Madras High Court
The Assistant Director Of Income Tax ... vs M/S.Aditanar Educational Institution on 5 July, 2022
Author: R. Mahadevan
Bench: R. Mahadevan, Mohammed Shaffiq
T.C.A.Nos.485 to 488 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 05.07.2022
CORAM
THE HON'BLE Mr. JUSTICE R. MAHADEVAN
AND
THE HON'BLE Mr. JUSTICE MOHAMMED SHAFFIQ
T.C.A.Nos.485 to 488 of 2011
The Assistant Director of Income Tax (Exemption)-II
Chennai-34 .. Appellant in all T.C.As
Vs.
M/s.Aditanar Educational Institution
No.86, EVK Sampath Road
Chennai-7 .. Respondent in all T.C.As
Tax Case Appeals filed under Section 260-A of the Income Tax Act,
1961, against the order dated 18.01.2011 passed by the Income Tax Appellate
Tribunal Bench 'D', Chennai, in I.T.A.Nos.1514 to 1517/Mds/08.
For Appellant Mr.J.Narayanaswamy
in all T.C.As Standing Counsel
For Respondent Mr.V.S.Jayakumar
in all T.C.As
https://www.mhc.tn.gov.in/judis
1/9
T.C.A.Nos.485 to 488 of 2011
COMMON JUDGMENT
(Judgment of the court was made by R. MAHADEVAN, J.) These Tax Case Appeals arise from the common order dated 18.01.2011 passed by the Income Tax Appellate Tribunal, Bench 'D', Chennai, in I.T.A.Nos.1514 to 1517/Mds/08, relating to the respective assessment years 1999-2000, 2000-2001, 2001-2002 and 2002-2003.
2. By order dated 09.11.2011, this court admitted the aforesaid tax case appeals on the following substantial questions of law:
“(a)Whether on the facts and circumstances of the case, the Tribunal was right in deciding that the impermissible investments are not made in violation of Section 13(1)(d)(ii) read with Section 11(5) of the Income Tax Act ?
(b)Whether on the facts and circumstances of the case, the Tribunal was right in deciding that no time limit was provided for disinvesting the impermissible investment without considering the proviso to Section 13(1)(d) of the Act ?
(c) Whether on the facts and circumstances of the case, the Tribunal was right in deciding that holding of impermissible investment is not a violation of Section 11(5) of the Act ?"
3. The respondent/assessee is a registered society under Section 12AA of the Income Tax Act, 1961 (in short, "the Act") and running several educational institutions. They were enjoying the benefit of exemption under section 10 (22) till the assessment year 1998-99. Consequent to the amendment of the Act, the https://www.mhc.tn.gov.in/judis 2/9 T.C.A.Nos.485 to 488 of 2011 Society lost exemption and was to avail the benefit either under section 10(23C) or under section 11 from the assessment year 1999-2000. While so, the Assessing Officer passed the assessment orders, for the assessment years under consideration, denying exemption under section 11, on the ground that the assessee made investments in violation of section 13(1)(d) r/w section 11(5). Questioning the correctness of the assessment orders, the assessee took up the matter before the Commissioner of Income Tax (Appeals). By order dated 28.03.2008, the appellate authority allowed the appeals in favour of the assessee, observing that since the income of the trust have been applied solely for educational purposes, the benefit of exemption under section 11 of the Act is certainly available to the assessee. Aggrieved by the same, the Revenue went on appeals before the Income Tax Appellate Tribunal. By order dated 18.01.2011, the Tribunal dismissed the appeals filed by the Revenue. Hence, the present tax case appeals by the Revenue.
4. The learned Standing Counsel appearing for the appellant/Revenue submitted that the assessee did not apply for approval under Section 10(23C)(vi), consequent to the amendment of the Act; they had investments in limited companies, which are not the specified modes permissible under section 11(5) and they did not attempt to convert the https://www.mhc.tn.gov.in/judis 3/9 T.C.A.Nos.485 to 488 of 2011 impermissible investments into permissible investments in all the four previous years; and hence, the assessing officer denied exemption under section 11 for the reason that the investments were made in violation of section 13(1)(d) r/w section 11(5). However, the CIT(A) allowed the exemption to the assessee treating the impermissible investments as not made in violation of section 13(1)(d), which was also erroneously confirmed by the ITAT, by observing that the assessee was hitherto availing exemption under section 10(22) and that, there was no specific legislation providing a time limit for disinvesting the impermissible holdings. Therefore, the learned counsel submitted that these appeals will have to be allowed by setting aside the order of the appellate authorities.
