TMI Blog2024 (4) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years. The Ld.CIT(A) without appreciating relevant facts simply upheld re-opening of assessment. For AYs 2015-16 2016-17 assessments have been re-opened for these two assessment years on the basis of fresh tangible material which suggest escapement of income on account of under assessment rental income and said escapement of income was noticed during the course of survey conducted u/s. 133 of the Act. In our considered view, new tangible materials found during the course of survey constitute a fresh material and as per said material, there is escapement of income. The AO has formed reasonable belief of escapement of income and thus, in our considered view, re-opening of assessments for AYs 2015-16 2016-17 are valid. Denial of exemption u/s. 11 - Charitable activity u/s 2(15) - The assessee objects and activity of running Kalyanamandapam is incidental to the attainment of main objects, and is covered by provisions of Sec. 11(4) of the Act. Since, the assessee Trust is maintaining separate books of accounts for the activity of running of Kalyanamandapam and said activity is in the nature of attainment of main objects, in our considered view, provisions of Sec. 11(4A) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o use by any person by paying consideration or compensation which is commensurate with prevailing market rent, then provisions of Sec. 13(1)(c) r.w.s13(2) of the Act, cannot be applied. Therefore, we are of the considered view that the AO and the Ld.CIT(A) are completely erred in invoking provisions of Sec. 13(1)(c) r.w.s.13(2) of the Act, and made additions towards difference between rental income. Disallowance of depreciation on fixed assets the cost of which has been claimed as application of income - Since, the assessee Trust is a registered u/s. 12AA of the Act, and also claiming exemption u/s. 11 of the Act, in our considered view, depreciation on fixed assets should be allowed as application of income up to AY 2014-15. Thus, we direct the AO to delete additions made towards disallowance of depreciation on fixed assets for AYs 2012- 13 to 2014-15. In so far as AYs 2015-16 to 2018-19, the law has been amended by the Finance Act, 2014 to provisions of Sec. 11(6) of the Act and as per said provisions, where any income required to applied or accumulated or set part for application, then, for such purpose, the income shall be determined without any deduction or allowance by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action of the Learned AO in denying the claim of exemption claimed u/s. 11 of the Act, without appreciating the facts and circumstances of the case. 6. For that the Learned Commissioner of Income Tax (Appeals)by upholding the denial of claim of exemption u/s 11 of the Act erred in denying the treatment of income from Kalyanamandapam as business income, despite the decision of Hon'ble ITAT in appellant's own case rendered in the earlier Assessment Years treating such income as income from property held under trust. 7. For that the Learned Commissioner of Income Tax (Appeals) erred in concluding that the activity of renting of Kalyanamandapam is commercial in nature without appreciating the fact that the said activity is incidental to the attainment of the objects of the Trust as the income derived from such activity were purely utilized for the purposes of charity in the view of provisions of section 11(4) of the Act. 8. For that the Learned Commissioner of Income Tax (Appeals) erred in denying the entire, exemption claimed u/s. 11 of the Act by merely stating that - 'since there is a violation of provisions of section 13(1)(c) of the Act, entire exemption claimed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Tribunal may be pleased to delete the additions made and/or pass such other orders as this Hon'ble Tribunal deems fit. 3. The brief facts of the case are that the assessee is a Public Charitable Trust registered u/s. 12AA of the Income Tax Act, 1961 (in short the Act ), vide proceedings of the CIT order dated 11.04.1975. The assessee had filed its return of income for AYs 2012-13 to 2018-19 u/s. 139(1) of the Act, declaring NIL total income after claiming exemption u/s. 11 of the Act. The assessee Trust was having income from two Kalyanamandapams, namely M/s Rajeswari Thirumana Kalyanamandapam (in short RTK ), located in Dr.Radhakrishnan Salai, Chennai, and Mena Kalyanamandapam (in short Mena ), located at Kumaran Colony Main Road, Vadapalani, Chennai. The assessee was also running a Health Centre at AVM Charities Health Centre at Vadapalani. Apart from this, the assessee had given a property of 5 acres with building located at Valasarawakkam, Chennai, to a Trust called AVM Rajeswari Educational Trust, from which, the latter run a School called Avichi. The assessee had let out one other building at P.S. Sivaswamy Road, Chennai, to AVM Medical and ENT Research Foundation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of assessment proceedings, the AO noticed that the assessee Trust has allowed benefit to the interested persons referred to u/s. 13(2) of the Act, by letting out land building for the use of persons during the previous year without charging adequate rent or other compensation and thereby, violates provisions of Sec. 13(1)(c) of the Act. Therefore, called upon the assessee to explain as to why the benefit of exemption u/s. 11 of the Act, cannot be denied for AYs 2012-13 to 2018-19. The AO had also called upon the assessee Trust to explain as to why difference between the rental income offered by the assessee Trust towards letting out properties to M/s.CFD and rental income received by M/s.CFD from three tenants as income of the assessee Trust. The AO had also called upon the assessee to explain as to why depreciation on fixed assets claimed as application of income u/s. 11(1)(a) of the Act, cannot be disallowed, because, the assessee Trust has claimed cost of asset purchased as application of income in the year of purchase. 