9911796707
TMI Blog2019 (6) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 3. Whether the CIT(A) was correct in holding that addition of Rs. 95,26,54,640/- on account of excess of assets over liabilities tantamount to retrospective withdrawal of the charitable status. 4. Whether the CIT(A) was correct in holding that addition in respect of donation, keyman insurance, software expense and difference in the value of land couldn't have been made u/s 11(3) of the Act. 5. Whether the CIT(A) was correct in holding that the assessee had no surplus which could have been charged to income under the provision of section 11(3) of the act. 6. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 3. The facts of the case are that a society by the name of Escorts Heart Institute & Research Centre was formed at Delhi (EHIRC, Delhi) on 21.10.1981 and its objects were charitable in nature, its income was exempt under Section 10(21) of the Act. It also had the approval of the Central Government under Section 35(1)(ii) of the Act which was effective till 31st March, 2001. On 11th November, 1999, another society by the same name was formed at Chandigarh (EHIRC, Chandigarh) with objects identical to tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year i.e. the previous year commencing on 01.04.2000 and ending on 31.03.2001 relating to the assessment year 2001-02, which is the year in which the petitioner was amalgamated with Escorts Hospital, Chandigarh and transferred all its assets to the Chandigarh Hospital which is looked upon as a breach of the statutory provisions subject to which the exemption under section 10(21) was allowed. The consequences of the breach having been provided by the statute itself, it is not open to the assessing officer to consider the accumulated income as having escaped assessment in the past assessment years. He has to perforce bring to tax the accumulated income only in the year in which the breach occurred; that is the mandate of section 11(3). 6. Two important conditions for the applicability of section 147 are (a) income chargeable to tax must have escaped assessment and (b) assessing officer must have reason to believe so. When section 11(3) treats the accumulated income of the past year of the petitioner as income of the assessment year 2001-02, there can be no question of any income escaping assessment in the past assessment years i.e. the assessment years 1998-99 to 2000-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on can be treated as income within the meaning of section 11(3) of the Act and if done would be contrary to the statutory provisions and the judgments relied upon including the appellant's own case. Coming to the addition of Rs. 38,15,70,842/-, being the difference in the value of land pursuant to the valuation by the DVO, this again does not qualify to be considered and for that matter u/s 11(3) of the Act. Reverting back at this stage to the addition of Rs. 95,26,54,460/- comprising of Rs. 25,87,72,888/- being the excess of income over expenditure for the period ending 31.03.2000 plus the brought forward balance under the same head amounting to Rs. 69,38,81,752/- the same stands reflected in the fixed assets as also the current assets. The year-wise chart for the application of income is as under : Asstt. Year Gross receipts Income applied u/s 11(1)(a) Application of Income Expenses (excluding Depn.) Depreciation On purchase of capital assets On repayment of loan Total App. u/s 11(1)(a) Accumulated u/s 11(1)(a) (upto 25% of gross income) Total application- accumulation u/s 11(1)(a) 1 2 3 4 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The above chart also clearly establishes that the assessee never had any surplus which could be charged to income under the provisions of Section 11(3) of the Act. Further, Section 11 of the Act contemplates charging of income generated from the assets held in trust but not applied for the charitable purposes. The Act does not contemplate charging of the asset itself to the tax. In view of the aforesaid observations and in the final analysis, I delete the entire addition of Rs. 1,56,44,47,193." 6. The Revenue aggrieved with the order of the CIT(A) is in appeal before us. 7. We have heard the arguments of both the sides and perused the material placed before us. The learned DR heavily relied upon the order of the Assessing Officer and he stated that the Assessing Officer has rightly worked out the accumulated profit. Learned CIT(A) wrongly restricted the meaning of accumulated profit and he considered only the profit accumulated under Section 11(2) of the Act ignoring the fact that the assessee had excess of assets over liabilities amounting to Rs. 95.26 crores which clearly indicated the accumulation of profit. He, therefore, stated that the order of learned CIT(A) should be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] [(a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year: Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The same is sustained and all the grounds raised by the Revenue in this appeal are dismissed. ITA No.3709/Del/2015 - M/s Escorts Heart Institute and Research Centre, Chandigarh :- 13. In this appeal by the Revenue, following grounds have been raised :- "1. On the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in deleting the addition of Rs. 1,44,34,72,911/- on account of capital gain. 2. On the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in holding that transfer of assets within the meaning of section 2(47) of the I.T. Act after conversion of a society as a company under part IX of the Companies Act, 1956 do not attract capital gains chargeable to income tax u/s 45(1) of the I.T. Act. 3. On the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in deleting the addition of Rs. 44,98,53,100/- on account of fair market value of land. 4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 14. The facts of the case are that the assessee society was formed at Chandigarh on 11th November, 1999. On 1st April, 2000, the EHIRC, Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT set aside the issue of levy of capital gains to the file of the Assessing Officer. The Assessing Officer, in pursuance to the order of the ITAT, completed the assessment vide order dated 31st March, 2010. In this order, in paragraph 10.5, which reads as under, the Assessing Officer accepted that Section 45(4) is not applicable :- "10.5 The grounds raised by the assessee AOP during the course of the proceedings and on the point that there was no distribution of assets took place in above mode of the transfer of assets over liabilities from the assessee AOP to the company whatsoever capital gain would not be under section 45(4) of IT Act is accepted. However the question of considering cost with reference to certain modes of acquisition specified u/s 49(1) does not arise and the request of the assessee in this regard is rejected." 