Case Law Details
A.P. Vulnerability Reduction Fund Trust Vs ADIT (Telangana High Court)
The Telangana High Court allowed the appeal filed under Section 260A of the Income Tax Act, 1961, challenging the Income Tax Appellate Tribunal’s order dated 23.07.2012, which had reversed the Commissioner of Income Tax (Appeals)’ decision and denied the appellant exemption under Section 11 of the Act.
The appellant, A.P. Vulnerability Reduction Fund Trust, was formed by the Government of Andhra Pradesh under the Indian Trust Act, 1882 on 27.11.1997. It was established to protect vulnerable coastal areas, human and animal life, and public and private property from natural calamities such as cyclones and floods. The Trust was registered under Section 12AA of the Income Tax Act. Its corpus consisted entirely of contributions from the State Government, and the Disaster Management Unit of the State functioned as its secretariat. Under the Trust Deed, interest income could be used as matching grants to achieve the Trust’s objects, which included disaster mitigation, disaster preparedness, early warning capabilities, and development and maintenance of related infrastructure. The interest income generated from fixed deposits was utilized for programmes, projects and schemes intended to minimise the adverse impact of disasters.
For Assessment Year 2004-05, the appellant claimed exemption under Section 11 in respect of interest earned on fixed deposits, stating that the income had been accumulated under Section 11(2). During assessment proceedings, the appellant informed the Assessing Officer that it had granted ₹3,05,00,860 in July 2003 for purchasing high-end computing equipment and accessories for the Andhra Pradesh Hazard Mitigation and Emergency Cyclone Recovery Project. The Assessing Officer rejected the claim, denied exemption under Section 11, subjected the entire interest income to tax, and raised a tax demand of ₹79,23,878 through the assessment order dated 29.12.2006. The Commissioner of Income Tax (Appeals), by order dated 28.01.2011, reversed the assessment order and held that the appellant was entitled to exemption under Section 11. The Tribunal subsequently allowed the Department’s appeal on 23.07.2012, reversing the Commissioner (Appeals)’ order and holding that the appellant was not entitled to exemption under Section 11.
Before the High Court, the appellant contended that the Tribunal failed to appreciate the aims, objectives and activities of the Trust, which were directed towards protecting vulnerable coastal areas and human and animal life from natural disasters. It argued that its activities fell within the definition of charitable purpose under the Act and that Clause (5) of the Trust Deed permitted the use of interest income to achieve its objects. The appellant further submitted that non-recording of purchases in the books of account could not by itself justify an adverse inference regarding utilisation of funds. It also relied on the previous assessment year, in which similar exemption under Section 11 had been granted.
The Department argued that the assessee had failed to explain why purchases of computer equipment from M/s. Silicon Graphics were not reflected in the books of account or balance sheet. It contended that the Tribunal had rightly reversed the Commissioner (Appeals)’ findings and that the appeal deserved rejection.
After considering the record, the High Court noted several undisputed facts. It observed that the Trust had been constituted by the Government of Andhra Pradesh with a specific object, all its representatives were from the State Government, its objectives related to protecting the coastline and habitats from natural disasters, its activities fell within the definition of charitable purpose under the Act, and its entire corpus was contributed by the Government. The Court further noted that there was no dispute regarding the purchase of high-end computing equipment and accessories worth ₹3,05,00,680 for the Andhra Pradesh Hazard Mitigation and Emergency Cyclone Recovery Project and that these purchases were intended to strengthen disaster warning and dissemination systems. The Court also noted that, for Assessment Year 2003-04, both the Commissioner (Appeals) and the Tribunal had accepted the appellant’s claim for exemption under Section 11 on a similar issue.
The High Court further observed that the appellant had produced bank certificates showing transfer of funds for issuance of a Letter of Credit in favour of M/s. Silicon Graphics Pvt. Ltd. It also noted that the Tribunal had recorded that the invoices were in the name of the Government of Andhra Pradesh Disaster Management and that the purchases had been made for the Andhra Pradesh Hazard Mitigation and Emergency Cyclone Recovery Project.
The Court found that the Tribunal had failed to appreciate that the Trust carried out its activities directly in collaboration with the Andhra Pradesh Hazard Mitigation and Emergency Cyclone Recovery Project and the State Disaster Management Unit. It further observed that there was no finding by the Department that Trust funds had been misappropriated, misused or siphoned away. According to the Court, in the absence of any categorical finding of misuse or misappropriation of funds, the mere fact that purchases were not reflected in the books of account or balance sheet was insufficient to conclude that the Trust had violated Section 13. It held that, in the absence of prima facie strong material establishing violation or non-compliance with Section 13, there was no cogent material to deny exemption under Section 11.
The Court also relied on the fact that, for the immediately preceding Assessment Year 2003-04, the same Tribunal had upheld the Commissioner (Appeals)’ order granting the appellant exemption under Section 11 in ITA No.283 of 2007.
