Income Tax Appellate Tribunal - Chennai
Services Association Of Seventh Day ... vs Assessee on 30 December, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH "D" CHENNAI
(Before Shri Abraham P. George, Accountant Member
and Shri George Mathan, Judicial Member)
.....
I.T.A. No. 669/Mds/2011
Assessment Year : 2006-07
M/s Services Association of
Seventh Day Adventists P Ltd., The Income Tax Officer (OSD),
AA 148, III Avenue, Anna Nagar, v. Exemptions,
Chennai - 600 040. Chennai - 600 034.
PAN : AAACS9635J
(Appellant) (Respondent)
Appellant by : Shri S. Sridhar, Advocate
Respondent by : Shri K.E.B. Rangarajan,
Junior Standing Counsel
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
Through this appeal, assessee assails the order of DIT(Exemptions), Chennai, holding that the assessment made for the impugned assessment year on the assessee was erroneous in so far as it was prejudicial to the interests of the revenue. As per the 2 I.T.A. No. 669/Mds/11 assessee, DIT(E) was only substituting a lawful view taken by the Assessing Officer by his own view.
2. Short facts apropos are that assessee, an organization registered under Section 12A(a) of Income-tax Act, 1961 (in short "the Act") and also a company registered under Section 25 of the Companies Act, 1956, which was running educational institutions, had filed its return of income for the impugned assessment year on 12.2.2007. The said return was revised by the assessee on 12.3.2008. During the course of assessment proceedings, A.O. noted that the immovable properties of the assessee along with that of three other assessees were held by another organization called India Financial Association (IFA). In the books of the assessee, immovable properties worth ` 16,92,30,947/- were shown as transferred to M/s IFA. Assessing Officer noted that what was reflected in the balance sheet of IFA, which incidentally was also registered under Section 12A(a) of the Act, was ` 3,36,11,598/- only. Assessee was required to reconcile the difference. Assessee filed a reconciliation which showed that over a period of four years, the properties acquired by the assessee but, held in the name of M/s IFA 3 I.T.A. No. 669/Mds/11 was property reconciled and accounted by M/s IFA. The Assessing Officer did note that entire capital expenditure incurred for acquisition of the properties were treated as application of income by the assessee in two parts - one under the head "Transfer to IFA" and another under the head "Difference between Closing WIP and Opening WIP". However, A.O. refused to take cognizance of the revised return filed by the assessee since the original assessment was filed out of time. Nevertheless, from the figures given in the revised return, the A.O. found that a sale consideration of ` 23,22,16,084/- and interest of ` 49,04,735/- thereon were admitted by the assessee for sale of certained properties in the relevant previous year held in the name of M/s IFA. However, as per the ld. A.O., the relevant sale deeds evidenced the consideration as ` 25,49,72,937/-. A reconciliation statement in this regard was also filed by the assessee. A.O. thereafter concluded the assessment giving the assessee benefit of exemption under Sections 11 and 12 of the Act and there being excess of application over income, total income was determined at 'NIL'. To complete the factual scenario, it needs to be mention that assessee had along with the revised return filed a Form 4 I.T.A. No. 669/Mds/11 No.10 for accumulation of its income. Since such Form No.10 was beyond the due date of filing return, assessee had filed an application for condonation of delay before DIT(E) on 5.12.2008 and DIT(E) vide his order dated 30.12.2008 had condoned such delay. Nevertheless, this Form No.10 was not considered in the assessment since the Assessing Officer had not taken cognizance of revised return at all.
3. Later, on 16.3.2011 DIT(E) issued a show cause notice to the assessee under Section 263 of the Act. As per the DIT(E), the details filed along with return did show that M/s IFA had transferred four immovable properties during the relevant previous year through sales. As per the DIT(E), when the sale of the properties were effected, the properties were held in the name of IFA though the purchase consideration at the time of purchase of properties were paid by the assessee. Again as per DIT(E), entire amount received on the sale of properties was returned by IFA along with interest to the assessee. Based on this, DIT(E) put the assessee on notice as to why the above transactions could not be considered a revocable transfer and why provisions of Sections 60 to 63 should not be applied. As per ld. DIT(E), the total income arising out of such 5 I.T.A. No. 669/Mds/11 revocable transfer could not be given exemption under Sec. 11 of the Act, since Section 11 started with the words "subject to the provisions of Sections 60 to 63".
