Ita/292/2007 Of The Commissioner Of Income Tax v. M/S St Joseph Asylum Industrial Workshop

IN THE HIGH COURT OF KARNATAKA AT BANGALORE. DATED THIS THE 4[th]DAY OF MARCH 2014 PRESENT THE HON‘'BLE MR. JUSTICE DILIP B BHOSALE AND| THE HON‘'BLE MR. JUSTICE B MANOHARITA.NO.292/ 2007 C/W ITA.NO.291/200/7ITA.NO.293/2007, ITA.NO.294/ 2007 BEI|WEE 1.THE COMMISSIONER OF INCOME TAX.MANGALOREMANGALORE 2.THE ASST COMMISSIONER OF INCOME-TAX CIRCLE-2(1) MANGALORE | ..COMMON APPELLANTS| (BY SRI K V ARAVIND, ADV.,). AND M/S ST. JOSEPH ASYLUM INDUSTRIAL WORKSHOP S.NO 17-6-379, JEPPU MANGALORE| .. COMMON RESPONDENT| (BY SRI S PARTHASARATHI, ADV., A/W SRI MALLAHARA, ADV.,) THIS I.T.A.NO.292/2007 FILED U/S. 260A OF THEINCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED)22.9.2006 PASSED IN ITA NO. 2954/BANG/2004 FOR THE|ASSESSMENT YEAR 1998-99, PRAYING TO: I.FORMULATE THE|SUBSTANTIAL QUESTIONS OF LAW, II. ALLOW THE APPEAL AND|SET ASIDE THE ORDER PASSED BY THE INCOME TAX)APPELLATETRIBUNAL,|BANGALOREBENCH-A|IN|ITA NO2954/BANG/2004 DT.22-09-06 VIDE ANNEXURE-A ANDCONFIRM THE ORDER PASSED BY THE ASSESSING OFFICER, IN|THE INTEREST OF JUSTICE AND EQUITY. THIS ITA.NO.291/2007 FILED U/S.260-A OF I.T.ACT,|1961 ARISING OUT OF ORDER DATED 22-09-2006 PASSED IN|ITA NO.2952/BANG/2004 FOR THE ASSESSMENT YEAR 1997-98, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS|OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SETASIDE THE ORDER PASSED BY [TAT BANGALORE BENCH-A IN|ITA NO2952/BANG/2004 DATED 22-09-2006-ANNEXURE-A AND|CONFIRM THE ORDER PASSED BY THE ASSESSING OFFICER, IN|THE INTEREST OF JUSTICE AND EQUITY. THIS ITA.NO.293/2007 FILED U/S.260-A OF I.T.ACT,|1961 ARISING OUT OF ORDER DATED 22-09-2006 PASSED IN|ITA NO.2973/BANG/2004 FOR THE ASSESSMENT YEAR 1999-2000,|PRAYING TO:|I.FORMULATETHE|SUBSTANTIAL.QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL|AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE|BENCH-A IN ITA NO.2973/BANG/2004 DATED 22-09-2006 VIDE|ANNEXURE-A AND CONFIRM THE ORDER PASSED BY THE|ASSESSING OFFCER, IN THE INTEREST OF JUSTICE AND)EQUITY. THIS ITA.NO.294/2007 FILED U/S.260-A OF I.T.ACT,|1961 ARISING OUT OF ORDER DATED 22-09-2006 PASSED IN|ITA NO.2974/BANG/2004 FOR THE ASSESSMENT YEAR 2000-2001, PRAYING TO:|I.FORMULATETHE|SUBSTANTIAL.QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL|AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE|BENCH-A IN ITA NO.2974/BANG/2004 DATED 22-09-2006 VIDE|ANNEXURE-A AND CONFIRM THE ORDER PASSED BY THE|ASSESSING OFFCER, IN THE INTEREST OF JUSTICE ANDEQUITY. THESE ITAS COMING ON FOR- HEARING, THIS DAY, THE COURTDELIVERED THE FOLLOWING ORAL JUDGMENT (Dilip B. Bhosale J.,) Tnese income tax appeals are directedagainst tneorder dated 77[1:]September 2006 rendered by Income TaxAppellate Tribunal (for snort the Tribunal’) in ITA.Nos.2952, 2954, 2973 and 2974 of 2004 pertaining to theassessment years 1997-98 to 2000-2001, whereby, theTribunal dismissed all the appeals filed by the revenue. | 2. Tne appeals before the Tribunal were arising from.the orders, all dated 24[tn]June 2004, passed by tneCommissioner of Income Tax (Appeals) (for short, CIT (A)) whereby the CIT (A) partly allowed the appeals filed by therespondent-assessee against the order of assessing officer|dated 26[tn]Marcn, 2002. 3. Tnougn the revenue nas framed three substantial|questions of law in the memorandum of appeals, we have.reframed the questions, with the assistance of the learned|counsel for the parties. The questions on which we have heard learned counsel for the parties, and have dealt with,read as follows: i) whether the assessee is entitled to exemptionunder Section 11(1) (a) of the Act in respect of the income|derived from sale of residential and commercial units? il) wnetner on the facts and in the circumstances ofthe case and in law, the Tribunal was justified in grantingexemption under Section 11 of tne Act, holding that ansamount of Rs.1,61,23,950/-, wnicn nad been accepted by|the respondent-assessee as additional income, neverreached the trust ? 