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2016 (7) TMI 1577
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....tered u/s. 12A of the Income Tax Act, 1961 [Act]. 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 asses....
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....see existed for the benefit of its own Members/Employees/Workers and hence, there 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 fol....
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....in assessee's own case for the A.Ys. 1999-2000 to 2004-05 vide its order dt. 08-01-2010 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....
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....ounting followed by the assessee; ii. A.O.'s probing into objects of the assessee-trust; iii. Violations of Section 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 ....
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....etion of assessment proceedings. If the Form No. 10 is not filed before completion of assessment, would mean that the assessment order will have to 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 accou....
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.... Section 13(2) are satisfied and Section 13 (2) (h) is not applicable". The Ld AR also submitted that for the purpose of computing the income u/s 11 to 13 of the 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....
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....e income under the normal provisions of the Act. The AO was of the opinion that the activities carried out by the assessee are not in the nature of charitable activity as defined u/s. 2(15) of the Act. The AO further was of the opinion that the assessee merely engaged in the business of providing organized labour to two of its Settlors Association. Therefore, it cannot be held that the assessee is 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 dat....
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....tributed among the members of the Trust but shall be given or transferred to any other institution with similar objectives and aims and which is registered u/s 12A of the Income-tax Act. The main objects for which the trust was formed, as extracted in Para 4 supra, does not depict any profit motive. The primary object of the Trust is to identify, enroll, allot the work and regulate the operation of the private workers. It is not in dispute 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, th....
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....rwise than in any one or more of the forms or modes specified in section 11(5) of the Act. 11.1 According to section 13(2)(a), if any part of income or property of the trust is or continues to be lent to any person referred to in section 13(3) for any period during the previous year without adequate security or adequate interest or both, the income or the property of the trust shall be deemed to have been used or applied for the benefit of a person 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 th....
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.... and the expectation of return or profit is not assured and the depletion of capital itself is not an abnormal feature. In the case of lending, the return by way of interest is generally assured and the element of risk is minimal. In Nawan Estates (P) Ltd. Vs. CIT (1977) 106 ITR 45 (SC), in the context of considering the connotation of the expression "investment" in section 23A and whether "investment" in Section 23A can be stretched to house property or capital gains apart from 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 advanc....
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....e is entitled to exemption under Section 11 and the conditions under Section 13(2) are satisfied and Section 13 (2) (h) is not applicable". The Ld AR also submitted that for the purpose of computing the income u/s 11 to 13 of the 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 ....
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....ons, i.e. non-commercial legal persons. Its office bearers are precluded from enjoying any personal benefits or gains. The trustees of a trust or the officer bearers of a trade association work for the welfare of the trust/association without any monetary benefit. The object of introducing restrictions through section 13 is stated in Sampath Iyengar's Law of Income tax, 10th edition, page 1807) as under: "The restriction provided for u/s 13(1)(c) is obviously intended to ensure that, despite the ostensibly charitable objects of such a trust or institution, its income is not diverted away to the benefit persons who are closely connected with the creation, establishment and conduct of the trust or institution". The authors of the 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. H....
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....t came up for our consideration is disallowance of income tax. The assessee has claimed income tax payments as application of income for charitable purpose. The AO disallowed income tax and added back to total income of the assessee. The AO held that income tax is not allowable as deduction while computing income of the assessee. It is the contention of the assessee that in the case of charitable trust, payment of tax is considered as application of income because the payment is made to preserve a corpus, the existence of which is absolutely necessary for the trust. Though payment of income tax and wealth tax has been made during the year, it pertains to previous assessment years and it could not be disputed that such expenses were incidental to carrying 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.....