6. In response, the assessee submitted that denial of exemption u/s. 11 of the Act, is incorrect, because, the ITAT has already held in earlier round of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O had also disallowed depreciation on fixed assets claimed as application of income u/s. 11(1)(a) of the Act, on the ground that expenditure incurred for acquisition of capital assets was treated as application of income for charitable purpose u/s. 11(1)(a) of the Act, and thus, further allowing depreciation on said asset amounts to double deduction. The AO had also made additions towards difference between the rental income offered by the assessee Trust and rental income received by the partnership firm, M/s.CFD, as income of the assessee Trust for AYs 2012-13 to 2018-19. 8. Being aggrieved by the assessment orders, the assessee preferred appeals before the Ld.CIT(A). The assessee has challenged re-opening of assessment for AYs 2012-13 to 2016-17 on the ground that re-opening of assessment has been carried out on the basis of change of opinion without there being any fresh tangible material which suggest escapement of income. The assessee had also challenged re-assessment on the ground that the assessment has been re-opened after a period of four years from the end of relevant assessment years, and further, the original assessments have been completed u/s. 143(3) of the Act, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Trust violates provisions of Sec. 13(1)(c) of the Act, then, the benefit of exemption u/s. 11 of the Act, cannot be allowed. The Ld.CIT(A) discussed the issue at length in light of discussion of the ITAT in the assessee own case along with certain judicial precedents and held that although, the ITAT has held that the objects of the Trust are charitable in nature and further, running of Kalyanamandapam is incidental to the attainment of main objects and is covered by u/s. 11(4) of the Act, but facts are that the Trust violates provisions of Sec. 13(1)(c) of the Act, and thus, the benefit of exemption u/s. 11 of the Act, cannot be allowed. Therefore, the CIT(A) upheld the findings of the Assessing Officer for denial of exemption u/s. 11 of the Act. The Ld.CIT(A) had also upheld the additions made by the AO towards difference in rental income received by the assessee Trust from the partnership firm, M/s.CFD, and rental income received by M/s.CFD, from three tenants on the ground that the facts gathered during the course of survey clearly shows that the assessee has under stated rental income towards letting out of properties and thus, the AO has rightly made additions towards di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O is verbatim reproduction for all assessment years and the AO has computed under assessment or escapement of income from the return of income filed by the assessee towards rental income received by the assessee Trust from M/s.CFD and rental income received by the partnership firm. From the above, it is undisputedly clear that the reopening of assessment is contrary to provisions of Sec. 147 of the Act, because, the assessments have been re-opened after four years from the end of relevant assessment years without any allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Therefore, he submitted that the re-opening of assessments for AYs 2012-13 to 2016-17 should be quashed. 12. The Ld.DR, Shri V. Nandakumar, CIT, on the other hand, supporting the order of the Ld.CIT(A) submitted that the assessee has not made full and true disclosure of income derived from property let out to partnership firm, M/s.CFD, where the trustees of the Trust are partners. This fact has been noticed during the course of survey conducted u/s. 133A of the Act, where the Department has gathered information and as per said information, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e chargeable to tax in the case of the assessee has escaped assessment for any assessment year, the AO may subject to the provisions of Secs. 148 to 153, assess or re-assess such income or re-compute the loss or the depreciation allowance for such assessment year. Proviso provided to Sec. 147 of the Act deals with re-opening of assessment, in a case, where the assessment has been completed u/s. 143(3) of the Act, and as per said proviso, where the assessment under sub-sec.