Taxap/368/2020 Of Commissioner Of Income Tax (Exemptions) v. Rajkot Diocese Trust

C/TAXAP/368/2020 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 368 of 2020 FOR APPROVAL AND SIGNATURE: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE VIKRAM NATH andSd/-HONOURABLE MR. JUSTICE J.B.PARDIWALASd/-================================================================1Whether Reporters of Local Papers may be allowedNOto see the judgment ?2To be referred to the Reporter or not ?NO3Whether their Lordships wish to see the fair copyNOof the judgment ?4Whether this case involves a substantial questionNOof law as to the interpretation of the Constitutionof India or any order made thereunder ?================================================================COMMISSIONER OF INCOME TAX (EXEMPTIONS) VersusRAJKOT DIOCESE TRUST ================================================================Appearance:MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1================================================================ CORAM: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 04/12/2020 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260A of the Income Tax Act,1961 (for short, 'the Act 1961') is at the instance of the Revenue and is directed against the order passed by the Income TaxAppellate Tribunal, Rajkot Bench, Rajkot, dated 21[st] October2019 in the ITA No.79/RJT/2019 for the Assessment Year2011-12. 2.The Revenue has proposed the following substantialquestions of law for the consideration of this Court : “(A)Whether on the facts and circumstances of the caseand in law, the Appellate Tribunal has erred in directing theAssessing Officer to restrict the disallowance ofaccumulation instead of deciding whether the proceedingsu/s 263 of the Act was rightly invoked by the CIT(E) ? (B)Whether on the facts and circumstances of the caseand in law, the Appellate Tribunal was justified in notdeciding the issue of proceedings initiated under Section263 of the Act on the ground that order passed by theAssessing Officer u/s 143(3) rws 147 was erroneous in sofar as it is prejudicial to the interest of the Revenue ? (C)Whether on the facts and circumstances of the caseand in law, the Appellate Tribunal was justified indisallowing exemption under Section 11 of the Act limitedonly to the amount diverted for purchase of car in the nameof trustee without appreciating that the order passed by theAssessing Officer was erroneous in so far as it is prejudicialto the interest of the Revenue and that the assessee hasforfeited all the exemptions under Section 11 and 12 of theAct as provisions of Section 13(1)(c) of the Act areapplicable ? (D) Whether on the facts and circumstances of the caseand in law, the Appellate Tribunal was justified inrestricting the disallowance of accumulation u/s 11(1)(a) tothe extent of Rs.9,56,175/- without appreciating the factthat the assessee has forfeited all the exemption underSection 11 and 12 of the Act as the provisions of Section13(3) are applicable ?” (D) Whether on the facts and circumstances of the caseand in law, the Appellate Tribunal was justified inrestricting the disallowance of accumulation u/s 11(1)(a) tothe extent of Rs.9,56,175/- without appreciating the factthat the assessee has forfeited all the exemption underSection 11 and 12 of the Act as the provisions of Section13(3) are applicable ?” 3.It appears from the materials on record that the assesseefiled its return of income for the Assessment Year 2011-12 on18[th] August 2011, declaring the total income at Rs.NIL in thestatus of Association of Persons (Trust). The return was proposedunder Section 143(1) of the Act 1961 on 13[th] March 2013.Thereafter, the case was selected for scrutiny by issuing thenotice under Section 143(2) of the Act. The assessment came tobe finalized under Section 143(3) of the Act 1961 on 7[th] February2014 by accepting the return of income as the assessed income.It appears that thereafter the case was reopened under Section147 of the Act 1961 by issuing a notice under Section 148 of theAct 1961. The reassessment proceedings came to be finalizedunder Section 143(3) read with Section 147 of the Act 1961 on6[th] December 2016, determining the total income at Rs.NIL afterdisallowing Rs.8,82,707=00 on account of the expenditure madefor the purpose of a car in the name of the trustee, namelyRev.Bishop Gregory Karotemprel. 4.The record further reveals that the CIT (Exemptions)invoked its revisional powers under Section 263 of the Act 1961.The CIT(E) noticed that the Assessing Officer had disallowed theexpenditure of Rs.8,82,707=00 on account of the accumulationunder Section 11(1)(a) of the Act 1961 in respect of the car purchased in the name of the trustee which ought to have beenRs.9,56,175=00. Thus, there was a less disallowance to the tuneof Rs.73,468=00. 5.The CIT(E) held that the assessment had been made by theAssessing Officer without application of mind. In suchcircumstances, the CIT(E) held that the assessment order dated6[th] December 2016 passed under Section 143(3) read withSection 147 of the Act 1961 was erroneous and prejudicial to theinterest of the Revenue. 6.The assessee, being dissatisfied with the decision of theCIT(E), filed appeal before the appellate tribunal. The appellatetribunal directed the Assessing Officer to restrict thedisallowance to the extent of Rs.9,56,175=00 and not disallowthe entire accumulation as held by the CIT(E). 7.Ms.Mauna Bhatt, the learned senior standing counselappearing for the Revenue submitted that, in accordance withthe provisions of Section 13(1)(c)(ii) read with Section 13(2) of theAct 1961 if any part of the income or any property of the Trust orInstitution is directly or indirectly used or applied for the benefitof any specified person referred to in sub-section (3) of Section13 of the Act 1961, then the entire income of the assessee wouldnot be eligible for exemption under Section 11 of the Act 1961.Ms.Bhatt would submit that the assessee lost all its exemptionunder Section 11 of the Act 1961 which are otherwise availableto a charitable trust. It is pointed out that while finalizing theassessment, the Assessing Officer had assessed the incomeunder the normal provisions and the benefits entitled to theTrust were denied. 