TaxTMI 
TaxTMI 
2012 (12) TMI 1062
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....his powers conferred under s. 263 of the IT Act held the order of the AO erroneous and prejudicial to the interest of the Revenue and therefore set aside the same with a direction to complete it de novo after removing the mistakes pointed out therein. Subsequently, the AO while giving effect to the order passed under s. 263 completed the assessment on a total income of Rs. 1,42,91,560. The assessee thereafter filed another appeal before the CIT(A). Since both the appeals relate to the same assessment order, the learned CIT(A) decided to adjudicate these orders together. 3. He noted that the first appeal, in reality, has lost its basis as the order against which the appeal has been filed is no more in existence after the same was set aside by the learned CIT Central, Pune under s. 263 of the IT Act. However, during the hearing of the appeal proceedings, the assessee expressed its unwillingness for withdrawing the first appeal on the ground that it has challenged s. 263 order before the Tribunal and in case the appeal is allowed second assessment order will lose its basis. Since the grounds raised by the assessee in both these appeals relate to the same assessment year and same in....
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....edical relief and the activities carried out by the assessee are covered under s. 10(23C). 6.1 So far as the denial of exemption under s. 11 on the ground of violation of provisions of s. 11(5) r/w s. 13(l)(d) the learned CIT(A) upheld the action of the AO in treating the purchase of shares in Bharati Sahakari Bank as in violation of provisions of s. 11(5) r/w s. 13(l)(d). He, however, held that the advances to Bharati Vidyapeeth group do not constitute investments resulting in violation of s. 11(5). 6.2 As regards the treatment of donations received through coupons as revenue receipts, the learned CIT(A) upheld the action of the AO and held that such coupon donations received are not corpus donations. According to him for claiming exemption under s. 11(1)(d) the assessee should identify the donor and there should be direction of the donor that the donations are towards corpus of the trust. Since these conditions are not fulfilled in the case of the assessee, he upheld the action of the AO in treating the same as revenue receipts. 7. While deciding the appeal the learned CIT(A) allowed the claim of the assessee that set off of the excess application by the assessee trust i....
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.... (a) The amounts involved in these shares were very small compared to the total assets of the assessee trust and hence, they could not be considered as investments/deposits. (b) In the assessments completed under s. 143(3) prior to the search, the Department did not raise any objection on this issue and had granted the exemption under s. 11 to the assessee trust. 3.4 Accordingly, the learned CIT(A) was not justified in holding that the appellant trust had made any investments in violation of s. 13(l)(d) r/w s. 11(5). 3.5 Without prejudice to the above grounds, the learned CIT(A) ought to have taxed only the income arising from investments made in violation of s. 11(5.) and not the entire income of the assessee trust. 4. The learned CIT(A) erred in confirming the addition in respect of donation received through issue of coupons of Rs. 85,77,500 without appreciating that the said donations were received towards the corpus of the trust and hence, exempt under s. 11(l)(d) of the Act. 4.1 The learned CIT(A) failed to appreciate that the assessee trust had given affidavits of a few volunteers and the donors in support of the donations....
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....on the incriminating material found during the search but they are based on the enquires in the assessment proceedings. 1.3 The learned CIT(A) erred in holding that in the assessment under s. 153C, all the additions could be made in the assessment and the aspect as to whether they were based on the incriminating material found during the search or not was not relevant. 2. The learned CIT(A) erred in holding that the activities of the assessee trust were covered under s. 10(23C) and therefore, the claim of exemption of the assessee could be examined only under s. 10(23C) and not under ss. 11 to 13. 2.1 The learned CIT(A) failed to appreciate that the assessee trust was duly registered under s. 12A and therefore, it was duly entitled to the exemption under s. 11. 3. The learned CIT(A) erred in holding that the appellant trust was not entitled to the exemption under s. 11 as it had violated the provisions of s. 13(l)(d)r/ws. 11(5). 3.1 The learned CIT(A) erred in holding that the appellant had violated the provisions of s. 13(l)(d) as it had made investment in shares of Bharati Sahakari Bank which was not permitted under s. 11(5) of the Act....
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.... 5.2 Without prejudice to the above grounds, in case the exemption under s. 11 is denied to the assessee trust, it is submitted that the above donations should be treated as capital receipts not chargeable to tax. 6. The learned CIT(A) erred in not granting benefit of 15 per cent of the income which is allowable as per law to be set apart and accordingly, the income computed should have been reduced by 15 per cent. 7. The learned CIT(A) erred in not allowing the application of income of Rs. 43,56,788 being expenditure of capital nature while computing the income of the assessee trust. 8. The learned CIT(A) erred in not granting depreciation to the assessee as per law. 9. The learned CIT(A) erred in denying the exemption under s. 11 to the appellant. 10. The learned CIT(A) erred in not appreciating that no interest was chargeable under s. 234B as per law. 11. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." ITA No. 1042/Pn/2010 (by Revenue): "1. On facts and circumstances of the case and in law, the learned CIT(A) erred in deciding the appeal on merits as the orde....
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....essee has discussed this legal issue and observed as under : "The appellant is a charitable trust which is eligible for exemption from payment of taxes under ss. 11 Hand 12 of the IT Act. 'Charitable purpose' under the IT Act has been defined in s. 2(15) of the IT Act. As per the same (applicable in the relevant assessment years), 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. The words 'not involving the carrying on of any activity for profit' occurring at the end of the above definition, have been omitted w.e.f. 1st April, 1984, to bring the above definition in harmony with the amendment brought in s. 11 of the IT Act whereunder the profits and gains of the business in the case of charitable or religious trusts were not entitled for exemption under that section, except in cases where the business fulfils the conditions specified in s. 11(4) of the IT Act. The definition available in s. 2(15) is also relevant for the purpose of s. 80G which deals with the deductions permissible in the computation of donor's income. The definition of the expression &#....
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....t of cases covered under s. 10(23C). A plain study of all the provisions relating to the assessments of assessees engaged in the activity of charitable purposes claiming exemption from payment of taxes, reveals a clear scheme. As per the same, firstly, the activities should be of the nature of charitable purposes as defined in s. 2(15) of the Act. Thereafter, such assessees have to follow the procedure as are laid in provisions contained under ss. 11 to 13 or s. 10(23C) of the IT Act. Any assessee engaged in any activity of charitable purposes can follow the procedure laid in ss. 11 to 13. However, if the activities are such which are covered under s. 10(23C)(iiiab) or (iiiac) or (iiiad) or (iiiae) or (iv) or (v) or (vi) or (via), then they are supposed to follow the procedure laid in these specific sections of the Act. A perusal of the sub-clauses available in s. 10(23C) relating to exemption to trusts etc., very clearly shows that they are generally applicable in the cases who are engaged in the establishment and running of educational institutions or university and hospitals of definite descriptions, which are of national spread and significance. The procedure and the concept ba....
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....certificate dt. 5th Nov., 1990. Referring to the copy of the assessment order for asst. yr. 2003-04 placed at paper book page No. 69, he submitted that for the earlier years the exemption under s. 10(22)/s. 11 was allowed to the assessee. He submitted that s. 11 allows the assessee to claim exemption if it is engaged in charitable activities as defined in s. 2(15). One of the activities specified in s. 2(15) is providing medical relief. Therefore, if a charitable trust is providing medical relief and has also obtained registration under s. 12A, it can claim exemption under s. 11. He submitted that if the contention of the learned CIT(A) is to be accepted then the legislature would not have provided medical relief in the definition of charitable activity. He submitted that exemption under s. 10(23C) is available only if the assessee has obtained the approval from the Chief CIT. If no approval is obtained, the exemption under s. 10(23C) cannot be claimed. He submitted that in the case of the assessee no such approval has been obtained and therefore there is no question of claiming exemption under s. 10(23C). He submitted that in case the assessee has received approval under s. 10(23C....
