The ITO, Ward-4(1),, Ahmedabad v. Gujarat Church Council (VS) Trust Association, Anand

ITA 3456/AHD/2007 | 2001-2002
Pronouncement Date: 29-07-2011 | Result: Allowed

Appeal Details

RSA Number 345620514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 3456/AHD/2007
Duration Of Justice 3 year(s) 11 month(s) 18 day(s)
Appellant The ITO, Ward-4(1),, Ahmedabad
Respondent Gujarat Church Council (VS) Trust Association, Anand
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 29-07-2011
Date Of Final Hearing 07-07-2011
Next Hearing Date 07-07-2011
Assessment Year 2001-2002
Appeal Filed On 10-08-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER DATE OF HEARING : 07/07/2011 DRAFTED ON: 07/07/2011 APPEAL(S) / CO(S) BY APPELLANTS VS. RESPONDENTS SL. NO(S). ITA NO(S) / CO NO(S) ASSESS- MENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 3456/AHD/2007 2001-02 THE ITO WARD-4(1) AHMEDABAD GUJARAT CHURCH COUNCIL (VS) TRUST ASSOCIATION I.P.MISSION BUNGALOW I.P.MISSION COMPOUND ANAND PAN : - 2. 3457/AHD/2007 2002-03 -DO- -DO- 3. 4191/AHD/2007 2003-04 -DO- -DO- 4. CO NO.49/AHD/2011 (O/O ITA NO.3456/AHD/07) 2001-02 ASSESSEE REVENUE 5. CO NO.50/AHD/2011 (O/O ITA NO.3457/AHD/07) 2002-03 ASSESSEE REVENUE 6. CO NO.51/AHD/2011 (O/O ITA NO.4191/AHD/07) 2003-04 ASSESSEE REVENUE REVENUE BY : SHRI B.L. YADAV SR.D.R. ASSESSEE BY : SHRI SUNIL H. TALATI A.R. O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : THESE THREE APPEALS (BY THE REVENUE) AND THREE CROS S OBJECTIONS (BY THE ASSESSEE) HAVE EMANATED FROM THE ORDERS OF THE CIT(APPEALS)-VI & VIII AHMEDABAD DATED 25/05/200 7 AND 12/09/2007 RESPECTIVELY FOR ASSESSMENT YEARS 2001-0 2 2002-03 & 2003-04. IN ALL THE YEARS THE GROUNDS ARE IDENTIC AL HOWEVER REPRODUCED HEREIN-BELOW FROM THE LEAD ASSESSMENT YE AR 2001-02. ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 2 - THESE APPEALS ARE THEREFORE CONSOLIDATED AND HERE BY DECIDED BY THIS SINGLE ORDER. 2. FIRST WE SHALL TAKE UP THE APPEALS FILED BY THE REVENUE. 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS O F THE CASE IN DIRECTING THE A.O. TO TREAT INTEREST INCOME OF RS.55 895/- (A.Y. 2002-03 OF RS.4 77 800/-) UNDER THE HEAD INCOME FROM OTHER SOURCES AND BALANCE DIVIDEND INCOME OF RS.6 33 150/- (A.Y. 2002-03 RS.6 33 150/-) FROM UTI DIVIDENDS TO BE T AKEN AS INCOME FROM OTHER SOURCES IGNORING THE FACT THAT T HE ASSESSEE HAD NEITHER REVISED THE SAID CLAIM BY REVISED RETUR N OF INCOME OR BY TAKING SUCH ARGUMENTS / PLEA DURING THE ASSESSME NT PROCEEDINGS AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (2006) 284 ITR 323. 