16. In paragraph 16, which reads as under, the Assessing Officer concluded that there is transfer of the assets owned by the assessee AOP to another legal entity within the meaning of Section 2(47) which would attract capital gain under Section 45(1) :- "16. In the light of the above findings it is concluded that there was transfer of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the 1st day of April, 2000. This is the scheme which was approved by the members of the Delhi Society in the general meeting. The Registrar of Societies, Delhi by order dated 6.6.01 recognized the fact that the Delhi Society was dissolved and amalgamated with the Chandigarh society. Copy of this order is at page 14 of Revenue's paper book No.-II. It therefore follows that the assets of the Delhi Society vested with the Chandigarh Society by operation of law." Following the said decision, the Hon'ble ITAT, Chandigarh Bench in its order dated 18.03.2008 in ITA 144/Chandi/2006 took an identical view. It is the case of the appellant that both these orders have become final in as much as in the case of the order of the ITAT, Chandigarh no appeal was filed u/s 260-A by the department before the Hon'ble High Court and in the case of Escorts Ltd. although an appeal was filed u/s 260-A of the Act but no question/ground was raised on the aspect of merger of the two institutions. The Assessing Officer has not rebutted these factual submissions made on behalf of the appellant. Coming to the question of conversion, the matter has become final in view of the certificate of incorporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the vesting of the properties of the erstwhile firm in the limited company, there was a transfer of capital assets and, therefore, it was chargeable to income-tax under the head 'Capital gains' as, on such vesting, there was extinguishment of all right, title and interest in the capital assets qua the firm. We do not find any merit in this argument." In the final analysis, it is held that the provisions of section 45(1) of the Act were not applicable and no capital gain arose to the assessee on its conversion into a Ltd. Co. under Part IX of the Companies Act. The consequential addition of Rs. 149,08,97,151 is liable to be deleted." 18. The Revenue, aggrieved with the order of the learned CIT(A) is in appeal before us. 19. At the time of hearing before us, learned DR heavily relied upon the order of the Assessing Officer and he stated that during the year under consideration, all the assets and liabilities of the assessee AOP have been transferred to the company on the AOP being converted into company and therefore, it is a clear case of transfer of asset by the AOP to the company and Section 45(1) was rightly invoked by the Assessing Officer for levying the capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect from 1st April, 1999 in order to encourage more and more Firms becoming Limited Companies. It also indicates the difference between transfer and transmission. Basically, when a Firm is treated as a company under Part IX, it is a case similar to transmission. This is amply made clear by clause (xiii) to Section 47, which states that where a Firm is succeeded by a company in the business, the transaction shall not be treated as a transfer. Now, this amendment has been made in Section 47 in view of the controversy arising on Section 45(1) read with Section 2(47)(ii). As stated above, Section 45(1) is a charging section. Section 45, read with the computation Section viz. 48 etc., form one composite scheme. This point is very important. Section 45(1) provides that where any profit, arising from transfer of a capital asset is effected in the previous year then such profit shall be chargeable to income-tax under the head "Capital gains". The expression "transfer of a capital asset" in Section 45(1) is required to be read with Section 2(47)(ii) which states that transfer in relation to a capital asset shall include extinguishment of any rights therein. The moot point which arose on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company under Part IX of the Companies Act. Thus, till the time of conversion, the AOP remained in existence and the moment conversion took place, the company came into existence. However, the AOP and company never remained in existence simultaneously. Section 45(1) would be applicable on transfer of a capital asset. The transfer of a capital asset is possible only when there is a transferor and the transferee. In the absence of existence of the two entities, the transferor and the transferee, there cannot be any transfer. Similarly, in the absence of two entities, the consideration cannot pass from transferor to the transferee. In view of the above, we hold that the above decision of Hon'ble Bombay High Court would be squarely applicable to the case of the assessee and has rightly been followed by the learned CIT(A). 23. We also find that Hon'ble Jurisdictional High Court in the case of CIT Vs. Rita Mechanical Works - [2012] 344 ITR 544 (P&H) has also relied upon the decision of Hon'ble Bombay High Court in the case of Texspin Engineering and Manufacturing Works (supra) for taking the view that taking over the assets of the firm by a company does not give rise to profit char ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
