IN THE ITAT DELHI BENCH ‘G’
Sera Foundation
versus
Income-tax Officer (Exemption), Trust Ward – I
IT APPEAL NOs. 1854 & 2697 (DELHI) OF 2011 and 1327 (delhi) of 2012
[ASSESSMENT YEARs 2006-07 and 2007-08]
OCTOBER 12, 2012
ORDER
S.V. Mehrotra, Accountant Member
This appeal filed on 19-04-2012 by the assessee is against the order dated 15-03-2011 of the Ld. CIT(A), New Delhi for AY 2006-07.
2. The assessee is a charitable institution formed under the Societies Registration Act, 1860 vide its Memorandum of Association dated 08.08.1966. The assessee trust is registered u/s 12A of the Income Tax Act, 1961 vide order no. DIT(E)/12A/2005-06/S-657628 dated 09.08.2006. The trust is also a notified trust u/s 80G of the Income Tax Act, 1961 vide order no. DIT(E)/2005-06/S-65/1052 dated 09.08.2006 valid for the period 03.05.2006 to 31.03.2008. The assessee trust had filed its return of income for AY 2006-07 declaring NIL income. The Assessing Officer noticed that the assessee had received shares of Mawana Sugar Ltd. and Siel Ltd. through Enterprise Trust and the same had been transferred to assessee towards his corpus fund. The Enterprise Trust had donated 1147110 equity shares of Mawana Sugar Ltd. and 201500 equity shares of Siel Ltd. on 13.04.2005. The Assessing Officer noted that the market value of equity shares of Mawana Sugar Ltd. on the date of transfer was Rs.68.40 per share and pf Siel Ltd. was at Rs. 31/- per share. The total value of these shares aggregated to Rs. 8,47,08,824/-.
3. The assessee had taken the shares at Rs. NIL in the balance sheet because the shares had been received as corpus donation. The Assessing Officer further noticed that the assessee had sold 308500 equity shares of Mawana Sugar Ltd. and 9837 equity shares of Siel Ltd for which the trust had received a sum of Rs. 3,65,36,184/- and the amount so received was credited to balance sheet as corpus fund. The Assessing Officer issued following show cause notice dated 16.12.2008 :-
“You have received shares from Mawana Sugar Ltd., Siel Ltd. as corpus donation. Please furnish the market value of shares on the date of donation received along with evidence to justify such value”.
As per section 2(24) of the Income Tax Act, 1961, any voluntary donation received by a Charitable or Religious Institution or Trust is an income. Please show cause why the market value of shares should not be treated as income in this year and assessed accordingly.
You have claimed shares to have been received as corpus donation. In view of violation of section 11 & 13(1)(d), your income is not exempt. Under these circumstances, please explain why donation of shares should be treated as corpus donation under section 11(1)(d) of the Income Tax Act, 1961.”
4. After considering the assessee’s submission, the Assessing Officer observed as under :-
“When the assessee received shares of the above companies it was treated by trust as corpus with specific direction at nil value, but at the same time when the same are sold the assessee credited corpus fund account and out of that corpus fund further donation was given to other charitable trust. Thus the assessee has misused the corpus fund by virtue of misapplication of corpus fund to give donation to other charitable trust.
In spite of repeated request vide order sheet entry dated 10.12.2008, 16.12.2008 & 26.12.2008 the assessee had not produced the minutes of book in original to prove that whether the above amount is general donation or corpus fund.”
5. The Assessing Officer made an addition of Rs. 8,47,08,824/-, treating the corpus donation as general donation in the current year for the following reasons:-
(i) The assessee was given registration u/s 12A subject to following additions :-
“(a) Accordingly registration u/s 12A r.w.s 12AA is hereby granted with effect from 03.05.2006 subject to the satisfaction of the following conditions and entered at S.No. 628 of the register maintained in this office.”
The one of the conditions vide item No. (vii) is reproduced as under :-
“No asset shall be transferred without the knowledge of the undersigned to anyone, including to any trust/society/non-profit company.”
Since the assessee had sold shares in current year and in 2007-08 without the permission of DIT(Exemption), therefore, he treated the entire market value of shares as assessee’s income.
(ii) In AY 2008-09, the assessee had further claimed donation out of corpus of Rs. 1,50,36,000/-. He pointed out that assessee had received corpus for specific purpose, therefore, it could not utilize same for further donation. Therefore, he denied assessee’s claim of deduction u/s 11(1)(d).
(iii) The assessee had misused the funds by giving a colourful device to avoid the tax.
(iv) The assessee cannot be allowed the credit of donation made against this corpus donation.
(v) The Assessing Officer relied on the decision of Hon’ble Supreme Court in the case of McDowell & Co. Ltd. v. Commercial Tax Officer 154 ITR 148 (SC) [1985].
6. Before the Ld. CIT(A), it was, inter alia, submitted that in the year under consideration, the assessee’s foundation in-compliance to proviso (iia) to section 13(1)(d) of the Income Tax Act, 1961, sold 308500 shares of Mawana Sugar Ltd. and 9837 shares of Siel Limited and sales consideration had been transferred to the corpus fund. Remaining shares were sold during the next financial year and the consideration was credited to the corpus fund. It was further submitted that copy of the minute book of Enterprise Ltd. and Shera Foundation (assessee) were produced/submitted before the Assessing Officer as evidence to the effect that contributions received in the form of shares was towards to the corpus of the assessee foundation vide letters dated 05.11.2008 and 26.12.2008. It was further submitted that Assessing Officer had also relied on certain facts of subsequent years which could not be taken into consideration in order to determine the taxable income for the year under appeal. It was further stated that making of further donations to other charitable society is also in furtherance to the object of the assessee society and, therefore, it could not result in violation of any of the provisions of the Income Tax Act.
