TaxTMI 
TaxTMI 
2016 (7) TMI 1577
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....ct]. The authors of the trust were two trade bodies, which are Visakhapatnam Stevedore's Association and Visakhapatnam Clearing and Forwarding Agents' Association. The main objects of the trust as spelt out in Clasue-3 of the Trust Deed read as under: a) To identify, enroll, allot the work and regulate the Private Workers engaged by the Members and users of Stevedore's Association and Clearing and Forwarding Agents' Association of Visakhapatnam, only against short supply of the labour by the Visakhapatnam Dock Labour Board, Visakhapatnam. b) To generally promote the welfare of the workers who are identified and enrolled in the Trust. c) To utilize the Funds of the Trust for the above purposes and also for other charitable purposes such as Education, Health, Sports and Alleviation of sufferings of the poor and the needy etc., d) To carry out other public utility activity within the meaning of 'charitable purposes' defined in the Income-tax Act. The assessee has filed its return of income for the above assessment year's declaring NIL total income, after claiming exemption u/s. 11 of the Act. The assessment was completed u/s. 143(3) on 23-03-2000 accepting the income returned....
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....here was no benefit to the general public. With these observations, concluded that the assessee failed to meet the requirements of general public utility and as the element of charity was not present, it would not be eligible for exemption u/s. 11 of the Act. 4. The A.O. further observed that the assessee has violated the provisions of Section 11(2)/(5) r.w.s. 13(1)(c), as the assessee has advanced unsecured loans of Rs. 30 Lakhs and Rs. 5 Lakhs to M/s. Visakhapatnam Stevedore's Association and Visakhapatnam Clearing and Forwarding Agents' Association without charging any interest. The A.O. further observed that the assessee has followed Mercantile System of accounting for the purpose of maintenance of accounts, however, followed Cash System of accounting for the purpose of computation of income available for application for chartable purpose. Since, assessee is following mercantile system of accounting, the excess of income over expenditure as per the Income and Expenditure Account should be treated as 'surplus' for the purpose of determination of income u/s. 11 of the Act, whereas the assessee has followed Mercantile System for book keeping and considered Cash System of accounti....
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....10 in ITA Nos. 272 to 274/Vizag/2005. Therefore, the CIT(A) ought to have followed the said order of the ITAT. The ITAT, held that the decision rendered vide order dt. 08-01-2010 is binding on the CIT(A) and that the Ld. CIT(A) by way of judicial discipline should have followed the same. The relevant portion of the orders is extracted below: "13. In the instant cases, the appeals have been preferred by the assessee only because the learned CIT(A) has rendered his decision without following the decision of this tribunal. It cannot be denied that we would be required to revisit all the issues on which we have already rendered our decision, while it is the duty of the learned CIT(A) to pass orders in terms of the earlier decision of the ITAT so long as the same is not suspended/reversed by Honourable High Court. Hence we deem it proper to set aside all the issues to the file of learned CIT(A) in order to enable him to pass appropriate orders by duly following the orders passed by the ITAT in the assessee's own case referred (Supra) for other years. Accordingly we set aside the impugned common order of learned CIT(A) and restore all the issues to his file for adjudicating them afresh....
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.... 11(2)/(5) r.w.s. 13(1)(c) of the Act; iv. Deletion of additions made by the AO u/s. 43B of the Act; 11. The Ld. Counsel for the assessee, at the time of hearing submitted that the ground relating to reopening of assessment for the AYs. 1997-98 and 1998-99 is not pressed. Therefore, the same has been dismissed as not pressed. 12. The first issue that came up for our consideration is filing Form No. 10 and accumulation of income u/s. 11(2) of the Act. The Ld. A.R. for the assessee, submitted that the assessee is following Cash System of accounting for the purpose of determination of income to be applied for charitable purpose u/s. 11 of the Act. Though it has followed Mercantile System of accounting for the purpose of maintenance of Books of Accounts for all the assessment years, it has followed Cash System while filing the return of income. The A.R. further submitted that as per the Cash System of accounting, the surplus as per Receipts and Payments A/c is less than 25% of the total income and hence, filing Form No. 10 for accumulation of income u/s. 11(2) of the Act does not arise. However, during the course of re-assessment proceedings, the assessee has filed Form No. 10, as ....
