Ita/415/2011 Of The Director Of Income Tax Exemptions v. Iskcon Charities

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NCO.415 OF JZO1 c/W L.T.A.NQ.407 OF JZOL I.T.A.NO.415/2011 BE!]VWEE 1.|THE DIRECTOR OF INCOME TAX EXEMPTIONS, C.R. BUILDING. QUEENS ROAD, BANGALORE. 2.|THE DY. DIRECTOR OF INCOME TAX EXEMPTIONS, CIRCLE-17(1) C.R. BUILDINGS, QUEENS ROAD| BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: ISKCON CHARITIES' MILE, KANAKAPURA ROAD|DODDAKALLASANDRA|BANGALORE. ... RESPONDENT (BY SMT. VANI H, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 13.05.2011 PASSED IN [TA|NO.313/BANG/2009 FOR THE ASSESSMENT YEAR 2004-05,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (1) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THEITAT, BANGALORE IN ITA NO.313/BANG/2009 DATED 13-05-2011|AND CONFIRM THE ORDER PASSED BY THE DEPUTY DIRECTOR OF|INCOME TAX, EXEMPTION, CIRCLE-17(1), BANGALORE, IN THE|INTEREST OF JUSTICE AND EQUITY.| 1.T.A.NO.407/2011 BETWEEN: 1.THE DIRECTOR OF INCOME TAX EXEMPTIONS, C.R. BUILDING QUEENS ROAD, BANGALORE. 2.|THE DY. DIRECTOR OF INCOME TAX EXEMPTIONS, CIRCLE-17(1) C.R. BUILDINGS, QUEENS ROAD|BANGALORE.C.R. BUILDINGS, QUEENS ROAD|BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: ISKCON CHARITIES' MILE, KANAKAPURA ROAD|DODDAKALLASANDRA|BANGALORE. ... RESPONDENT (BY SMT. H. VANI, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 13.05.2011 PASSED IN [TA|NO.314/BANG/2009 FOR THE ASSESSMENT YEAR 2005-06,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:(1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (1) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THEITAT, BANGALORE IN ITA NO.314/BANG/2009 DATED 13-05-2011|AND CONFIRM THE ORDER PASSED BY THE DEPUTY DIRECTOR OF|INCOME TAX, EXEMPTION, CIRCLE-17(1), BANGALORE, IN THE|INTEREST OF JUSTICE AND EQUITY.| THESE ITAS COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: COMMON JUDGMENT These appeals under Section 260A of the Income)Tax Act, 1961 (hereinafter referred to as the Act forshort) have been preferred by the revenue. The subject.matter of I.T.A.No.415/2011 pertains to AssessmentYear|2004-05,whereas,thesubject matterofI.T.A.No.407/2011 pertains to the Assessment year2005-06. Since, common substantial questions of lawarise for consideration in these appeals, they were heardanalogously and are being decided by this commonjudgment. The appeals were admitted by a bench of this.Court vide order dated 17.09.2012 on the followingsubstantial questions of law: (1)Whether the appellate authorities|were correct in holding that the Assessing|Officer had no locus standi to examine the| activities of the assessee trust in order to)find|outwhether|theywerecarryingCharitable activity as the assessee had|already been grantedexemption underSection 11 of the Act? (ii) Whether the Tribunal was correct’in holding that the provisions for doubtful|debts of Rs.1,98,818/- should be allowed as.a expenditure even though the same is not|written off and the same Is continued as a2provision in the assessee’s books?| (111)whetherIn|thefactsandcircumstances of the case, tne re-opening ofassessment under Section 147 of the Act Is)justified when the time limit for initiation ofregular assessment under Section 143(3) of|the Act has not expired? 2 |For the facility of reference, facts fromI.T.A.No.415/2011 are being referred to. Facts leadingto filing of these appeals briefly stated are that theassessee is a Trust and has been incorporated with anobject to provide educational, medical relief to the poor (ii) Whether the Tribunal was correct’in holding that the provisions for doubtful|debts of Rs.1,98,818/- should be allowed as.a expenditure even though the same is not|written off and the same Is continued as a2provision in the assessee’s books?| (111)whetherIn|thefactsandcircumstances of the case, tne re-opening ofassessment under Section 147 of the Act Is)justified when the time limit for initiation ofregular assessment under Section 143(3) of|the Act has not expired? 