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TMI Blog2012 (10) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... fund. The Enterprise Trust had donated 1147110 equity shares of Mawana Sugar Ltd. and 201500 equity shares of Siel Ltd. on 13.04.2005. The Assessing Officer noted that the market value of equity shares of Mawana Sugar Ltd. on the date of transfer was Rs.68.40 per share and pf Siel Ltd. was at Rs. 31/- per share. The total value of these shares aggregated to Rs. 8,47,08,824/-. 3. The assessee had taken the shares at Rs. NIL in the balance sheet because the shares had been received as corpus donation. The Assessing Officer further noticed that the assessee had sold 308500 equity shares of Mawana Sugar Ltd. and 9837 equity shares of Siel Ltd for which the trust had received a sum of Rs. 3,65,36,184/- and the amount so received was credited to balance sheet as corpus fund. The Assessing Officer issued following show cause notice dated 16.12.2008 :- "You have received shares from Mawana Sugar Ltd., Siel Ltd. as corpus donation. Please furnish the market value of shares on the date of donation received along with evidence to justify such value". As per section 2(24) of the Income Tax Act, 1961, any voluntary donation received by a Charitable or Religious Institution or Trust is an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds by giving a colourful device to avoid the tax. (iv) The assessee cannot be allowed the credit of donation made against this corpus donation. (v) The Assessing Officer relied on the decision of Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. Commercial Tax Officer 154 ITR 148 (SC) [1985]. 6. Before the Ld. CIT(A), it was, inter alia, submitted that in the year under consideration, the assessee's foundation in-compliance to proviso (iia) to section 13(1)(d) of the Income Tax Act, 1961, sold 308500 shares of Mawana Sugar Ltd. and 9837 shares of Siel Limited and sales consideration had been transferred to the corpus fund. Remaining shares were sold during the next financial year and the consideration was credited to the corpus fund. It was further submitted that copy of the minute book of Enterprise Ltd. and Shera Foundation (assessee) were produced/submitted before the Assessing Officer as evidence to the effect that contributions received in the form of shares was towards to the corpus of the assessee foundation vide letters dated 05.11.2008 and 26.12.2008. It was further submitted that Assessing Officer had also relied on certain facts of subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not divert its assets for non-charitable purposes without knowledge of DIT(E). The assessee further submitted that if this condition was taken to mean that no asset or fund could be given to anybody then it would imply that even genuine activities cannot be carried out by a charitable institutions by utilizing its corpus. 9. Before ld. CIT(A), the assessee had also taken an alternate ground regarding allowbility of statutory deduction of 15% in determination of taxable income. 10. Ld. CIT(A) while partly allowing the assessee's appeal, upheld the AO's order in making addition of Rs. 8,47,08,824/- and also denied the assessee's claim of accumulation of 15% of income observing that since the AO had denied the claim of registration u/s 12A of the Income Tax Act, the assessee's claim of section 11 does not stand. 11. Being aggrieved with the order of ld. CIT(A), the assessee is in appeal before us and has taken following grounds of appeal :- 1. That the CIT(A) erred in upholding the order of the Assessing Officer including amount of Rs. 8,47,08,824/- in the taxable income, being the value of shares received by the appellant as corpus donation on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving that the A.O had denied the claim of registration u/s 12A of the Act without appreciating that A.O has no power to withdraw registration granted u/s 12A of the Act by the DIT(E). 6. That the CIT(A) also erred in not disposing Ground (f) of grounds of appeal before him regarding providing opportunity by A.O to the appellant for applying the income determined by Assessing Officer which ought to have been allowed by him in view of his holding to the effect that contribution received by the Foundation was in the nature of general contribution instead of contribution towards corpus. 7. That the CIT(A) also erred in upholding initiation of penalty proceedings u/s 271(1)(c) of the Income Tax Act in the case of the Appellant stating the same is premature. 8. The appellant company craves leave to alter, amend, vary and/cr add any of the grounds of appeal at any time hereinafter. 12. Ld. Counsel for the assessee reiterated the submissions made before lower revenue authorities. Ld. Counsel referred to page 60 of paper book wherein the Minutes of Board of Trustees meeting of Enterprise Trust held on 13.04.2005, are contained, to demonstrate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s evident from page 60 of the paper book. Ld. Counsel further referred to page 153 to 154 of paper book wherein assessment order for AY 2008-09 is contained to demonstrate that AO had accepted the assessee's return at NIL income though the donations to other charitable trusts were made in AYs 2008-09 and 2009-10. 