Bombay High Court
Commissioner Of Income Tax-(E), Pune vs Maharashtra Academy Of Engineering And ... on 13 March, 2024
Bench: K. R. Shriram, Neela Gokhale
Digitally
signed by
MEERA
MEERA MAHESH
MAHESH JADHAV
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JADHAV Date:
2024.03.16
10:30:21
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 78 OF 2018
Commissioner of Income Tax (E), Pune ....Appellant
V/s.
Maharashtra Academy Of Engineering
and Educational Research ....Respondents
----
Mr. Suresh Kumar for Appellant.
Mr. Pradeep Jetly, Senior Advocate a/w Mr. Riyaz Padvekar, Mr. Tanzil
Padvekar and Ms Tejal Kharkar for Respondent.
----
CORAM : K. R. SHRIRAM &
Dr. NEELA GOKHALE, JJ.
DATED : 13th MARCH 2024 P.C. :
1 Following 7 substantial questions of law are proposed:
"A. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in allowing the benefit of sec. 11 of the I.T.Act, 1961 to the assessee trust ?
B. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in holding that the denial of benefit under sec. 11 of the IT Act will be restricted only to that income of the Trust which was used/ applied directly or indirectly for the benefit of the prohibited persons?"
C. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in applying the ratio laid down by the Hon'ble Karnataka High Court in the case of Mullers Charitable Institution 363 ITR 378 (Kar) whereas the Hon'ble Apex Court has already held in Bharat Diamond Bourse reported in 259 ITR 280(SC), that the benefits u/s 11 & 12 of the IT Act would be denied totally in the event of any violation of section 13 of the Act?
D. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in holding that the assessee trust cannot be said to be running a commercial activity with a profit motive or that the trust is existing solely for profit, especially considering that all the institutions of MAEER are headed by various relatives of the Founder Trustee Dr. Vishwanath D. Karad, namely Mangesh T. Karad; Sunil K. Karad; Rahul V. Karad & Sunita M. Karad, who have purchased "bogus Meera Jadhav ::: Uploaded on - 16/03/2024 ::: Downloaded on - 30/03/2024 12:44:59 ::: 2/6 4-itxa-78-18.doc Capital Gains" to the tune of Rs.132.53 Lakhs during the FY 2005-06 from the market through market manipulators engaged in business of sale of Capital Gains through Penny Stocks and have passed on substantial part (Rs. 89.83 lakhs) out of such capital gains to sons, daughters, son-in-law & daughter-in-law of Dr. Vishwanath D. Karad, as gift?
E. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in holding that expenditure incurred on new objects are eligible for exemption u/s 11 even if such new objects had not been intimated to the concerned CIT, without appreciating the fact that since the objects of the trust deed which were the basis of grant of registration u/s 12A of the Act have been altered after grant of such registration, the very foundation of registration having been removed by voluntary act of the assessee?
F. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in holding that expenditure incurred outside India without getting the necessary approval from the concerned authority i.e. CBDT as warranted by proviso to Sec.11(1)(c) are eligible for exemption u/s 11?
G. Whether on the facts and circumstances of the case and in law, whether the Hon'ble ITAT is right in holding that whenever donors have given the donations for specific purposes such as construction of building, purchase of equipment etc., such donations are capital receipts and therefore exempt u/s 11(1)(d), when in fact such donations do not form a part of the corpus as per Sec.11(1)(d) and are therefore not exempt being revenue receipts?"
2 During the course of assessment proceedings for AY-2001-02, the Assessing Officer (AO) found that assessee trust had committed breach of provisions of Section 13 of the Income Tax Act 1961 (the Act) and held that assessee was not entitled to exemption under Section 11 of the Act. The violation committed by the trust have been also spelt out in the assessment order. The Commissioner of Income Tax (Appeals) (CIT(A)) by an order dated 29th February 2012 not only upheld the assessment order but also enhanced assessee's income by an amount of Rs.1,92,812/- on account of certain expenses which were not added back by the AO. In the appeal that Meera Jadhav ::: Uploaded on - 16/03/2024 ::: Downloaded on - 30/03/2024 12:44:59 ::: 3/6 4-itxa-78-18.doc assessee filed before the Income Tax Appellate Tribunal (ITAT), however, held that the denial of benefit under Section 11 of the Act will be restricted only to that income of the trust which was used / applied directly or indirectly for the benefit of the prohibited persons. 3 As regards first three substantial questions of law, Mr. Jetly submitted that the issue is directly covered by an order passed by this court in Pr. CIT, (Central) Pune Vs. Sinhagad Technical Education Society .1, CIT (Exemptions) Pune Vs. Audyogik Shikshan Mandal 2. Mr. Suresh Kumar relying on a judgment of the Apex Court in Director of Income Tax Vs. Bharat Diamond Bourse3 submitted that the entire benefit under Section 11 will be disallowed and it cannot be restricted only to that income of the trust which was used/applied for the benefit of the prohibited persons. Mr. Suresh Kumar submitted that the Apex Court has held that assessee would lose all the benefits of exemption under Section 11 of the Act in its entirety. 4 Having considered the judgment of the Apex Court in Bharat Bourse (supra), in our view, the issue primarily in that matter was whether assessee was a trust entitled to the benefit of Section 11 of the Act and secondly whether there was a breach of the provisions of Section 13 of the Act, where one Bharat Shah can be said to be a founder of the institution within the meaning of sub clause (a) of sub-Section (cc) of Section 13(3) of the Act. The judgment does not say whether the entire benefit under Section 1 Order dated 24th November 2021 in ITXA No.1454 of 2017 2 (2019) 101 taxmann.com 247 (Bombay) 3 (2003) 126 Taxman 365 (SC) Meera Jadhav ::: Uploaded on - 16/03/2024 ::: Downloaded on - 30/03/2024 12:44:59 ::: 4/6 4-itxa-78-18.doc 11 of the Act will be disallowed or disallowance will be only to the extent of income diverted. The basic dispute in Bharat Bourse (supra) was whether the objects of the trust were charitable and whether the person to whom the loan was given was a person covered by Section 13 of the Act. We also find support for this view in Audyogik Shikshan Mandal (supra) where paragraph 7 reads as under:
"7. We find that the impugned order of the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the decision of the Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only the income diverted as loans to a person specified under Section 13 of the Act, which was denied the benefit of Section 11 of the Act or the entire income was denied the benefit of exemption under Section 11 of the Act. We have closely read the decision of the Apex Court in Bharat Diamond Bourse (supra) and it does not extend the benefit of Section 11 of the Act to the Trust. However, it is not clear whether it is only to the extent of income diverted or the entire income. This, for the reason that the dispute between the parties therein was not as arising in this case. The basic dispute in the above case was - whether the objects of the Trust were charitable and whether the person to whom the loan was given was a person covered by Section 13 of the Act. The decision of the Karnartaka High Court in Fr. Mullers Charitable Institutions (supra), dealt with the very issue herein viz. the denial of exemption of entire income under Section 11 of the Act, or is the denial restricted only to the quantum of diverted funds. This, as it is hit by Section 13 of the Act. The Court held that the benefit of Section 11 of the Act will not be available only in respect of the diverted income. The above decision of Karnataka High Court was the basis for the view in the impugned order of the Tribunal. Moreover, we note that the order of Karnataka High Court in case of Fr. Mullers Charitable Institutions (supra) inter alia, places reliance upon the decision of this Court in DIT (Exemption) v/s. Sheth Mafatlal Gagalbahai Foundation Trust (2001) 114 Taxman 19 / 249 ITR 533 (Bom.) and the Delhi High Court in the case of IT (Exemption) v/s. Agrim Charan Foundation (2002) 253 ITR 593 / (2001) 119 Taxman 569. Moreover, on a plain reading of Sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial the benefit of Section 11 of the Act to the entire income of the Trust. If the interpretation sought to be advanced by the Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving a small amount takes place by the Trust, the consequence would be denial of the benefit of exemption to the entire income otherwise admittedly used for charitable purposes. It is pointed out to us that the decision of the Meera Jadhav ::: Uploaded on - 16/03/2024 ::: Downloaded on - 30/03/2024 12:44:59 ::: 5/6 4-itxa-78-18.doc Karnataka High Court in Fr. Mullers Charitable Institutions (supra) was carried by the Revenue to the Supreme Court and its SLP was dismissed on 19th September, 2014 Fr. Mullers Charitable Institutions (supra)."
5 In the circumstances, in our view, as regards proposed question nos.
(A), (B) and (C) no substantial question of law arise as the same are covered in Audyogik Shikshan Mandal (supra).
6 As regards proposed question (D), the fact that CIT(A) had deleted the entire addition and the same was not challenged by the department before the ITAT, as submitted by Mr. Jetly, is not contested by Mr. Suresh Kumar. Therefore, the substantial question of law as proposed does not arise.
7 As regards proposed question (E), we admit the same.
8 As regards proposed question (F), that has already been dealt with while answering proposed question nos. (A), (B) and (C), in as much as, only to that part of the expenditure which is not covered by exemption, will be disallowed.
9 As regards proposed question (G), Mr. Jetly submits that there was not even a specific ground raised in the appeal with regard to the donations given for specific purpose like building fund etc., and, therefore, there was no finding either in the impugned order of the ITAT. Mr. Suresh Kumar agrees. Therefore, the substantial question of law as proposed does not arise.
Meera Jadhav
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10 In the circumstances, the appeal is admitted on the following
question of law :
"Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in holding that expenditure incurred on new objects are eligible for exemption u/s 11 even if such new objects had not been intimated to the concerned CIT, without appreciating the fact that since the objects of the trust deed which were the basis of grant of registration u/s 12A of the Act have been altered after grant of such registration, the very foundation of registration having been removed by voluntary act of the assessee?"
11 Respondent waives service.
12 This appeal be listed for hearing in due course.
13 The Registrar (Judicial) / Registrar, High Court, Original Side, Bombay to ensure that the original record in relation to this Appeal is summoned from the tribunal and offered for inspection of the parties. This paper book is treated sufficient for the purpose of admission of this Appeal. However, the Registry must further ensure preparation of complete paper book in accordance with the Rules. The Registry in the first instance must send intimation of admission of this Appeal enclosing therewith a copy of this order so as to enable the Tribunal to act accordingly.
(Dr. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
Meera Jadhav
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