructuous.

8. In the result, the appeals filed by the Revenue are allowed for statistical

purposes and the cross objections filed by the assessee are dismissed.

9. The order was pronounced in the court on 22/7/2011.

Sd/- Sd/- (N. S. Saini) (George Mathan) Accountant Member Judicial Member

Chennai,

Dated the 22nd July, 2011.

H.

Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file