Commissioner Of Income Tax,Chennai v. M/S. Society Of Daughters Of Mary Immaculate & Collaborators,Amala Bhavan, Rujdra Road,St. Thomas Mount

IN THE HIGH COURT OF JUDICATURE AT MADRASDATE: 02.03.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI T.C.A.No. 419 of 2012 Commissioner of Income Tax,Chennai. ... Appellant/Appellant vs. M/s. Society of Daughters of Mary Immaculate & Collaborators,Amala Bhavan, Rujdra Road,St. Thomas Mount, Chennai - 600 016. ... Respondent/Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Madras, "A" Bench, dated 13.07.2012 in I.T.A.No.963/Mds/2012 forthe Assessment Year 2008-09 against the order of theCommissioner of Income Tax (Appeals)-XII, Chennai 600 034, dated10.01.2012 in ITA No.237/2010-11 for the Assessment year 2008-2009, and against the order of the Deputy Director of Income Tax(Exemptions)II,Chennai,dated15/12/2010inPAN/GINo.AAAIT6108Q for Assessment year 2008-2009.For Appellant : Mr.J.Narayanaswamy Senior Standing CounselFor Respondent : Mr.G.Baskar JUDGMENT(Judgment was delivered by M. DURAISWAMY, J.) Challenging the order passed in I.T.A.No.963/Mds/2012 inrespect of the Assessment Year 2008-09 on the file of theIncome Tax Appellate Tribunal, Chennai,"A"' Bench (for brevity,the Tribunal), the Revenue has filed the above appeal. 2.1 The Assessing Officer while completing the assessmentunder section 143(3) found that the assessee trust had lent the https://hcservices.ecourts.gov.in/hcservices/ money to its group trusts, viz., Brotherhood Trust, Daughtersof Mary Immaculate & Collaborators Trust, and Society forEducation for Life. Since the lending of money were inviolation of provisions of section 13(1)(d) read with 11(5),exemption was denied to the assessee trust. 2.2 Aggrieved over the assessment order, the assesseefiled an appeal before the Commissioner of Income Tax(Appeals), who allowed the appeal holding that the amounts lentto the group trust does not amount to violation under section13(1)(d) read with 11(5), since the objects of the assesseetrust and the trust to whom the money were lent were similar.Further, it held that the amounts lent cannot be treated tohave benefited any person directly or indirectly and the loangiven are outside the purview of section 13(1)(c) and 13(1)(d).2.3 Aggrieved over the order passed by the Commissionerof Income Tax (Appeals), the Revenue has filed an appeal beforethe Income Tax Appellate Tribunal, and the Tribunal alsoconfirmed the order passed by the Commissioner of Income Tax(Appeals) and dismissed the appeal. Challenging the orderpassed by the Income Tax Appellate Tribunal, the Revenue hasfiled the above appeal. 3. At the time of admission of the above appeal, thefollowing substantial question of law arose for consideration:“Whether on the facts and in thecircumstances of the case, the Tribunal wasright in holding that the assessee is entitledfor exemption u/s 11 by holding that the grant ofloan by assessee trust to its group trust cannotbe treated as deposit or investment made inviolation of Section 13(1)(d) r/w 11(5) of theAct?" 3. At the time of admission of the above appeal, thefollowing substantial question of law arose for consideration:“Whether on the facts and in thecircumstances of the case, the Tribunal wasright in holding that the assessee is entitledfor exemption u/s 11 by holding that the grant ofloan by assessee trust to its group trust cannotbe treated as deposit or investment made inviolation of Section 13(1)(d) r/w 11(5) of theAct?" 4. According to the Assessing Officer, the assessee hasviolated Section 13(1)(d) read with 11(5) for the reason thatthe assessee has to invest only as per law, which is permittedunder section 11(5) of the Act. The assessee advanced interest-free loans to the sister concerns. Section 11(5) of the IncomeTax Act deals with the forms and modes of investing anddepositing money. In the case on hand, the assessee hadadvanced loans to the sister concerns. In these circumstances,it cannot be stated that the loans are hit by section 13(1)(d)or section 11(5). The assessee trust had given loan to anothereducational society, whose President was the brother of theassessee trust. The interest free loan given by the assesseetrust to other society having similar objects and registeredunder section 12A does not violate section 13(1)(d) read withsecion11(5) as the said loan was neither an investment nor adeposit. 