AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 295
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the registration under the Income Tax Act u/s 12A(a) of the Income Tax Act, which was granted on 25.01.2001 vide CIT/CHD, TECH 3812A7869. The assessee Trust has filed its return of income on 30.09.2014 and 28.09.2015 declaring 'nil' income for assessment year 2014-15 and 2015-16 respectively. The case of the assessee for both the years was selected for scrutiny assessment and notices u/s 143(2) were issued on 31.08.2015 and 06.09.2016 which were duly served upon the assessee. The AO, thereafter issued questionnaires u/s 142(1) of the Income Tax Act on 16.03.2016 and 01.02.2017 listing the cases for hearing on 18.05.2016 and 06.03.2017 for assessment year 2014-15 and 2015-16. The AO has made a detailed analysis and thereafter determined the taxable income of the assessee at Rs. 5,23,74,106/- in assessment year 2014-15 and Rs. 10,47,74,451/- in assessment year 2015-16. The assessments have been passed u/s 143(3) on 23.12.2016 and 26.12.2017 respectively. 4. Appeals to the CIT (Appeals) did not bring any relief to the assessee. The ld. counsel for the assessee has briefly filed the details in tabular form exhibiting the amounts added by the AO in each year and the head under which t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of any other object of general public utility', rather its activity falls under the main compartment of the definition which if carried out by an Institution, then it will be per-se charitable. 6. With the assistance of ld. Representative, we have perused the record carefully. We find that ld. AO independently did not point out as to how assessee is not performing charitable objectives. He has only narrated 2-3 circumstances vide which he has observed that assessee has violated Section 13(1)(c) read with Section 13(3) by making payments of honorarium to the Chairperson, Vice Chairperson, General Secretary, Finance Secretary of the assessee Trust. He has also observed that assessee has provided travelling facility to these persons and therefore, this is not part of its objectives. Similarly, he has pointed out one more circumstance vide which incurrence of expenditure on start of an Aviation Maintenance Engineering Course is not covered under 'Charitable Activities'. On accumulative setting of these 2-3 circumstances, which we will be adverting upon in the subsequent part of this order, he harboured the belief that assessee is not acting for charitable objective, hence not entit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt and benefit of Section 11 cannot be denied in total to the assessee. The AO has not pin-pointed as to how assessee has violated its objectives while imparting education. The circumstances referred in the assessment order which we will be taking independently in the subsequent part is not sufficient to say that assessee is not entitled for the benefit of Section 11 and 12 of the Income Tax Act. Thus, this finding of both the Revenue Authorities is set aside. It is held that assessee is entitled for the benefit of Section 11 and 12 of the Income Tax Act. 10. The Ground Nos. 2 and 3 of assessment year 2014-15 are inter-connected with Ground No.3 and 4 of assessment year 2015-16. We take all these grounds of appeal together. The assessee has pleaded that ld. CIT (Appeals) has erred in confirming the disallowance of Rs. 37,80,000/- and Rs. 30,61,129/- which were added by the AO with the aid of Section 13(1)(c) read with Section 13( 3) and 164(2) of the Income Tax Act in assessment year 2014-15 and 2015-16 respectively. Similarly, in Ground No. 3 of assessment year 2014-15 and Ground No.4 of assessment year 2015-16, it has been pleaded that CIT (Appeals) has erred in confirming the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the past, for the first time, AO has disallowed it. 11. The ld. DR, on the other hand, relied upon the orders of the AO. 12. We have duly considered the rival contentions and gone through the record carefully. If scheme of Section 11 is being perused, then it would reveal that income derived from the property held under the Trust wholly for charitable or religious purpose, if applied to the extent of 85% on its objectives, then such income will not fall in the total income assessable of an assessee. In other words, if Rs. 100/- is being derived from the property held under the Trust and Rs. 85/- is being applied towards the charitable objective of the Trust, then nothing will be taxable upon such a 'Charitable Society' or Trust. However, Section 13 has contemplated certain exceptions. Therefore, for the facility of reference, we are taking note of relevant part of Section 13, which reads as under : Section 11 not to apply in certain cases. 13. (1) Nothing contained in section 11 or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- x x x (c) in the case of a trust for charitable or religious purposes or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....use (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, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds [fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), [(cc)] and (d) has a substantial interest. x x x 12.1 A perusal of the above provision would indicate that if the assessee society has availed the services or purchased any object from any specified person contemplated in sub-clause (3) and paid to such specified person in excess of what may be paid reasonably for such service in open market, then excess would be disallowed. In other words, for example, if assessee society has availed the services of an Engineer who....