(3) of Sec. 143 of this section has been made for relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by the reason of failure on the part of the assessee to make a return u/s. 139 of the Act or to disclose fully and truly all material facts necessary for his assessment for that assessment years. From the combined reading of provisions of Sec. 147 of the Act and proviso provided therein, it is undoubtedly clear that in case of original assessment was made u/s 143(3) of the Act, the assessments cannot be reopened after four years from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 148, read with sections 147 and 153, of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for - Assessment years 1988-89 to 1990-91 - Petitioner-foreign company was engaged in business of oil exploration and providing expertise and assistance in said field - Proceeds from manning and management contracts received by petitioner were originally assessed in February, 1991 under section 143(3) treating same as business income in terms of section 44BB - However, following Tribunal's decision rendered in case of petitioner's expatriate employee, Assessing Officer issued a notice under section 148 in November, 1998 seeking to reassess same income as fees for technical services - Whether law prevailing on date of issue of impugned notice would apply to instant case, and since new section 147 had come into force with effect from 1-4-1989, provisions of that section were applicable - Held, yes - Whether since admittedly there was no failure on part of petitioner to make return or to disclose fully and truly all material facts necessary for assessment, proviso to new section, which bars issue of notice under section 148 after expiry of four years from end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an order of assessment and it does not relate to issuing of notice under section 147/148. Moreover, this was not a case where reassessment was sought to be made in consequence of, or to give effect to, any finding or direction contained in the order of the Tribunal in Boudier Christian's case. As already stated above, Boudier Christian's case related to the employees of the company, whereas the impugned notice had been issued to the company. Hence, it could not be said that the proposed reassessment in consequence of the impugned notice would be in consequence of, or to give effect to, any findings of the Tribunal in Boudier Christian's case. A direction or finding as contemplated by section 153(3)(ii) must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in relevance to a particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3)(ii), it must be an express direction necessary for the disposal of the case before the authority or court. The case of an expatriate employee was to be decided on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleted u/s. 143(1) of the Act. The proviso to Sec. 147 of the Act, does not apply in so far as the assessments have been completed u/s. 143(1) of the Act. Therefore, the arguments of the assessee that provisions of Sec. 147 of the Act applies and unless there is an allegation on the part of the assessee to disclose fully and truly all material facts necessary for assessment, the assessments cannot be re-opened, is illogical and devoid of merits. Further, the assessments have been re-opened for these two assessment years on the basis of fresh tangible material which suggest escapement of income on account of under assessment rental income and said escapement of income was noticed during the course of survey conducted u/s. 133 of the Act. In our considered view, new tangible materials found during the course of survey constitute a fresh material and as per said material, there is escapement of income. The AO has formed reasonable belief of escapement of income and thus, in our considered view, re-opening of assessments for AYs 2015-16 2016-17 are valid in accordance with law and thus, we reject the arguments of the assessee and also reject grounds taken by the assessee challenging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llegation that there is a violation of provisions of Sec. 13(1)(c) of the Act, in so far as let out of properties to a partnership firm, in which, the trustees are partners. Therefore, he submitted that the AO and the Ld.CIT(A) are erred in denying exemption u/s. 11 of the Act, and thus, argued that the benefit of exemption u/s. 11 of the Act, should be allowed as claimed by the assessee. 20. The Ld.DR, Shri V.Nandakumar, CIT, submitted that although, the Tribunal has considered the issue of exemption u/s. 11 of the Act, and held that income derived by the Trust from running Kalyanamandapam is incidental to attainment of main objects, but as per facts and circumstances of the case, the AO has given clear finding that the assessee Trust is not eligible for exemption u/s. 11 of the Act. Further, after the decision of the Hon ble Supreme Court in the case of ACIT v. Ahmadabad Urban Development Authority reported in [2022] 449 ITR 1 (SC), the law has been changed in so far as the GPU trusts are concerned. The Ld.DR further submitted that as per the decision of the Hon ble Supreme Court, there is a difference between running of a business as a property held under Trust and running of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more particularly in the field of medical relief. Further, this issue has already been settled by the Coordinate