7. It was also brought to the notice of ld. CIT(A) that when proceedings for this assessment were going on before the Assessing Officer, proceedings were also going on before the Director of Income Tax (Exemption) in connection with approval/renewal of approval u/s 80G of the Act. The DIT(Exemption) had also raised queries specifically regarding the donation made to other charitable institutions towards corpus or scholarship funds etc. for the reason that the DIT(Exemption) was considering the activities of the assessee upto the date when he was granting the approval. The assessee trust had duly explained the position to DIT(E) in regard to each of the donation made by it. After considering full facts and circumstances and the donation made by it to other charitable societies, approval was granted u/s 80G of the Act by DIT(E) vide his order dated 06.03.2009. Copy of letter received from the office of DIT(E) had also been submitted in order to demonstrate out that the same issue had been raised by the DIT(E) also in connection with the approval u/s 80G of the Act. Thus, it was contended that since DIT(E) had also considered validity of donations made by trust to other charitable institutions, the Assessing Officer was not correct in taking adverse view in the order of assessment on the basis of donation made by it in subsequent years. The assessee had also relied upon certain case laws to the effect that donation could be made by a trust to corpus of other trust and such donation could be made out of its corpus also. As regards, observations made by the Assessing Officer to the effect that the approval of DIT(E) had not been taken for the disposal of the shares, it was submitted that since the shares had to be disposed off in terms of specific provisions of section 13(1)(d) of the Act, there was no question seeking approval as provided in the approval letter of DIT(E).
8. Further, it was submitted that object and the purpose of the condition provided in the registration certificate was that the trust should not divert its assets for non-charitable purposes without knowledge of DIT(E). The assessee further submitted that if this condition was taken to mean that no asset or fund could be given to anybody then it would imply that even genuine activities cannot be carried out by a charitable institutions by utilizing its corpus.
9. Before ld. CIT(A), the assessee had also taken an alternate ground regarding allowbility of statutory deduction of 15% in determination of taxable income.
10. Ld. CIT(A) while partly allowing the assessee’s appeal, upheld the AO’s order in making addition of Rs. 8,47,08,824/- and also denied the assessee’s claim of accumulation of 15% of income observing that since the AO had denied the claim of registration u/s 12A of the Income Tax Act, the assessee’s claim of section 11 does not stand.
11. Being aggrieved with the order of ld. CIT(A), the assessee is in appeal before us and has taken following grounds of appeal :-
1. That the CIT(A) erred in upholding the order of the Assessing Officer including amount of Rs. 8,47,08,824/- in the taxable income, being the value of shares received by the appellant as corpus donation on the ground that the appellant had violated provisions of Section 11 read with Section 13(1)(d) of the without appreciating the contentions of the appellant, particularly that observation of the Assessing Officer were vague and no specific violation was pointed out by him and the appellant had fully complied with the provisions of the Act and accordingly, it was entitled for exemption under section 11(1)(d) of the Act in respect of sale proceeds of shares received towards corpus.
2. That the CIT(A) erred in upholding the observation of the Assessing Officer that appellant had received shares towards corpus for specific purpose and the appellant could not utilized the same for contribution to other charitable trust ignoring the contention of the appellant and documents on record that there was no direction of the donor to utilize the contribution for a specific purpose and therefore, the appellant could utilize the fund for giving donation towards corpus of other charitable institution, which is also part of charitable activity as per accepted legal position, even in the case of appellant in earlier years vide decision of Hon’ble Delhi High Court reported in 269 ITR 35.
3. That the CIT(A) erred in not discussing and considering the facts and contentions of the appellant made before him and particularly, the contention that the appellant had fully complied with the provisions of law and the order passed by the Assessing Officer denying exemption u/s 11(1)(d) on the basis of utilization of funds for making donations to other charitable institutions in subsequent years was illegal, incorrect, unjustified, unreasonable and unwarranted.
4. That the CIT(A) also erred in not appreciating that Director of Income Tax (Exemption) had already considered the facts of the case of the Appellant during the course of proceedings for approval under section 80G of the Act and approval under section 80G had been duly granted vide letter dated 06.03.2009, thereby accepting full compliance of law by the Appellant and therefore, the order of the Assessing Officer dated 30.12.2008 taking a view that the Appellant had violated provisions of Income Tax Act could not be sustained.
5. That the CIT(A) erred in not even allowing statutory deduction of 15% of the amount of income determined by A.O, which is available under section 11 of the Act by wrongly observing that the A.O had denied the claim of registration u/s 12A of the Act without appreciating that A.O has no power to withdraw registration granted u/s 12A of the Act by the DIT(E).
6. That the CIT(A) also erred in not disposing Ground (f) of grounds of appeal before him regarding providing opportunity by A.O to the appellant for applying the income determined by Assessing Officer which ought to have been allowed by him in view of his holding to the effect that contribution received by the Foundation was in the nature of general contribution instead of contribution towards corpus.
7. That the CIT(A) also erred in upholding initiation of penalty proceedings u/s 271(1)(c) of the Income Tax Act in the case of the Appellant stating the same is premature.
8. The appellant company craves leave to alter, amend, vary and/cr add any of the grounds of appeal at any time hereinafter.
12. Ld. Counsel for the assessee reiterated the submissions made before lower revenue authorities. Ld. Counsel referred to page 60 of paper book wherein the Minutes of Board of Trustees meeting of Enterprise Trust held on 13.04.2005, are contained, to demonstrate that equity shares held by the Enterprise trust as investments were gifted to Shriram Memorial Foundation (SMF), the assessee for its corpus as under :-