2 |For the facility of reference, facts fromI.T.A.No.415/2011 are being referred to. Facts leadingto filing of these appeals briefly stated are that theassessee is a Trust and has been incorporated with anobject to provide educational, medical relief to the poor and to provide services of general public utility. For theAssessment Year 2004-05, the assessee filed the returnof income on 31.03.2006, by which total expenditure ofRs.23,46,/9,122/- was shown over income. Theassessee claimed a sum of Rs.1/7,04,250/- being aprovision for bad and doubtful debts. The assessmentwas re-opened under Section 147 of the Act by issuanceOf noticeunder.Section|148 _ otheAct.dated31.01.2007, which was served on the assessee on02.02.2007. The assessee by a communication dated28.02.2007, requested return of income filed on31.03.2006 as response to notice under Section 148 ofthe Act. The Assessing Officer by an order dated31.12.2007 inter alia held that free food, which wasclaimed to have been distributed to the weaker sectionOf publicIngeneralby|theaSS@e@SSCWaSNotsubstantiated by producing any evidence. It was furtherheld that the assessee distributed ‘Prasada’ to thevisitors who belonged to middle class and the donations, which were collected were not expended for thepurposes of which the Trust was incorporated. It wasfurther held that sum of Rs.13,26,099/- was paid toJadu Works Private Limited, which was shown as aprovision and the same cannot be treated as provisionfor bad and doubtful debts. Accordingly, the AssessingOfficer completed the assessment and levied tax andpenalty. The assessee thereupon filed an appeal beforethe Commissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) by an orderdated 19.01.7009 inter alia held that the activitiescarried on by the assessee were charitable in nature andbad debts were found to be allowable deduction as theparty to wnom the amount was advanced was nottraceable. Thereupon the assessee approached theIncome Tax Appellate Tribunal (hereinafter referred toas the Tribunal for short). The Tribunal by an order13.05.2011 inter alia held that the Assessing Officer hadno locus standi to examine the activities carried on by the Trust while passing an order of assessment and oncean order of exemption has been passed under Section11 of the Act, the Assessing Officer is bound by thesame. It was further held that provision for bad anddoubtful debt is a necessary charge as per accountingprinciple and even if Section 11 of the Act is notapplicable, the same has to be allowed. Accordingly,the Tribunal allowed the appeal preferred by theassessee. In the aforesaid factual background, theseappeals have been filed. 3.Learned counsel for the revenue submittedthat order of re-opening of the assessment was justifiedand additional substantial question of law cannot beexamined at the instance of the assessee. It is arguedthat the Assessing Officer has examined the issuewhether the assessee has incurred expenditure toachieve objects of the trust and therefore, the Tribunalerred in holding that the Assessing Officer had no locusto examine the activities of the Trust. It Is also 3.Learned counsel for the revenue submittedthat order of re-opening of the assessment was justifiedand additional substantial question of law cannot beexamined at the instance of the assessee. It is arguedthat the Assessing Officer has examined the issuewhether the assessee has incurred expenditure toachieve objects of the trust and therefore, the Tribunalerred in holding that the Assessing Officer had no locusto examine the activities of the Trust. It Is also Submitted that Durden was on the assessee to prove thefact that the expenses incurred were towards object ofthe trust and the assessee has failed to discharge thesame. It is also pointed out that the Tribunal hasproceeded on erroneous assumption that the assesseehas questioned the objects of the Trust. It is also arguedthat the Tribunal ought to have appreciated thatpurpose of making an advance to a party has to be.made in the course of business and then only theassessee is entitled to write off the same as expenditureas provision for bad and doubtful debt. In the instantcase, the assessee has failed to demonstrate that theamount paid to Jadu Works Private Limited was made incourse of business. In support of his submissions,reliance has been placed on decision of the SupremeCourt In)"VIJAYA BANK VS, COMMISSIONER OFINCOME-TAX AND ANOTHER‘, (2010) 323 ITR 166(SC). 