16. Ld. Counsel relied on following case laws:- (1) Director of Income Tax v. Shree Radha Krishnan Charitable Trust, 2011-TIOL-315- HC-Del-IT Ld. Counsel relied on this decision for the proposition that under law, assessee could not hold shares beyond 31.03.2007 as per section 13(1)(d). (2) Sh. Dwarkadheesh Charitable Trust v. ITO, 98 ITR 557 (All.) Ld. Counsel relied on this decision for the proposition that corpus donation in form of shares could be received and also the proposition that when a donor trust which is itself a charitable and religious trust donates its income to another trust, the provisions of section 11(1)(a) can be said to have been met by such donor trust and the donor trust can be said to have applied its income for religious and charitable purposes with the fact that donation is subjected to any condition that the donee trust while tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the trust that the trustee shall retain it for ever as corpus, even if when an occasion arises that in order to keep the trust alive and to prevent it from failure, it should not spend any amount out of it. If a donor donates money with a specific direction that it shall form part of the corpus, the trustee is expected to honour the wish of the donor. But if the trustee utilizes it for a different purpose, then it is a simple case of breach of trust for which delinquency, the trustee can by proceeded against under the Indian Trusts Act, 1882, or other appropriate legislation but that is not to say that for the misbehaviour of the trustee, the trust loses exemption under the Act. This kind of inflexibility, as contended for by the revenue, is difficult to see or comprehend from the language of section 2(24)(iia) or section 12. The requirement of section 2(24)(iia) is that the voluntary contribution, when received, should contain a stipulation that it shall form part of corpus. The trustee cannot possibly influence the donor at that time, except that the trustee should act in accordance with the confidence reposed in him by the donor. Take an example, where A makes a voluntary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 13.04.2005 when these were received as voluntary contribution towards corpus fund was Rs. 8,47,08,824/-. It was submitted by the assessee that transfer entry of the shares was taken at Nil because the shares had been received as corpus donation at Nil value. Part of these shares were sold for Rs. 3,65,36,184/- during the AY 2006-07 and the remaining shares were sold for Rs. 5,09,45,107/- during the AY 2007-08. 2. The sale of shares that were received with specific direction towards the corpus fund is a violation of Sec 11(1)(d). Page 45 of paper-book clearly shows that the fully paid up equity shares were gifted for its corpus. Being gifted for the corpus fund, the shares ought to be kept untouched. The donated shares to the corpus cannot be touched but only the accruing income there from can be utilized for the purposes of trust. By selling the shares, the assessee violated the provisions of Sec 11(1)(d). Sale of shares has made the contribution an ordinary voluntary contribution which is taxable as per sec. 2(24)(iia). In view of the violation of Sec 11(1)(d), the voluntary contribution received by the trust is income taxable as per section 2(24)(iia) under the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l process may accord its approval to it. It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of 'emerging' techniques of interpretation was done in Ramsay, Burma Oil and Dawson, to expose the devices for what they really are and to refuse to give judicial benediction. We agree with Ranganath Misra, J. that the appeal should be dismissed. JUDGEMENT The following judgment of the Court was delivered by Misra. J:-Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. (ii) CIT v. Durga Prasad Marg 82 ITR 540 (SC) (iii) Sumati Dayal v. CIT 214 ITR 804 (SC) 5.& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspite of repeated opportunities the original minute book of Board of Trustees meeting was not produced before the A.O. Only extracts of minute book was produced. In the absence of original minute book the genuineness o the same is not proved. 8. The assessee has also referred to the assessment made in AY 2008-09. However, the corpus donation being received in the AY 2006-07, the action of the A.O in AY 2006-07 is justified. Petitioner (Niranjan Kouli) Dated 23.07.2012 Commissioner of Income Tax (DR)-VII G-Bench, ITAT, New Delhi 22. The submissions of ld. DR can be summed up as under :- (a) The sale of shares that were received with specific directions towards the corpus fund is a violation of section 11(1)(d). (b) The sale of shares had made the contribution an ordinary voluntary contribution which is taxable as per section 2(24)iia. (c) Sections 11, 12 and 13 operate independently and violation of any of the conditions of section 11 or 12 shall face the consequences provided in the said section. The consequences of violation of section 13 shall be n addition to the consequences of viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Indian Trust Act authorizes a trustee to do all such acts which are reasonable and proper for the realization, protection or benefit of the trust property. Section 40 of the Indian Trust Act, 1882 gives power to a trustee to vary investments at his direction. Section 40 reads as under:- "A trustee may at his direction, call in any trust property invested in any security and invest the same on any of the securities mentioned or referred to in section 20, and from time to time vary any such investments for others of the same nature:- provided that, where there is a person competent to contract and entitled at the time of receive the income of the trust-property for his life, or for in greater estate, no such change of investment shall be made without his consent in writing." 