TaxTMI 
TaxTMI 
2024 (4) TMI 835
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....ner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case. 2. For that the reopening of an assessment u/s. 147 of the Act is bad in law. 3. For that the Learned Commissioner of Income Tax (Appeals) erred in upholding the reopening of the completed assessment beyond a period of four years, where there is no failure on the part of the appellant to disclose fully and truly all material facts. 4. For that the Learned Commissioner of Income Tax (Appeals) erred in upholding the Assessment Order without appreciating the fact that it is a settled principle of law that 'change of opinion' is not permissible under the garb of reopening of a completed assessment. Without prejudice to the above grounds, we raise the following grounds: 5. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Learned AO in denying the claim of exemption claimed u/s. 11 of the Act, without appreciating the facts and circumstances of the case. 6. For that the Learned Commissioner of Income Tax (Appeals)by upholding the denial of claim of exemption u/s 11 of the Act erred in denying the ....
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.... Rs. 38,24,001/- without appreciating the fact that the provisions of section 11(6) of the Act were amended vide Finance Act, 2014 which was prospectively applicable from AY 2015-16. 14. For that the Learned Commissioner of Income Tax (Appeals) erred in taxing the addition of the depreciation of Rs. 38,24,001/- without appreciating the fact that, despite the addition of depreciation, more than 85% of the gross receipts had been spent towards the objects of the trust, thus satisfying the requirements of Section 11. 15. Assuming but not admitting the decision of Learned Commissioner of Income Tax (Appeals) having held that the appellant is not eligible for exemption u/s. 11 of the Act, he ought to have allowed the claim of depreciation amounting to Rs. 38,24,001/- in accordance with provisions of section 32 of the Act. For these grounds and such other grounds that may be adduced before or during the hearing of the appeal, it is prayed that the Hon'ble Tribunal may be pleased to delete the additions made and/or pass such other orders as this Hon'ble Tribunal deems fit. 3. The brief facts of the case are that the assessee is a Public Charitable Tru....
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.... same property to three entities namely, M/s Hotel Saravana Bhavan, M/s. B & M Hot Breads Pvt. Ltd., & M/s. Hatsun Agro Products Ltd., and received rental income. The AO has tabulated year wise rent received by the assessee Trust from M/s.CFD and rent received by M/s.CFD from three tenants, as follows: 5. Consequent to survey u/s. 133A of the Act, the assessment for AYs 2012-13 to 2016-17, have been re-opened u/s. 147 of the Act, for reasons recorded, as per which, any income chargeable to tax had been escaped assessment on account of under assessment of rental income from letting out of property to M/s.CFD, and accordingly, notice u/s. 148 of the Act, dated 29.03.2019 was issued and served on the assessee. In response to notice u/s. 148 of the Act, the assessee Trust filed a letter on 03.09.2019 and stated that return of income originally filed u/s. 139(1) of the Act, may be treated as return filed in response to notice u/s. 148 of the Act. The cases were selected for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee Trust has allowed benefit to the interested persons referred to u/s. 13(2) of the Act, by letting out land & building for ....
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....i Charitable Foundation, Poona, reported in [2018] 89 taxmann.com 127 (SC) up to AY 2014-15, and thus, even if cost of asset has been claimed as application of income, depreciation should be allowed for computing income from property held under Trust. 7. The Assessing Officer, after considering relevant submissions of the assessee and also taken note of factual findings noticed during the course of survey conducted u/s. 133A of the Act, opined that the assessee Trust has violated provisions of Sec. 13(1)(c) of the Act, by allowing direct or indirect benefit to the persons referred to u/s. 13(2) of the Act, by letting out properties for nominal rent which is far lesser than prevailing market rate of property at that point of time. Therefore, the AO opined that the assessee is not entitled for exemption u/s. 11 of the Act, and thus, rejected exemption claimed u/s. 11 of the Act, and assessed excess of income over expenditure as per financial statements for AYs 2012-13 to 2018-19 as income of the assessee. The AO had also disallowed depreciation on fixed assets claimed as application of income u/s. 11(1)(a) of the Act, on the ground that expenditure incurred for acquisition of capi....
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....eceived from M/s.CFD on let out of premise which is clearly evident from Form No.10B filed by the assessee for all assessment years, where, the assessee has not disclosed the details with regard to income or properties of the Trust was made or continued to be made available for the use of any such persons during the previous year referred to u/s. 13(3) of the Act. The Ld.CIT(A) further held that during the course of survey u/s. 133A of the Act, the Department has gathered information, which clearly shows that the assessee has let out its property to a partnership firm, where, the trustees are partners of a firm for nominal rent, which is far less than the prevailing market rate of the property which amounts to allowing the benefit of Trust directly or indirectly to the persons referred to u/s. 13(3) of the Act, and thus, rejected the ground taken by the assessee and upheld re-opening of assessment. 10. The Ld.CIT(A) had also upheld the findings of the AO in denial of exemption u/s. 11 of the Act, on the ground that once the Trust violates provisions of Sec. 13(1)(c) of the Act, then, the benefit of exemption u/s. 11 of the Act, cannot be allowed. The Ld.CIT(A) discussed the issu....
