Income Tax Appellate Tribunal - Mumbai
Gharda Foundation, Mumbai vs Department Of Income Tax on 23 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
Before Shri P.M. Jagtap, Accountant Member and
Shri V. Durga Rao, Judicial Member
I.T.A. No. 5768/Mum/2010
Assessment Year : 2007-08
Dy. Director of Income-tax(E), M/s Gharda Foundation,
II(1), Mumbai. Vs. 5/6, JER Mansion,
W.P. Varde Marg, Bandra (W),
Mumbai - 400 050.
PAN AAATG 0260C.
Appellant. Respondent
Appellant by : Shri Pavan Ved.
Respondent by: Shri A.H. Dalal.
Date of hearing : 23-11-2011.
Date of pronouncement : 23-12-2011.
O R D E R.
Per P.M. Jagtap, A.M. :
This appeal is preferred by the Revenue against the order of learned CIT(Appeals)-1, Mumbai dated 31-03-2010 whereby he allowed the claim of the assessee for exemption u/s 11.
2. The assessee in the present case is a Charitable Trust registered under Bombay Public Trust Act, 1950. It is also registered under the provisions of section 12A of the Income-tax Act, 1961 Its primary objects are promotion of rural development in the field of education, health care, women empowerment, poverty alleviation, AIDS prevention, water conservation, forestation etc. In pursuit of the said objects, the assessee has undertaken project in various aided and self 2 ITA No.5768/Mum/2010 Assessment Year:2007-08.
development programmes which include inter alia, education, health care, women empowerment, Aids prevention, water conservation, forestation etc. In the return of income filed for the year under consideration, exemption u/s 11 was claimed by the assessee in respect of its entire income. During the course of assessment proceedings, the claim of the assessee for the said exemption was examined by the AO and on such examination, he recorded the following findings/observations :
"(a) it is not denied that M/s Gujarat Insecticide Ltd. (hereinafter refer to as GIL) is specified person being a 100% subsidiary of Gharda Chemicals Ltd. in which Dr. K.H. Gharda is holding substantial interest in the company.
(b) Admittedly an advance of Rs.3,68,408/- is given free of interest and without any adequate security to GIL.
(c) It is not denied that an advance of Rs.3,61,783/- remain outstanding against GIL. It is further seen from the copy of account of GIL in the books of Gharda foundation as submitted during the course of assessment proceedings that opening balance of Advance was Rs.3,68,408.40 out of which only small expenditure of Rs.6,625/- has been incurred by GIL on behalf of Gharda foundation resulting in a outstanding balance of Rs.3,61,783.40. therefore, the plea of the assessee that the amount was given to GIL as an advance for incurring expenditure on behalf of the assessee is baseless. At any stretch of imagination and logic it is not justifiable as to why for incurring small expenditure of Rs.6,625/- an amount of Rs.3,68,408.40 was given advance and retained with GIL during the year.
(d) the contention of the assessee that the amount given to GIL for the purpose of project related expenses in not backed documentary evidence and cannot be relied upon. Even otherwise nothing prevented assessee to reimburse GIL, the expenses incurred by them, it all not behalf of the assessee and as such there is no justification of such advances as admittedly the annual turnover of GIL exceeds Rs.
100 Crores."
On the basis of above findings/observations recorded by him, the AO came to the conclusion that advance of Rs.3,68,408/- given by the assessee to GIL was not in 3 ITA No.5768/Mum/2010 Assessment Year:2007-08.
relation to the fulfillment of its object as a trust but it was a case of placement of the funds of the trust at the disposal of GIL free of interest. He held that the intention behind the said transaction was to provide direct or indirect benefit to the trustees who were substantially interested in GIL. He held that the assessee's case thus was squarely covered by the provisions of section 13(1)(c) and 13(2)(a) read with section 13(3)(e) and it was not entitled to claim exemption u/s 11. Accordingly the claim of the assessee for exemption u/s 11 was rejected by the AO and its total income was assessed by him at Rs.4,82,17,742/- in the assessment completed u/s 143(3) vide an order dated 24-02-2009.
3. Against the order passed by the AO u/s 143(3), an appeal was preferred by the assessee before the learned CIT(Appeals) and the following submissions were made on its behalf before the learned CIT(Appeals) in support of its case that there was no violation of the provisions of section 13(1)(c) and 13(2)(a) r.w.s. 13(3)(e) so as to deny its claim for exemption u/s 11 :
" Sec. 13(3)(e) applies only if, the author or founder of the trust/institution, if author or founder is a HUF, a member of the family, trustee or manager of the trust/institution, any relative of such author/founder, person, member, trustee or manager were to hold substantial interest in the Company i.e. GIL by holding minimum 20% of the voting power as provided in Explanation 3(1).
