TaxTMI 
TaxTMI 
2019 (6) TMI 1369
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....Act only and out to the accumulation u/s 11(1) of the Act. 3. Whether the CIT(A) was correct in holding that addition of Rs. 95,26,54,640/- on account of excess of assets over liabilities tantamount to retrospective withdrawal of the charitable status. 4. Whether the CIT(A) was correct in holding that addition in respect of donation, keyman insurance, software expense and difference in the value of land couldn't have been made u/s 11(3) of the Act. 5. Whether the CIT(A) was correct in holding that the assessee had no surplus which could have been charged to income under the provision of section 11(3) of the act. 6. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 3. The facts of the case are that a society by the name of Escorts Heart Institute & Research Centre was formed at Delhi (EHIRC, Delhi) on 21.10.1981 and its objects were charitable in nature, its income was exempt under Section 10(21) of the Act. It also had the approval of the Central Government under Section 35(1)(ii) of the Act which was effective till 31st March, 2001. On 11th November, 1999, another society by the same ....
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....the income of the respective earlier years and has mandated it to be the income of the previous year i.e. the previous year commencing on 01.04.2000 and ending on 31.03.2001 relating to the assessment year 2001-02, which is the year in which the petitioner was amalgamated with Escorts Hospital, Chandigarh and transferred all its assets to the Chandigarh Hospital which is looked upon as a breach of the statutory provisions subject to which the exemption under section 10(21) was allowed. The consequences of the breach having been provided by the statute itself, it is not open to the assessing officer to consider the accumulated income as having escaped assessment in the past assessment years. He has to perforce bring to tax the accumulated income only in the year in which the breach occurred; that is the mandate of section 11(3). 6. Two important conditions for the applicability of section 147 are (a) income chargeable to tax must have escaped assessment and (b) assessing officer must have reason to believe so. When section 11(3) treats the accumulated income of the past year of the petitioner as income of the assessment year 2001-02, there can be no question of any income e....
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....3) software expenses aggregating Rs. 8,14,63,413/- made in the assessment years 1998-99 to 2000-01. These by no stretch of imagination can be treated as income within the meaning of section 11(3) of the Act and if done would be contrary to the statutory provisions and the judgments relied upon including the appellant's own case. Coming to the addition of Rs. 38,15,70,842/-, being the difference in the value of land pursuant to the valuation by the DVO, this again does not qualify to be considered and for that matter u/s 11(3) of the Act. Reverting back at this stage to the addition of Rs. 95,26,54,460/- comprising of Rs. 25,87,72,888/- being the excess of income over expenditure for the period ending 31.03.2000 plus the brought forward balance under the same head amounting to Rs. 69,38,81,752/- the same stands reflected in the fixed assets as also the current assets. The year-wise chart for the application of income is as under : Asstt. Year Gross receipts Income applied u/s 11(1)(a) Application of Income Expenses (excluding Depn.) Depreciation On purchase of capital as....
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.... but the Assessing Officer has not offered any comments on the specific issue. The assessee has never made any request to the Assessing Officer for the accumulation of its income under section 11(2) of the Act. The year wise chart shows that there is negative figure of Rs. 23,26,24,368 which is the excess of the expenditure over the receipts. The above chart also clearly establishes that the assessee never had any surplus which could be charged to income under the provisions of Section 11(3) of the Act. Further, Section 11 of the Act contemplates charging of income generated from the assets held in trust but not applied for the charitable purposes. The Act does not contemplate charging of the asset itself to the tax. In view of the aforesaid observations and in the final analysis, I delete the entire addition of Rs. 1,56,44,47,193." 6. The Revenue aggrieved with the order of the CIT(A) is in appeal before us. 7. We have heard the arguments of both the sides and perused the material placed before us. The learned DR heavily relied upon the order of the Assessing Officer and he stated that the Assessing Officer has rightly worked out the accumulated profit. Learned CIT(A) wrongl....
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..... From a plain reading of the above Section, it is evident that under Section 11(3), only the income as referred to in Section 11(2) is to be considered and no other income. Section 11(2) of the Act reads as under :- "[(2) [Where [eighty-five] per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] [(a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or depo....
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....mand report before learned CIT(A) has been able to establish that there was any accumulation of income as provided in Section 11(2) of the Act. Before us also, no evidence is brought on record by the Revenue to establish any accumulation of profit under Section 11(2) by the assessee society. In view of the above, we do not find any justification to interfere with the order of the learned CIT(A) in this regard. The same is sustained and all the grounds raised by the Revenue in this appeal are dismissed. ITA No.3709/Del/2015 - M/s Escorts Heart Institute and Research Centre, Chandigarh :- 13. In this appeal by the Revenue, following grounds have been raised :- "1. On the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in deleting the addition of Rs. 1,44,34,72,911/- on account of capital gain. 2. On the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in holding that transfer of assets within the meaning of section 2(47) of the I.T. Act after conversion of a society as a company under part IX of the Companies Act, 1956 do not attract capital gains chargeable to income tax u/s 45(1) of the I.T. Act. ....