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....be reopened for the purpose of computation of income available for accumulation. Therefore, any form filed before the completion of assessment has to be accepted. In the present case on hand, we find that the assessee has filed Form No. 10 before completion of assessment. Therefore, we are of the opinion that the A.O. is not correct in rejecting the Form No. 10 and denying the benefit of accumulation of income u/s. 11(2) of the Act. Hence, we direct the A.O. to re-compute the income after allowing benefit of accumulation u/s. 11(2) of the Act. 15. The next issue that came up for our consideration is method of accounting followed by the assessee. The Ld. A.R. for the assessee submitted that the issue involved in this appeal is squarely covered by the decision of the ITAT, Visakhapatnam Bench in assessee's own case for the AYs. 1999-2000 to 2004-05 in ITA Nos. 272 to 274/Vizag/2005. We find that the Co-ordinate Bench of this Tribunal, in assessee's own case for the earlier period held that the assessee is following Cash System of accounting for the purpose of determination of income u/s. 11 of the Act. The relevant portion of the order is extracted below: "11.3 The next issue is w....
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....Income Tax Act, the assessee is following the cash system of accounting. The interest collected from the impugned two loans has been offered to tax in the year of receipt. The details of loans granted and receipt of interest and principal on these two loans have been extracted below from the written submissions of Ld AR. VISAKHAPATNAM STEVEDORES ASSOCIATION Date Rs. Ps. 03-04-1995 Loan amount granted 30,00,000.00 Interest accrued on loan 46,60,451.86 76,60,451.86 Less 15-10-2003 Interest amount received 22,56,000.00 07-07-2007 Interest amount received 12,51,121.86 26-11-2007 Interest amount received 10,98,248.00 29-01-2008 Interest amount received 20,000.00 24-03-2008 Interest amount received 35,082.00 26-11-2007 Principal amount received 10,00,000.00 29-01-2008 Principal amount received 10,00,000.00 24-03-2008 Principal amount received 10,00,000.00 46,60,451.86 30,00,000.0....
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.... involved in any charitable activity which entitles the assessee for exemption u/s. 11 of the Act. The Ld. AR submitted that the issue is squarely covered by the decision of the ITAT, Visakhapatnam Bench in assessee's own case for the AYs. 1999-2000 to 2004-05 in ITA Nos. 272 to 274/Vizag/2005. We find that the Co-ordinate Bench of this Tribunal, in assessee's own case for the earlier period held that the activities carried out by the assessee are in the nature of charitable activities, eligible for exemption u/s. 11 of the Act. The relevant portion of the order is reproduced here under: "9. Now let us deal with the first issue. There is no dispute with regard to the fact that the assessee trust has been granted registration by Ld CIT, Visakhapatnam u/s 12A of the Act from the date of its inception. In this regard, it is pertinent to note the case law relied upon by Ld AR. In the case of ACIT Vs. Surat City Gymkhana (2008) (300 ITR 214), the Hon'ble Supreme Court has affirmed the decision of Hon'ble Gujarat High Court in the case of Hiralal Bhagwati vVs. CIT (2000) (246 ITR 188 (Guj) in holding that the registration of a Trust u/s 12A of the Income-tax Act of 1961 once done is a ....
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....e that the assessee is carrying on the very same activity since its inception. The surplus earned on carrying on the said activity are not to be distributed between the trustees, but to be retained by the assessee trust for the purpose of carrying on the objects of the trust. Hence in the absence of the profit motive attached to the activities carried on by the Trust, in our opinion, the activities carried on by the Trust cannot be treated as a business activity. Further the assessee trust was formed only for the purpose of the regulating the operations of the private workers in the Dock yard and said object have been approved as "Charitable purpose" by the Ld CIT. Further as pointed out by Ld AR, as per Sec.42 of the Major Port Trust Act, 1963, the Performance of service by Board or other person include receiving, removing, shifting, transporting, storing or delivering goods brought within the Board Premises. Hence the activities of the assessee trust falls in the category of one of the services as defined in the Major Port Trust Act, 1963. Since the activities carried on without any profit motive and only for the purpose of the welfare of the workers, in our opinion, it cannot be....
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....n referred to in section 13(3). According to section 13(1)(c), if any income or property of the trust is directly or indirectly used or applied for the benefit of any person referred to in section 13(3), the provisions of section 11 or section 12 shall not apply to the income of the charitable trust. 11.2 Now the facts relating to these two issues are discussed in brief. The assessee had advanced an amount of Rs. 30,00,000/- and Rs. 5,00,000/- respectively to M/s Visakhapatnam Stevedors Association and M/s Visakhapatnam Clearing and Forwarding Agents Association in the year 1995. The first amount of Rs. 30.00 lakhs were received back in the financial year 2007-08. The second amount of Rs. 5.00 lakh was received back in the financial year 2000-2001. The Assessing Officer treated both the amounts as an investment in violation of Sec.11(5) of the Act. However, the Ld AR by placing reliance on the decision of the jurisdictional Andhra Pradesh High Court in the case of CIT Vs. Polisetty Somasundaram Charities 183 ITR 377 (AP) has contented that the amount advanced by the assessee trust to the two associations cannot be treated as an investment. The contentions of the Ld AR as given in....