25. A conjoint reading of all these sections leads to inescapable conclusion that the primary object of the trustees is to protect the interest of the trust. In order to discharge this responsibility, the trustees are entitled to take appropriate decisions in the interest of trust. If the revenue's contention is to be accepted then it would imply that since a charitable trust is bound to keep its investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ** (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of [eight-five] per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reasons that the whole or any part of the income has not been received during that year, or (ii) for any other reason. Then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1)[***] of section 139[***] for furnishing the return of income) be deemed to be income applied to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... device by first accepting the shares and then selling these shares. The assessee's conduct was well within statutory provisions and, therefore, cannot be branded as colrable device. The trustee is bound to conduct himself in the best interest of trust. Therefore, both the conducts viz receiving the shares as a gift from the private trust towards its corpus and its liquidation in terms proviso (iia) to sub-section 13(1)(d)(iii) was fully justified. We fail to appreciate how the conduct of assessee trust was for the purpose of tax avoidance. Ld. DR has submitted that by selling the shares, the assessee has violated section 11(1)(d) of the Income Tax Act. In our opinion, this argument suffers from the basic fallacy in not recognizing that by selling the shares, the assessee merely converted one form of investment into another viz. money only. The assessee only realized the market value of shares and, therefore, we fail to appreciate how there was any violation of section 11(1)(d) particularly when the donor, while gifting the shares as corpus donation, never imposed any condition that the shares could not be sold. Only the form of asset was changed from share to cash but the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any estoppel against law. The conditions prescribed in the registration certificate are only directory in nature for the relevant information being sent to the department but these conditions cannot override the provisions of the Act. 31. We, therefore, hold that the assessee was entitled for exemption of its income u/s 11 in AY 2006-07, as there was no violation of section 11(1)(d). Now we come to AY 2007-08 vide ITA NO.-1327/Del/2012. In this year, the assessee foundation sold the remaining shares i.e. 8,38,600 shares of Mawana Sugar Limited and 1,96,636 shares of SIEL Ltd. No other act was done. Therefore, for the reasons given in AY 2006-07, we hold that there was no violation of provisions of section 11(1)(d) of the Act. 32. As noted earlier, the Assessing Officer has primarily denied the benefit of section 11(1)(d) on the basis of assessee's conduct in AYs 2008-09 and 2009-10. We have already held that this was not relevant for AYs 2006-07 and 2007-08. However, since Assessing Officer has considered these acts for denying benefit of section 11(1)(d), we proceed to consider the effect of same on the applicability of section 11(1)(d). The Assessing Officer has observed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.09.2008. The assessee had duly submitted the copies of the accounts of foundation for the AY 2007-08 and 2008-09. Ld. DIT(E) after fully examining the accounts, had raised queries regarding the contributions made towards scholarship and also in respect of donation of Rs. 2,50,36,000/-. The assessee had given its explanation to DIT(E). Ld. DIT(E) had also called for a report from the Assessing Officer for grant of registration u/s 80G. After considering the report of A.O, additional DIT(E) required the assessee foundation to explain why exemption should not be denied. The assessee filed its submissions vide letter dated 05.02.2009. 35. After considering all these aspects, Ld. DIT(E) granted registration u/s 80G. Therefore, the corpus donation could not be considered as general donation in AY 2006-07 and 2007-08, merely on the ground of its utilisation in AY 2008-09 for giving corpus donation to other charitable institutions. Further, as per instruction No. 1132/CBDT dated 05.01.1978, it has been clarified that the payment of a sum by one charitable trust to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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