4On the other hand, learned counsel for the assesses submitted that prior to amendment of Section153 by Finance Act, 2005 which came into force witheffectfrom01.04.2006,theaforesaidprovision.mandated that no order of assessment shall be madeunder Section 143 or Section 144 at any time after.expiry of two years from the end of Assessment Year, inwhich income was first assessable. It ts furtherSubmitted that the amendment incorporated by FinanceAct, 2005 witn effect from 01.04.2006 is not applicableto the fat situation of the case as the Assessment Yearsin question are 2004-05 and 2005-06. It is furthersubmitted that the Finance Act, 2005 by wnhicn provisohas been inserted in Section 153 is prospective innature. It is also argued tnat notice under Section148(1) of the Act was issued on 31.01.2007 by takingrecourse to Section 143(2) of the Act and withoutcompleting the assessment, notice under Section 1438cannot be issued. It is pointed out that the assessee hadfiled the return on 31.03.2006 and within 12 months, notice under Section 143(2) could be issued i.e., upto31.03.2007 and the assessment had to be completedunder Section 143(3) of the Act before 31.12.2006 as.required under Section 153 of the Act. However, noticewas issued under Section 148 of tne Act on 31.03.200/without completion of the proceeding pending on thebasis of the return, which was already filed andtherefore, tne notice issued under Section 148(1) on31.03.2007 is per se without jurisdiction. 5.|It is further submitted that assessee hadgiven donation to anotner Trust having similar objectsand in this regard, additional documents were filedbefore Commissioner of Income Tax (Appeals) and theremand report from the Assessing Officer was called for.However, in the remand report, Assessing Officer didnot offer any comments to the additional documentsproduced by the assessee. It is alSo argued that even ifbenefit is given to a section of the society, the object ofcharity is fulfilled and depreciation has to be allowed to the|aSS@SSCECVIZ.,aCharitable|Trustalso,as|expenditure on acquisition of assets, which has to becomputed in commercial manner even though, the Trustmay not be carrying on any Dusiness. In this regard, ourattention has also been invited to the Circular issued byCentral Board of Direct Taxes dated 19.06.1968. In|Support of aforesaid submissions, reliance has beenplaced on the decisions in °TRUSTEES OF H.E.H. THE| the|aSS@SSCECVIZ.,aCharitable|Trustalso,as|expenditure on acquisition of assets, which has to becomputed in commercial manner even though, the Trustmay not be carrying on any Dusiness. In this regard, ourattention has also been invited to the Circular issued byCentral Board of Direct Taxes dated 19.06.1968. In|Support of aforesaid submissions, reliance has beenplaced on the decisions in °TRUSTEES OF H.E.H. THE| NIZAM’SSUPPLEMENTALFAMILYTRUSTYS,COMMISSIONER OF INCOME-TAX’, (2000) 3 SCC501,COMMISSIONER|OFINCOME-TAXVS,J,.K.CHARITABLE TRUST’, (1992) 196 ITR 31 (ALL),“ASSISTANT COMMISSIONER OF INCOME-TAX VS.THANTHI TRUST’, (2001) 247 ITR 785 (SC),“AHMEDABADRANACASTE|ASSOCIATION|YS, COMMISSTONER|OFINCOME-TAX,GUJARAT“, (1971) 82 ITR 704 (SC), ‘COMMISSIONER OFINCOME TAX-III, PUNE VS. RAJASTHANI ANDGUJARATI CHARITABLE FOUNDATION, POONA-, (2018) 7 SCC 810, ‘CIRCULAR NO.5-P(LXX-6) OF1968, DATED 19.06.1968, ‘COMMISSIONER OFINCOME-TAX, KARNATAKA-I VS. SOCIETY OF THESISTERS OF ST.ANNE’, (1984) 146 ITR 28 (KAR),045‘K.P.VARGHESE VS. INCOME-TAX OFFICER,|ERNAKULAM AND ANOTHER’, (1981) 131 ITR 597(SC). 6.|We nave considered the SUDMISSIONS madeby learned counsel for the parties and have perused therecord.Admittedly,theaSSeCSSCEIS|acharitableinstitution registered under Section 12A of the Act. TheSupreme Court In)‘COMMISSIONER OF INCOME TAXVS. ANDHRA CHAMBERS OF COMMERCE’, (1965)55 ITR 722held that an object beneficial to a section of |public is an object of general public utility. It hasfurther been held that in order to serve a charitablepurpose, it is not necessary that the object should be tothe benefit of whole of mankind or all the persons inparticular country or state and it is sufficient, if the intention is to benefit a section of the public asdistinguished from a specified individual is present. TheaforesaidVIEWWaSreiteratedwithapprovalIn|AHMEDABAD RANA