TMI Blog2017 (11) TMI 2012X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax (Appeal), resultantly, the appeal of the Revenue is dismissed. - ITA No. 733/Mum/2016 - - - Dated:- 30-11-2017 - Shri Joginder Singh, Judicial Member And Shri G. Manjunatha, Accountant Member For the Revenue : Shri H.N. Singh CIT-DR. For the Assessee : Shri Vijay Mehta. ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 27/11/2015 of the Ld. First Appellate Authority, Mumbai, holding that there was no contravention of the provisions of section 13 of the Income Tax Act, 1961 (hereinafter the Act), ignoring the fact that BMW car was purchased in the name of trustee, whereby the funds of the trust were diverted and used for the benefit of excluded person as covered within the provisions of section 13(1(c)(ii) and section 13(2)(g) r.w.s. 13(3)(cc) of the Act and no log book was produced to show that the car was used only for the work of the trust and further holding that the trust was entitled to benefit of exemption u/s 11 and deleting the additions made on account of donations received of Rs.3,85,23,511/-, income from other sources of Rs.9,32,319/- and income of Rs.5,41,508/- received on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round or add a new ground which may be necessary. 4. The appellant, therefore, prays that on the grounds stated above, the order of the CIT (A)-I, Mumbai may be set aside and that of the Assessing Officer be restored. 3. The brief facts of the case are that the assessee trust is registered as charitable organization with DIT (E), Mumbai u/s 12A of the Income Tax Act, 1961 (Hereinafter called the Act ) and also registered with the Charity Commissioner, Mumbai. The assessee trust case was selected for scrutiny under the selective scrutiny norms and notices u/s 143(2) 142(1) of the Act along with questionnaire were issued. It was observed by the Ld. Assessing officer (Hereinafter called the AO ) that the objects of the assessee trust is to provide monetary, medical and other assistance and help to the needy, deserving and poor people who are suffering from cancer in particular and other diseases in general and cannot afford the medical/surgical treatment recommended by the specialist and thereby help them , as far as possible , to lead a healthy and normal life. During the course of assessment proceedings, the AO observed that the assessee trust has purchased BMW Car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process , the error was immediately brought to the attention of Navnit Motors Pvt. Ltd, the sellers of the car and steps were taken to get the car transferred in the name of the trust. The auditors of the trust in the Notes to accounts for the financial year ended 31-3-2009 has clearly pointed out that the trust has purchased the motor car during the year for the object of the trust which is presently registered in the name of one of the trustee on account of mistake on the part of vendor and necessary steps has been initiated by the assessee trust to get the BMW car transferred in the name of trust. The purchase of car was capitalized and reflected in the financial accounts for the year 2008-09 and since the operating expenses of the car were very high , it was decided to sell the car. The sale proceeds were credited directly to the assessee trust bank accounts and corresponding changes were made in the assessee trust balance sheet. The car had a large logo of the assessee trust stuck on each side to indicate that it belonged to the trust. The car was driven by an official driver employed by the trust. It was also submitted by the assessee trust that the activities of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 u/s 143(3) of the Act passed by AO, the assessee trust preferred an appeal before the CIT(A) and the assessee trust reiterated its submissions as made before the AO. The CIT(A) called for remand report from A.O. as the assessee trust submitted that the details submitted vide letter dated 2-12-11, 7-12-11 and 13-12-11 were not considered by the A.O. The A.O. in his remand report dated 05.12.2012 submitted that the contentions of the assessee trust were duly considered before passing the order dated 28.12.2011 u/s 143(3) of the Act. In reply to the remand report, the assessee trust once again reiterated its submissions as made earlier and also submitted as under:- 5.3.1 Regarding Purchase of BMW Car: The AO had proposed cancellation of exemption u/s. 11 on account of applicability of section 13 for purchase of BMW Car from the funds of the Trust in the personal name of the trustee. A. O. has also observed that Trust funds to the extent of Rs. 32,20,000/- have been diverted and used for the benefit of excluded persons. Accordingly after considering the submissions made by the assessee vide letter dated 02.12.2011 and 13.12.2011, it is held that the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ante clause which stipulates that where there is any violation of section 13 then the benefit of section 11 will not be available. 