4. Assessee in its reply dated 25th March, 2011 submitted that there was no transfer whatsoever within the meaning of Sec. 60 to 63 of the Act. As per the assessee, M/s IFA, which was also an organization registered under Sec. 12A(a) of the Act, was holding the properties for the benefit of the assessee only. Assessee brought to the notice of the DIT(E) that the issue regarding holding of assets of the assessee by IFA was raised frequently by various Assessing Officers over various earlier assessments spanning more than 25 years and the details were also submitted to their satisfaction. As per the assessee, when the properties were handed over to IFA, there was no transfer of ownership and the IFA was only holding the properties in trust for the benefit of the assessee. Assessee also brought to the notice of the ld. DIT(E) that such an arrangement was in line with object clause of the assessee as well as that of M/s IFA. Further, as per the assessee, Sec. 11 was only "subject to Sections 60 to 63" and this could not be interpreted to mean that operation of 6 I.T.A. No. 669/Mds/11 Sec. 60 to 63 would result in denial of exemption under Section 11 of the Act. Assessee conceptualized two situations - one when the organization itself was formed by a revocable transfer and another where the properties of an organization were transferred to another through a revocable transfer. As per the assessee, even if it was presumed that the latter situation applied, the only implication was that the income arising to the beneficiary could be considered in the hands of transferor, but, it would not result in denial of exemption under Section 11 of the Act. Therefore, as per the assessee, there was no error in the order of the assessment passed by the Assessing Officer much less any error which was prejudicial to the interests of the revenue.
5. However, the DIT(E) was not impressed. According to him, at the time of purchasing immovable property registration was made in the name of M/s IFA though the payments were made by the assessee. Hence, as per ld. DIT(E), the transfer which was effected through book entries were genuine and since on the sale of such property, money was returned to the assessee the result was a revocable transfer. Further, as per ld. DIT(E), once there is a 7 I.T.A. No. 669/Mds/11 revocable transfer, exemption under Section 11 could not be given to the transferor. Crux of the finding of ld. DIT(E) as appearing in para 7 of his order is reproduced hereunder:-
"7.1 In the instant case revocable transfer has taken place at the time of purchase of property itself when fund is transferred by the assessee for purchasing property in the name IFA and on sale the consideration are returned back to the assessee. Therefore whatever income has arisen on such transfer from the time of purchase of property to the sale of property, such income is taxable in the hands of the transferor i.e. the assessee. In the present case, since the income is accruing on the transfer of capital asset provisions of capital gain is applicable on all the three properties namely :- Spicer College, Lawry Memorial College and Kolar Land. In view of the above, it is concluded that the assessment order in question is erroneous and prejudicial to the interest of the revenue as the assessment order has not been framed in accordance with the provisions of Income Tax Act and prejudicial to the interest of the revenue as tax due to such error has not been made payable by the assessee. Hence, present case is squarely covered within the provisions of Sec.263 of the I.T. Act. The capital gain as worked out from the Table at Para 6 is given below:
Property Name Capital Gain as per table in
para-6
Spicer College Rs.14,93,35,436
Lowry Memorial College Rs.10,18,93,367
Kolar Land Rs.9,06,692
8 I.T.A. No. 669/Mds/11
Thus, he reached an opinion that the assessment order was erroneous and prejudicial to the interests of the revenue. The directions given to the A.O. by the ld. DIT(E) were as under:
"7.2 The Assessing Officer is directed to tax the above capital gain in respect of the above properties as per computation given above under the head capital gain without giving any exemption u/s 1 on such capital gain, which will amount to enhancement of income u/s 263.
8. For the fourth property, i.e. Ambur land Assessing Officer is directed to find cost of acquisition and give the indexation benefit to the assessee it is long term capital asset and tax the same under the head capital gains without giving exemption u/s 11 which amounts to enhancement of income u/s 263."