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....om the holding of shares, debentures, stocks or other securities, the Supreme Court held that "investment" covers acquisition of house property or capital gains and "investment" primarily means the act of laying out moneys in the acquisition of some species of property. In CIT Vs. Eternal Science of Man's Society (19812) 128 ITR 456, the Delhi High Court held that the interest income received by a charitable institution has to be excluded from the taxable income of the assessee in view of clause Section (2) and clause (h) is not attracted. We are in agreement with this view." In view of the decision of Hon'ble Jurisdictional High Court cited supra, the amount of Rs. 30.00 lacs and Rs. 5.00 lacs advanced by the assessee cannot be treated as an investment and accordingly there is no violation of section 11(5) of the Act. Hence the question of violation of section 11(3) also does not arise. "11.3 The next issue is whether there is any violation of section 13(1)(c) r.w.s. 13(2) of the Act. The impugned amount of Rs. 30.00 lakhs and Rs. 5.00 lacs have been advanced to the two settler associations. Since they are the authors of the assessee trust and the trustees of the assessee trus....
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....tracted below from the written submissions of Ld AR. VISAKHAPATNAM STEVEDORES ASSOCIATION Date Rs. Ps. 03-04-1995 Loan amount granted 30,00,000.00 Interest accrued on loan 46,60,451.86 76,60,451.86 Less 15-10-2003 Interest amount received 22,56,000.00 07-07-2007 Interest amount received 12,51,121.86 26-11-2007 Interest amount received 10,98,248.00 29-01-2008 Interest amount received 20,000.00 24-03-2008 Interest amount received 35,082.00 26-11-2007 Principal amount received 10,00,000.00 29-01-2008 Principal amount received 10,00,000.00 24-03-2008 Principal amount received 10,00,000.00 46,60,451.86 30,00,000.00 76,60,451.86 NIL VISAKHAPATNAM CUSTOMS CLEARANCE & FORWARDING AGENTS' ASSOCIATION Date Rs. Ps. 03-04-2005 Loan amount granted 5,00,000.00 Interest accrued on loan 3,62,137.00 &n....
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.... assessee trust are two trade associations and as stated earlier there cannot be any personal interest so far as the trade associations are concerned. The impugned loans have not been given to the trustees but only to the trade associations. Though the trustees fall in the category of specified persons u/s 13(3), the trade associations in which they are office bearers cannot be treated as a concern in which they are substantial interested. Hence the question whether the provisions of section 13(1)(c) shall apply to the assessee in respect of the impugned advances or not is a debatable issue. Be that as it may, in any case, on merits, we have seen that the impugned advances have been made with adequate security and adequate interest and they have been collected subsequently. Hence we do not find any reason to suspect the adequacy of security or interest in terms of section 13(2)(a) of the Act. In view of the foregoing reasons, we hold that there is no violation of section 13(1)(c) r.w.s. section 13(2) of the Act". 17.1. Considering the facts and circumstances of this case and also respectfully following the Co-ordinate Bench decision, in assessee's own case, we are of the view that....
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....ing out objects of charitable trust. Such payments were out going in that particular year and were incidental to the carrying out the objects of the trust. Therefore, while computing the income available for application, the payment of taxes has to be allowed. In support of his arguments, relied upon the decision of Hon'ble AP High Court in the case of CIT AP-1 Vs. Trustee of V.H.E.H. the Nizams Supplemental Trust [127 ITR 378]. 19.1. We have heard both the parties and perused the material available on record. The AO disallowed income tax while computing income available for application for charitable purposes. The AO was of the opinion that income tax is not allowable as deduction while computing income available for charitable purpose. It is the contention of the assessee that income tax is allowable as a deduction while computing income in the case of trust claiming exemption u/s. 11 of the Act. We find force in the arguments of the assessee for the reason that income of any trust or society claiming exemption u/s. 11 has to be computed under normal commercial principles. Income tax payable is necessarily an out go from the income of the trust. Therefore, once there is out go t....