Commissioner Of Income Tax (Exemptions) Hudco Building, Jyotinagar, Jaipur-V v. Santokba Durlabhji Trust Fund, 139, Johri Bazar, Jaipur (Raj

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 60 / 2015 Commissioner of Income Tax (Exemptions) Hudco Building, JyotiNagar, Jaipur-V ----Appellant Versus Santokba Durlabhji Trust Fund, 139, Johri Bazar, Jaipur (Raj.) ----Respondent Connected With D.B. Income Tax Appeal No. 130 / 2015 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur, 302005, Jaipur. ----Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) ----Respondent D.B. Income Tax Appeal No. 140 / 2015 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur, 302005, Jaipur. ----Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) ----Respondent D.B. Income Tax Appeal No. 16 / 2016 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur-V ----Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) ----Respondent D.B. Income Tax Appeal No. 19 / 2016 Commissioner of Income Tax (Exemptions) Hudco Building, Jyoti Nagar, Jaipur-V ----Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur(Raj.) ----Respondent D.B. Income Tax Appeal No. 275 / 2016 Commissioner of Income Tax (Exemptions) Kailash Heights, 3[rd]Floor, Lal Kothi, Tank Road, Jaipur 302015. ----Appellant Versus Santokba Durlabhji Trust, 139, Johori Bazar, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer JainFor Respondent(s) : Mr. Gunjan Pathak _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 12/09/2017 Since these appeals arise out of the same order, theyare being decided by this common order. By way of these appeals, the appellant has challengedthe judgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the assessee. This court while admitting the Income Tax Appeal No.60/2015 on 06.08.2015, framed the following substantialquestions of law:- I) Whether on the facts and in the circumstances ofthe case the learned ITAT was correct in holdingthat the tax at margin rate as per the provisions ofSection 164(2) is to be levied on the incomeearned from non-exempt asset? II) Whether on the facts and circumstances of thecase more holding of ineligible assets is sufficientto attract the provisions of Section 13 (1)(d)(iii) ofthe Act and it is immaterial whether funds of thetrust were used or not?” This court while admitting the Income Tax AppealsNo.130/2015 & 140/2015 on 24.07.2017, framed the followingsubstantial question of law:- “Whether on the facts and circumstances of thecase and in law, the assessee is eligible to claimunder Section 11 even though provisions of Section13(1)(d)(iii) are attracted.” This court while admitting the Income Tax AppealNo.16/2016 on 14.09.2016, framed the following substantialquestions of law:- “1.Whether, on the facts and circumstances of thecase and in law, the Ld. ITAT was correct inquashing the revision order passed u/s 263 byholding it as neither erroneous nor prejudicial tothe interests of revenue? 3.Whether, on the facts and in the circumstances ofthe case and in law, the Ld. ITAT was correct inholding that the issue of applicability of Section13(1)(d)(iii) was settled in favour of respondentassessee vide its own order, notwithstanding thatthe said order has already been challenged beforethis Hon’ble Court and the appeal is pendingadjudication as on date? This court while admitting the Income Tax AppealNo.16/2016 on 14.09.2016, framed the following substantialquestions of law:- “1.Whether, on the facts and circumstances of thecase and in law, the Ld. ITAT was correct inquashing the revision order passed u/s 263 byholding it as neither erroneous nor prejudicial tothe interests of revenue? 3.Whether, on the facts and in the circumstances ofthe case and in law, the Ld. ITAT was correct inholding that the issue of applicability of Section13(1)(d)(iii) was settled in favour of respondentassessee vide its own order, notwithstanding thatthe said order has already been challenged beforethis Hon’ble Court and the appeal is pendingadjudication as on date? 4.Whether on the facts and in the circumstances ofthe case the Hon’ble ITAT was correct in holdingthat the denial of exemption u/s 13(1)(d)(iii) is tobe restricted to only the income earned fromshares to be taxed at marginal rate u/s 164(2), andnot the entire income of respondent assesseemerely by following its own order for anotherAssessment Year notwithstanding that the issuehas not attend finality and the same is pendingadjudication before this Hon’ble Court?” This court while admitting the Income Tax Appeal No.19/2016 on 18.10.2016, framed the following substantial questions of law:- “1.Whether, on the facts and circumstances of thecase and in law, the Ld. ITAT was correct inquashing the revision order passed u/s 263 byholding it as neither erroneous nor prejudicial tothe interests of revenue? 2.Whether, on the facts and in the circumstances ofthe case and in law, the Ld. ITAT was correct inholding that the issue of applicability of Section13(1)(d)(iii) was settled in favour of respondentassessee vide its own order, notwithstanding thatthe said order has already been challenged beforethis Hon’ble Court and the appeal is pendingadjudication as on date? 3.Whether on the facts and in the circumstances of the case the Hon’ble ITAT was correct in holdingthat the denial of exemption u/s 13(1)(d)(iii) is tobe restricted to only the income earned fromshares to be taxed at marginal rate u/s 164(2), andnot the entire income of respondent assesseemerely by following its own order for anotherAssessment Year notwithstanding that the issuehas not attend finality and the same is pendingadjudication before this Hon’ble Court?” This court while admitting the Income Tax Appeal No.275/2016 on 19.11.2016, framed the following substantialquestions of law:- “1.Whether, on the facts and circumstances of thecase and in law, the ld. ITAT was correct inquashing the revision order passed u/s 263 byholding it as neither erroneous nor prejudicial tothe interests of revenue? 