As the entire share capital of GIL is held by the holding Company GLC, the trustee, founder, etc. as specified above cannot hold 20% or more in the share capital in GIL. In fact none of the above persons is holding a single share in GIL, as the entire share capital is held by GLC.
Hence the provisions of Sec. 13(3)(e) do not apply to GIL in relation to the appellant and therefore, any advance given to GIL is not caught within the purview of Sec. 13(2)(a) and 13(1)(c). The AO was therefore, completely wrong in holding that the appellant had given benefit to a Company falling under Sec. 13(3)(e) read with Sec. 13(2)(a) so as to violet Sec. 13(1)(c).4 ITA No.5768/Mum/2010
Assessment Year:2007-08.
IV. The position will be the same regarding the application of clause 13(2)(h) read with 13(3)(e). Further, Courts have held that a loan or advance to a person is quiet different from investment in the capital of a Company. See CIT v/s. Nachimuthu Industrial Association 138 ITR 585 (Mad) on page 22-23 of the Paper Book containing the judgment.
V. Without prejudice to the above contention and assuming for the sake of argument that Sec. 13(3)(e) was applicable, the amount given to GIL for the purpose of carrying out the project of SAEP (States Adult Education Programme) and NACP (Aids Awareness Programme) and Swahshakti Project referred to in Company's letter dated 26.03.2010 giving the reasons for the delay in the execution of the project for which advance is given to GIL, cannot be called as advance or loan within the meaning of Sec. 13(2)(a), as an advance normally has to be returned by the borrower with interest and therefore, the necessity of security as required by Sec. 13(2)(a). VI. As the Trust has no establishment or set up in Ankleshwar (Gujarat), the project was carried out through GIL who did not receive any benefit from the amount given to it for project expenditure. It was a large Company with turnover Rs.100 crores. On the other hand the Trust was benefited by using their establishment, staff, computers, etc. for carrying out a project approved by Gujarat Govt. It did not charge any amount to the Trust for the work carried by it.
VII. We have submitted copies of the account of GIL in the earlier years 2004-05, 2005-06 during which, advances of lacs of rupees (Rs.------------- in 2004-05 and Rs.5,65,037/- in 2005-06) were given to GIL for carrying out the approved project, which will show the bona fide of the nature of the advance given for carrying out the project. We are submitting herewith the papers showing the approval of the project by Gujarat Govt. and execution thereof through GIL in the earlier years to show the nature of the charitable work carried out by the appellant."
4. The learned CIT(Appeals) found merit in the submissions made on behalf of the assessee as above and directed the AO to allow the claim of the assessee u/s 11 for the following reasons given in paragraph Nos. 6.5 to 6.9 of his impugned order :
5 ITA No.5768/Mum/2010Assessment Year:2007-08.
"6.5 I have considered the A.O.'s order as well as the written submissions of the appellant as depicted above. Having considered both, I am of the considered view that the A.O. has wrongly denied the exemption to the appellant trust. As per the appellant submission that trustee Mr. K.H. Gharda was no where having any substantial interest in the company i.e. GIL. Actually GIL is 100% subsidiary of GCL. As the GCL is a public Limited Company and the company is a person well defined in the IT Act u/s 2(31)(iii) of the IT Act, hence only GCL was having substantial interest in GIL and not the trustee Mr. K.H. Gharda. Thus, the application of section 13(1)(c) and 13(2)(a) r.w.s. 13(3)(e) was wrongly applied by the A.O. 6.6 Besides this, the appellant's A/R also argued that M/s GIL was actually facilitator and providing its infrastructure in many ways for implementation of appellant's trust different programmes of SAEP and NACP in the area of Ankleshwar (Gujarat). The company GIL is having turnover of 100 crores, which some time provides facilities without any commercial benefit for implementation of the object of the trust in the area. 6.7 I am also in agreement with the A/R that a sum of Rs.3,68,408/- was not given as a loan or advance but was given for the cause of implementation of the object of the trust. The appellant's A/R argued that GIL provided facilities without any charge or financial benefit from trust in the implementation of different object of the trust. Hence even the sum which was lying as closing balance of Rs.3,68,408/- is not the nature of advance & loan. It is stated by the appellant in para-VII of his submission dated 26/03/09 "We have submitted copies sof the account of GIL in the earlier year 2004-05 and 2005-06, during which advances of Rs.5,34,558/- in 2004-05 and Rs.7,68,533/- in 2005-06), were given to GIL for carrying out the Gujarat Government approved projects. Which shows a bonafide nature of advances given for carrying the project. We are submitting herein with papers showing approval by Gujarat Govt. an aggregation thereof through GIL in earlier year to show the nature of the charitable work carried out by the appellant trust.