5. Mr. J. Narayanaswamy learned Senior Standing Counselappearing for the appellant in support of his contentions,relied upon a Judgment reported in (2002) 125 Taxman 515(Kerala) [Mundakapadam Mandirams Society v. Commissioner ofIncome Tax] wherein the Kerala High Court held as follows:- " 3. The petitioner's contention is that evenafter admitting that the petitioner has spent 75 percent., of the income during the year 1999-2000 forcharitable purpose, the respondents have deniedexemption under Section 80G on account of the allegedviolation of Section 13(1)(d). The violation pertainsto the donation of Rs. 25,000 received by thepetitioner. The petitioner had accepted the donationand invested the same as a deposit in IntegratedFinance Company Limited. This amount remained investedwith the said company till March 31, 1999, whichaccording to the Commissioner was not permissibleunder Section 13(1)(d) of the Act. Counsel for thepetitioner relied on the decisions of the Supreme Courtin S. RM. M. CT. M. Tiruppani Trust v. CIT [1998] 230ITR 636 and in Addl CIT v. A. L. N. Rao CharitableTrust [1995] 216 ITR 697 and contended that Section 11(2)(b) read with Section 11(5) applies only to unspentamount below 75 per cent. of the income. According tothe petitioner, since it has admittedly spent 75 percent. of the income during the year, Sections 11(2)(b) and 11(5) have no application at all. On the otherhand standing counsel for the Department pointed outthat the decisions pertain to assessment prior to theamendment to Section 13 and, therefore, those decisionshave no application. Obviously the decisions only referto Section 11 and not to Section 13, whereas thedecision of the Commissioner under challenge is basedon Section 13(1)(d) of the Act. Sri P. Balachandran,appearing for the petitioner, relied on the decision ofthe Gujarat High Court in Orpat Charitable Trust v.CIT [2002] 256 ITR 690 and that of the Delhi High Courtin Director of Income-tax (Exemption) v. Agrim CharanFoundation [2002] 253 ITR 593 and contended that evenif there is violation of Section 11 or Section 13, thepetitioner is entitled to registration under Section80G(5) of the Act. 4. It is admitted and there is finding to theeffect that an amount of Rs. 25,000 was deposited bythe petitioner with Integrated Finance Company up toMarch 31, 1999, the previous year relevant to theassessment year for which renewal of exemption wasclaimed by the petitioner under Section 80G. This isadmittedly not a permissible investment provided under https://hcservices.ecourts.gov.in/hcservices/ Clauses (i) to (xii) of Section 11(5) of the Income-taxAct. The contention of the petitioner is that Section11(5) directlyrefersto Section11(2)(b) whichprovides for investment if the application of incomefor charitable purpose is below 75 per cent. In otherwords, in order to qualify for exemption in the case ofexpenditure below 75 per cent. of the income, thedifference between the amount actually spent and 75 percent. of the income has to be invested in any of themodes provided in Section 11(5). According to thepetitioner, since the petitioner has spent 75 per cent.of the income during the relevant year, the question ofapplying Section 11(2)(b) and Section 11(5) does notarise at all. In other words, Rs. 25,000 being part ofthe balance 25 per cent. of income which remainedinvested in investments other than those referred toin Section 11(5) it does not disentitle the petitionerto the exemption is the contention of the petitioner.The scheme of Section 11 provides for exemption of theincome to the extent it is spent for charitablepurposes during the relevant previous year. Though theeligibility for exemption is available only if 75 percent. of the income is spent for charity, there is anexception provided in Sub-section (2) of Section11 which enables the petitioner to get exemption bycarrying over any shortage in the expenditure below 75per cent. to the next year after issuing notice to theDepartment under Section 11(2) of the Act. The furthercondition under Section 11(2)(b) is that the differencebetween the actual amount spent and 75 per cent. of theincome should be invested in any of the modes providedunder Section 11(5) of the Act. So much so, so far asthe petitioner is concerned, the argument that there isno violation of Section 11(2) is correct because thepetitioner spent 75 per cent. of the income for charityduring the year. However, the matter does not end herebecause Section 13 introduces a further condition whichis as follows : "13. (1) Nothing contained in Section11 or Section 12 shall operate so as to excludefrom the total income of the previous year ofthe person in receipt thereof--*****. .