Sir Dorabji Tata Trust Vs DCIT (ITAT Mumbai)
Conclusion: The investment in Tata Sons by assessee trust was not thus for the purpose of investment in shares, but this shareholding being held by the assessee trust was undisputedly for the purpose of sharing the fruits of the success, of the Tata Group, for the benefit of the general public at large. The investments made by a charitable institution in furtherance of its objects, and the investments being held by a charitable institution, as its core corpus, for the furtherance of its objects were qualitatively very different. Thus, revision by CIT for violating the provisions of section 13(1)(d) was not justified.
Held: Assessee was a public charitable trust registered as a charitable institution under section 12A. It had filed its return of income and its assessment, under section 143(3) was completed determining ‘Nil’ taxable income. Subsequently, CIT (Exemptions) issued a show cause notice requiring assessee to show cause as to why this order not be subjected to revision under section 263. CIT had taken a view that Trusts might have violated the provisions of section 13(1)(d) during the assessment year 2014-15 and AO did not probe the breach adequately. It was held that during the course of the assessment proceedings, AO had sought information on both the points mentioned in the notice u/s. 263. All the information required by AO was submitted during the course of the proceedings. Thus, AO had complete information during assessment proceedings and had applied his mind and therefore the order passed by AO was not erroneous. Further, all the payments made to Trustees were in accordance with the provisions of Trust Deed and the Act, even assuming that it was held that the payment was in contravention of the Act, there would not be eligible for the exemption. Considering that assesseee had already applied more income than was required as per the provisions of the Act and without prejudice been allowed to accumulate the surplus, the assessed income would continue to be at NIL. Consequently, there would be no tax effect and thus, the order of the AO could not be said to be prejudicial to the interest of the revenue. The investment in Tata Sons by the assessee trust was not thus for the purpose of investment in shares, but this shareholding being held by the assessee trust was undisputedly for the purpose of sharing the fruits of the success, of the Tata Group, for the benefit of the general public at large. The investments made by a charitable institution in furtherance of its objects, and the investments being held by a charitable institution, as its core corpus, for the furtherance of its objects were qualitatively very different.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. By way of this appeal, the assessee appellant has challenged the correctness of the order dated 29th March 2019 passed by the learned Commissioner of Income Tax (Exemptions) under section 263 r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), for the assessment year 2014-15.
2. Grievances raised by the appellant, which, being interconnected, will be taken up together, are as follows:
1. On the facts and under the circumstances of the case and in law, the learned Commissioner of Income-tax (Exemptions) [‘CIT(E)’] erred in initiating proceedings under section 263 of the Act against the Appellant
The Appellant prays that the order passed under section 263 of the Act be set aside.
2. On the facts and under the circumstances of the case and in law, the learned CIT(E) erred in holding that the assessment order passed by the Deputy Commissioner of Income-tax (Exemptions) — 2(1) (‘the learned Assessing Officer’) was erroneous as due verification was not undertaken by the learned Assessing Officer.
The Appellant prays that it be held that the assessment order passed was not erroneous since adequate verification had been undertaken by the learned Assessing Officer.
3. On the facts and under the circumstances of the case and in law, even assuming the assessment order was erroneous, the learned CIT(E) erred in exercising jurisdiction under section 263 of the Act by holding the assessment order was prejudicial to the interest of the Revenue without appreciating that there is no tax effect of the proposed directions given by the CIT(E).
The Appellant prays that it be held that assessment order was not prejudicial to the interest of the Revenue since there is no tax effect of the proposed directions / verifications.
4. On the facts and under the circumstances of the case and in law, the learned CIT(E) has erred in directing the learned Assessing Officer to pass a de novo assessment since the learned Assessing Officer had allegedly failed to verify the applicability of section 13(1)(c), 13(1)(d) and 13(2)(h) of the Act.
The Appellant prays that the aforesaid directions of the CIT(E) be held as bad in law and accordingly be quashed.
