Ita/467/2007 Of The Commissioner Of Income Tax v. M/S Mba Nahata Charitable Trust

IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 14[‘T]DAY OF FEBRUARY 2014 PRESENT THE HON'BLE MR.JUSTICE DILIP B.BHOSALE AN D THE HON'BLE MR.JUSTICE B.MANOHAR ITA NO.467/2007 C/w.ITA.No.466/2007— ITA.NO.467 /200 BBRITWRE 1. The Commissioner of Income-Tax,Central Circle,C.R.Building, Queens Road,Bangalore. 2. The Assistant Directorof Income Tax (Exemptions)Circle — 17 (2),C.R.Building, Queens Road,Bangalore. .. Appellant (By Sri.Jeevan J.Neeralgi, Advocate) AN): M/s.MBA Nahata Charitable Trust,Acharya Tulsi Vidyala, No.o1/11, Kumbalgod,Kengeri Hobli,Bangalore. .... Responden (By Sri.A.Shankar, Advocate This ITA is filed under Sec.260-A ot Income TaxAct 1961, arising out of order dated 23/11/2006 passedin ITA No.120/Bang/2006, for the Assessment Year2002-03, praying that this Hon'ble Court may bepleased to: 1.formulate the substantial questions of law|stated therein,stated therein, ll.allow the appeal and set aside the orderpassed by the ITAT, Bangalore in ITANo.120/Bang/2006.dated 23/11/2006,|confirmingthe.orderoT theAppellateCommissioner and confirm the order passed|bytheAsst.|DirectoroT IncomeTax(Exemptions), Circle-17 (2), Bangalore, inthe interest of justice and equity. passed by the ITAT, Bangalore in ITANo.120/Bang/2006.dated 23/11/2006,|confirmingthe.orderoT theAppellateCommissioner and confirm the order passed|bytheAsst.|DirectoroT IncomeTax(Exemptions), Circle-17 (2), Bangalore, inthe interest of justice and equity. ITA.NO.466/2007 BBRHIWEE 1. The Commissioner of Income-Tax,Central Circle,C.R.Building, Queens Road,Bangalore. .. The Assistant Directorof Income Tax (Exemptions) Circle — 17 (2),C.R.Building, Queens Road,Bangalore.... Appellan (By Sri.Jeevan J.Neeralgi, Advocate) AN): M/s.MBA Nahata Charitable Trust,Acharya Tulsi Vidyala,No.o1/11, Kumbalgod,Kengeri Hobli,Bangalore..... Responden (By Sri.A.Shankar, Adv) This ITA is filed under Sec.260-A ot Income TaxAct 1961, arising out of order dated 23/11/2006 passedin ITA No.118/Bang/2006, tor the Assessment Year2001-2002, praying that this Hon'ble Court may bepleased to: 1formulate the substantial questions of lawstated therein, ll.allow the appeal and set aside the order|passed by the ITAT, Bangalore in ITANo.118/Bang/2006.dated23/11/2006,|confirmingtheorderoT|theAppellateCommissioner and confirm the order passedbytheAsst.DirectoroT|IncomeTax(Exemptions), Circle-17 (2), Bangalore, inthe interest of justice and equity. These Appeals are coming on for Hearing this day, B.MANOHAR.Jaadelivered the following: JUDGMENT The Revenue has filed these two appeals undersection 260A of the Income Tax Act, 1961 (for short °theAct’), being aggrieved by the order dated 23-11-2006passedby theIncomeTax|AppellateTribunal, —Bangalore Bench ‘A’ (for short ‘the Tribunal’) in ITANos.118 and 120/Bang/2006 dismissing the appealfiled by the Revenue and confirming the order dated |09-12-2005 passed by the Commissioner of Income Tax(Appeals)-IV, Bangalore (for short ‘the First AppellateAuthority’) for the assessment years 2001-02 and|I2002-03. ”.. The brief facts of the case are as follows: The respondent-assessee is a Charitable Trust.duly registered under Section 12A of the Act. Theincome of the Trust was exempted under Section 11 ofthe Act. For the assessment year 2001-02, the assesseehad received the donations towards building fund The Revenue has filed these two appeals undersection 260A of the Income Tax Act, 1961 (for short °theAct’), being aggrieved by the order dated 23-11-2006passedby theIncomeTax|AppellateTribunal, —Bangalore Bench ‘A’ (for short ‘the Tribunal’) in ITANos.118 and 120/Bang/2006 dismissing the appealfiled by the Revenue and confirming the order dated |09-12-2005 passed by the Commissioner of Income Tax(Appeals)-IV, Bangalore (for short ‘the First AppellateAuthority’) for the assessment years 2001-02 and|I2002-03. ”.. The brief facts of the case are as follows: The respondent-assessee is a Charitable Trust.duly registered under Section 12A of the Act. Theincome of the Trust was exempted under Section 11 ofthe Act. For the assessment year 2001-02, the assesseehad received the donations towards building fund amounting to Rs.94,38,999/- and for the assessmentyear 2002-03, the assessee had received a sum ofRs.12,74,6072/-. The return filed by the assessee undersection 139 of the Act for those assessment years was.accepted by the Assessing