AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 813
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....l assessment years. The assessee, from these grounds of appeal, has challenged, rejection of exemption claimed u/s 11 of the Income Tax Act, 1961, taxation of corpus donations, denial of credit for TDS and further challenged action of the ld. CIT(A) non adjudication of specific ground No. 8 taken for Asst. Year 2005-06. The assessee also filed additional ground challenging action of ld. AO and CIT(A) rejection of carry forward and set off of loss. The Revenue, more or less has taken common grounds of appeal for all Asst. years. The Revenue, from these grounds of appeal challenged order of the ld. CIT(A) allowing relief in respect of addition made by the AO towards loans and advances, for purchase of motor car and expenses incurred for objects of the trust. 3. The brief facts of the case are that the assessee is a charitable trust engaged in various charitable activities as per objects of trust deed. The Trust is affiliated to two trade unions, i.e. Engineering Mazdoor Sabha (EMS) and Mumbai Mazdoor Sabha(MMS). The assessee has filed regular returns of income u/s 139 of the Income Tax Act, 1961 for all assessment years declaring Nil total income, after claiming exemption u/s 11 o....
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....he assessee challenging denial of exemption u/s 11 of the Act, and upheld findings of the AO for rejection of exemption by holding that various facts brought out by the AO in the assessment order clearly shows that the assessee has violated provision of section 13(1)( c) and 13(2) which disentitled assessee to claim exemption u/s 11 of the Act. The CIT(A), further held that when exemption u/s 11 is rejected, income shall be computed under normal commercial principles by considering income and expenses to tax only surplus/deficit, accordingly, he has rejected income determined by the AO by making additions to returned income loans and advances, purchase of motor car, disallowance of expenses and addition towards corpus donation and recomputed income by applying normal commercial principles to tax surplus/deficit as per income and expenditure account. In the process, he has added corpus donations to gross receipts and deleted addition made towards loans and advances given to two trade unions, expenditure incurred towards objects and purchase of motor car by holding that these loans and advances, purchase of motor car and expenditure cannot be treated as income of the assessee. 6. ....
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....(whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub- clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub- section (3) in so far as such use or application relates to any period before the 1st day of June, 1970 ; Section 13(3): "(3) The persons referred to in clause (c) of sub- section (1) and sub- section (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, 2 that is to say, any person whose total contribution up to the end of the' relevant previous year exceeds 3fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (CC) 4 any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, 5 m....
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....g Officer to decide the issue afresh as per the provisions of the law. In so far as the claim of expenditure is concerned the Assessing Officer is directed to verify whether the amount is given as advance or charged to the P&L Account, after giving a reasonable opportunity of being heard to the assessee and decide this issue as per the provisions of the law. 8. Before closing, we find that the assessee has also raised an additional ground by which it has challenged the validity of the reopening of the assessment. However, at the time of hearing, Ld. Counsel did not argue this additional ground; therefore, we do not find it necessary to decide this issue. 9. The appeal filed by the assessee is dismissed and since the denial of exemption has been upheld by us, the appeal filed by the Revenue is treated as allowed." 7. Being, aggrieved the revenue filed miscellaneous application u/s 254(2) and requested to recall order passed by the Tribunal for the detailed reasons stated in their petition. The ITAT in MA No. 324/Mum/2017 dated 16-02-2018, recalled revenue appeal in ITA No. 1336/Mum/2014 and restored appeal filed by the revenue by observed as under: - "2....
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.... Act, insofar as loans and advances given to two trade unions without understanding basic facts that the main object of the trust is to help members of trade union for which it has lent loan and the same has been used for the benefit of members of union. The AO made baseless allegation of siphoning of large scale money by trustees without appreciation fact that out of total loans given to two trade unions, only a sum of Rs. 8,00,000/- was given to Chandbibi and remaining amount has been spent for the objects for which necessary evidences has been filed. In so far as purchase of Motor car in the name of R. J Mehta, another trustee, although car is purchased in the name of trustee, the car is used exclusively for trust purpose and necessary approval has been taken from competent authority. Similarly, the AO has misconstrued the facts with regard to expenditure incurred for repairs of building without appreciating fact that amount given to Shankar Gadam of M/s Mahalaxmi Enterprises is treated as advance and not debited to the profit and loss account. The assessee has filed all details to prove an observation of the AO is incorrect and there is no violation of any of the provisions, bu....
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....ssessee appeals is taxation of corpus donations. The Ld. CIT(A) dealt corpus donation issue in para 5.10 of his order. According to the lower authorities, corpus donation is forming part of income derived from property held under trust, once exemption u/s 11 is denied. The ld. CIT(A) further observed that, although assessee furnished letters indicating donors intention to donate for corpus of the trust, these letters are identically worded without any further evidences. The ld. CIT(A) further held that as per section 12(1) voluntary contributions will also deemed to be income derived from property held under trust, and provisions of section 11 and 13 shall apply and accordingly, once exemption is denied, then whole receipts including corpus donation shall be treated as receipt of trust and normal commercial principles shall be applied to determine income. It is the contention of the assessee that even if exemption is denied, still corpus donation shall not be taxed as income derived from property held under trust. The Ld. AR for the assessee vehemently argued the matter in the light of provisions of section 11(1)(d) and 12(1) and certain judicial decisions, and submitted that volun....
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.... the order of the ld. CIT(A). Hence, we are inclined to uphold the CIT(A) order and reject ground taken by the assessee for all years. 15. The next issue that came up for our consideration for A.Y.2005-06 is non adjudication of ground No.8. The assessee has taken ground on the issue of expenditure of Rs. 15,80,077 made out of corpus donations. Although, the AO has not made any specific additions for this amount in the assessment order, yet the assessee has taken a ground with abundant precaution for the reason that in para 2 of his order, the AO has said that exemption claimed towards corpus donation of Rs. 16,17,230 and expenditure of Rs. 15,80,077 is taxable. 16. Having heard both sides, we find that the AO did not made any addition towards expenditure of Rs. 15,80,077/- in the assessment, therefore, there is no cause of grievance for the assessee insofar this issue is concerned. But, fact remains that, the AO has said in para 2 of his order that the amount of expenditure is taxable. Once, exemption is denied, income shall be computed under normal accounting principles by considering all income and expenses to determine profit/loss, but at no stretch of imagination expendit....
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....erred to Chandbibi Account for purchase of property. The AO has made addition to loans for the reason that money has been siphoned off in contravention of provisions of section 13(1)(c ) r.w.s. 13(3) and this would be one of the reason for denial of exemption u/s 11 of the Act. The Ld. CIT(A) deleted addition made by the AO on the ground that loans given to two trade unions and transferred to trustees account could be a reason for denial of exemption u/s11, but loans could not be added as income of the assessee as the same was not debited to profit and loss account as expenditure, but has been treated as current assets in balance sheet. 20. The ld. DR submitted that the ld. CIT(A) failed to appreciate fact that end use of the funds from those trade unions provided to the trustees through the series of transactions is merely camouflage the intention and diversion of funds from trust to the trustees. The DR further submitted that the assessee has violated provisions of section 13(1)(c) and 11(5) of the Act, which needs to be taxed in the hands of the assessee, but the ld. CIT(A) deleted additions on the ground that loans and advances cannot be treated as income of the assessee wit....