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....ction 48, it forms one composite scheme. In other words, one does not work without the other, but this aspect has not been examined either by the Assessing Officer or by the ld.CIT(A). So the principles of natural justice and the equity demands that the issue as regards to the applicability of section 45(1) be decided by the Assessing Officer after providing due and reasonable opportunity of being heard to the assessee." 15. At the end, the ITAT set aside the issue of levy of capital gains to the file of the Assessing Officer. The Assessing Officer, in pursuance to the order of the ITAT, completed the assessment vide order dated 31st March, 2010. In this order, in paragraph 10.5, which reads as under, the Assessing Officer accepted that Section 45(4) is not applicable :- "10.5 The grounds raised by the assessee AOP during the course of the proceedings and on the point that there was no distribution of assets took place in above mode of the transfer of assets over liabilities from the assessee AOP to the company whatsoever capital gain would not be under section 45(4) of IT Act is accepted. However the question of considering cost with reference to certain modes of acqui....
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....considered by the Hon'ble ITAT Delhi bench in the case of Escorts Limited vs. ACIT reported in 104 ITD 427 and held to be valid in law as per the following observations :- "The scheme of amalgamation of the Delhi Society with the Chandigarh Society is placed at page 109-113 of Revenue's paper book-IV. As per the scheme all the assets and liabilities of the Delhi Society were to vest with the Chandigarh Society on or after the effective date of amalgamation, which is the 1st day of April, 2000. This is the scheme which was approved by the members of the Delhi Society in the general meeting. The Registrar of Societies, Delhi by order dated 6.6.01 recognized the fact that the Delhi Society was dissolved and amalgamated with the Chandigarh society. Copy of this order is at page 14 of Revenue's paper book No.-II. It therefore follows that the assets of the Delhi Society vested with the Chandigarh Society by operation of law." Following the said decision, the Hon'ble ITAT, Chandigarh Bench in its order dated 18.03.2008 in ITA 144/Chandi/2006 took an identical view. It is the case of the appellant that both these orders have become final in as much as in the case of the ....
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....heme of amalgamation and the assessee is a shareholder and not the amalgamating company. The Hon'ble Bombay High Court in the case of CIT vs. Texspin Engg. & Mfg. Works reported in 263 ITR 345 (Bom.) at page 354 very significantly rejected the argument of the department when it sought to bring the conversion under Part IX under the term 'extinguishment' by observing as under :- "Now, in the present case, it is argued on behalf of the Department before the Tribunal, for the first time, that in this case, on the vesting of the properties of the erstwhile firm in the limited company, there was a transfer of capital assets and, therefore, it was chargeable to income-tax under the head 'Capital gains' as, on such vesting, there was extinguishment of all right, title and interest in the capital assets qua the firm. We do not find any merit in this argument." In the final analysis, it is held that the provisions of section 45(1) of the Act were not applicable and no capital gain arose to the assessee on its conversion into a Ltd. Co. under Part IX of the Companies Act. The consequential addition of Rs. 149,08,97,151 is liable to be deleted." 18. The Revenue, ....
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.... in this case, we are not concerned with clause (xiii) inserted by Finance (No. 2) Act, 1998 in Section 47 under which it is provided that where a Firm is succeeded by a company in the business carried on by it as a result of sale or otherwise, of any capital assets, then such transaction shall not be regarded as transfer. This clause was inserted with effect from 1st April, 1999. Therefore, we are not concerned with that amendment. However, it provides a clue to the legislative intent. In our opinion, this clause has been introduced with effect from 1st April, 1999 in order to encourage more and more Firms becoming Limited Companies. It also indicates the difference between transfer and transmission. Basically, when a Firm is treated as a company under Part IX, it is a case similar to transmission. This is amply made clear by clause (xiii) to Section 47, which states that where a Firm is succeeded by a company in the business, the transaction shall not be treated as a transfer. Now, this amendment has been made in Section 47 in view of the controversy arising on Section 45(1) read with Section 2(47)(ii). As stated above, Section 45(1) is a charging section. Section 45, re....
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....g of properties in the Company as the Firm is treated as a Limited Company. On vesting of all the properties statutorily in the Company, the cloak given to the Firm is replaced by a different cloak and the same Firm is now treated as a Company, after a given date. In the circumstances, in our view, there is no transfer of a capital asset as contemplated by Section 45(1) of the Act." 22. That the above observation of their Lordships would be squarely applicable to the case of the assessee because in this case also, the assessee AOP was converted into a company under Part IX of the Companies Act. Thus, till the time of conversion, the AOP remained in existence and the moment conversion took place, the company came into existence. However, the AOP and company never remained in existence simultaneously. Section 45(1) would be applicable on transfer of a capital asset. The transfer of a capital asset is possible only when there is a transferor and the transferee. In the absence of existence of the two entities, the transferor and the transferee, there cannot be any transfer. Similarly, in the absence of two entities, the consideration cannot pass from transferor to the transferee. In....