Accordingly, the High Court allowed the appeal, set aside the Tribunal’s order dated 23.07.2012 in I.T.A. No.1138/Hyd/2011, confirmed the Commissioner of Income Tax (Appeals)’ order dated 28.01.2011, and ordered that the appeal stood allowed without costs. Pending miscellaneous petitions, if any, were directed to stand closed.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
The instant appeal has been filed by the appellant under Section 260A of the Income Tax Act, 1961 challenging the order dated 23.07.2012 in I.T.A.No.1138/Hyd/2011 passed by the Income-Tax Appellate Tribunal, Bench ‘A’, Hyderabad, (for short, ‘the impugned order’).
2. Heard Mr. C.V. Narasimham, learned counsel for the appellant, and Sri Vijhay K. Punna, learned Senior Standing Counsel for the Income Tax Department, for the respondent.
3. Vide the impugned order, the Tribunal had allowed the appeal preferred by respondent and reversed the order passed by the Commissioner of Income Tax (Appeals).
4. The Tribunal in the course of passing the impugned order had reversed the finding given by the Commissioner of Income Tax (Appeals) so far as provision of Section 13 of the Income Tax Act, 1961 (for short, ‘the Act’) being violative and also insofar as the appellant being entitled for exemption under Section 11 of the Act.
5. The appellant, viz., A.P. Vulnerability Reduction Fund Trust, was formed by the Government of Andhra Pradesh in accordance with provisions of the Indian Trust Act, 1882 on 27.11.1997 with Registration No.33/1998. The Trust was established to provide protection to the vulnerable areas of the State coastline, human and animal life, public and private property as against ravages of nature including cyclones, floods, etc. Since the purpose and object of the Trust being charitable it was also registered under the provisions of Section 12AA of the Act. The entire corpus of the appellant is one which is contributed by the State Government of Andhra Pradesh. The Disaster Management Unit of the State acts as a secretariat for the appellant as per Clause (iv)(6) of the Trust Deed. The administration of the funds as per Clause 7(d) of the Trust Deed is done by the Committee constituted by the Trust. As per clause (5) of the Trust Deed, the interest income of the funds can be used as matching grant to achieve the objects of the trust. The activities taken up by the appellant are mainly to evolve a long-term policy for hazard reduction, to formulate a long term disaster mitigation strategy, to enhance the disaster preparedness, to develop early warning capabilities at state level and further to create, maintain and upgrade the necessary infrastructural facilities accordingly. The income that is generated from the interest is utilized to undertake programmes, projects and schemes in order to meet the objects and activities carried out by the appellant so as to minimize the adverse impact in the event of any disaster. One of the major requirements for minimizing of adverse impact in the event of a disaster is by building a strong reliable and accurate warning dissemination system.
6. For the Assessment Year 2004-05, the appellant claimed exemption under Section 11 of the Act on the income earned as interest on fixed deposits as the income was accumulated as per Section 11(2) of the Act. The Assessing Officer initiated the assessment proceedings wherein the appellant informed the Assessing Officer of having granted Rs.3,05,00,860/- in July, 2003 for the purpose of purchasing high-end computing equipment and accessories by which collection, storage and analyzing, using and disseminating data relevant for the Andhra Pradesh Hazard Mitigation & Emergency Cyclone Recovery project. However, the Assessing Officer did not accept the same and doubted the contention of the appellant in the course of passing the Assessment Order dated 29.12.2006 and subjecting the entire interest income to tax by denying the exemption under Section 11 of the Act and raised a tax demand of Rs.79,23,878/-. Thereafter, the order passed by the Assessing Officer dated 29.12.2006 was subjected to challenge before the Commissioner of Appeals who reversed the order of the Assessing Officer by allowing the appeal vide order dated 28.01.2011 holding that appellant be entitled for exemption under Section 11 of the Act. The order passed by the Commissioner of Appeals dated 28.01.2011 was subjected to challenge before the I.T.A.T. vide ITA.No.1138/HYD/2011, which stood allowed in favour of respondent vide the impugned order dated 23.07.2012 by reversing the order passed by the Commissioner of Appeals by holding that the appellant herein is not entitled for exemption under Section 11 of the Act.
7. Aggrieved, the instant appeal has been filed by the appellant.
8. Learned counsel for the appellant contended that the Tribunal failed to appreciate the aims, objectives and activities of the appellant in the course of deciding the appeal. It was also the contention of the learned counsel for the appellant that the Tribunal having lost sight of the fact that the activities undertaken by the appellant was for ensuring protection of the vulnerable areas in the State coastline so also the human and animal life in those areas by giving protection against ravages of nature like cyclones, floods, etc. According to him, the Tribunal failed to take note of the fact that the nature of activities undertaken by the appellant was duly covered under the charitable purpose as defined under the Income Tax Act itself. Likewise, it was also the contention of the learned counsel for the appellant that the Tribunal ignored the fact that Clause (5) of the Trust Deed permitted the appellant to use the interest on income as grants to achieve the objects of the appellant. It was also the contention of the learned counsel for the appellant that the Tribunal ought to have appreciated the fact that merely non-entry of the purchases made in the Books of Account cannot by itself be permitted to draw an adverse inference so far as the actual usage of the funds are concerned. According to the appellant, the Tribunal failed to take note of its decision and the previous Assessment Order whereby a similar exemption under Section 11 of the Act was in fact granted to the appellant.
