TaxTMI 
TaxTMI 
2013 (9) TMI 487
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....tances of the case, the learned CIT(A)-IV, Hyderabad is not justified in holding that the accumulation requested by the appellant is not valid. 5. For the above and any ground or grounds that may be urged during the course of hearing, it is prayed that the Hon'ble Income Tax Appellate Tribunal be pleased to direct the learned Assessing Officer to allow exemption u/s.11, as claimed by the appellant." 2. Briefly the facts relating to the issue in dispute are the assessee is a trust created by virtue of a registered trust deed dated 23.8.2006. The objects of the assessee as set out in clause 3 of the Trust Deed are as under: "3. OBJECTS: The Trustees shall hold and stand possessed of the Trust Fund upon the following trusts: (a) to manage the Trust property and to collect and recover the interest, dividend and other income if any from the property described in the Schedule hereunder, or out of the investments of the Trust property or any part thereof; (b) to pay and to discharge out of the income or the corpus if required, all expenses and charges for collection and for recovery of the Trust property and all other costs, charges, expenses and outgoings relating to the admini....
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....40 crores to M/s. G2 Corporate Services Ltd. on 24.1.2007 resulting in a capital gain of Rs. 21.2 crores to the assessee. It was further noted by the Assessing Officer on examining the receipt and payment account of the trust for the period ending 31.3.2007, the activities of the trust was only limited to buying and selling of 20 lakhs of shares of M/s. Matrix Labs Ltd. by taking and repaying interest free loan from M/s. G2 Corporate Services Ltd. It was noted by the Assessing Officer that the assessee trust has not undertaken a single activity as per the objectives of the trust during the financial year and the only transaction of the trust pertain to buying and selling of shares which is not covered by the objectives of the trust. The Assessing Officer, therefore, issued a notice to the assessee directing to show cause as to why the assessee should not be treated as Association of Person (AOP) instead of Trust and the entire capital gain of Rs. 21,20,00,000/- should not be treated as short term capital gain for the A.Y. under dispute. In response to the notice of the Assessing Officer, the assessee submitted that the trust had commenced operations of charitable activities in full....
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....0 along with the return of income. The assessee further contended that the Managing Trustee during a meeting on 23.2.2007 at Care Hospital, Hyderabad, had publicly announced a donation of Rs. 1 crore to Care Hospital promoting part cost of heart surgeries of 400 poor children. It was further submitted that the trust ha spent a substantial amount in the succeeding A.Y. towards charitable activities. In support of such contention, the statement of accounts for the subsequent A.Y. was also submitted. It was contended that the first cheque of donation was Rs. 1 lakh was issued on 14.4.2007 to Sriram Social Welfare Trust. 5. During the appellate proceedings, the assessee also raised an additional ground contending therein that the assessee had filed a revised Form-10 showing the surplus income at Rs. 12,22,75,585/- for accumulation as per section 11 (2). The CIT(A) after considering the submissions of the assessee on the additional ground and additional evidence submitted with regard to revised Form No.10, called for a remand report from the Assessing Officer. In the remand report the Assessing Officer stated that the assessee trust was required to file Form No. 10 within the time allo....
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....loan taken from M/s. G2 Corporate Services Ltd. is also a concern where Shri N. Prasad was holding 80% of the equity shares. He, therefore, came to a conclusion that funds were applied for the benefit of the settlor of the trust himself as he was also the promoter of M/s. Matrix Labs Ltd. Hence, there is violation of the provisions of section 13(2)(h) of the Act. He, further opined that the funds of the assessee even though coming in its hands as borrowed funds were invested in shares of M/s. Matrix Labs Ltd. which is not in accordance with the provisions of section 13(1)(d) as the investment in shares are not as per the modes of investment prescribed in section 11 (5) of the Act. Therefore, the assessee is not entitled to exemption under section 11 of the Act. The CIT(A), further held that the repayment of loan of Rs. 40 crores also cannot be considered as application of income towards objects of the trust. The CIT(A) observed that as per section 11 (1)(a) only when a trust or institution applies 85% of the income for its objects the income shall be exempt from tax. The CIT(A) was of the view that since the assessee during the year had incurred expenses of Rs. 45,483/- only for th....