2.Whether, on the facts and in the circumstances ofthe case and in law, the ld. ITAT was correct inholding that the issue of applicability of Section13(1)(d)(iii) was settled in favour of respondent-assessee vide its own order, notwithstanding thatthe said order has already been challenged beforethis Hon’ble Court and the appeal is pending adjudication as on date? 3.Whether on the facts and in the circumstances ofthe case the Hon’ble ITAT was correct in holdingthat the denial of exemption u/s 13(1)(d)(iii) is tobe restricted to only the income earned fromshares to be taxed at marginal rate u/s 164(2),and not the entire income of respondent assesseemerely by following its own order for anotherAssessment Year notwithstanding that the issuehas not attend finality and the same is pendingadjudication before this Hon’ble Court?” The facts of the case are that the assessee filed itsreturn of income on 30.9.2008 declaring Nil income. The assesseeis a Trust and runs a hospital namely Santokba Durlabhji Memorial adjudication as on date? 3.Whether on the facts and in the circumstances ofthe case the Hon’ble ITAT was correct in holdingthat the denial of exemption u/s 13(1)(d)(iii) is tobe restricted to only the income earned fromshares to be taxed at marginal rate u/s 164(2),and not the entire income of respondent assesseemerely by following its own order for anotherAssessment Year notwithstanding that the issuehas not attend finality and the same is pendingadjudication before this Hon’ble Court?” The facts of the case are that the assessee filed itsreturn of income on 30.9.2008 declaring Nil income. The assesseeis a Trust and runs a hospital namely Santokba Durlabhji Memorial Hospital cum Research Institute. The case of the assessee waspicked up for scrutiny and an order u/s 143(3) was passed on27.12.2010 determining the total income of the assessee asRs.6,23,44,980/-. Respondent is a trust where they received giftof TISCO Ltd. shares which were subsequently written off. The Tribunal while considering the matter in para 4.2 observed as under:- 4.2 ld. CIT (DR) contends that I. Assessee Consciously violated the statutoryprovision of continuing with the investment ofshares in a non public sector company, In thiseventuality law will take its course as per plainmeaning once the assessee trust violates a specificprovision of sec. 13(1)(d); it leads to denial ofbenefits of sec 11 & 12 to entire trust come.provision of continuing with the investment ofshares in a non public sector company, In thiseventuality law will take its course as per plainmeaning once the assessee trust violates a specificprovision of sec. 13(1)(d); it leads to denial ofbenefits of sec 11 & 12 to entire trust come. ii. The assessee was under an obligation to disposeoff or convert TISCO shares in to permissibleinvestments by 31[st] March, 1993 which it failed todo and thereby contravened S. 13(1)(d)off or convert TISCO shares in to permissibleinvestments by 31[st] March, 1993 which it failed todo and thereby contravened S. 13(1)(d) iii. It was claimed that these shares werepurchased out of the sale proceeds of old shares.This plea was also rejected as there was no sale ofshares during the year under consideration. And ifit was in earlier years then it is further establishedthat the Trust had invested money out of its ownfunds. iv. The assessee has further claimed that had theTrust not opted to subscribe for rights issue itwould have resulted in a big loss to the Trust. TheTrustees are in a fiduciary position and had to actfor the benefit of the Trust. v. The AO observed that the assessee was trying tocompare a case of a company with that of theTrust. The functions of a Trust are altogetherdifferent from the functions of a company. TheTrust gets tax benefit under the Act only if itsatisfies certain conditions laid down in Section11,12 & 13 and it is not meant for profit motive.On the contrary, in the case of a company profit isthe most powerful driving force in its functions. vi. The shares forming part of corpus were receivedby it after 1[st] June, 1973 and even then theaccretion was not necessarily by wayof bonusshares. The assessee had grossly ignored thephrase “by way of bonus” while st4ressing on thedefinition of word “accretion” the statute hasallowed accretion oly by way of bonus shares andthat too in caes when such shares were with thetrust on 1[st] July, 1973. When the shares areforming part of corpus after 1[st] June, 1973,question of accretion does not even arise. Clearlythe investment in right-issue cannot, by anystretch of imagination, by equated with the phraseaccretion by way of bonus shares. Ld. DR in order to buttress his arguments relied onfollowing judgments:- I. CIT v. Kumudam Endownments 242 ITR 159(Madras) ii. DIT (E) v. M. Ct. Muthiah Cheetiar Family trust. Ld. DR in order to buttress his arguments relied onfollowing judgments:- I. CIT v. Kumudam Endownments 242 ITR 159(Madras) ii. DIT (E) v. M. Ct. Muthiah Cheetiar Family trust. Iii. DIT(E0 v. Shardaben Bhagubhai Mafatlal PublicTrust NO. 8 and ors. 164 CTR (Bom) 97. These case laws are relied for the proposition thatin case the investments held earlier are notconverted into specified investments the entirebenefits u/s 11 & 12 can be denied on this violationof sec13(1)(d) provisions. Further reliance is placedon: I. Tulsiram Gilda Public Charitable Trust v. ACIT 44ITD 341 (Hyd) 2. ITO v. Gurjar Pushkarana Vidyotejak Mandal 30TTJ (Ahd) 610; For the proposition that even if the proviso to sec.164(2) inserted from 1-4-85 is considered, itimplies that clauses c or d of sec. 13(1) areattracted, in that case trust income is to be taxedat maximum marginal rates. Counsel for the respondent supported the order of the Tribunal. We have heard both the parites. Taking into consideration the above facts, we are of theopinion that the view taken by the Tribunal is just and proper. Inthe peculiar facts of this case, We are confirming the view of theTribunal only in this case and it will not be treated as precedent. The issues are answered in favour of assessee andagainst the department. The appeals stand dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J.