2. THE LD. LEARNED CIT(APPEALS) ERRED IN LAW AND O N THE FACTS OF THE CASE IN DIRECTING THE A.O. TO DELETE THE ADDITI ON OF RS.1 51 000/- (A.Y. 2002-03 OF RS.3 62 200/- & A.Y. 2003-04 OF RS.8 40 000/-) MADE BY THE A.O. AS ACCRUED RENTAL INCOME AFTER HOLDING THAT THE SAME CANNOT BE TAXED ON ACCRUAL BA SIS . 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING A SSESSMENT ORDER PASSED FOR AYS 2001-02 AND 2002-03 BOTH DAT ED 18/10/2005 WERE THAT THE ASSESSEE WAS ASSESSED UNDER THE STATUS OF COMPANY. AS PER THE NOMENCLATURE OF THE ASSESSMENT ORDER NATURE OF BUSINESS OF THE ASSESSEE WAS MENTIONED AS ADMINISTRATION OF TRUST PROPERTY. FOR AY 2001-02 A LOSS OF RS.5 423/- AND FOR AY 2002-03 A LOSS OF RS.7 560/- WAS RETURNED. AN OBS ERVATION OF THE AO AT THE OUTSET WAS THAT THE AMOUNT WHICH WAS SH OWN AS CREDITED IN THE PROFIT & LOSS ACCOUNT AS RENTAL INCOME WAS C LAIMED AS EXPENDED FOR THE OBJECTS OF THE TRUST. HOWEVER T HE AO HAS ALSO ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 3 - MADE A COMMENT THAT IN THE PAST THERE WAS NO SUCH C LAIM OF INCURRING THE AMOUNT ON THE OBJECTS OF THE TRUST. THEREAFTER THE AO HAS FURTHER COMMENTED THAT THE ASSESSEE HAS EARNED RENTAL INCOME IN RESPECT OF A PROPERTY WHICH WAS FOUND TO BE LET OU T TO M/S.SHYAM DEVELOPERS. IT WAS EXPLAINED THAT THE SAID PROPER TY OF THE ASSESSEE WAS LEASED OUT TO M/S.SHYAM DEVELOPERS AS PER THE T ERMS OF THE LEASE. THE LESSEE M/S SHYAM DEVELOPERS HAS GIVEN A SECURIT Y OF RS. 70 00 000/- TO THE ASSESSEE. IT HAS ALSO BEEN NOTED BY THE AO THAT INTEREST EARNED ON THE SAID SECURITY WAS TO BE ADJUSTED AS RENT. THE SAID SECURITY OF RS.70 LACS WAS FOUND TO BE INVESTED IN UTI- 1964 JOINTLY IN THE NAMES OF THE ASSESSEE AND THE S AID DEVELOPERS. AS PER THE TERMS THE ASSESSEE WAS TO ADJUST TH E INTEREST/DIVIDEND EARNED ON THE SAID DEPOSIT TO THE EXTENT OF RS.8.4 LACS. AFTER THREE YEARS THE ASSESSEE WAS REQUIR ED TO REFUND THE SECURITY AMOUNT. THEREAFTER IT WAS AGREED-UPON THE ASSESSEE WAS TO RECEIVE RENT ON MONTHLY BASIS. IT WAS FOUND T HAT A SUM OF RS.6 89 000/- WAS RECEIVED AS DIVIDEND FROM UTI-196 4. FROM THE SIDE OF THE ASSESSEE IT WAS INFORMED THAT THE TRUST WAS REGISTERED AS A CHARITABLE TRUST U/S.25 OF THE COMPANIES ACT. IT HAS BEEN ARGUED THAT THE INCOME TAX ACT DOES NOT PROVIDE UNDER WHIC H ACT A TRUST SHOULD BE REGISTERED FOR AVAILING THE BENEFIT U/S.1 1 12 & 13 OF THE ACT. AS PER AO SINCE THE ASSESSEE GOT CERTIFICAT E OF INCORPORATION DATED 16/01/1935 UNDER THE COMPANIES ACT FROM THE R EGISTRAR OF COMPANIES BOMBAY THEREFORE THE STATUS OF THE ASS ESSEE WAS HELD ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 4 - AS COMPANY. IT HAS ALSO BEEN HELD BY THE AO T HAT THE ASSESSEE BEING A COMPANY THEREFORE REQUIRED TO FOLLOW MERC ANTILE