6. Now before us learned A.R., strongly assailing the order of ld. DIT(E), submitted that the revised return of the assessee filed on 12.3.2008 though not taken cognizance was carefully considered by the Assessing Officer while framing the original assessments, vis-à- vis the transactions shown therein. Further, according to him, the revision of return had become necessary since assessee could obtain details of the transfers effected by IFA only later to the date of filing of the original return and once such transfers were taken into consideration, there resulted an excess of income over utilization, necessitating filing of Form No.10 for accumulation. Learned A.R. 9 I.T.A. No. 669/Mds/11 pointed out that the application before ld. DIT(E) for condonation of delay was filed on 4th December, 2008 and in such application, all the details regarding the constitution of the assessee as well as IFA, the nature of transactions relating to the immovable properties and the objects of both these organizations were well explained. Further, as per learned A.R., the details of the properties held by IFA and sold during the relevant previous year which resulted in surplus was also given to DIT(E). As per the learned A.R., the DIT(E) had considered such details furnished and by his order dated 30.12.2008 placed at paper-book page No.44, condoned the delay. Again, as per learned A.R., there was no transfer of any property during the relevant previous year from the assessee to IFA nor from IFA to assessee and hence, there was no question of there being any revocable transfer. Continuing his arguments, learned A.R. submitted that even if a revocable transfer was presumed, there would be no prejudice caused to the revenue since both the organizations were enjoying exemption under Section 11 of the Act and whether it was assessee or IFA, the income would remain exempt. Learned A.R. specifically pointing out the original assessment order placed at paper-book 10 I.T.A. No. 669/Mds/11 pages 45 to 49, argued that the ld. A.O. had considered all aspects of the transfers and even required the assessee to reconcile the difference in the amounts appearing in the balance sheet of IFA and as shown by the assessee in the revised return. Therefore, according to him, Assessing Officer had allowed the assessee exemption under Sections 11 and 12 of the Act only after proper application of mind. The DIT(E) was trying to substitute his view to the lawful view taken by the A.O. Learned A.R. pointed out that both assessee as well as IFA have been existing since long and have been enjoying exemption under Sections 11 and 12 of the Act without break for all the years. According to him, the subject properties were all purchased during the period 1961 to 1969 except one property which was purchased in 1988 and all such properties all along were held under the name of M/s IFA. In none of the earlier years, there was any denial of exemption though similar transactions were there. Learned A.R. also brought to our attention decision of co-ordinate Bench of this Tribunal in I.T.A. No. 1514 to 1518/Mds/85 dated 7th July, 1987 placed at paper-book pages 87 to 88, wherein it was held that M/s IFA was eligible for exemption under Sections 11 and 12 of 11 I.T.A. No. 669/Mds/11 the Act. Learned A.R. pointed out that jurisdictional High Court in Tax Cases No. 28 to 32 of 1996 (paper-book pages 89 to 90) had upheld this decision of the Tribunal through a speaking order. Hence, according to him, not only the Assessing Officer had taken a lawful view, but even if such view was considered erroneous it would not cause any prejudice to the revenue. According to him, ld. DIT(E) was wrong in interpreting Sec.60 to 63 to hold that there was revocable transfer when there was no transfer whatsoever in the relevant previous year done by the assessee.
7. Per contra, learned D.R. submitted that the circumstances of the purchase made in the name of IFA, though the money was paid by the assessee as also the return of the money by M/s IFA on effecting sale of the property, clearly showed the existence of a revocable transfer. Once there was revocable transfer, according to him, exemption under Sec.11 of the Act could not be given since Sec. 11 started with the words "subject to the provisions of Sec.60 to 63". Ld. D.R. pointed out that the Assessing Officer had not considered this issue regarding existence of a revocable transfer and therefore, 12 I.T.A. No. 669/Mds/11 the order of the A.O. was erroneous and prejudicial to the interests of the revenue.