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd No. 5 in assessment year 2014 -15 is inter- connected with Ground No. 6 in assessment year 2015 -16. The grievance of the assessee in both these grounds is that CIT (Appeals) has erred in confirming the addition of Rs. 2, 90,55,422/- and Rs. 6,27,75,303 /-. These additions have been made on the ground that funds accumulated in the past have not been used within five years as contemplated in sub-clause (2) of Section 11 of the Income Tax Act. The ld. counsel for the assessee while impugning the orders of Revenue Authorities contended that similar question was asked by the AO in assessment year 2012 - 13 wherein it was contended by the assessee that on account of stay granted by the Addl. District Judge, Ropar, these amounts could not be applied by the assessee. The explanation given by the assessee in assessment year 2012 -13 read as under : Assistant Commissioner of Income Tax Circle - ['(Exemptions). Aayakar Bhawan, Chandigarh Dear Sir. Re.: M/s. Kandi Friends Educational Trust (Regd.), SCF 9, Phase 5, Mohali Sub.: Furnishing information u/s 143(2) of the Income Tax Act, 1961 for the Assessment Year 2012-13 With reference to your queries regarding non-utiliza....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 -13 in assessment order passed u/s 143( 3) of the Income Tax Act but took a contrary stand in these years. He submitted that as per the proviso to Section 11 (2), the period of the stay is required to be excluded from the alleged period of five years, therefore, assessee is protected by the proviso appended with the Section. 13.2 The ld. CIT DR, on the other hand, was unable to controvert the contention of the assessee as he relied upon the orders of the Revenue Authorities. 14. We have duly considered the rival contentions and gone through the record carefully. As observed earlier, the scheme of Section 11 contemplates that a charitable institution is required to apply the income derived under the Trust to the extent of 85 % on its objective in order to avoid levy of taxes. In case an assessee is unable to incur the income to the extent of 85 % on its objective, then assessee can apply for accumulation of such funds for future application. The procedure is being contemplated in sub-clause (2) of Section 11, therefore, for the facility of reference, we take note of the relevant part of sub- section 2 of Section 11, which reads as under : [(2)] Where eighty- five per cent of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed, then it has incurred the accumulated fund and no disallowance ought to be made. Even on the principle of consistency, this plea has been accepted by the AO in the assessment year 2012 -13 but we fail to understand as to why AO has taken a different stand in these two years. Accordingly, we allow this ground of appeal in both the years and delete the disallowance made by the AO and confirmed by the CIT (Appeals). The relevant documents are placed on page No. 206 to 238 of Volume-III of the Paper Book. The assessee has placed on record details of relevant forms whereby accumulation was made. 15. The Miscellaneous Appeal bearing No. 77 was filed on 05.08.2005 and injunction was granted under Order 39 Rule 1 and 2 of the CPC. The concluding paragraphs of the judgement are available from page 239 to 241. This order was pronounced on 14.06.2006. The litigation was relegated to the Trial Court for disposal of the suit and ultimately it travelled to the Hon'ble High Court vide RSA No. 689 of 2011. Thus, after going through all these documents, we are of the view that AO has failed to appreciate the facts and circumstances in right perspective. Similarly, CIT (Appeals) has erred in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee. 17. With the assistance of ld. Representative, we have gone through the record carefully. It is pertinent to note that assessee is a Charitable Institution who got registration u/s 12 A on 25.01.2001. It has explored new area of imparting education in the Branch of Aviation Maintenance Engineering Course. The AO failed to appreciate that approval to start a course would not be granted to any Institution unless infrastructure is placed in order. Thus, even for getting approval, assessee has to fist develop the infrastructure, only then approval would be admissible. The assessee had a correspondence with DGCA. It has invited its officials for Inspection of the development made by it. The DGCA has granted NOC to the assessee for entering into Agreement for purchase of heavy aircraft. The assessee got authorization to import aircraft for education purpose. It has placed on record copy of High Sea Sale Agreement for aeroplane. We have been informed that DGCA has granted the approval also. The AO failed to appreciate the fact that even without actual starting of education in a particular year, the preparatory work for starting Educational Institution falls within the ambit of 'educa....