5. On the facts and under the circumstances of the case and in law, the learned CIT(E) has erred in alleging that the learned Assessing Officer did not enquire whether the payment to Trustees was as per the Trust Deed and reasonable as required under the provisions of the Act.
The Appellant prays that it can be held that adequate verification had been undertaken by the learned Assessing Officer.
3. Briefly stated, the relevant material facts are like this. The assessee before us is a public charitable trust, set up in the year 1932, registered under the Bombay Trusts Act, 1950. The assessee trust is also registered as a charitable institution under section 12A of the Income Tax Act, 1961. The assessee trust had filed its return of income on 30th September 2014, and its assessment, under section 143(3) of the Act, was completed on 30th December 2016 determining ‘Nil’ taxable income. Subsequently, however, learned Commissioner of Income Tax (Exemptions) [hereinafter referred to as ‘the Commissioner’] issued a show cause notice requiring the assessee to show cause as to why this order not be subjected to revision under section 263 of the Act. This show cause notice reads as follows:
2. The assessment of your case was computed u/s. 143(3) on 30.12.2016 at NIL income. The perusal of the records reveal that the assessee in its submission dated 09.12.2016 provided the details of salary, allowances or otherwise to a person referred in section 13(3) for the period AY 2012-13 to 2014-15 in Annexure 10. This is in addition to the fees paid of Rs. 1000/- to each trustee in accordance with the clause 9 of the Trust deed. From the details submitted it was found that the assessee trust reimbursed the expenses to Tata Services Ltd., aggregating to Rs. 2,54,50,119/- during the period from F.Y 2011-12 to 2013-14 which included Rs. 91,11,654/- for the year under consideration, paid by Tata Services Ltd. to Mr. A.N. Singh for the services rendered by him to the trust. It was further found that Mr. A.N Singh was also one of the trustee of the assessee trust. The trust deed available on record in its clause 9 mentions that the trustee shall be entitled to be paid a sum of Rs. 1000/- only. No other details as to why this sum was paid to Mr. A. N Singh is available on record and as per documents available on record, this is in contravention to the provisions of the Act.
3. The Tata Sons Ltd. vide its letter dated 21.12.2016, vide para 3 of the letter, admitted that up to February 11, 2014 , Mr. R. Venkataramanan served as Vice President of the Company and from February 12, 2014 when he was appointed as Executive Trustee of the assessee trust, his entire remuneration has been reimbursed to Tata Sons and born by the trust. The reason for the amount reimbursed by the trust to the Tata Sons Ltd. is also not available on record and it appears that it has not been examined by the A.O.
4. I have examined the records as well as the order passed by the Assessing Officer as discussed above and I am of the opinion that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue and therefore requires revision.
5. In view of the above facts, you are requested to explain as to why order u/s. 263 of the Act should not be passed enhancing or modifying the assessment or cancelling the assessment in your case. In this regard, you are requested to attend in person or through your Authorised Representative before the undersigned and file the written submissions and argue the matter on 10.11.2017 at 11.30 A.M in my office.
4. It appears that this notice was not actually delivered to the assessee. In response to a subsequent notice of hearing issued on the aforesaid show cause notice, the assessee obtained a copy of the aforesaid show cause notice, and, vide letter dated 18th April 2008 in reply thereto, submitted as follows:
We refer to the notice dated 1 March 2018 and the accompanying letter dated 23 October 2017 pertaining to the remuneration of Mr A.N. Singh and Mr R. Venkataramanan which is by the Trust.
In this regard, we humbly submit that proceedings under section 263 should not be invoked (as necessary inquiries and verification have already been carried out by the Assessing Officer). In this regard, we request your goodself to grant us time to enable us to furnish legal submissions on initiation of proceedings under section 263 of the Act Without prejudice to the above, our factual submissions in the matter are as under:
A. Remuneration paid to Mr A.N. Singh
Mr. AN Singh was paid an amount of Rs. 91,11,654/- during the year under consideration. In this regard the following points should be noted:
