TMI Blog2012 (12) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable to the facts of the present case. In this view of the matter, we set aside the order of the CIT(A) on this issue and hold that the assessee can claim exemption under s. 11 if it fulfils the other conditions prescribed under the said section. The grounds raised by the assessee are accordingly allowed. Considering the fact that the Revenue had no objection in the past for holding the shares of the bank during the tenure of loan utilised by the assessee trust and considering the fact that the assessee trust is still enjoying overdraft facilities from the bank we are of the considered opinion that there is no violation of provisions of s. 11(5) r/w s. 13(l)(d) on account of holding the shares of the bank. In this view of the matter, we set aside the order of the CIT(A) and the grounds raised by the assessee on this issue are allowed. Donations received through issue of coupons as revenue receipts - Held that:- Since in the preceding paras we have held that there is no violation of provisions of s. 11(5) r/w s. 13(l)(d) and since the donations are treated as revenue receipts therefore it does not make any difference. We, therefore, hold that exemption under s. 11 is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances. Thus, there are 2 appeals filed by the assessee against the same order of the CIT(A). 4. Facts of the case, in brief, are that the assessee M/s Bharati Vidyapeeth Medical Foundation (in short 'BVPMF') was established through a deed of trust dt. 23rd March, 1990 by 7 persons with its office at Bharati Vidyapeeth Bhavan, L.B.S. Marg, Pune-411030. The main objectives of the above foundation were relating to education, research and relief of health. The trust obtained the certificate of registration under s. 12A(a) from the CIT, Pune vide No. Pn.T/Regn/4893/1990-91 dt. 5th Nov., 1990. It has since then availed exemption from payment of tax on income earned under ss. 11 and 12 of the IT Act till 1998-99. A search was conducted at the office premises of Bharati Vidyapeeth group situated at Bharati Vidyapeeth Bhavan, L.B.S. Marg, Pune-411030 in the case of Sri Ramchandra Dada Shinde on 20th July, 2005. Mr. Shinde was working as accounts officer and was looking after the accounts of the various trusts of the group including the admissions for various institutions run by Bharati Vidyapeeth. 5. The AO examined the various documents seized during the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue are in appeal before us with the following grounds : ITA No. 969/Pn/2010 (by assessee) [Against order passed by CIT(A) on the order of AO passed under s. 143(3)]: On facts and in law, 1. The learned CIT(A) erred in not appreciating that the assessment under s. 153C passed by the learned AO was null and void. 1.1 The learned CIT(A) erred in confirming the various additions which are beyond the scope of the provisions of s. 153C as the additions made are not based on the incriminating material found during the search but they are based on the enquiries in the assessment proceedings, 1.2 The learned CIT(A) erred in holding that in the assessment under s. 153C, all the additions could be made in the assessment and the aspect as to whether they were based on the incriminating material found during the search or not was not relevant. 2. The learned CIT(A) erred in holding that the activities of the assessee trust were covered under s. 10(23C) and therefore, the claim of exemption of the assessee could be examined only under s. 10(23C) and not under ss. 11 to 13. 2.1 The learned CIT(A) failed to appreciate that the assessee trust was duly registered under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions from the donors that the said donations were towards the corpus of the trust and hence, the assessee trust was not entitled to claim the exemption under s. 1 l(l)(d). 5.1 The learned CIT(A) failed to appreciate that the donations received were genuine and the same were received towards the corpus of the trust and accordingly, there was no reason to tax the said donations as income' of the trust. 5.2 Without prejudice to the above grounds, in case, the exemption under s. 11 is denied to the assessee trust, it is submitted that the above donations should be treated as capital receipts not chargeable to tax. 6. The learned CIT(A) erred in not granting benefit of 15 per cent of the income which is allowable as per law to be set apart and accordingly, the income computed should have been reduced by 15 per cent. 7. The learned CIT(A) erred in not allowing the application of income of ₹ 43,56,788 being expenditure of capital nature while computing the income of the assessee trust. 8. The learned CIT(A) erred in not granting depreciation to the assessee as per law. 9. The learned CIT(A) erred in denying the exemption under s. 11 to the appellant. 10. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank, the loans could not be sanctioned and therefore, the same constituted an expenditure on the objects of the trust. 3.3 The learned CIT(A) erred in not appreciating that: (a) The amounts involved in these shares were very small compared to the total assets of the assessee trust and hence, they could not be considered as investments/deposits. (b) In the assessments completed under s. 143(3) prior to the search, the Department did not raise any objection on this issue and had granted the exemption under s. 11 to the assessee trust. 3.4 Accordingly, the learned CIT(A) was not justified in holding that the appellant trust had made any investments in violation of s. 13(l)(d) r/w s. 11(5). 3.5 Without prejudice to the above grounds, the learned CIT(A) ought to have taxed only the income arising from investments made in violation of s. 11(5) and not the entire income of the assessee trust. 4. The learned CIT(A) erred in confirming the addition in respect of donation received through issue of coupons of ₹ 85,77,500 without appreciating that the said donations were received towards the corpus of the trust and hence, exempt under s. 1 l{l)(d) of the Act. 4.1 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iating the fact that the concept of application of income towards the objects of the trust is relevant only when the trust is otherwise entitled to exemption under ss. 11 and 12 of the IT Act. As the exemption is not available to the trust in this year, the question of set off of excess application of the earlier years against the income of this year does not arise. 4. The learned CIT(A) erred in not appreciating the fact that only losses computed as per the provisions of the Act under certain heads can be carried forward and set off against income of subsequent years subject to the conditions set out in ss. 70 to 80 of the Act. The excess application as claimed for the earlier years in the case of the assessee not being losses computed for those years and the fulfilment of the conditions in ss. 70 to 80 of the Act not having been established, the said excess applications are not eligible for set off. 5. The learned CIT(A) erred in allowing the above claim in the case of this assessee when he himself had rejected a similar claim in a connected case of Bharati Vidyapeeth on similar set of facts as being untenable in law vide his appellate order in that case for asst. yr. 1999- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) education, (iii) medical relief and (iv) the advancement of any other object of general public utility. From the above, it is clear that only the word 'education' is included in the definition of charitable purposes without any qualifying word. In the case of trusts running hospitals, for them to qualify to be involved in charity, their activities must be that of granting medical relief to deserving public. Grant of medical service alone is not sufficient. It is also seen from various judicial pronouncements that charity does not mean grant of something for nothing. However, activities which are against the public policy and public law cannot be considered as charitable purpose. All the activities which have been included in the definition of 'charitable purposes' are professed responsibility of the welfare State having important bearing on the welfare of the society at large. Therefore, the legislature has brought in provisions for tax exemptions to incentivise specified public bodies to carry out activities of charitable purposes. Tax exemptions given to organizations engaged in such activities are indirect financial aids to such organizations. In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Brahmin Educational Society v. Asstt. CIT (1997) 140 CTR (Ker) 262 : (1997) 227 ITR 317 (Ker) held that 'when the legislature enacted a specific provision for grant of exemption of income in respect of educational institutions under ss. 10(23C)(iiiab), 10(23C)(iiiad) and 10(23C)(vi), the general provision contained in s. 11 may not override the provisions of specific section. In other words, the income of such educational institutions/ hospitals, as are covered in these provisions, has to be examined under ss. 10(23C)(iiiab), 10(23C)(iiiad) and 10(23C)(vi) and not under s. 11 of the IT Act. In the light of the discussions made above bringing forth the concept of charitable organizations and its taxation along with roles and responsibilities towards the society, it will not be out of place to conclude that they have a responsibility towards the nation/society at large to remain transparent in their operations so that it should be visible that they are truly engaged in the purpose of charity. There always would remain a requirement on their part to voluntarily come out with actions to dispel any adverse information/finding, if any such thing comes out in the public domain. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the assessee can claim exemption only under s. 10(23C) and not under s. 11 of the IT Act. 12. The learned Departmental Representative, on the other hand, heavily relied on the order of the CIT(A). He submitted that the proper course of action for the assessee would have been to apply under s. 10(23C) and not under s. 11. Therefore, the learned CIT(A) was justified in denying exemption under s. 11 of the IT Act. 13. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. There is no dispute to the fact that the assessee is a charitable trust and is running hospitals in Pune. There is also no dispute to the fact that the trust is registered under s. 12A of the IT Act vide registration certificate dt. 5th Nov., 1990 issued by the CIT, Pune, a fact noted by the CIT(A) himself. There is also no dispute to the fact that in the preceding assessment years the assessee trust was granted exemption under s. 11 of the IT Act. [Assessment order passed under s. 143(3) for asst. yrs. 2000-01 and 2003-04 place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration under s. 12A which has not been cancelled and is still in force for the impugned assessment year and since the assessee was granted the benefit of exemption under s. 11 in the past years under scrutiny assessments and no objection was raised by the Revenue for such exemption under s. 11, therefore following rule of consistency the learned CIT(A) should have allowed exemption under s. 11 and the learned CIT(A) in our opinion is not justified in holding that the assessee should have claimed exemption under s. 10(23C) of the IT Act. The various decisions relied on by the learned CIT(A), in our opinion, are distinguishable and not applicable to the facts of the present case. In this view of the matter, we set aside the order of the CIT(A) on this issue and hold that the assessee can claim exemption under s. 11 if it fulfils the other conditions prescribed under the said section. The grounds raised by the assessee are accordingly allowed. 14. Ground of appeal Nos. 3 to 3.5 relate to denial of exemption under s. 11 on account of violation of s. 11(5) r/w s. 13(l)(d). 15. Facts of the case, in brief, are that during the course of assessment proceedings the AO noted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was explained before the AO as well as the CIT(A) that the assessee trust had taken loan from Bharati Sahakari Bank over the years and for the purpose of obtaining the loans the assessee had to buy specific number of shares of the bank as per the bye-laws of the bank to become member of the society to be eligible for obtaining the loan. Referring to page No. 57 of the paper book the learned counsel for the assessee drew the attention of the Bench to the relevant clause of the bye-laws according to which the borrower should also purchase the shares of the bank in such proportion to his borrowing as may be fixed from time to time by the RBI. Referring to the copy of the balance sheet placed at paper book page No. 63 he drew the attention of the Bench to the total assets which is ₹ 23.24 crores. He submitted that since the assessee has to carry out its objects it had to obtain loan from the bank and under compulsion due to the provision in the bye-laws of the bank the assessee had to purchase the shares. 17.2 Referring to the copy of the assessment order he submitted that the AO in the said order has held that the shares purchased in the earlier years continued to be hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engg. Co-ordination Committee v. Asstt. CIT [l992] 43 ITD 612 (Pune); (ii) Vidya Pratisthan v. DCIT 133 TTJ (Pune) 472 (iii) Sarladevi Sarabhai Trust 172 ITR 698 (Gujarat High Court (iv) Alarippu 244 ITR 358. 17.4 He submitted that if the propositions laid down by the AO and the CIT(A) are accepted, then it would lead to violation of s. 11(5) in a number of cases. Giving an example he submitted that a trust having its own office building has to make a deposit with Electricity Board for getting electricity connection. In that case if the AO holds that the deposit is in violation of s. 11(5) and rejects the exemption, then in that case most of the trusts will lose exemption. He submitted that till this assessment year the Revenue never objected to these shares being purchased by the charitable trust. Referring to the written submissions filed, he submitted that investment in shares of the co-operative bank has been made in the past years for which the exemption under s. 11 was claimed and allowed and no objection was raised by Revenue at any time in the past. He submitted that merely because the amount was shown in the balance sheet as recoverable/investments the same do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the bank. The investment in shares amounting to ₹ 25,250 is very meagre considering the total assets of the trust amounting to ₹ 23.24 crores. There was no objection by the Revenue in the past for holding such shares in the Bharati Sahakari Bank and exemption under s. 11 was granted, therefore, exemption under s. 11 should not be denied to the assessee. It is the case of the Revenue that by investing in shares of the co-operative bank the assessee has violated the provisions of s. 13(l)(d) r/w s. 11(5). The loan so obtained from the bank has already been repaid and assessee is having only overdraft from the bank amounting to ₹ 12,87,665. Therefore, the assessee is not entitled to benefit of exemption under s. 11. 