bench in assessee own case in the earlier round of litigation in ITA No.277 to 286/Chny/2018 order dated 02-01-2019. The ITAT after considering the main objects of the Trust, the activities carried out for relevant assessment year and also the income derived from running of Kalyanamandapam has held that the activity of running Kalyanamandapam is property held under Trust and rental income received by the assessee from Kalyanamandapam that which was in the nature of income from business, but such income was derived from property held under Trust. The Tribunal further held that such business of running a Kalyanamandapam is incidental to attainment of main objects and the assessee Trust can take advantage of sub-section (4) to Sec. 11 of the Act. The Tribunal further held that the audited accounts filed along with its return clearly shows separate income and expenditure for each of the activities including Kalyanamandapam and thus, sub-sec 4A is not applicable to the assessee once its business is considered as incidental to the attainment of its main objects. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. Section 11(4A) of the Act:- Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business . Ld.CIT(Appeals) was of the opinion that Kalyanamandapam having being built by the assessee subsequent to its formation in the year 1959, could not be considered as property under trust. Ld. Authorised Representative, during the course of his arguments has stated that the land in which Kalyanamandapam were built was part of the original settlement and the building were built therein by the assessee from its income. Be that as it may, there is no dispute that the land and building was owned by the assessee society, whether it was part of original settlement or not. In our opinion, once income of a trust is used by it to acquire a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of the Society or in Its Interest to derive benefits from Its assets consistently always with the charitable nature of the Society's objects. iv to open current. demand deposit, fixed deposit and other accounts with any Scheduled Bank and operate same; v. to receive gifts, donations, contributions, subscriptions, whether In cash or in kind. vi. To do, subject always to the provisions of the Societies Registration Act, 1860 and to the Rules and Regulations of this Society, all such other or further acts and things as shall or may be conducive or incidental to the attainment of charitable objects for which this society is formed . By virtue of clause (d) above, assessee can purchase, build and let out properties for its other purposes. The purpose mentioned in clause (a) clearly indicate promotion of any object which was wholly and solely charitable in nature. No doubt ld. Commissioner of Income Tax (Appeals) had mentioned this to be a very wide expressions, disentitling it from claiming exemption u/s. 11 of the Act. It is true that clause (a) is of a wide amplitude. However what we need to remember is that the assessee was having registration u/s. 12A of the Act since 11.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that donations given were all to organization engaged in either education or medical relief, which were having registration under Section 80G of the Act was not rebutted by the Revenue. No doubt, ld. Departmental Representative has raised an argument that such donations can at best be treated as donation given by an individual for which benefit to the extent given under Section 80G alone could be claimed. However, a reading of Section 11(1) of the Act clearly show that, types of income mentioned in clauses (a) to (d) therein have to be excluded while computing the total income of a person in receipt of such income. Exclusion is available to any person irrespective of status. Viz whether an individual, HUF, AOP, firm or company. Vide clause (a), income which is applied for charitable purpose or religious purpose is necessarily to be excluded Donations given to a trust having 12A registration which is pursuing an object of medical relief, education or relief to poor, is in our opinion equivalent to using the money for such purpose. Intention remains the same. No doubt, ld. Commissioner of Income Tax (Appeals) has observed that assessee could not produce evidence for the charity done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer authorities are set aside and the ld. Assessing Officer is directed to give assessee the exemption claimed by it u/s. 11(1) of the Act for the impugned assessment years. 22 . In this view of the matter and by respectfully following the decision of the co-ordinate bench in assessee own case for AYs 1997-98 to 2014- 15, we are of the considered view that the assessee objects and activity of running Kalyanamandapam is incidental to the attainment of main objects, and is covered by provisions of Sec. 11(4) of the Act. Since, the assessee Trust is maintaining separate books of accounts for the activity of running of Kalyanamandapam and said activity is in the nature of attainment of main objects, in our considered view, provisions of Sec. 11(4A) of the Act, is not applicable to the assessee, and thus, the AO and the Ld.CIT(A) erred in rejecting exemption u/s. 11 of the Act. Thus, we reversed the findings of the Ld.CIT(A) on this issue and direct the AO to allow the benefit of exemption u/s. 11 of the Act, to the assessee for the AY 2012-13 to 2018-19. 