8. We have perused the orders and heard the rival contentions. For application of Sec.263 of the Act, two conditions that are to be satisfied are that the order of the Assessing Officer should be erroneous and at the same time prejudicial to the interests of the revenue. It has been often held by Hon'ble Apex Court that when the Assessing Officer has taken a lawful view where two views were possible, such an order cannot be considered erroneous. Here, the question is whether the Assessing Officer had applied her mind regarding the issue of holding of the property by IFA, when money for purchase of the property was paid by assessee. A look at the assessment order for the impugned assessment year placed at paper-book pages 45 to 48 would clearly answer this question. Paras 2 to 7 of the assessment order are reproduced hereunder:-
"2. The assessee filed its return of income for the asst. year 2006-07 on 12.02.2007 admitting income of Rs.59,07,96,658/-. The return of income was processed u/s 143(1) of the Income- tax Act, 1961 on 28.01.2008. The case was taken up for scrutiny as per Board's norms and notice u/s 143(2) of the Income-tax Act, 1961 was issued on 07.02.2008.13 I.T.A. No. 669/Mds/11
3. Subsequently, a revised return was filed by the assessee on 12.03.2008 admitting income of Rs.82,80,82,366/-. The assessee's representatives, Shri Leroy Samuel, Associate Treasurer, Shri M. Selvakumar, Controller of Accounts, Shri V.R. Raghunathan, CA and Shri V. Sundararaman, CA from M/s S. Viswanathan & Co. appeared and the case was discussed. The details furnished by the assessee were verified.
4. The immovable properties of the following four trusts get transferred to India Financial Association (IFA):
i) Services association of seventh Day Adventist (P) Ltd. (SERVSDA)
ii) The council of Seventh Day Adventist Educational Institutions (CSDA)
iii) The Medical Trust of Seventh Day Adventist (MSDA)
iv) Educational Trust of Seventh Day Adventist (ESDA)
5. During the assessment proceedings for the AY 2006-07, it was noted that immovable properties worth Rs.16,92,30,947/-
were transferred from the assessee trust to India Financial Association of SDA (IFA). On perusal of the return of income filed by the IFA, it was noticed that only immovable properties worth Rs.3,36,11,598/- were reflected in the balance sheet. The assessee was asked to clarify the difference of Rs.13,56,19,349/-.
6. In response to the query, the assessee vide its letter dt 04.12.2008, had taken the stand that no property was transferred but it was only handed over for holding in Trust, while the possession continues to be with the assessee. The assessee also stated that it is the entire capital expenditure incurred during the year, which is treated as application of income in two parts, i.e., part accounted as "transfer to IFA" and part as "difference between Closing WIP and Opening WIP", after due valuation by IFA. The assessee filed a reconciliation statement giving the details of the transfer of property to IFA from SERVSDA, spread over three years.
14 I.T.A. No. 669/Mds/11
7. The assessee has filed the original return of income on 12.02.2007, i.e. after the time allowed u/s 139(1) and hence, the revised return of income filed on 12.03.2008 cannot be taken cognizance of. In the revised working for Form 10B, sale consideration of Rs.23,22,16,084/- and interest of Rs.49,04,735/- has been admitted. However, as per the sale deeds, the gross sale consideration received was Rs.25,49,72,937/-. A reconciliation of the same was called for and the assessee vide its letter dated 19.12.2008, stated that Rs.1,79,49,892 was already admitted in the original return. The assessee's representative was informed that the difference of Rs.48,06,961/- which had not been explained would also be treated as income."