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....ed in the return of income for relevant assessment year and the AO has considered in original assessment passed u/s. 143(3) of the Act. Further, the AO has re-opened the assessment u/s. 147 of the Act, to deny exemption claimed u/s. 11 of the Act, on the ground that objects of the assessee Trust are in the nature of advancement of any other object of general public utility and activities carried out by the assessee of running Kalyanamandapam is in the nature of trade and commerce which is hit by provisions of Sec. 2(15) of the Act. But, fact remains that the ITAT Chennai Benches in the assessee own case has decided the issue and held that activity of running of Kalyanamandapam is incidental to the attainment of main objects of the Trust and income derived from such activities were purely utilized for the purpose of charity and thus is covered under provisions of Sec. 11(4) of the Act. The Ld.Counsel for the assessee referring to reasons recorded by the AO for re-opening of assessment submitted that the reasons given by the AO is verbatim reproduction for all assessment years and the AO has computed under assessment or escapement of income from the return of income filed by the asse....
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....ars. It was further noticed that the partnership firm has sub-let the subject property to three tenants for a monthly rent and offered rental income as its income and also paid taxes. The AO was of the opinion that there was under assessment of rental income towards let out of property to partnership firm. According to the AO, the assessee has let out property to a partnership firm, in which, the trustees of the assessee Trust are partners for a nominal rent which is far more less than the prevailing market rate of the property. Therefore, the AO opined that the assessee Trust has directly or indirectly allowed property or income of the Trust to the persons referred to u/s. 13(3) of the Act, and thereby, violates provisions of Sec. 13(1)(c) of the Act. Therefore, re-opened the assessments u/s147 of the Act, for the reasons stated as per which income chargeable to tax had been escaped assessment u/s. 147 of the Act. 14. The provisions of Sec. 147 of the Act deals with the income escaping assessment. As per said provisions, if any income chargeable to tax in the case of the assessee has escaped assessment for any assessment year, the AO may subject to the provisions of Secs. 148 t....
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....om let out of property to the partnership firm, M/s.CFD, in the return of income filed for AYs 2012-13 to 2014-15. The assessment for the above three years were completed u/s. 143(3) of the Act. The assessee has filed all details including relevant financial statements for the above assessment years before the AO and the AO has completed assessment without there being any observation with regard to rental income derived by the assessee from the partnership firm. From the above, it is undisputedly clear that the assessee has made full and true disclosure of all facts necessary for completion of assessment in respect of rental income derived from the partnership firm, and thus, in our considered view, the re-opening of assessment after four years from the end of the relevant assessment years is bad in law and liable to be quashed. This legal preposition is supported by the decision of the Hon'ble Supreme Court in the case of CIT v. Foramer France reported in [2003] 264 ITR 566 (SC), wherein the Hon'ble Supreme Court has held as under: Section 148, read with sections 147 and 153, of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for - Assessment years....
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....ld only be issued in accordance with the new section 147 and where the original assessment had been made under section 143(3), then in view of the proviso to section 147 the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. In the instant case, the law prevailing on the date of issue of the notice under section 148, i.e., 20-11-1998, had to be seen. Admittedly, by that date, the new section 147 had come into force and, hence, it was the new section 147 which would apply to the facts of the present case. In the instant case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applied, and the impugned notices were barred by limitation mentioned in the proviso. The revenue relied on section 153(3)(ii ) and submitted that there was no bar of limitation in view of the said provision. There was no merit in such a plea. Section 153 relates to passing of an order of assessment and it does not relate to issuing of notice under section 147/148. Moreover, this ....
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....at the income from the contract between the parties was business income and not fee for technical services. As regards alternative remedy, since the notice under section 148 was without jurisdiction, the petitioner should not be relegated to his alternative remedy. The writ petition was, accordingly, allowed and the impugned notices were to be quashed. 16. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that re-opening of assessments for AYs 2012-13 to 2014-15 is bad in law and are liable to be quashed, because, the assessments have been re-opened without there being any allegation as to failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment year and for that assessment years. The Ld.CIT(A) without appreciating relevant facts simply upheld re-opening of assessment. Thus, we quashed re-opening of assessments and orders passed by the AO u/s. 143(3) r.w.s.147 of the Act for AYs 2012-13 to 2014-15. 17. Coming back to AYs 2015-16 & 2016-17. Admittedly, assessments for AYs 2015-16 & 2016-17 were completed u/s. 143(1) of the Act. The proviso to Sec. 147....