23. The next issue that came up for our consideration from Ground Nos.10-11 of the assessee appeal for all assessment years is additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t machinery and said property has been used as Preview Theatre up to August, 1994. Thereafter, the property has been, once again, renovated with structural changes and let out to three tenants on monthly rent. Further, what was let-out by the assessee to the firm is a different property and what was let-out by the partnership firm is a different property. Therefore, the AO cannot compare rental income derived by the partnership firm from subletting of property and rental income received by the assessee from letting out of the property, because, the partnership firm has re-build the property to make it suitable for letting out for commercial purpose. The Ld.Counsel for the assessee referring to agreement between the parties and agreement between the partnership firm and three tenants submitted that the assessee has spent huge amount for re-building and renovating the building and for this purpose, filed relevant financial statements of partnership firm. Therefore, he submitted that the AO and the Ld.CIT(A) are erred in making addition towards difference between rental income in the hands of the assessee. 25. The Ld.DR, Shri V.Nandakumar, CIT, on the other hand, submitted that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property let-out and rent received by the partnership firm from three tenants is a different property and same cannot be compared. The assessee further contended that rent received by the Trust from the partnership firm is in consonance with prevailing market rate and further, it is comparable with Fair Market rent fixed by municipal authorities for fixation of municipal taxes. 27 . In this factual back ground, if you consider the reasons given by the AO to assess difference between rental income received by the assessee Trust from M/s CFD, partnership firm and the rental income received by the firm from three tenants, we do not subscribe with the reasons given by the AO for the simple reason that, what was let-out by the assessee to the partnership firm is a different property and what was let-out by the partnership firm to three different tenants is a different property. No doubt, there is a huge difference between rent received by the assessee from the partnership firm and rent received by the partnership firm from the three tenants, but that alone is not a reason for the AO to disbelieve the arrangement between the parties and agreement for letting out the premise. In our con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement is altogether different when compared to schedule of the property as per agreement between the assessee and the partnership firm. Further, the assessee has also filed financial statement of partnership firm to prove that the firm has spent huge amount for re-construction/renovating the building from time to time since 1975 onwards and if you consider the amount of money spent by the partnership firm to make the schedule of property for let out, in our considered view, the rent received by the partnership firm from three tenants is commensurate with what was let-out by the partnership firm. Further, the assessee has also filed relevant evidences to prove that the prevailing market rate of rent for all these assessment years is comparable with Fair Market Value of the property as per municipal authorities, where the municipal authorities have determined the Fair Market Value of the property for the purpose of municipal taxes which is lesser than the amount of rent received by the assessee from the partnership firm. Further, it was not the case of the AO that the prevailing market rate of rent for similar kind of property for these assessment years is higher than the rent re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said fixed assets amounts to double deduction, which is not permissible under law. It was the arguments of the Ld.Counsel for the assessee that this issue is covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of CIT v. Rajasthan Gujarati Charitable Foundation, Poona, reported in [2018] 89 taxmann.com 127 (SC), where it has been held that depreciation on fixed assets has to be allowed as application of income, even though, the cost of acquisition/purchase of fixed assets has been allowed as application of income for earlier assessment years. It was further submitted that up to AY 2014-15, this issue is covered in favour of the assessee by the above decision, but from the AY 2015-16, the law has been amended to provisions of Sec. 11(6) vide Finance Act, 2014 and as per said provisions, depreciation on fixed assets, cannot be claimed as application of income, once, the cost of said fixed assets has been allowed as application of income in the year of purchase. 30. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The issue of allowing deduction towards depreciation on fix ..... X X X X Extracts X X X X X X X X Extracts X X X X
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