TaxTMI 
TaxTMI 
2003 (3) TMI 49
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....n 143(1)(a) of the Act on August 31, 1994. Thereafter, the Assessing Officer issued a notice under section 148 of the Act on January 8, 1998, and the assessment was reopened. After a perusal of the evidence produced by the assessee and also hearing it, the assessment was completed on March 29, 2000, for total income of Rs. 10,44,82,246. After reopening, the major addition of Rs. 9,99,62,664 was the total receipts of the trust, which was brought to tax on the ground that the provisions of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(d) of the Act were violated by the assessee. The facts relating to the said addition of Rs. 9,99,62,664 are as follows: The assessee has been receiving foreign contributions for various develop mental projects in rural areas of the States of Andhra Pradesh and Orissa. Some of the projects like Rural Development Project (R.S.P.), Warangal, Women Development, bonded labour, rehabilitation of bonded labour, new perspective plan, Yanadi Development Project, etc., aim at providing financial assistance to poor and needy people. The amounts are given in the form of interest-free loans to the beneficiaries and claimed as utilisation of the do....
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....ue affirmed the order passed by the Commissioner of Income-tax (Appeals). Aggrieved by the said order of the Tribunal dated May 17, 2002, the present I.T.T.A. is filed. Counsel for the appellant mainly pleaded the following questions as substantial questions of law in this appeal: "1. Whether, on the facts and in the circumstances of the case, section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(d) of the Act are attracted So as to deny to the assessee the operation of and benefit under the provisions of section 11 of the Act? 2. Whether the finding of the Income-tax Appellate Tribunal that the assessee was attracted by the provisions of section 13 of the Act is perverse and not based upon any evidence? 3. Whether the conclusions drawn holding that the assessee has violated the above provisions of the Act are perverse when the notice was issued under section 13(3)(d) of the Act? and 4. Whether the Assessing Officer was not unreasonable in bringing the entire amount of donations received by the assessee to tax?" At the outset, learned counsel for the appellant argued that the provisions of section 13(3)(cc) are not attracted in the present case. As regards the l....
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....on (3) The persons referred to in clause (c) of sub-section (1) and subsection (2) are the following, namely: (a) the author of the trust or the founder of the institution (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest." It is argued that the loan given by AWARE to Smt. Rama Anantram so as to apply section 13(1)(c)(ii), Smt. Rama Anantram should be one of those persons referred to in section 13(3)(d) of the Act, whereas the assessment order nowhere states how she can be covered under the provisions of section 13(3)(d) of the Act. Since the loan was not given to Madhavan and Smt. Rama Anantram was not a pers....
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....t. Rama Anantram claimed that she was never a member of AWARE and she accepted the receipt of the loan of Rs. 12 lakhs. She claimed that the loan was arranged by K. Babu Reddy and she was not in the knowledge that the loan was taken against pledge of FDRs of AWARE, while Babu Reddy stated that the said loan was arranged at the instance of the chairman, AWARE. The assessee denied its role in arranging the loan. The assessee produced the membership register and membership subscription receipt to show that Smt. Rama Anantram was a member of the Organisation. The Assessing Officer also recorded the statements of Smt. Rama Anantram, T.K.S. Madhavan and K. Babu Reddy. Smt. Rama Anantram confirmed having received four demand drafts of Rs. 3 lakhs each from Babu Reddy and stated that the money was utilised by her for the salaries, phone bills and office administrative expenditure of Omnitel Industries Company Limited, a company run by her husband-Anantram. She also stated that Babu Reddy, who was her patient, arranged the loan. Though she denied her being a member of AWARE, the Assessing Officer found in the minutes book of the trust showing that she was very much a member of AWARE. Smt. R....
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....om Account No. SB 1870 with the Bank of Baroda, which belonged to the association of persons, which was formed to purchase cancer hospital land, For the consideration paid by Madhavan (Rs. 7 lakhs), the explanation was that Rs. 2 lakhs was by demand draft from the account-SB 1870-and Rs. 5 lakhs by cash from personal savings of Madhavan. As per the extract of S.B. No. 1870, on October 22, 1992 an amount of Rs. 5 lakhs was withdrawn from the said account. The amount of DD for Rs. 2 lakhs was said to be against repayment of loan by K. Satyanarayana, director to Madhavan. After examining the details and explanation, it was noticed by the Assessing Officer that the money of Rs. 2 lakhs advanced by AWARE to the association of persons was actually routed through the association of persons to advance the money for the purchase of the property at Visakhapatnam by Madhavan, thus, utilising trust money for personal use/gain and this transaction also violated the provisions of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(d) of the Act. Learned counsel for the appellant gave emphasis that wrong provisions of law were invoked under the facts set out by the Assessing Officer. As....
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....urity does not itself attract section 13 of the Act since the trust property has been pledged by way of FDRs. Further, these monies were all received by way of donations for a specific purpose of utilisation of the same for the welfare schemes adopted by it, thus this court should, in the alternative, limit the amount, which could be brought to tax for the assessment year 1993-94 only to Rs. 16 lakhs, which would be reasonable and proportionate to that of the violations alleged against the appellant-assessee. It was also argued that the very section 13 of the Act contemplates "the income or the property of the trust or institution or any part of such income or property", thus the only portion of the amount, which is said to be misutilised alone should be brought to tax and to that extent alone the benefits under section 11 of the Act could be withdrawn and not for the entire amount of money received by the trust for the assessment year 1993-94. Learned counsel for the appellant submits that an exemption provision should be liberally construed and it cannot be given a narrow construction. In this regard, he relied upon a judgment in Petron Engineering Construction P. Ltd. v. CBDT....
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.... Babu Reddy behind the back of the assessee and the assessee or Madhavan were aware of the transactions. This was not believed by the authorities below. On the other hand, it was found that the top management of AWARE was well not aware of the transactions from the very beginning. It is also noticed by the authorities below that the assessee came to know of the irregularities in the matter on March 24, 1994. It is surprising to note that Babu Reddy was continued in service up to May, 1995, i.e., one year four months thereafter. Further, as per the record, one instalment of repayment was deposited in the bank on February 5, 1998, by Satyanarayana, assistant cashier of AWARE. It is not the case of the assessee that Satyanarayana also played a fraud in the transactions. Further, though the irregularity was noticed by the assessee on March 24, 1994, no immediate action was taken by it against Babu Reddy. It is further noticed that it was more likely that after the Delhi High Court's order dated November 9, 1998, and subsequent deep investigations by Batliboi and Company, the assessee tried to cover up its tracks by falsely claiming that Babu Reddy had undertaken the transaction fraudul....