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....ned in s. 2(15), that in the preceding years exemption under s. 11 was made available to the assessee, exemption under s. 10(23C) is available only if the assessee has obtained approval from the Chief CIT and that there is no compulsion under the law that the assessee must apply under s. 10(23C) and cannot claim exemption under s. 11. We find as per provisions of s. 2(15), as it stood at the relevant time applicable for this assessment year, 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. Therefore, the activities of the assessee in our opinion are covered under provisions of s. 2(15). No doubt the assessee trust is running a hospital and could have claimed exemption under s. 10(23C) if it desires so and fulfils the formalities such as applying to the Chief CIT in the prescribed form etc. However, it cannot be said that the assessee trust is not entitled to benefit of deduction under s. 11. In our opinion, the assessee trust in the instant case, has both the options available before it, i.e. either it can apply for exemption under s. 10(23C) or claim exemption under s. 11. The cho....
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....w s. 11(5). 16. In appeal the learned CIT(A) allowed the claim of the assessee in respect of the transactions with Bharati Vidyapeeth deemed university medical college and other concerns holding that the same shall not constitute investments resulting in violation of s. 11(5). However, he held that purchase of shares of Bharati Sahakari Bank resulted in violation of s. 11(5) and therefore the provisions of s. 13(l)(d) are clearly attracted. While doing so, he rejected the contention of the assessee that the investment in shares of the co-operative bank was made under compulsion for obtaining the loan for the purpose of the activity of the trust and therefore it should be treated as application of money and not investment. 17. The learned counsel for the assessee submitted that the AO had rejected the claim of exemption under s. 11 on account of investment in shares of Bharati Sahakari Bank and the advances to Bharati Vidyapeeth. The learned CIT(A) while adjudicating the issue has allowed the claim of the assessee in respect of the transactions with Bharati Vidyapeeth holding that the same does not constitute investments resulting in violation of s. 11(5). The Revenue is not i....
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....interpretation of the same was not justified. According to him the same cannot be treated as an application of funds since it appears in the balance sheet of the assessee. 17.3 The learned counsel for the assessee submitted that the loan obtained from Bharati Sahakari Bank was duly reflected in balance sheet in the past and the loan was utilised for the charitable purposes of the trust. He reiterated that as per the bye-laws of the bank the assessee was under a binding obligation to purchase certain number of shares of the lender co-operative bank depending upon the amount of loan. In order to fulfil the precondition to obtain the loan the assessee had purchased the shares of the bank. He submitted that the bank had deducted the subscription towards shares from the loan amount granted to the assessee. Therefore, it was not an investment made in shares but an expenditure incurred in order to obtain the loan for the charitable objects that is setting up of and running a hospital. He submitted that since the shares were purchased as compulsion in order to raise the loan to attain the charitable objects of the trust, it does not matter whether outlay was revenue or capital in nature....
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....idered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case the AO denied the exemption under s. 11 on the ground that there is violation of provisions of s. 13(l)(d) r/w s. 11 (5) since the assessee has made the following investments or continued to hold the investments for the impugned assessment year as under : (a) Shares in Bharati Sahakari Bank 25,250 (b) Advance to Bharati Vidyapeeth-Deemed university medical college 56,73,499 (c) Advance to ayurved hospital 1,06,40,099 (d) Advance to homeopathic hospital 59,90,016 (e) Rent advance to Bharati Vidyapeeth (trust) 8,76,26,124 18.1 We find the learned CIT(A) held that there is no violation of s. 13(1 )(d) r/w s. 11(5) on account of items (b), (c), (d) and (e) above for which the Revenue is not in appeal. However, he held that by continuing to hold the shares in Bharati Sahakari Bank after the loan was repaid the assessee has violated the provisions of s. 13(l)(d) r/w s. 11(5). It is the submission of the learned counsel ....
