TaxTMI 
TaxTMI 
2007 (10) TMI 435
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....e corporation, the assessee, procured rice, edible oil, sugar etc., and distributed the same to the poor people through Public Distribution System. According to the learned representative, the distribution of essential commodities were made as per the instruction issued by the Government. The sale prices of essential commodities was also fixed by the Government. Therefore, the entire activity of the assessee from this stage of procurement till the date of distribution to the people were controlled by the State Government and the assessee corporation has no decision making power except to comply with instruction issued by the State Government. According to the learned representative the first issue arises for consideration is whether the assessee is a charitable institution within the meaning of section 2(15) of the Income-tax Act? According to the learned representative, this issue was considered by this Tribunal elaborately in the assessee's own case for the assessment year 1985-86 and this Tribunal my majority opinion held that the object of the assessee is a charitable purpose within the meaning of section 2(15) of the Income-tax Act. Further more, an another Bench of this Tribu....
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....al, sugar etc., was also covered by the earlier decision of this Tribunal. Therefore, according to the learned representative, the assessee is entitled for exemption under section 11 of the Income-tax Act. 4. The learned representative for the assessee further submitted that for the assessment year 1996-97, the CIT(A) for the first time raised an issue that regarding the violation of section 13(1)(d) of the Income-tax Act. According to the CIT(A), the capital investment made by the assessee in promoting joint venture company for the purpose of achieving its object of charitable purpose amounts to investment in shares of the company other than the Government company. Therefore, the assessee is not entitled for exemption under section 11. The learned representative referred to provisions of section 13(1)(d) of the Income-tax Act and submitted that proviso 3 to section 13(1)(d) says that any funds representing the profits and gain of the business being profit and gain of any previous year relevant to assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year, shall be exempted from provision of section 13(1)(d) of the Income-tax Act. In this regard, ....
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....itted that even though admittedly the investments were made in the year 1981-82, the revenue has not raised this question up to assessment year 1995-96. Even in the assessment year 1996-97, the Assessing Officer has not raised this question. However, for the first time, the CIT(A), in the course of hearing of the appeal, raised his objection on the basis of the facts found on the balance sheet. According to the learned representative, having accepted, the investment made by the assessee in the capital of joint venture company till the assessment year 1995-96, the CIT(A) cannot raise this issue for the assessment year 1996-97. The learned representative further submitted that since the assessee contributed to the capital of the joint venture company, it cannot be construed either as an investment or deposit. Therefore, there is no violation of section 13(1)(d). 5. On the contrary, Shri D.D. Goyal, learned Departmental Representative submitted that the issue whether the assessee is a charitable institution or not within the meaning of section 2(15) of the Income-tax Act, has been decided by this Tribunal from the assessment years 1983-84 to 1992-93. The first case was Katika Ramul....
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....h expectation of deriving profit from the vendor amounts to investment, therefore, the assessee is not entitled for exemption under section 11 of the Income-tax Act. The learned representative again placed his reliance on the judgment of the Kerala High Court in the case of Sree Narayana Chandrika Trust v. CIT [1997] 224 ITR 445 and submitted that, payment of money towards the contribution of share capital has to be understood as an investment. Since, admittedly, the assessee contributed to the share capital of the joint venture project, there was a clear violation of the provisions of section 13. Therefore, according to the learned representative, the assessee, is not entitled for any exemption under section 11 of the Income-tax Act. The learned representative again placed his reliance on the judgment of the Calcutta High Court in the case of CIT v. Birla Charity Trust [1988] 170 ITR 150. The learned representative submitted that in this case, the assessee received share of the company by way of donation. Therefore, the Calcutta High Court held that the assessee is entitled for exemption. In the present case, the assessee contributed to the share capital. Therefore, it cannot be s....
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....g that the assessee corporation is a charitable institution. The High Court further observed that even if any dividend are declared, the utilization of the same by the corporation is undoubtedly for public purposes. Therefore, the corporation does not loose its character of charitable nature. In view of the above, in our opinion, the assessee corporation continues to be a charitable institution for the assessment years under consideration also. Coming to the issue of application of funds for the purpose of purchasing essential commodities like rice, dal, edible oil, sugar etc., was also considered by this Tribunal in the earlier assessment years and it was held that application of funds for the purpose of purchase of essential commodities would amount to application of funds for charitable purpose. Therefore, there is no violation of section 11(2) of the Income-tax Act. The expenditure incurred by the assessee for purchasing essential commodities would amount to application of its income for charitable purpose. In view of the earlier order of this Tribunal, this issue also settled. 7. The only dispute now arises for consideration is whether there was any violation of section 13(....
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....ng 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)to (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 (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 day of November, 1983: Provided that nothing in this clause shall apply in relation to - (i )any assets h....
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....984, the provisions of section 13(1)(d) is not applicable. However, we do not find any merit in the submission of the learned representative for the assessee. Admittedly, the joint venture companies were promoted in the year 1981. The entire investment was made during the financial year 1981-82 and the assessment year is 1982-83. There is no dispute about the year in which the investments were made in the joint venture company. Therefore, we have to see whether the proviso 3 to section 13(1)(d) would come into operation in respect of investment made during the financial year 1981-82. Proviso 3 to section 13(1)(d) clearly says that if the investment of funds of the trust represents the profits and gains of the business of any previous year relevant to assessment year commencing on 1-4-1984 or any subsequent assessment year, the provisions of section 13(1)(d) may not be applicable. It means the investment of fund shall be from the profit and gains of the business of the financial year 1983-84 or subsequent year. In other words, the assessment year relevant to financial year 1983-84 commences on 1-4-1984. In this case, admittedly, the entire investment in the joint venture company was....