3. Tnougn the revenue nas framed three substantial|questions of law in the memorandum of appeals, we have.reframed the questions, with the assistance of the learned|counsel for the parties. The questions on which we have heard learned counsel for the parties, and have dealt with,read as follows: i) whether the assessee is entitled to exemptionunder Section 11(1) (a) of the Act in respect of the income|derived from sale of residential and commercial units? il) wnetner on the facts and in the circumstances ofthe case and in law, the Tribunal was justified in grantingexemption under Section 11 of tne Act, holding that ansamount of Rs.1,61,23,950/-, wnicn nad been accepted by|the respondent-assessee as additional income, neverreached the trust ? 4. The respondent-assessee is a charitable trust.Tne respondent, as they are permitted under their.Memorandum of Association, constructed a commercial-cum-residential complex on a part of its land called“Shalom Apartments cum Commercial Complex” (for short.“the said complex”). At the relevant time, one Marcel|Saldanha was the Manager of the respondent-assessee. Tne assessee sold the apartments/commercial premises to)various persons by agreements to sale and then sale.aeeds. [t nas come on record tnat the amount snown Ineach of the agreements to sale was more than the amount.in the sale deed. It is not clear how mucn was tne exact.difference. But it is admitted by the learned counse! for)the parties that the total difference between these two.amountsInalltheagreementstogetherWaSRs.1,61,23,950/-. It nas come on record that the Manager|misappropriated certain amount in construction of the saidproject for wnicn an enquiry committee was constituted by|the respondent-assessee. We are informed, by learnedcounsel for the respondent-assessee, that the respondent-assessee initiated criminal as well as civil action against)the said Manager. We are, nowever, not concern witn the)same for deciding the present appeals. 4.1. The respondent-assessee had filed originalreturn of income on 16-3-1998 assessing total income ofRs.31,480/-. The return filed by tne assessee was processed under Section 143 (1)(a) of the Act. Thereafter,a survey was conducted under Section 133A of the Act on.the assessees business premises. In the survey, it)appears, some incriminating documents were recovered on)the basis of which a notice under Section 148 of the Act!was issued on 11-10-1999. In response to the said notice,|the assessee filed revised return on 19-01-2000. The case|of the assessee was then taken up for scrutiny by issue of.a notice under Section 143(2). The Assessing Officer after|considering the entire materials placed before him, inparticular, the Memorandum of Association, the show.cause notice, and the note of the assessee on revised final accounts, ultimately held that Rs.55,84,075/- was the)added income from the business for the assessment year1997-98; Rs.5/7,80,925/- for the assessment year 199899: Rs.25,7/7,000/- for the assessment year 1999-2000and Rs.21,81,950/- for the assessment year 2000-2001. | 4.2. Tne CIT (A) partly allowed the appeals. It wouldbe relevant to reproduce the following observations from| the order of the CIT (A), made for the assessment year199 /-98: “Thereafter, the appellant had filed therevisedreturns/originalreturnsOf|income, as the case may be, for theabove assessment years, wherein it nasofferedtneadaitionalincomeOf|Rs.1,61,23,950/-. The appellant hadclaimed exemption u/s.11(2) of the Actto tne extent of 25% of tne assessedincome. It nas also contended tnat tneamount invested in the construction oftnecommercial.complexsnouldpetreated as application of income for thepurpose of attaining the objects of theTrust. For the reasons given in theassessment order (wnicn nave alreadybeen discussed above), tne AssessingOfficer nas rejected tne above claims oftne appellant.”