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....rying out activity of promote any object which was only charitable in nature apart from doing medical relief. The Ld.Counsel for the assessee referring to the objects of the Trust argued that the main objects of the Trust are to provide relief to the poor and medical relief. As per its objects, the assessee Trust is carrying out charitable activities and in the process running Kalyanamandapam which is incidental to the attainment of main objects and is covered by Sec. 11(4) of the Act. The Ld.Counsel for the assessee further submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT in assessee own case for AYs 1997-98 to 2014-15, where, the Tribunal after considering the main objects of the Trust, the activities carried out for relevant assessment years and also income derived from running Kalyanamandapam held that the activity of running Kalyanamandapam is only incidental to the attainment of main objects and thus, the assessee could take advantage of sub-section (4) of Sec. 11 of the Act. The facts for the impugned assessment year are identical and there is no change in facts, except the AO making allegation that there is a violation of provi....
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....f providing medical relief in its most comprehensive sense and other relief whatsoever, but only charitable in nature to the public irrespective of nationality, caste, creed, color, select or any other distinction whatsoever. The assessee is running a Kalyanamandapam and derived income and applied said income for the objects of the Trust. From the activities carried out by the assessee for these assessment years, it is noticed that apart from running two Kalyanamandapams, the assessee was having properties from which a school, a Health Centre and a Library was run. Although, the School was run by another Trust, but rental income received by the assessee for running School was nominal. The assessee Trust was also running a Medical Centre and provided space for running a Library by charging very nominal rent. All these activities are either in the field of education or in the field of medical care. If you go by the objects of the Trust and activities carried for these assessment years, there is no dispute that the assessee Trust has carried out its activities in accordance with the objects and the objects of the Trust are charitable in nature and more particularly in the field of med....
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.... Obviously, assessee cannot now raise a plea against the finding of the ld. Commissioner of Income Tax (Appeals) that income of the assessee from renting out Kalyanamandapams were business income, and it has wisely done so. However, it is peeved on the view taken by the ld. Commissioner of Income Tax (Appeals) that such business income could not be considered as income earned from a property held under the Trust, thereby disentitling the assessee from taking advantage of Sub section (4) of Section 11 of the Act. Section 11(4) and 11(4A) of the Act, as it was stood in the period covered by the appeals before us and which are apposite are reproduced hereunder:- Section 11(4) of the Act:- ''For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment ; and where any income so determined is in excess of the income as shown in the accounts....
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....f nationality caste, creed, colour, sect or any other distinction whatsoever. c) without prejudice to the above comprehensive objects expressed in general terms and, without limiting, in any way, the scope or extent thereof, to establish, promote, provide for and maintain maternity homes nursing homes, hospitals, general and for the treatment of children's diseases, provide facilities for surgical operations. out-patient. Dispensariessupply of medicines and after-treatment care and to take care of and provide for orphans, the aged, the infirm and the destitute d) for any of the purposes of the Society i. to acquire, by accepting as gift, purchase, lease, exchange or otherwise, lands, buildings and structures of any tenure or description, to sell, mortgage, exchange, lease, let out, hire or otherwise deal with such property; and to build constructions on lands and extend, improve and repair buildings and structures and otherwise deal with the property; and to receive rent and other income from property ii. to make donations to such persons or bodies and in such cases, and either of cash or other. Assets as the Society may think directly or indirec....
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.... of the assessee was charity and if so what was the nature of charity. It is not disputed that apart from the two Kalyanamandapams, assessee was having properties from which a school, a health centre and a library were run. It might be true that the school was run by another trust. However, rental received by the assessee for running the school called Avichi school was nominal. We find great strength in the argument of the ld. Authorised Representative, that property from which the School was run, if given out on market rates, would fetch tens of crores in income, and forgoing such income for educational purpose, was nothing but charity in the nature of education. Especially so, since the school was run by a trust which was undisputedly having registration u/s. 12A of the Act. Apart from this assessee had earned little revenue from its diabetic centre. It had also given out a premises to the Government for a library. All the activities of the assessee were either in the field of education or in field of medical care. Net revenue earned by the assessee and its expenditure in the field of medical aid, health care and donations as compiled from its income and expenditure account and B....
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.... application, or retention, of the income from such activity, unless- (i) Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of the previous year] First proviso applies to an assessee engaged in advancement of general public utility other than relief to the poor, education, medical relief, preservation of environment and preservation of monuments. As already mentioned by us, assessee's charitable activities were directly or indirectly in the nature of relief to the poor or education or medical relief. It was not an organization which was pursuing an activity of general public utility, different from education, medical relief or relief to the poor. First proviso to Section 2(15) of the Act is attracted only where an assessee carries on activities which was of general public utility other than those mentioned specifically in the definition of charitable purpose given i....