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....ade by the assessee as a promoter in the share capital would amount to investment in the shares of the company or not ? Section 85 of the Companies Act, 1956 provides for two kinds of share capital. One is preferential share capital and another is equity share capital. Preferential share capital means the capital which carry a preferential right to be paid at a fixed rate and in the winding up proceeding, a preferential right to repay the paid-up capital. The term 'equity share capital' means the share capital which is not preferential share capital. The Companies Act does not provide for any distinction between the investment made in the share capital by the promoter or the other investment made by the share holders. Under the provisions of the Income-tax Act and as per the Memorandum and Articles of the Association of the Company, the person entitled to make investment can invest either in the preferential share capital or in the equity share capital. The entire investment in the shares either by the promoter or by any shareholder would go to the capital of the company. Therefore, in our opinion, the investment made by the assessee in the joint venture company as a promoter to th....
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....no investment was made in share. 12. The next question that follows is, when the assessee-company invested with share capital of joint venture company with an intention of procuring dal and edible oil, etc. for the purpose of distributing the same through public distribution system, whether such investment would violate the provisions of section 13(1)(d) of the Income-tax Act ? In other words, whether section 11 would override the provisions of section 13 of the Income-tax Act. 13. We have carefully gone through the provisions of sections 11 and 13 of the Income-tax Act. Section 11 provides for exemption of income derived by a charitable institution to the extent to which such income was applied for charitable purposes in India. Section 13 provides certain restriction for application of sections 11 and 12 of the Income-tax Act. Section 13(1) begins with non-obstante clause. Section 13(1) clearly says that nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year, in case, there is any violation as provided therein. Therefore, the exemption provided under section 11 of the Income-tax Act, is always subject to restri....
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....om such debenture, provided such funds do not continue to remain so invested after 31-3-1992. Therefore, it is obvious that if the investment was made after 28-2-1983 but before 25-7-1991 and the investment was not continued after 31-3-1992, the disallowance can be made only to the extent of income-derived from such investment and the assessee shall be eligible for exemption under section 11 in respect of other income other than the one arising out of such investment. In this case, admittedly, the investment were made before 28-2-1983 and admittedly the investment continued after 31-3-1992 also. Therefore, the provisions of section 13(5) also does not come to the rescue of the assessee. 14. Now coming to section 13(6) of the Income-tax Act if any medical or education facilities provided to the interested persons, the exemption shall not be denied in respect of other income other than the income received from such interested person for providing education or medical facilities. From the above, it is obvious that the Legislature has also provides for exemption in respect of income other than one prescribed under section 13 (4), 13(5) or 13(6) of the Income-tax Act. If the intentio....
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....or exemption under section 11 of the Income-tax Act, we have to examine the merit of the addition made by the lower authorities. 16. Let us first take assessment year 1996-97. The first disallowance was Rs. 13,98,113 towards ex gratia payment. Sri Anjaneyulu, learned representative for the assessee submitted that the ex gratia payment was estimated and no amount was spent during assessment year under consideration towards ex gratia payment. However, the funds was available and utilized for the object of the charitable activities. Therefore, it has to be exempted under section 11 of the Income-tax Act. 17. We heard the learned Departmental Representative also. 18. Admittedly, the ex gratia amount was not paid, therefore, it is not eligible for deduction or any allowance as expenditure. The assessee is also not eligible for exemption under section 11 of the Income-tax Act since there was a violation of section 13(1)(d) of Income-tax Act. Accordingly, we confirm the order of the lower authorities. 19. The next ground of appeal regarding gratuity payment to the extent of Rs. 43,33,954. Admittedly, the assessee has made a provision and no payments were made. Therefore, the p....
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....uch interest. Further, no payment in fact was made. In our opinion, a provision cannot be allowed in respect of payment due to financial institution. Unless and until payment was made, it cannot be allowed under section 43B of the Act. Therefore, we confirm the disallowance made by the lower authorities. 25. The next addition is to the extent of Rs. 1,95,00,000 towards interest on interest on loan provided from ESCOM. Sri Anjaneyulu, the learned representative for the assessee submitted that a provision for payment of interest was provided in the account. The learned representative further submitted that the entire credit facility of ESCOM was transferred to the assessee's account and the assessee availed the benefit of the said loan and cash credit which was treated at par with loan. Therefore, the provision made for payment of Rs. 1,95,00,000 towards interest, has to be allowed. 26. However, the learned Departmental Representative contended that since the payment was due to the financial institution and no payment was in fact made, therefore, the provision cannot be allowed. 27. We have considered the rival submissions of the parties on this issue and we find that this d....
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....dition. The CIT(A) after perusing the records found that the assessee has miscellaneous income of Rs. 73,39,907. However, the break-up details were not furnished. Since the break-up details of miscellaneous income were not furnished, the CIT(A) has confirmed the addition. In our opinion, the matter requires fresh examination after going through the break-up of details of miscellaneous income to the extent of Rs. 73,39,907. Accordingly, we set aside the order of the lower authorities on this issue and remand the matter back to the file of the Assessing Officer. The Assessing Officer shall go through the details of income of Rs. 73,39,907 that may be furnished by the assessee and thereafter, decide whether any such income is included in the miscellaneous income and if already included, there is no need to make any separate addition. If the assessee failed to furnish the break-up details of the miscellaneous income within the period that may be provided by the Assessing Officer or after verifying the details, if the Assessing Officer finds that the amount of Rs. 17,38,000 was not included in the miscellaneous income of Rs. 73,39,907, then the Assessing Officer is at liberty to make th....