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....in provision of law which are not applicable to the facts of the case while coming to his conclusion. The learned A.R. submitted that the CIT(A)'s observation with regard to violation of provisions of law under section 13(2)(h) on account of investment in shares of M/s. Matrix Labs wherein the settlor Mr. N. Prasad is promoter is totally misconceived. It was submitted that section 13(2)(h) prohibits an investment in any concern in which the person referred to in sub-section (3) has substantial interest. It was submitted that the settlor Mr. N. Prasad though is a person covered by sub-section (3), he is not having substantial interest in M/s. Matrix Labs as provided in Explanation 3 to Section 13. The total shareholdings of Mr. N. Prasad and his associates referred to in sub-section 30 was 262700506 shares out of total shares of 153616540 in M/s. Matrix Labs. Thus, the relevant shareholdings is only 17.09%. In this context, the learned A.R. submitted a letter from the company showing the shareholdings of Mr. N. Prasad along with a petition for admitting it as an additional evidence. So far as the CIT(A)'s observation with regard to violation of provision of section 13(1)(d) ....
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....o sit in judgment over the Orders of the DIT (Exemption) in condoning the delay approving accumulation of income. Learned A.R. submitted that even otherwise also as per the purposes mentioned in revised Form 10, extracted at para 88 of CIT(A) order, they clearly reveal that there is nothing general in nature. They clearly spell out the purpose for which accumulation is sought for. It was submitted that the assessee in fact, had donated generously to L.V. Prasad Eye Institute for the treatment of the poor public in addition to other charitable donations. In this context, the learned A.R. submitted the details of charitable activities carried out by the trust in succeeding years. It was submitted that even investment in immovable properties is also a mode of investment under section 11 (5) of the Income Tax Act. The learned A.R. in this context relied upon the decision of the Hon'ble A.P. High Court in the case of CIT vs. Nizam Charitable Trust Appeal No. 13/497 wherein it is held that in order to secure exemption under section 11 (1) (a) of the Act, it is sufficient if the assessee provides or sets apart the funds for a charitable purpose and it is not necessary that the assesse....
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....ld for charitable or religious purposes shall not be included in the total income of the previous year to the extent to which such income is applied to such purpose in India and where any such income is accumulated or set apart for application to such purpose in India to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property. Sub-section 2 however, provides an exception to the extent that where 85% of the income is not applied or is not deemed to have been applied to charitable or illegal purposes in India during the previous year but is accumulated or set apart either in whole or in part for application to such purpose in India then, such income so accumulated or set apart shall not be included in the total income of the previous year on satisfaction of the following condition : 1. Such person specified by notice in writing given to the Assessing Officer in the prescribed manner the purpose in which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart which in no case was exceed 10 years. 2. The money so accumulated or set apart is invested or deposited in t....
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....the CIT(A) came to a conclusion that assessee is not entitled for exemption under section 11 of the Act was considered by the Assessing Officer in the assessment order. Therefore, it is fair and keeping in principles of natural justice that the CIT(A) should have afforded a reasonable opportunity to explain or have his say on the issues on the basis of which the CIT(A) finally came to a conclusion that exemption under section 11 of the Act is not available to the assessee. Though the CIT(A)'s powers are co-terminus with that of the Assessing Officer but before making enhancement or rejecting the assessee's claim on some other new grounds which were not before the Assessing Officer he should have afforded a reasonable opportunity to the assessee for explaining the same. In this view of the matter, the order passed by the CIT(A) rejecting the claim of the assessee on the grounds which were not considered by the Assessing Officer and also not allowed to be contested by the assessee is illegal, unsustainable as it is in violation of principles of natural justice. 11. Even, so far as the validity of the grounds for rejection of the assessee's claim under section 11 is conce....