8.2 As regards the other objections however, I find substance in them. The appellant stated that the car was purchased for the purpose of the trust and not for the personal user of the trustee. The loan was applied in the name of the trust. The loan was also granted in the name of the trust. It is only by mistake the car dealer mentioned the trustee as the purchaser. The AO had also not conducted any independent inquiries as regards the actual user of this vehicle. He merely depended on one fact i.e. the name mentioned in the invoice raised by M/s Navnit Motors. Further, the AO states that buying of such luxury car for the use of influential donor is against the basic concept of charity and nothing stopped the assessee trust from purchasing a decent car in Rs. 10-12 lacs range such as a Honda City or Toyota Corolla, for the use of the trust and its guests/ donors. The AO's advice may apparently appear to be very sound but in the context of exemption u/s 11 is not relevant for the reason that there is no bar in buying such cars except that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd, this issue was subject matter of scrutiny in the The Cancer Aid Research Foundation assessment year 2009 10, wherein the Assessing Officer has invoked the provisions of section 13 to deny the exemption to the assessee trust. The matter had travelled up to the stage of first appellate proceedings, wherein the learned Commissioner (Appeals) has reversed the findings and the conclusion of the Assessing Officer by holding that the car was used for the purpose of the trust only and after recording detail reasons, he decided the issue in favour of the assessee trust by holding that there is no violation of section 13. It has also been brought on record that the said car was sold in the next year. Such an objection of the learned DIT(E) in the present case, cannot be the subject matter of cancellation of registration under section 12AA(3), firstly, it is still a dabatable matter which is subjudice, whether there is any violation of section 13 or any misuse of trust fund; secondly, even if the car has been purchased in the name of the trustee, then at the most, it needs to be examined within the scope of section 13, and if at all there is any violation, then the income of the previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground stated by the learned DIT(E) in the impugned order. The grounds thus raised by the assessee are allowed. 21. ऩरयणधभ , ननधधारयती क अऩीर वीक ◌ ृतक जधती है। 20. In the result, assessee s appeal is allowed. The assessee trust reiterated that one of the grounds for cancelling of the assessee s registration u/s 12AA(3) of the Act was purchase of the aforestated BMW car for Rs.32,20,000/- in the name of the trustee instead of the assessee trust using the funds of the assessee trust and Mumbai Tribunal in ITA appeal 1782/Mum/2014 has held that the registration of the assessee trust cannot be cancelled u/s 12AA(3) of the Act on the grounds stated by DIT(E) which, inter-alia, included this purchase of BMW car in the name of Mr A A Kazi, chairman cum trustee of the assessee trust . The assessee trust also submitted that depreciation on the said BMW car was also taken by the assessee trust under the Act and the car was ultimately sold in subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan has been made from the asseseee trust bank accounts and ultimately the car has been sold in the subsequent year and sale proceeds were credited in the bank account of the assessee trust. The assessee trust has also submitted before us that there was a mistake inadvertently committed by the staff of the assessee trust in getting the same registered in the name of trustee of the assessee trust while buying the BMW car instead of getting it registered in the name of the assessee trust and it has been stated in the audited accounts for the financial year 2008-09 of assessee trust in Schedule P -Notes forming part of Accounts as under : 4. The trust purchased a motor car for Rs.32,34,853/- during the year for the object of the Trust which is presently registered in the name of one of the trustee on account of mistake on the part of vendor. The trust has initiated necessary formalities to transfer the said motor car in the name of the Trust. Pending such transfer formalities in the name of the Trust said motor car has been shown as fixed asset in the books of accounts. The audited accounts for the financial year 2008-09 was signed on 17th September 2009 in which above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needs to be examined within the scope of section 13, and if at all there is any violation, then the income of the previous year in which such a violation took place, gets excluded from the exemption provided under section 11 i.e., surplus income becomes taxable for that year. If there is any kind of misuse of trust funds by the trustee or a related person of the trustee, then the statute provides enough power to the Assessing Officer to forfeit the exemption and tax the surplus. However, in such a situation, it cannot be held that the entire activities of the trust have been rendered non genuine or its activities are not carried out in accordance with the objects of the trust. Similar issue had also come up for consideration before the Bangalore Bench of the Tribunal in Krupanidhi Educational Trust (supra), (as relied upon by the learned Counsel for the assessee), wherein on similar purchase of the BMW car purchased in the name of the trustee, the Tribunal held that it cannot be the basis for cancellation of registration under section 12AA(3), at The Cancer Aid Research Foundation the most, it can be a violation of provisions of section 13. Thus, this objection of the learned DI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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