Authority. However, noticeunder Section 148 of the Act was issued to the assesseeon 11-03-2004 for reopening the assessment. Noticesunder Section 143(2) and 142(1) were served onassessee. In response to the said notices, an authorizedrepresentative of the assessee appeared before theAssessing Authority and produced all the details. Theassessee also objected for reopening of the assessmentunder Section 148 of the Act. In the balance sheet filedalong with the returns, the assessee had made known.the donations received towards the building fund andhe also furnished the details of the donors, such astheir address, mode of payment and date of paymentetc. The bank accounts were also made available and|contended that major payment was received by way of cheques. There is no cause of action to treat the saidreceipts as unexplained credit under Section 68 of theAct. The Assessing Officer over-ruling the objectionsraised by the assessee, assessed the donations receivedtowards the building fund as unexplained credit underSection 68 of the Act and held that the assessee has/failed to produce the donors before the AssessingOfficer. Further, the letters issued to 60 — 7O donors|were returned unserved with a shara that “incompleteaddress”. Hence, the donations received was assessedfor income and interest and penalty was imposed byreassessment order dated 30-03-2005. 3.|The assessee, being aggrieved by the assessmentorder passed by the Assessing Officer under Section143(3) r/w Section 147 of the Act preferred an appealbefore the First Appellate Authority challenging thesame. It is mainly contended that reopening of theassessment is contrary to law and no reason has been assigned for reopening of the assessment which was.already concluded and it is barred by limitation. Themajor portion of donations towards building fund havebeen received through cheques. The bank accounts.have been made available to the Assessing Authorityand the Assessing Officer got verified those mattersthrough the Bankers. Apart from that, the amountreceived was utilized for the construction of the buildingand other charitable purposes of the Trust. Hence, theorder passed by the Assessing Authority treating thesaid amount as undisclosed income is contrary to law. —The Appellate Authority after considering the matter indetail found that major portion of the donations werereceived through cheques and that the amount receivedwas utilized for construction of the building and othercharitable purposes. Hence, the said amount is entitledfor exemption under Section 11 of the Act. However,the issue of reopening of the assessment was heldagainst the assessee. Accordingly, by its order dated 09-12-2005, allowed the appeal and set aside the orderpassed by the Assessing Authority in respect of thebuilding donation received. 09-12-2005, allowed the appeal and set aside the orderpassed by the Assessing Authority in respect of thebuilding donation received. 4Being aggrieved by the order passed by theAppellate Authority, the Revenue has preferred thesetwo appeals challenging the same on various grounds. —The Tribunal after examining the matter in detail foundthat the amount received as donations has been utilizedfor construction of the building and other charitablepurposes of the Trust. Hence, the assessee is entitledfor exemption under Section 11 of the Act. Accordingly,dismissed the appeals by the order impugned in theseappeals. Being aggrieved by the order passed by theTribunal, the Revenue has filed these appeals. 5sri.JJeevan J Neeralgi, learned counsel appearingfor the Revenue contended that the order passed by theTribunal confirming the order passed by the FirstAppellate Authority is contrary to law. The respondent-| assessee received the donation towards building fundfor the assessment years 2001-02 and 2002-03. Theassessee has not disclosed the sources of the said|income and failed to furnish the correct names and addresses of the donors. In order to verify with regardto the donations, letters were addressed to the donors; however, none of them appeared. The Trustee of theassessee was also not able to bring any of the donorsbefore the Assessing Officer. In the absence of proof ofdonation and identity of the donors, these donationstowards building fund will be taxed as income fromother sources being unexplained credit under Section68 of the Act. Hence the order passed by the Tribunalis contrary to law. 6. On the other hand, Sr. A.Shankar, learnedcounsel