Thus, the Assessing Officer was well aware that the immovable properties of the assessee were held by IFA. Assessing Officer was also aware of the difference in figures between IFA and assessee with regard to consideration received. Assessing Officer had also sought reconciliation and made an addition for the difference. Both the assessee and IFA are organizations which have been enjoying exemption under Sections 11 and 12 of the Act for a long period. IFA has been existing since 1908 as evident from its Memorandum of Association placed at paper-book pages 82 to 85, whereas, assessee has been in existence since 1895. Both assessee as well as IFA have been enjoying exemption under Sections 11 and 12 of the Act all through and the method followed for holding of the immovable 15 I.T.A. No. 669/Mds/11 properties was also consistently the same. The properties in question, the transactions relating to which were considered by ld. DIT(E) as to have resulted in a revocable transfer, were acquired long back during the years 1965 to 1969 and 1988. So, the position is a continuing one and method of accounting followed by the assessee whereby its immovable properties were held by IFA, permeated over a large number of years. Nothing unlawful has been found by any assessing authority or higher forums in this regard. In fact, this Tribunal with regard to Revenue's appeal in the case of M/s IFA and vide its order dated 7th July, 1987 in I.T.A. No. 1514 to 1518/Mds/85 (paper-book pages 87 to 88), clearly held as under:-
"We must, therefore, disregard all those clauses which state merely the powers of the assessee and confine ourselves to the specific clauses that relate to the objects of the association. The primary object is contained in clause (a) and is elucidated by clauses (e) and (f). These clauses show that the primary object of the assessee is to manage the affairs of other charitable institutions of the Seventh Day Adventist denomination. Clearly this primary object is a charitable object inasmuch as admittedly the objects of the trusts which are managed by the assessee are themselves charitable in nature. The second objection of the Revenue is that the objects extended to the territories of Burma and Ceylon and to the extent to which they travel beyond the shores of the nation the assessee would not be entitled to the exemption. Such a situation has, however, not arisen because it 16 I.T.A. No. 669/Mds/11 is not in dispute that the assessee had not undertaken any activities abroad and the question of denying the exemption will apply only to the extent to which the income is applied to the purposes beyond the boundaries of the country. The third objection is that income derived for managing the properties of others could not be considered as eligible for exemption u/s.11. But then, the income of the assessee was only the income derived by way of interest on deposits and donations. The assessee has not charged or received any fees for managing the properties of other trusts and there is no income derived for managing properties which is claimed to be exempted. Since all these objections of the Revenue are untenable as against the accepted history of the assessments in this case of exemption for about eight decades, we fail to see any reason for interfering with the order of the CIT(Appeals) granting exemption. His order is confirmed."
In our opinion, a question whether there was a revocable transfer did not arise, since assessee had not indulged in any transfers during the relevant previous year. As per the Revenue itself the properties sold were held in the name of M/s IFA. Even otherwise, if we have look at Section 63 of the Act defining what is 'transfer' and what is 'revocable transfer', it reads as under:-
"63. For the purposes of sections 60, 61 and 62 and of this section, -
(a) a transfer shall be deemed to be revocable if-
(i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or 17 I.T.A. No. 669/Mds/11
(ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets;
(b) "transfer" includes any settlement, trust, covenant, agreement or arrangement."
So, for a transfer to become a 'revocable transfer', there has to be a provision whereby the transferee agrees to, directly or indirectly, transfer any part of the income or assets to the transferor. Alternatively, the transfer should be such that the transferor has a right to resume power over the transferred assets. In our opinion, both these conditions were not satisfied. When M/s IFA transferred the properties to ultimate purchaser, there was no provision for any re-transfer. There was no agreement between the assessee and IFA, for any re-transfer of properties or any income to the assessee. Just because IFA had sold the properties and given the money to the assessee, would not be sufficient to hold that there was an agreement in nature of a revocable transfer between them. None of the relevant conveyance (paper-book pages 90 to 107 and 108 to
145) would show that the assessee had any right to re-assume power over the transferred properties. In our opinion, there was neither any transfer effected by the assessee during the relevant previous year, 18 I.T.A. No. 669/Mds/11 much less any transfer which was revocable. So, not only had the Assessing Officer taken a lawful view after considering the issues relating to holding of the property, but the view with which the DIT(E) was trying to substitute was a patently unlawful one. Both the assessee as well as M/s IFA were entitled to claim exemption under Section 11 of the Act and hence there could never have been any prejudice caused to the revenue, this way or that way. We are of the opinion that there was nothing in assessment order which could be considered as erroneous and/or prejudicial to the interests of the revenue. We are, therefore, of the opinion that assessee has to succeed in this appeal. Order of the DIT(Exemptions) passed under Section 263 of the Act stands quashed.
9. In the result, appeal filed by the assessee is allowed. The order was pronounced in the Court on 22nd July, 2011.
sd/- sd/-
(George Mathan) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 22nd July, 2011.
Kri.
Copy to: Appellant/Respondent/DIT(Exemptions)/D.R./
Guard file