5. On the other hand, the learned counsel appearing for the respondent/assessee contended that till 1998, the assessee was availing exemption under section 10(22), which provision did not impose any restrictions that any of the investments have to be made according to section 11(5) of the Act. The learned counsel further submitted that the investments in shares were made by the assessee long before 1983, when they were claiming exemption under section 10(22) and hence, the provisions of section 11(5) were not applicable, even after grant of Registration under section 12AA, as none of https://www.mhc.tn.gov.in/judis 4/9 T.C.A.Nos.485 to 488 of 2011 the clauses under section 13(1)(d) would have application to the assessee's case. Taking note of these facts, the CIT(A) rightly allowed the exemption, while setting aside the orders of assessment passed by the assessing officer and the said order of the CIT(A) was also confirmed by the Tribunal, by the order impugned herein. Ultimately, the learned counsel filed a memo detailing the shares purchased and sold by the assessee and contended that the assessee did not make any impermissible investments and hence, there is no violation of section 13(1)(d) r/w section 11(5) of the Act as alleged by the Revenue.
6. Heard both sides.
7. On a perusal of the documents enclosed in the typed set of papers, more particularly, the orders passed by the authorities below, it could be seen that the assessee is a registered society and was granted exemption under section 10(22) of the Act, in respect of all the income arising from the educational institutions run by them, upto the assessment year 1998-99. However, for the assessment years in question, viz., 1999-2000, 2000-01, 2001-02 and 2002-03, the assessing officer inter alia denied exemption under section 11, stating that there had been violation of the provisions of section 13(1)(d) r/w section 11(5) of the Act, as the assessee had kept its investments in https://www.mhc.tn.gov.in/judis 5/9 T.C.A.Nos.485 to 488 of 2011 the form of shares of companies. It was further held by the assessing officer that though the assessee was granted time till 30.03.2001 for bringing its investments in the modes prescribed under section 11(5) at the time of seeking registration under section 12AA, they failed to do so even at the end of the previous year ending 31.03.2002 and therefore, they are dis-entitled to claim exemption under section 11 of the Act. Whereas, the CIT(A) allowed the claim of the assessee seeking exemption under section 11, on the premise that the assessee had not invested any funds outside the investments prescribed in section 11(5) in the previous year relevant to the assessment years; those investments against the spirit of section 11(5) were in fact held by the assessee since past, while the assessee was enjoying the benefit of section 10(22); and therefore, there is no violation of the provision to section 11(5) and the investments found in the balance sheet of the assessee, which are not in tune with section 11(5), are the investments brought forward from the past, which is only a technical matter and not a ground to reject the prayer of the assessee for the benefit of section 11. The CIT(A) further observed that the law is silent about the investment pattern and the time available to disinvest the impermissible assets held by the assessee, which was enjoying the benefit of exemption under section 10(22), so that they fall in line with the mode of investments specified in section 11(5). The findings so rendered by the CIT(A) https://www.mhc.tn.gov.in/judis 6/9 T.C.A.Nos.485 to 488 of 2011 were justified by the Tribunal, while dismissing the appeals filed by the Revenue, by the order impugned in these tax case appeals.
8. However, the findings so rendered by the appellate authorities cannot be countenanced by this court. It is an admitted fact that the assessee did not comply with the provisions of law, subsequent to the amendment, for claiming exemption under section 11, though they enjoyed the said benefit till the assessment year 1998-99, without any restrictions. It is the specific case of the appellant / Revenue that the assessee is holding shares and other investments in private companies, which are outside the scope of section 11(5) and hence, they are not entitled for the benefit of section 11 as provided in section 13(1)(d), for the assessment years under consideration. Whereas the assessee stated that they are not holding any impermissible investments and they had not violated the provisions of section 11(5), as alleged. In support of the same, a memo dated 28.06.2022 was filed detailing the shares purchased and sold by the assessee in the form of a chart. Such being the submissions made by the parties, this court, in the light of the factual matrix and as agreed by the learned counsel appearing for both sides, is inclined to set aside the orders of the appellate authorities and remand the matter to the assessing officer for fresh consideration. https://www.mhc.tn.gov.in/judis 7/9 T.C.A.Nos.485 to 488 of 2011
9. Accordingly, the orders of the appellate authorities are set aside and the matter is remitted to the assessing officer for fresh consideration, by considering the memo filed by the assessee before this Court. The assessing officer shall complete the said exercise, after providing due opportunity to the assessee for submission of both oral and documentary evidence, if any, and pass appropriate orders, on merits and in accordance with law, within a period of two months from the date of receipt of a copy of this judgment. These tax case appeals are disposed of in the said terms. No costs.
[R.M.D,J.] [M.S.Q, J.]
gya 05.07.2022
To
1.The Assistant Director of Income Tax (Exemption)-II Chennai-34
2.The Income Tax Appellate Tribunal 'D' Bench, Chennai
3.The Commissioner of Income tax (appeals)-XII Chennai.
https://www.mhc.tn.gov.in/judis 8/9 T.C.A.Nos.485 to 488 of 2011 R. MAHADEVAN, J.
AND MOHAMMED SHAFFIQ, J.
gya T.C.A.Nos.485 to 488 of 2011 05.07.2022 https://www.mhc.tn.gov.in/judis 9/9