appearing for the assessee supported the orderpassed by the Tribunal and First Appellate Authorityand contended that the major portion of donations were received through cheques. He also submitted that thebank statements along with the account numbers weremade available to the Assessing Officer for verification. —Some of the donors did not want to disclose their|names. The amounts received were utilized for the'|purpose of construction of the building and othercharitable purposes. Hence, there is no violation ofsections 11 and 12 of the Act. In support of hiscontention, he relied upon the judgment reported in(2011) 336 ITR 694 (Karn) (DIRECTOR OF INCOME-TAX|(EXEMPTIONS)v/s.SRI.BEBELIMATHMAHASAMSTHANA|SOCIOCULTURALANI)BRDUCATIONTRUST);(2005)278ITR152(Delhi)(DIRECTOROF|INCOME-T AX(EXEMPTIONS)v/s.KESHAV SOCIAL AND CHARITABLE FOUNDATION);(1982)138.TTR|564(Bombay)(COMMISSIONERINCOME-TAX, BOMBAY CITY-I v/s TRUSTEES OF.VISHA NIMA CHARITYABLE TRUST) and sought fordismissal of the appeal. [|These appeals are admitted for considering the following substantial questions of law: 1. Whether the Appellate Authorities were|correct in holding that ‘building fund’|received as donations are treqted as'income and brought to tax u/s.68 of the|Act, the same would be allowable u/s.11 ofthe Act. 2. Whether Appellate Authorities failed toappreciate that the exemption u/s.11(1)(a)|of the Act is allowable only on income|derived from property held under Trust|wholly for charitable or religious purposes|(Section 11(4) defines property held under|trust) and consequently no exemption is|allowable in the case of the asssessee? 3. Whether Tribunal failed to examine and|record a finding regarding the various|issues/ground raised before it being the|last fact finding authority before approving|the finding recorded by the Appellate|Commissioner who had proceeded on mere|conjectures and surmises and not on|admitted facts as erroneously held in the|course of the order? 3.|We have carefully considered the arguments addressed by the learned counsel for the parties. 2. Whether Appellate Authorities failed toappreciate that the exemption u/s.11(1)(a)|of the Act is allowable only on income|derived from property held under Trust|wholly for charitable or religious purposes|(Section 11(4) defines property held under|trust) and consequently no exemption is|allowable in the case of the asssessee? 3. Whether Tribunal failed to examine and|record a finding regarding the various|issues/ground raised before it being the|last fact finding authority before approving|the finding recorded by the Appellate|Commissioner who had proceeded on mere|conjectures and surmises and not on|admitted facts as erroneously held in the|course of the order? 3.|We have carefully considered the arguments addressed by the learned counsel for the parties. OQ The records clearly disclose that the assessee is aCharitable Trust duly registered under Section 12A ofthe Act. For the assessment years referred to above, theassessee had filed return of income showing receipt ofdonations towards the building fund. Originally, thereturn filed was accepted under Section 143(1) of theAct, subsequently, the Assessing Authority issuednotice under Section 148 for reopening of the saidassessment. In pursuance of the notices issued undersection 143(2) and 142(1) of the Act, the authorizedrepresentative of the assessee appeared before theAssessing Authority and produced all the documentsincluding Bank accounts. The specific case of theassessee 1s that the assessee received donations|towards construction of the building and for othercharitable purposes of the Trust. The major portion ofthe donation was received through Cheques. Some ofthe amounts were received in cash, since some of the.donors were not willing to furnish their names. The amount received by way of donations was disclosed inthe returns filed and also claimed exemption undersection 11 of the Act. The Assessing Authority however,treated the donations received as unexplained creditunder Section 68 of the Act and assessed for tax, on theeround that the assessee-Trust has tailed to producethe donors before the Assessing Authority. Further, 60.to 7/7O letters addressed to the donors were returneunserved with a shara “insufficient address”. In view otthat, the amount received towards donations wastreated aS unexplained credit and assessed for tax. Onan appeal filed by the assessee, the Appellate Authorityset aside the order passed by the Assessing Authorityand held that the assessee is entitled for exemptionunder Section 11 of the Act with regard to the donations.received towards building fund. The revenue beingagerieved by the order passed by the Appellate Authoritypreferred an appeal before the Tribunal, the Tribunalonce again examined the matter in detail and held that even though the assessee failed to disclose the names ofthe donors, the amount which was received as buildingfund was utilized for charitable purpose. Hence, theassessee is entitled for exemption under Section 11 ofthe Act and dismissed the appeal. 