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....ich is far more less than the prevailing market rate and thus, worked out the difference between the rental income received by the assessee from partnership firm and rental income received by the partnership firm from three tenants and treated said difference as income of the assessee and added to total income for AYs 2012-13 to 2018-19. 24. The Ld.Counsel for the assessee submitted that the Ld.CIT(A) erred in treating the alleged difference in the rental income from M/s.CFD as income of the assessee by invoking provisions of Sec. 13(1)(c) of the Act and consequently, erred in levying tax on maximum marginal rate as per provisions of Sec. 164(2) of the Act. The Ld.Counsel for the assessee referring to agreement between the assessee and the partnership firm submitted that the property has been let out way back in the year 1975. The assessee has let out the property which consists of land and building with asbestos sheets. The assessee has fixed rent to the property on the basis of prevailing market rate as on the date. The said agreement has been renewed for a further period from time to time and enhanced the rent. The partnership firm, M/s.CFD has put up construction and also sp....
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.... and gone through orders of the authorities below. The assessee is having a property at Dr. No.101, Radhakrishan Salai, Chennai, which has been used for running Kalyanamandapam. The assessee has owned adjoining land and building and the same has been let out to M/s.CFD, a partnership firm way back 1975. As per agreement between the assessee and M/s.CFD, the said property was consisting of land & building with asbestos sheet hall. The agreement further states that the lessee should repair the building and put up additional construction as per their requirement. The said agreement has been renewed from time to time up to 01.04.2015. The rent of the premise was initially fixed at Rs. 4,500/- per month for five years in 1975 and the same has been enhanced to Rs. 40,000/- per month from 01.04.2015. The partnership firm, M/s.CFD has used said premises as a Preview Theatre right from 1975 and up to 1994. From 1994 onwards, said property has been rebuild/refurbished into a smaller properties and let out to three tenants viz., M/s. Hotel Saravana Bhavan, M/s.B & M Hot Breads Pvt. Ltd., & M/s. Hatsun Agro Products Ltd. The assessee claims that M/s CFD has spent huge amount for further constr....
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.... for re-construction and renovating the property right from 1975 to make it a Preview Theatre up to 1994, from 1994 onwards said property has been once again re-constructed/re-modeled by spending huge amount to make it suitable for commercial let out. From the above, it is undoubtedly clear that what was let-out by the assessee to the partnership firm is a different property and rent received by the assessee from the partnership firm is comparable with prevailing market rate. Further, what was let-out by partnership firm to three tenants is a different property which is remodeled/ re-build by the firm to make it suitable for commercial purpose, and thus, rent received by the partnership firm cannot be considered as prevailing market rent of the property let out by the assessee Trust to the firm. Therefore, we are of the considered view that the AO and the Ld.CIT(A) are completely erred in coming to the conclusion that the assessee Trust has allowed income or property of the Trust to the benefit of interested persons referred to u/s. 13(2) of the Act and thereby, violates provisions of Sec. 13(1)(c) of the Act, in so far as rental income is concerned. 28. Having said so, let us c....
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....th prevailing market rent, then provisions of Sec. 13(1)(c) r.w.s13(2) of the Act, cannot be applied. Therefore, we are of the considered view that the AO and the Ld.CIT(A) are completely erred in invoking provisions of Sec. 13(1)(c) r.w.s.13(2) of the Act, and made additions towards difference between rental income. Thus, we reverse the findings of the Ld.CIT(A) on this issue and direct the AO to delete the additions made towards difference between rental income received by the assessee from partnership firm and rental income received by the partnership firm from three tenants as income of the assessee. 29. The next issue that came up for our consideration from Ground Nos.12 to 15 of the assessee appeal is disallowance of depreciation on fixed assets the cost of which has been claimed as application of income. The fact with regard to the impugned dispute are that the assessee being a Trust registered u/s. 12AA of the Act, has claimed expenditure incurred towards purchase of capital assets as application of income for relevant assessment year. The assessee had also claimed depreciation on said fixed assets for every year on WDV as per rate applicable for those assets and claimed....
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....nd also claiming exemption u/s. 11 of the Act, in our considered view, depreciation on fixed assets should be allowed as application of income up to AY 2014-15. Thus, we direct the AO to delete additions made towards disallowance of depreciation on fixed assets for AYs 2012- 13 to 2014-15. In so far as AYs 2015-16 to 2018-19, the law has been amended by the Finance Act, 2014 to provisions of Sec. 11(6) of the Act and as per said provisions, where any income required to applied or accumulated or set part for application, then, for such purpose, the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as application of income under this section in the same or in any other previous year. From the amendment provisions of Sec. 11(6) of the Act, by the Finance Act, 2014, which is applicable from AY 2015-16 onwards, depreciation on fixed assets cannot be allowed as application of income, in case, the cost of acquisition of said fixed assets has been allowed as application of income in the same year or in any earlier year. Thus, we are inclined to uphold the findings of the Ld.CIT(A)....