| 4.2. Tne CIT (A) partly allowed the appeals. It wouldbe relevant to reproduce the following observations from| the order of the CIT (A), made for the assessment year199 /-98: “Thereafter, the appellant had filed therevisedreturns/originalreturnsOf|income, as the case may be, for theabove assessment years, wherein it nasofferedtneadaitionalincomeOf|Rs.1,61,23,950/-. The appellant hadclaimed exemption u/s.11(2) of the Actto tne extent of 25% of tne assessedincome. It nas also contended tnat tneamount invested in the construction oftnecommercial.complexsnouldpetreated as application of income for thepurpose of attaining the objects of theTrust. For the reasons given in theassessment order (wnicn nave alreadybeen discussed above), tne AssessingOfficer nas rejected tne above claims oftne appellant.”| 4.3. Feeling aggrieved and dissatisfied witn tne partof the order passed by the CIT (A), the revenue filed fourappeals before the Tribunal. Tne Tribunal dismissed the)appeals filed by the revenue holding that the amount ofRs.1,61,23,950/- never reacned the assessee, as nadbeen misappropriated by the said manager, and hence it)nas to be treated as an application of income. This finding |of the Tribunal, was contrary to the admission given by the assessee in the revised return for all the four'assessment years. As indicated above, the assessee itself, |for all the four assessment years, together had offeredRs.1,61,23,950/- as additional income. Tnere is no)material on record to snow tnat this amount and tne.misappropriated amount is one and the same. _ [f[nhpernaps, appears to be the reason why the CIT (A).observed tnat the assessee had claimed exemption under|Section 11(2) of tne Act to tne extent of 25% of the.assessee’s income. This position of law, in the backdrop ofthe facts mentioned above, has not been disputed by)learned counsel for the assessee before this Court and in.all fairness he nas agreed for non-inclusion of 25% of the)amount of Rs.1,61,23,950/- as contemplated by sub-section (1) (a) of Section 11 of the Act. In other words, he)submitted that the respondent-assessee would be entitled|for deduction to tne extent of 25% on the amount oftRs.1,61,23,950/- only, i.e., the amounts added, to the}income declared by them in their returns. The amounts)added|CO tneincomeinalltnefour assessmentYealSareRs.55,84,075/-,.57,80,925/-,.25,/7,000/- and 21,81,950/- respectively. 5. It is in this backdrop, the appeals insofar as thesecond question of law is concerned, are partly allowed)and the order of the Tribunal as well as the order of the!CIT (A) to that extent are set-aside. Tne question.accordingly, stands answered in favour of the revenue and.against the assessee. 6. Insofar as the first question is concerned, weanswer the said question in favour of the assessee in view|of clause (2) and clause (3)(c) of the Memorandum of.Association. Clause (2) of the Memorandum of Association|speaks about the objects for which the Society is formedand sub-clause (c) of clause 3 confers power on the.respondent-assessee_TO improve,Manage, cultivate,develop, exchange, grant on lease, mortgage, charge, sell, dispose off, grant rights and privileges in or otherwise)dealing with all any part of the property, movable orimmovable, patents or copy rights held by or belonging to) the assessee or donated to it. Thus, the construction of the|Said complex, in our opinion, would fall within tne scope of|the.objectsenumeratedinthe.memorandum|Of|association. In the circumstances, the first question is)answered in favour of the assessee and against therevenue. It is neediess to mention that remaining two.questions, that were formulated by the revenue in thememorandum of appeal, rendered academic and nence, by.consent, not addressed. The appeals are accordingly disposed of. However,tnere snail De no order as to costs. Sd/-.JUDGE. Sd/-JUDGE|