1Q.|The Division Bench of this Court in a judgmentreported (2011) 336 ITR 6094(Karn) cited supra) held.that “since the amounts received from the third partyhas been accounted and utilized for charitable purposeseven though the assessee failed to disclose the namesand addresses of the donors as well as the mode otpayment, entitled for deduction under Section 11 of theAct.” A similar view has been taken by the Delhi HighCourt in a judgment reported in (2005) 276 ITR 152.4ctted supra). Paragraph 10 of the said judgment readsas under: “10. To obtain the benefit of theexemption under Section 11 of the Act, the|assessee is required to show that the|donations were voluntary. In the present| 1Q.|The Division Bench of this Court in a judgmentreported (2011) 336 ITR 6094(Karn) cited supra) held.that “since the amounts received from the third partyhas been accounted and utilized for charitable purposeseven though the assessee failed to disclose the namesand addresses of the donors as well as the mode otpayment, entitled for deduction under Section 11 of theAct.” A similar view has been taken by the Delhi HighCourt in a judgment reported in (2005) 276 ITR 152.4ctted supra). Paragraph 10 of the said judgment readsas under: “10. To obtain the benefit of theexemption under Section 11 of the Act, the|assessee is required to show that the|donations were voluntary. In the present| case, the assessee had not only disclosed its|donation, but had also submitted a list of|donors. The fact that complete list of donors|was not filed or that the donors were not|produced, does not necessarily lead toinference that the assessee was trying to|introduce unaccounted money by way oOfdonation receipt. This is more particularly so,in the facts of the case where admittedly,|more than 75% of the donations were applied|for charitable purpose.” Further, a similar view was taken by the Bombay HighCourt in a judgment reported in (1982) 138 ITR 964. 11.)During the pendency of the appeal, an opportunitywas given to the Revenue to substantiate theircontentions and asked to verify the Bank Accountsfurnished by the assessee. However, the Revenueinformed to us that the details of the donations receivedthroughCheques_1S|1Naccordancewithlaw.Admittedly, the respondent-assessee is the charitabletrust. Some of the donors do not want to disclose their|names and some of the donations were received throughcheques. The donations received for the assessment years 2001-02 and 2002-03 were disclosed in theaccounts and while filing the returns those amountswere shown as income. Any voluntary contributionreceived by a Trust created wholly for charitable orreligious purpose shall be deemed to be income derivedfrom property held under the Trust wholly for charitableand religious purpose. However, the said amounts wereused for charitable purposes even though the assesseefailed to disclose the names and addresses of the’donors. Since the amount was utilized by the Trustwholly for the charitable or religious purposes, theassessee has fulfilled the condition imposed undersection 11 of the Act. Section 11 of the contemplatesthat any income derived from property held under Trustwholly for charitable or religious purposes, to the extentto which, such income is applied to such purposes isexempted under Section 11(1)(a) of the Act. Hence, theassessee 1s a charitable Trust and its income is to be!exempted under Section 11 of the Act. | 12.We find no infirmity or irregularity in the orderpassed by the Tribunal as well as the AppellateAuthority. Both the authorities concurrently held thatthere is no violation of any of the conditions of Sections.11 and 12 of the Act. Hence, the appellant has notmadeOUTaCa SCTOinterferewith|theSame.Accordingly, the substantial questions of law is heldagainst the Revenue. Accordingly, the appeals aredismissed. Sd/-. JUDGE Sd/-. JUDGE| _* | mp