6.8 Thus, the projects were carried out by the appellant trust through the facilities provided by GIL for which it has not charged any amount to the appellant. It was only during the year under appeal that the advance brought forward from the earlier year was Rs.3,68,408/- was not utilized for the project except an amount of Rs.6,625/- for the reasons shown by the appellant in their letter dated 26/03/2010 detailing the reasons of non availability of the field staff required for execution of the project and other 6 ITA No.5768/Mum/2010 Assessment Year:2007-08.
reasons that the amount was carried forward as an advance and finally spent for the charitable project in the subsequent financial year. I also find that even the judgement cited by the A.O. in the case of Kanahya lal Punj Charitable Trust vs. DIT(E) [2008] 171 TAXMAN 124 (Delhi) can be distinguished from the facts of the appellant case as in that case, it could not be denied that the benefit has directly or indirectly reached the interested persons namely 'P' and thus there is a clear violation of section 13(1)(c) and 13(2)(a) of the IT Act. In the appellant case the advances from year to year for execution of the project through GIL as shown by the appellant cannot be considered as loans and advances given to GIL as it was given to GIL to reimburse for the expenses incurred towards the project run by the appellant trust.
6.9 Considering all these facts brought before me, I am of the considered view that the A.O. has wrongly invoked the provisions of section 13(1)(2) and 13(2)(a) r.w.s. 13(3)(e) of the IT Act, 1961, as on the basis of aforesaid discussion it is evident that the appellant has not contravened the provisions of section 13(1)(c) and 13(2)(a) r.w.s. 13(3)(e) of the IT Act, 1961. Accordingly I consider it proper and appropriate to direct the A.O. to allow the exemption u/s 11 to the appellant trust. I also intend to mention that the appellant is having a valid registration u/s 12A granted by DIT(E) and therefore the A.O. should allow the exemption u/s 11 of the IT Act to the appellant trust.
Aggrieved by the order of the learned CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
5. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the assessee in the present case is a trust which is admittedly engaged in carrying out charitable activities. It is also registered u/s 12A of the Income-tax Act. In the return of income filed for the year under consideration, the assessee claimed exemption u/s 11 on the strength of nature of its activity being charitable as well as the registration granted to it u/s 12A. This basis on which exemption u/s 11 was claimed by the assessee was not disputed by the AO. He, however, denied the claim of the assessee for exemption u/s 11 on the ground that the sum of Rs.3,68,408/- advanced by the assessee to 7 ITA No.5768/Mum/2010 Assessment Year:2007-08.
GIL was hit by the provisions of section 13(1)(c) and 13(2)(a) read with section 13(3)(e) as, according to him, the said advance was given to benefit GIL in which the trustees of the assessee trust were substantially interested. Before the learned CIT(Appeals), it was explained by the assessee that the different projects were undertaken by it in pursuit of its charitable objects in Ankleshwar, Gujarat and since the assessee trust did not have any office or base in Ankleshwar, Gujarat or any full time employees working there, the office premises and other facilities of GIL available there were being used by it. It was submitted that GIL was good enough to extend all facilities to the assessee without charging any compensation keeping in view over all corporate social responsibility and in order to meet the expenses incurred by the said company on behalf of the assessee trust, a lumpsum amount was deposited by the assessee with the said company. It was pointed out that the expenses incurred by the said company on behalf of the assessee during the earlier years as well as in the subsequent years were met out of the amount deposited by the assessee trust with the said company. It was also pointed out that even in the year under consideration, one payment made by GIL on behalf of the assessee trust was adjusted against the said deposit and since there was no much activity of the trust in Ankleshwar, Gujarat in the year under consideration, the opening balance of deposit continued to remain with GIL after adjustment of the said amount of Rs.6,625/- paid on its behalf by GIL in the year under consideration. Keeping in view all these submissions made on behalf of the assessee before the learned CIT(Appeals) and reiterated before us at the time of hearing, we agree with the conclusion drawn by the learned CIT(Appeals) that the amount in question was given by the assessee to GIL in the course of carrying out of its charitable activities and it was not a case of any loan or advance given by the assessee to GIL for the latter's benefit so as to attract the provisions of section 8 ITA No.5768/Mum/2010 Assessment Year:2007-08.
13(1)(c) and 13(2)(a) read with section 13(3)(e). We, therefore, find no infirmity in the impugned order of the learned CIT(Appeals) directing the AO to allow the exemption claimed by the assessee u/s 11 and upholding the same, we dismiss this appeal filed by the Revenue.
6. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on this 23rd day of Dec.,2011.
Sd/- Sd/-
(V. Durga Rao) (P.M. Jagtap)
Judicial Member Accountant Member
Mumbai,
Dated : 23rd Dec., 2011.
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, G-Bench.
6. Guard File.
(True copy) By Order
Asstt. Registrar,
ITAT, Mumbai.
Wakode