(d) in the case of a trust for charitable orreligious purposes or a charitable or religiousinstitution, any income thereof, if for anyperiod during the previous year-(i) any funds of the trust or institution areinvested or deposited after the 28th day ofFebruary, 1983, otherwise than in any one or more of the forms or modes specified in Sub-section (5) of Section 11 ; or (ii) any funds of the trust or institutioninvested or deposited before the 1st day ofMarch, 1983, otherwise than in any one or moreof the forms or modes specified in Sub-section(5) of Section 11 continue to remain so investedor deposited after the 30th day of November,1983 ; or (iii) any shares in a company (not being aGovernment company as defined in Section 617 of theCompanies Act, 1956 (1 of 1956), or a corporationestablished by or under a Central, Stateor Provincial Act) are held by the trust orinstitution after the 30th day of November,1983 . . ." more of the forms or modes specified in Sub-section (5) of Section 11 ; or (ii) any funds of the trust or institutioninvested or deposited before the 1st day ofMarch, 1983, otherwise than in any one or moreof the forms or modes specified in Sub-section(5) of Section 11 continue to remain so investedor deposited after the 30th day of November,1983 ; or (iii) any shares in a company (not being aGovernment company as defined in Section 617 of theCompanies Act, 1956 (1 of 1956), or a corporationestablished by or under a Central, Stateor Provincial Act) are held by the trust orinstitution after the 30th day of November,1983 . . ." Therefore, Section 13(1)(d) which has overriding effectmakes it mandatory for the trust to invest the entireleft over funds after meeting the expenditure in any ofthe modes of investments provided under Section 11(5) of the Act. Even in a case where 75 per cent. isspent by the trust and balance 25 per cent. is carriedover, such 25 per cent. should be invested only in anyof the modes provided under Section 11(5) of the Actand if there is a violation, then Section 13 puts a baron exemption under Section 11. In other words, whilethe difference between actual expenditure and 75 percent. of the income is covered by Section 11(2)(b) readwith Section 11(5), Section 13(1)(d) provides that theentire balance unspent income left in the hands of thetrust has to be invested in any of the authorisedsecurities provided under Section 11(5). In fact afterintroduction of Section 13(1)(d), Section 11(2)(b) hasbecome redundant and unnecessary because Section 13(1)(d) speaks about any funds of the trust or institutionthat takes in not only the remaining 25 per cent. butthe unspent amount below 75 per cent. also. In otherwords, there is an absolute prohibition by virtueof Section 13(1)(d) against any charitable institutioninvesting any amount at any point of time in anyinvestments or mode of investments other than thosenarrated in Section 11(5). The petitioner admittedlyhaving kept Rs. 25,000 in deposit in a private companytill March 31,1999, after which it has shifted it toone of the investments under Section 11(5), was rightlydeclined exemption under Section 80G of the Act for theyear 1999-2000. 6. Mr. G. Baskar, learned counsel appearing for therespondent-assessee submitted that the order passed by theTribunal is proper for the reason that the Division Bench ofthis Court had already decided the issue involved in the presentappeal. In support of his contentions, the learned counselrelied upon the following Judgments:- (i) 2010 (326) ITR 146 [Director of Income Tax v. ACMEEducational Society] wherein the Delhi High Court held thatadvancing of an interest free temporary loan by one society toanother society having similar objects, whose President wasbrother of President of assessee society would not amount to aninvestment or a deposit attracting section 13(1)(d). (ii) 2015 (53)Taxmann.com 85(Madras) [Commissioner ofIncome Tax v. Working Women's Forum] wherein the DivisionBench of this Court held as follows:- " ... 3 Learned counsel appearing for the Revenuesubmitted that when the assessee had violated theprovisions of section 13(1)(d), the question ofgranting exemption under section 11 did not arise.According to the Revenue, the Tribunal committed aserious error in not considering the fact that theinvestment by the assessee in MIOT Hospitals Ltd. wasconscious and, hence, violated under section 11(5)/13(1)(d) ofthe Act ought to have been considered forconfirming the assessment. (ii) 2015 (53)Taxmann.com 85(Madras) [Commissioner ofIncome Tax v. Working Women's Forum] wherein the DivisionBench of this Court held as follows:- " ... 3 Learned counsel appearing for the Revenuesubmitted that when the assessee had violated theprovisions of section 13(1)(d), the question ofgranting exemption under section 11 did not arise.According to the Revenue, the Tribunal committed aserious error in not considering the fact that theinvestment by the assessee in MIOT Hospitals Ltd. wasconscious and, hence, violated under section 11(5)/13(1)(d) ofthe Act ought to have been considered forconfirming the assessment. 