9. Per contra, learned counsel for the respondent, opposing the appeal contended that the order passed by the Assessing Officer and the order passed by the Tribunal, when read in conjunction, would give a clear indication of the shortcomings in the case of appellant which would disentitle him from exemption under Section 11 of the Act. It was the contention of the learned Standing Counsel for the respondent-Department that in the course of the assessment, the assessee-appellant failed to explain as to how the so-called purchases of computer and other equipments made from M/s.Silicon Graphics were not reflected in the Books of Account nor was it reflected in the Balance Sheet; and therefore, contended that the finding arrived at by the Tribunal reversing the finding given by the Commissioner of Appeals cannot be said to be in any manner erroneous or contrary to law and thus prayed for rejection of the appeal by holding that the question of law raised does not have any merit.
10. Having heard the contentions put forth on either side and on a perusal of the records certain undisputed facts which are revealed from the pleadings are, viz.,
a. the appellant herein is a Trust formed under the Indian Trust Act, 1882 by the then Government of Andhra Pradesh with a specific motive and object. The entire representatives of the Trust are from the Government of Andhra Pradesh;
b. there is no dispute so far as the objectives of the Trust was to protect the vulnerability of the State coastline and the human and animal habitat from the ravages of nature like cyclones and floods;
c. the activities undertaken by the appellant squarely falls within the definition of charitable purpose under the Act; and
d. the entire corpus of the appellant-Trust is also contributed by the Government of Andhra Pradesh;
e. There is also no dispute so far as the appellant having purchased high-end computing equipment and accessories for collection, storage, analization, usage and disseminating data relevant for the A.P. Hazard Mitigation and Emergency Cyclone Recovery project. These high-end computing equipments was one of the major equipment which are required in order to minimize the adverse impact of any disaster and it was possible only by completing the strong reliable and accurate warning dissemination system. The purchases made of Rs.3,05,00,680/- in July, 2003 was also for the very same purpose; and
f. similar issue that had arisen in the previous Assessment Year 2003-04 pertaining to the very same appellant was accepted by the respondent-Department and those issues stood decided in favour of appellant both by the Commissioner of Income Tax (Appeals) and also by the Appellate Tribunal. Unlike this time, though the Commissioner of Appeals took a similar stand for this Assessment Year also, the Tribunal altogether took a different stand.
11. In addition to the aforesaid grounds what is also evidently apparent from the materials available on record is that the appellant produced certificates from its bank to show that the money was transferred for issuing Letter of Credit in favour of M/s. Silicon Graphics Pvt. Ltd. The Tribunal also in fact had at one point of time noted that invoices of M/s.Silicon Graphics Pvt. Ltd. were in the name of Government of Andhra Pradesh Disaster Management. The Tribunal also found that the Assessing Officer did find purchase of equipment with M/s.Silicon Graphics Pvt. Ltd. and those purchases were made by the A.P. Hazard Mitigation and Emergency Cyclone Recovery project of the Government of Andhra Pradesh; and it was under this project that the Government had awarded the contract for purchase of high-end computing equipment and other accessories under the aforementioned A.P. Hazard Mitigation and Emergency Cyclone Recovery project.
12. The Tribunal also failed to appreciate the fact that the appellant-Truest was in fact carrying out their activities directly in collaboration with the A.P. Hazard Mitigation and Emergency Cyclone Recovery project and the Disaster Management unit of the State. Another admitted factual position which is reflected is that there does not seem to be any finding arrived at by the respondent-Department that the funds of the Trust have been misappropriated or misused or have been siphoned away by any of the officers of the appellant-Trust. In the absence of a categorical finding of any misuse or misappropriation of funds, except for the fact that purchases so made not being reflected in the Books of Account or in the Balance Sheet, it is difficult to reach to the conclusion that appellant had violated the conditions otherwise stipulated under Section 13 of the Act. In the event of there being no prima facie strong material to show any violation or non-compliance of the provisions of Section 13 of the Act, there does not seem to be any cogent material available to hold that the appellant is not entitled for exemption under Section 11 of the Act.
13. Another aspect which goes strongly in favour of appellant is that the assessment orders for the previous years, more particularly of the immediate preceding year, i.e., Assessment Year 2003-04, wherein the very same Tribunal vide I.T.A.No.283 of 2007 had upheld a similar stand taken by the Commissioner of Income Tax (Appeals) for the Assessment Year 2003-04 by holding that the appellant is entitled for exemption under Section 11 of the Act.
14. For all the aforesaid reasons, this Court is inclined to allow the appeal by setting aside the impugned order passed by the Tribunal in I.T.A.No.1138/Hyd/2011, dated 23.07.2012, and confirming the order passed by the Commissioner of Income Tax (Appeals) in I.T.A.No.649/Tr./CIT(A)/GNT/06-07, dated 28.01.2011.
15. Accordingly, the appeal stands allowed as above. No costs.
16. As a sequel, miscellaneous petitions pending if any, shall stand closed.
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