18.2 The submission of the learned counsel for the assessee that in the instant case the assessee had availed loan from Bharati Sahakari Bank for which it had to buy certain number of shares of the bank as a precondition for such loan and the bank while granting such loan had deducted the subscription to such shares could not be controverted by the learned Departmental Representative. The further submission of the learned counsel for the assessee tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment fund and ₹ 60,63,585 towards voluntary contribution received in cash or in kind through Danpethi . The AO noted that while the voluntary contribution through Danpethi has been taken into consideration in the computation of income under ss. 11 and 12, the donations towards hospital equipment fund, development fund and building fund have been directly credited to the balance sheet as corpus donations. So far as the development fund of ₹ 85,77,500 is concerned it was explained by the assessee that the same has been received by the trust by way of collection by volunteers through coupons ranging from ₹ 100, ₹ 500 and ₹ 1,000 collected by them from friends, relatives, well wishers and public at large. A sample copy was also enclosed. However, the AO noted that the assessee specifically admitted that being small amount of each coupon no separate receipt was issued to the donors and therefore the names and addresses of the donors are not available. 20.1 The assessee filed confirmations from some of the donors and volunteers who have made collection of the coupons. However, the AO noted that the coupons did not carry their signature. Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ADIT (Exemption) the AO held that such donations cannot be attributed towards corpus of the trust and have to be taxed in the hands of the assessee as unproved donations. Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 21. In appeal the learned CIT(A) upheld the action of the AO in treating the donations received through coupons as revenue receipt. While doing so, he noted that the statement of Sri Ramachandra Dada Shinde was recorded during the course of search under s. 132(4) wherein he has stated that the funds collected have also been utilised for depositing money in various fund accounts of the group. Therefore, deposits appearing in the development fund account have to be considered from sources other than the genuine donors. He further noted that the coupon donations are from donors whose identities are not known even to the assessee and such receipts are in cash against the issue of coupons of fixed denominations printed with the words corpus donation . According to him the statements of the volunteers, who collected donations, are only self-serving documents and cannot be relied upon. According to him even donations covered by written docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs had collected the donations on behalf of the assessee trust. Therefore, there is no reason to hold that the assessee has not collected such donations. He accordingly submitted that there is no reason to treat such donations as revenue receipts and the same should be treated as capital receipts under s. 11(1)(d). 22.1 Without prejudice to the above, the learned counsel for the assessee submitted that assuming but without admitting that such coupon donations are revenue receipts, still exemption under s. 11 should be allowed on these receipts since the same are applied for the objects of the trust or accumulated as per s. 11(2). He submitted that once the exemption under s. 11 is allowed, even if such donations are treated as revenue receipts, it does not make any difference. He accordingly submitted that exemption under s. 11 should be allowed on these donations received through issue of coupons. 22.2 The learned Departmental Representative, on the other hand heavily relied on the orders of the AO and the CIT(A). He submitted that the coupon donation receipts do not bear the names and addresses of the donors, the name of the recipient on behalf of the trust and any letter f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the assessee did not withdraw the appeal filed, the learned CIT(A) proceeded to decide the appeal on merit. 25.2 It is the case of the Revenue that when the order appealed against has already been set aside by the CIT under s. 263 the learned CIT(A) should have dismissed the appeal as infructuous. It is the case of the assessee that the grounds are wrongly worded by the Revenue, therefore, it is not maintainable. In our opinion, when the order passed by the AO, which was the subject-matter of appeal before CIT(A), was set aside by the CIT under s. 263, the learned CIT(A) should have dismissed the appeal filed by the assessee as infructuous instead of deciding the same on merit. We, therefore, find merit in the grounds raised by the Revenue and accordingly allow the same. 26. In the remaining grounds the Revenue has challenged the order of the CIT(A) in directing the AO to set off the excess application of the earlier years against the income computed for the year. 26.1 The learned CIT(A) has discussed this issue at p. 51 of the order. This issue was not raised before the AO. Before the CIT(A) the assessee submitted that in case the exemption under s. 11 is denied in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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