4. We do not agree with the said submission ofthe learned counsel for the Revenue.We may at theoutset point out herein that the decision relied on bytheCommissioner of Income-tax (Appeals) in the case ofCIT v. Tuluva Vellala Association in T.C. No. 477 of1989, dated March 16, 1999, is rentable to thedecisionof this court in T.C. No. 477 of 1989 and has norelevance of the issue onhand. Leaving that aside, asfar as the decision of the Bombay High Court in DIT(Exemptions) v. Sheth Mafatlal Gagalbhai FoundationTrust MANU/MH/0448/2001 :[2001] 249 ITR 533 (Bom.) isconcerned, it is a similar line, which was applied bythe Tribunal. The assessee therein was brought undersection 164 to be assessed at the maximum marginal rateof tax on account of contravention of section 13(1)(d).The Bombay High Court held that violation of section 11(5) read with section 13(1) (d) by the assessee wouldresult in the maximum marginal rate of tax only on thedividend income on shares, which was not the recognisedmode of investment andthat the assessee would not bevested with marginal rate of tax on the entire income.Therefore, the income other than dividend income has tobe taxed only to the extent to which the violation was found by the Assessing Officer. In so considering, theBombay High Court held as follows (page 537): "Under section 161(1A), which begins witha non obstante clause, it is provided thatwhere any income in respect of which a personis liable as a representative assessee consistsof profits of business, then tax shall becharged on the whole of the income in respectof which such person is so liable at themaximum marginal rate. Therefore, reading theabove two phrases show that the Legislature hasclearly indicated its mind in the proviso tosection 164(2) when it categorically refers toforfeiture of exemption for breach of section13(1)(d), resulting in levy of maximum marginalrate of tax only to that part of the incomewhich has forfeited exemption. It does notrefer to the entire income being subjected tomaximum marginalrateof tax. Thisinterpretation of ours is also supported byCircular No. 387, dated July 6, 1984 (see[1985] 152 ITR (St.) 1). Vide the saidcircular, it has been laid down in para. 28.6that, where a trust contravenes section 13(1)(d) of the Act, the maximum marginal rate ofincome-tax will apply only to that part of theincome which has forfeited exemption under thesaid provision and not to the entire income. Wemay also add that in law, there is a vitaldifference between eligibility for exemptionand withdrawal of exemption/forfeiture ofexemption for contravention of the provisionsof law. These two concepts are different. Theyhave different consequences. It is interestingto note that although the Legislature withdrewsection 164(2) by the Direct Tax Laws(Amendment) Act, 1987, which provision wasreintroduced by the Direct Tax Laws (Amendment)Act, 1989, the Legislature did not touch theproviso to section 164(2) which has been on thestatute book right from April 1, 1985. The saidproviso was inserted by the Finance Act, 1984.The proviso specifically refers to violation ofsection 13(1)(d) and its consequences." 7. On a careful consideration of the materials availableon record and the submissions made by the learned counsel oneither side and also the judgments relied upon by thelearned counsel on either side, it could be seen that the ratio laid down by the Delhi High Court and the Division Bench ofthis Court in the Judgments relied upon by the learned counselfor the respondent squarely applies to the question of lawraised in the appeal. 8. Since the facts and circumstances of the case on handdiffers from the facts and circumstances of the Judgment reliedupon by the learned counsel for the appellant, the said ratiocannot be applied to the present case. 9. In these circumstances, following the ratio laid down inthe Judgments reported in 2010 (326) ITR 146 [cited supra] and2015 (53)Taxmann.com 85(Madras) [cited supra], the question oflaw is decided against the Revenue and in favour of theassessee. The Tax Case Appeal is dismissed. No costs. Sd/- Assistant Registrar(CS III) //True Copy// Sub Assistant RegistrarRJTo1. The Income Tax Appellate Tribunal, Chennai, "A"' Bench.2. The Commissioner of Income Tax (Appeals)-XIII, Chennai - 600 0343. The Deputy Director of Income Tax (Exemptions)II, Chennai. +1cc to Mr.G.Baskar, Advocate, S.R.No.12967 T.C.A.No. 419 of 2012 RJ (CO)TE (19/04/2021)