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....e the assessee. is, still enjoying overdraft facility from the bank, therefore, we find no logic on the part of the AO and CIT(A) to hold that there is violation of provisions of s. 11(5) r/w s. 13(l)(d) because the assessee continues to hold the shares once the loan was repaid. Considering the totality of the facts of the case, considering the fact that the Revenue had no objection in the past for holding the shares of the bank during the tenure of loan utilised by the assessee trust and considering the fact that the assessee trust is still enjoying overdraft facilities from the bank we are of the considered opinion that there is no violation of provisions of s. 11(5) r/w s. 13(l)(d) on account of holding the shares of the bank. In this view of the matter, we set aside the order of the CIT(A) and the grounds raised by the assessee on this issue are allowed. 19. In ground of appeal Nos. 4 to 5.2 the assessee has challenged the order of the CIT(A) in treating the donations received through issue of coupons as revenue receipts. 20. Facts of the case, in brief, are that the assessee-trust had received donations by issue of coupons in denominations of Rs. 100, Rs. 500 and Rs. 100....
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.... trusts of the group have also received similar donations running into lakhs of rupees from different villagers in rural areas in the similar manner by way of unnamed, unsigned coupon collection of small donations. He further noted that there is some difference between the collection of donation as submitted by the assessee and the entries appearing in the books of account. In view of all these defects, the AO held the donations through coupons and credited to development fund as not genuine. 20.3 The AO further noted that the donors who have given donation through coupons are neither aware of the nature nor the purpose of donation claimed in their names, therefore, these donations are dubious and cannot partake the character of 'corpus' donation within the meaning of s. 11(l)(d) of the IT Act. From the sample copy of the coupon donations filed, the AO noted that the word 'corpus' is found to be printed on these coupons. In other words the nature of donation is decided by the assessee trust itself without the knowledge of the donor. Relying on the decision of the Pune Bench of the Tribunal in the case of Dy. CIT v. Nasik Gymkhana [2001] 77 ITD 500 and the decisio....
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....ble as income of the trust and cannot be considered as exempt under s. 11(1)(d) of the IT Act. Aggrieved with such order of learned CIT(A), the assessee is in appeal before us. 22. The learned counsel for the assessee submitted that there is no justification for making the addition under s. 68 on account of donations. He submitted that if these are not held to be corpus donations, these would be includible in the income of the assessee under s. 11 of the IT Act. He submitted that since anonymous donations are being received by the charitable trusts, therefore, the legislature has brought in the provisions of s. 115BBC w.e.f. asst. yr. 2007-08. He accordingly submitted that if the donations are not treated as corpus donations they cannot be treated as cash credits but would be donations includible in the income under s. 11 and not exempt under s. 11(1)(d) of the IT Act. He submitted that the assessee has received coupon donations wherein it is clearly mentioned that these are towards "corpus" or "building fund". Referring to copies of affidavits of some of the volunteers placed at paper book page Nos. 15 to 47 he submitted that the assessee, during the course of assessment procee....
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....difference. We, therefore, hold that exemption under s. 11 is allowable on such coupon donations. The grounds by the assessee are decided accordingly. 23.1 So far as ground of appeal Nos. 6, 7 and 9 are concerned both the sides agreed that these are consequential in nature if exemption under s. 11 is allowed. Since in the preceding paras we have held that the assessee trust is entitled to claim exemption under s. 11, therefore, ground of appeal Nos. 6, 7 and 9 being consequential in nature are allowed. 24. Ground of appeal No. 10 relates to charging of interest under s. 234B. Since the exemption under s. 11 is allowed, therefore, this ground being consequential in nature is allowed. ITA No. 1042/Pn/2010 (by Revenue): 25. The first ground raised by the Revenue relates to the order of the CIT(A) in deciding the appeal on merit instead of dismissing the same as infructuous. 25.1 After hearing both the sides, we find the assessment was framed by the AO under s. 143(3)/153C. The assessee filed appeal before the CIT(A). During the pendency of the appeal the learned CIT invoked the jurisdiction under s. 263. Subsequently, the AO passed the order under s. 143(3)/153C/263 and....