CASTE ASSOCIATION supra. On thetouchstone of aforesaid well settled legal position, evenif the order of the Assessing Officer is seen, it can bedeciphered from para / of the order that ‘prasadam’ hasbeen distributed to the visitors. The Commissioner ofIncome Tax (Appeals) in paragraph 5.2 has held thatthe Assessing Officer has ignored the submission madeby the assessee that the assessee provides free mealsto the general public on every Sunday morning in freedistribution hall and therefore, the finding recorded bythe Assessing Officer that assessee has not carried anycharitable activity is perverse. The aforesaid finding hasalso been affirmed by the Income Tax Appellate Tribunalby holding that all the pilgrims who visit ISKON Templeare served with ‘Prasadam’ without probing into theircaste, creed, religion and nationality. Thus, the expenditure has definitely been incurred on a section ofthe society and therefore, the same would tantamountto a charitable purpose. The aforesaid concurrentfindingsoffact|have|been|recordedbytheCommissioner of Income Tax (Appeals) as well asIncome.TaxAppellate|Tribunal|ON)thebasis|ofmeticulous appreciation of evidence on record. Noperversity could be pointed out in the aforesaidconcurrent findings of fact. Jnerefore, in the factsituation of the case, the first substantial question of lawin fact, does not arise for consideration as the assesseewas carrying on Charitable activity. J |It is well settled in law that Income of thetrust has to be computed in a normal commercialmanner and only the real income has to be taken intoaccount. Tne loss of sale of investment is not allowablein computing the income for the purposes of Section 11of the Act. [See: *COMMISSIONER OF INCOME TAX-Itt vs. RAJASTHANI AND GUJARATI CHARITABLE J |It is well settled in law that Income of thetrust has to be computed in a normal commercialmanner and only the real income has to be taken intoaccount. Tne loss of sale of investment is not allowablein computing the income for the purposes of Section 11of the Act. [See: *COMMISSIONER OF INCOME TAX-Itt vs. RAJASTHANI AND GUJARATI CHARITABLE FOUNDATION, POONAsupra]. In the context of the|aforesaid well settled legal principle, the secondSubstantial question of law may be examined. It ispertinent to note that the Assessing Officer during thecourse of assessment did not ask for any document fromthe assessee for making the advance. Ihe assessee.before the Commissioner of Income Tax (Appeals) hadfiled an application under Rule 46A of the Income TaxRules, 1962 on 25.02.2008. The aforesaid paper wasforwarded to the Assessing Officer. The AssessingOfficer submitted a remand report, nowever, theAssessing Officer did not offer any comment with regardto additional evidence adduced by the assessee beforethe Commissioner of Income Tax (Appeals). Thepurcnase of immovable properties for the purposes ofobjects of the Trust is the application of income andeven if the assessee has earned income from selling theland for achieving objects of the Trust, the same wouldbe allowable under Section 11 of the Act. The Tribunal has also held that as per prevalent accounting principleswhich clearly lay down that loss on sale of investmentShould be taken into account while determining thecommercialincome, CO expenditure in respect of provision for doubtful debt. —Accordingly, the aforesaid substantial question of law isanswered against the revenue and in favour ofaSSeSsSee. The concurrent findings of fact on both the)substantial questions of law have been recorded by theCommissioner of Income Tax (Appeals) as well asIncome.TaxAppellate|Tribunal|ON)thebasis|ofmeticulous appreciation of evidence on record. Noperversity could be pointed out in the aforesaidconcurrent findings of fact. It is well settled in law thatuntil and unless perversity is pointed out in theconcurrent findings of fact, this court in exercise ofpowers under Section 260A of the Act cannot interfere|with the concurrent findings of fact. In view of our answer to the common questions of law involved in both the appeals, it is not necessary toanswer the additional substantial question of law. In theresult, we do not find any merit in these appeals. Thesame fail and are hereby dismissed SS| Sd/-JUDGE. Sd/-—JUDGE.