8.Ms.Bhatt would further submit that the decision of theappellate tribunal is erroneous and deserves to be quashed andset-aside. 9.In the last, Ms.Bhatt clarified that the tax effect involved isRs.11,92,860=00, which is below the prescribed monetarylimited under the Circular No.17 of 2019 dated 8[th] August 2019issued by the CBDT. However, as the case falls under theexception clause as provided in paragraph 10(c) of the Circular,this Appeal has been filed by the Revenue. 8.Ms.Bhatt would further submit that the decision of theappellate tribunal is erroneous and deserves to be quashed andset-aside. 9.In the last, Ms.Bhatt clarified that the tax effect involved isRs.11,92,860=00, which is below the prescribed monetarylimited under the Circular No.17 of 2019 dated 8[th] August 2019issued by the CBDT. However, as the case falls under theexception clause as provided in paragraph 10(c) of the Circular,this Appeal has been filed by the Revenue. 10.Having heard Ms.Bhatt, the learned senior standingcounsel appearing for the Revenue, and having gone through thematerials on record, the only question that falls for ourconsideration is, whether the Tribunal could be said to havecommitted any error in passing the impugned order. 11.The Tribunal, while partly allowing the appeal filed by theassessee herein, observed as under : “We have heard both the sides and perused the material onrecord. In this case order u/s. 143(3) of the Act was passedon 7[th] February 2014 determining the total income at Rs.Nil.The case was reopened u/s 147 and the re-assessmentwas finalized on 6[th] December 2016 determining the totalincome at Rs.Nil after disallowing Rs.8,82,707/-, theexpenditure made for the purpose of a car in the name oftrustee. During the course of re-assessment proceedings, theAssessing Officer has disallowed the expenditure ofRs.8,82,707/- on account of accumulation u/s. 11(1)(a) which could have been at Rs.9,57,175/-, therefore, therehave been less dis-allowance to the extent of Rs.73,468/-,however, the Ld. CIT(E) vide order u/s. 263 of the Act dated22[nd] March 2019 has held that if any part of income or anyproperty of other trust or the institution is directly orindirectly used or applied for the benefit of any specifiedperson referred to u/s. 13(2) of the Act, then the entireincome of the assessee is not eligible for exemption u/s. 11of the Act. Therefore, the Ld. CIT(E) has directed theAssessing Officer to invoke the provision of Section 13(1)(c)and disallow the entire accumulation made during theAssessment Year 2010-11 u/s. 11(1)(a) of Rs.38,60,391/-.With the assistance of Ld. representatives, we have gonethrough the judicial pronouncements relied upon by the Ld.counsel as cited above. We have noticed that the Hon'bleKarnataka High Court in the case of CIT vs. Fr. MullersCharitable Institution has held as under : “12. We are in respectful agreement with the viewsexpressed by the Bombay High Court as well as DelhiHigh Court for violating Section 11(5) of the Act andthe entire income of the respondent – Trust cannot beassessed for the tax.” Hon'ble High Court of Bombay in the case of CIT(E) vs.Audyogik Shikshan Mandal has held as under : “Section 13 read with Section 11 of the Income-tax Act,1961 – Charitable or religious trust – Denial ofexemption [Sub-section (2)(b)] – Assessment Year2004-05 – Whether where funds of assessee educational trust were utilized for purpose of purchaseof car in name of its trustee there was violation ofSection 13(2)(b) read with Section 13(3) – Held, yes –Whether, however, denial of exemption under Section11 should be limited only to amount which wasdiverted for purchase of car in name of prohibitedperson, i.e., trustee of assessee, in violation of Section13(2)(b) – Held, yes (Paras 5 and 8) (In favour ofassessee).” Hon'ble High Court of Bombay in the case of CIT(E) vs.Audyogik Shikshan Mandal has held as under : “Section 13 read with Section 11 of the Income-tax Act,1961 – Charitable or religious trust – Denial ofexemption [Sub-section (2)(b)] – Assessment Year2004-05 – Whether where funds of assessee educational trust were utilized for purpose of purchaseof car in name of its trustee there was violation ofSection 13(2)(b) read with Section 13(3) – Held, yes –Whether, however, denial of exemption under Section11 should be limited only to amount which wasdiverted for purchase of car in name of prohibitedperson, i.e., trustee of assessee, in violation of Section13(2)(b) – Held, yes (Paras 5 and 8) (In favour ofassessee).” After considering the judicial pronouncements of Hon'bleHigh Court of Bombay and Hon'ble High Court of Karnatakaas supra on the identical issue on similar facts, we considerthat in the case of the assessee on violation of Section 13(1)(c)(ii)/13(2) r.w.s. 13(3), the disallowance u/s. 11 is limitedonly to the amount which the assessee trust has diverted forpurchase of a car in the name of trust, i.e. Rs.9,56,175/-.Considering the above, we direct the Assessing Officer torestrict the disallowance to the extent of Rs.9,56,175/- andnot to disallow the entire accumulation as held by the Ld.CIT(A). Therefore, this appeal of the assessee is partlyallowed.” 12.We are of the view that no error, not to speak of any errorof law, could be said to have been committed by the Tribunal inpassing the impugned order. The Tribunal has relied upon onedecision of the Karnataka High Court and another decision ofthe Bombay High Court. 13.We are in agreement with both the decisions relied upon bythe Tribunal in its impugned order. 14.In the result, this Appeal fails and is hereby dismissed. (VIKRAM NATH, CJ.) /MOINUDDIN (J. B. PARDIWALA, J.)