SYSTEM OF ACCOUNTING AS AGAINST THE CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. HAD THE ASSESSEE DECLARED THE INCOME ON ACCRUAL BASIS THEN THE TOTAL INCOME WOULD HAVE BEEN MORE THAN BY RS.1 51 000/- COMMENTED BY THE AO. THE AO HAS ALSO PERUSED THE AGREEMENT ENTERED INTO BY THE ASSESSEE AND M/S.SHYAM DEVELOPE RS. THE INCOME CREDITED IN THE INCOME AND EXPENDITURE ACCOU NT AS RENTAL INCOME OF RS.6 89 000/- WAS THUS TAXED ACCORDINGLY HOWEVER GRANTED 1/4 TH REPAIRS AS PRESCRIBED U/S.24 OF IT ACT. THE A.O. HAS ALSO TAXED RS.1 51 000/- AS RENT ACCRUED TO THE AS SESSEE. HE HAS ALSO HELD THAT THE SURPLUS WHICH WAS GIVEN TO GUJAR AT CHURCH COUNCIL WAS NOT A DIVERSION OF INCOME BY OVERRIDING TITLES SO DID NOT ALLOW AS AN EXPENDITURE. AGAINST THE SAID DEC ISION OF THE AO THE ASSESSEE HAD GONE IN APPEAL. 3. THE LD.CIT(A) HAS NOTED THAT THE ASSESSEE WAS RE GISTERED UNDER COMPANIES ACT ON 20 TH OF JULY 1943 UNDER THE NAME PRESBYTERY OF GUJARAT AND KATIAYAVAD TRUST ASSOCIA TION. IT WAS ALSO NOTED BY THE CIT(A) THAT SUBSEQUENTLY THE NAME WAS CHANGED TO GUJARAT CHURCH COUNCIL (VADIL SABHA) TRUST ASSO CIATION U/S.23 OF COMPANIES ACT AS PER THE CERTIFICATE ISSUED BY THE REGISTRAR OF COMPANIES GUJARAT ON 16/05/1963. ABOUT THE FACTS IN RESPECT OF THE LEASED PROPERTY IT WAS NOTED THAT THE PROPERTY WAS LEASED FOR 99 ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 5 - YEARS ON AN ANNUAL RENT OF RS.8.4 LAKHS TO M/S.SHAY M DEVELOPERS A PARTNERSHIP FIRM. INITIALLY FOR A PERIOD OF THR EE YEARS A DEPOSIT OF RS.70 LACS WAS MADE WHICH WAS DEPOSIT ED IN BANK FOR A SHORT PERIOD AND LATER ON INVESTED IN UNITS OF UTI- 64. THE CIT(A) HAS AGAIN AFFIRMED THAT THE DIVIDEND EARNED OF RS.6 89 000/- WAS SHOWN AS RENTAL INCOME BY THE ASSESSEE. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED THE LD.CIT(A) HAS GIVEN A FI NDING THAT THE AO WAS JUSTIFIED IN ASSESSING UNDER THE STATUS COMPAN Y. HE HAS NOTED THAT AN AGREEMENT DATED 05/01/2000 WAS ENTERED INTO BETWEEN THE ASSESSEE AND M/S.SHYAM DEVELOPERS. HE HAS ALSO NOTED THAT AS PER THE BALANCE-SHEET OF THE ASSESSEE THE PROPERTY IN QUESTION SITUATED AT BHAVNAGAR HAD BEEN SHOWN AS AN ASSET FO R A VALUE OF RS.3 52 285/-. HE HAS ALSO NOTED THAT IN THE BALA NCE-SHEET OF GUJARAT CHURCH COUNCIL (VADIL SABHA TRUST) THE SAID PROPERTY WAS NOT SHOWN AS AN ASSET. HE HAS THEREFORE DRAWN A CONCLUSION THAT THE PROPERTY IN QUESTION WHICH WAS LEASED OUT WAS O WNED BY THE ASSESSEE AND NOT BY THE GUJARAT CHURCH COUNCIL. AFTER RECORDING THESE FINDINGS ON FACTS LD.CIT(A) HAS CONCLUDED TH AT SINCE THE PROPERTY WAS OWNED BY THE ASSESSEE THEREFORE THER E WAS NO QUESTION OF TRANSFER OF INCOME BY OVERRIDING TITLE . IN RESPECT OF THE NATURE OF INCOME LD.CIT(A) HAS HELD THAT THE D IVIDEND INCOME WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES A ND IN THIS REGARD HIS OBSERVATION IS REPRODUCED BELOW:- ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 6 - 8.1. AS PER THE ABOVE AGREEMENT RS.70 LAKHS WERE DEPOSITED IN JOINT BANK ACCOUNT OF THE APPELLANT AND SHYAM DEVEL OPERS. SUBSEQUENTLY THE AMOUNT WAS INVESTED IN UNITS OF U TI-64. THE INCOME OF DIVIDEND FROM UNITS DECLARED IN JULY 200 0 IS RS.6 33 105/-. THE AO HOWEVER RELYING ON THE AGR EEMENT WITH SHYAM DEVELOPERS HELD THAT RS.8.4 LAKH IS INCOME FR OM HOUSE PROPERTY OF THE APPELLANT. THOUGH THE APPELLANT HA S SHOWN INCOME OF RS.6 89 000/- ON RECEIPT BASIS THE BALANCE AMOU NT WAS ALSO ADDED TO THE TOTAL INCOME. WHILE COMPUTING THE TOT AL INCOME THE AO HAS TREATED THE DIVIDEND FROM UNITS OF UTI-64 A MOUNTING TO RS.6 33 105 AND INTEREST ON BANK DEPOSIT AMOUNTING TO RS.55 895/- AS INCOME FROM HOUSE PROPERTY. I DO NOT AGREE WITH THE ABOVE COMPUTATION. THE ACT PROVIDES FOR COMPUTATION OF I NCOME UNDER DIFFERENT HEADS. IN THIS CASE THE APPELLANT HAS RE CEIVED INTEREST INCOME OF RS.55 895/- AND THE SAME SHOULD BE TREATE D AS INCOME FROM OTHER SOURCES. FURTHER DIVIDEND INCOME OF RS .6 33 105/- SHOULD BE TAKEN AS INCOME FROM OTHER SOURCES. 3.1. REVENUE HAS CHALLENGED THE AFOREMENTIONED FIND ING OF LD.CIT(A) THAT IT WAS WRONGLY HELD AS INCOME FROM OTHER SOURCES BY IGNORING THE FACT THAT THE ASSESSEE HAD NEVER RA ISED THIS CLAIM. 4. FROM THE SIDE OF THE RESPONDENT LD.AR MR. SUNIL H.TALATI DEFENDED THE ORDER OF THE LD.CIT(A). HE HAS ARGUE D THAT THE DIRECT SOURCE OF DIVIDEND INCOME AS ALSO THE INTEREST INCO ME WAS THE SAID SECURITY DEPOSIT WHICH WAS INVESTED WITH UTI THERE FORE THE CHARACTER OF THE INCOME WAS INCOME FROM OTHER SO URCES WHICH WAS RIGHTLY APPRECIATED BY THE LD.CIT(A). LD.AR H AS ALSO POINTED OUT THAT IN TERMS OF THE AGREEMENT WITH M/S.SHYAM D EVELOPERS THE AMOUNT WAS INVESTED IN JOINT NAMES HOWEVER THE RI GHT OF THE INCOME ARISING THEREFROM WAS VESTED WITH THE PARTY OF THE FIRST PART ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 7 - I.E. THE ASSESSEE-TRUST. THE PARTY OF THE SECOND P ART I.E. THE DEVELOPER WAS NOT ENTITLED TO ENCASH THE SAID DEPOS IT. ALTERNATIVELY HE HAS ALSO PLEADED THAT SINCE THIS ARRANGEMENT IS FOR THREE YEARS THEREFORE THE NATURE OF THE ACTIVITY OF THE TRUST A ND THE PURPOSE FOR WHICH THE TRUST WAS CREATED MUST NOT BE DISTURBED. HE SAID THAT THE ASSESSEE IS FOLLOWING THE OBJECTS FOR WHICH THE TRU ST WAS CREATED THEREFORE THE ENTIRE AMOUNT IS PASSED ON TO THE OT HER TRUST. SINCE THE ENTIRE INCOME IS APPLIED FOR THE PURPOSES OF THE CH ARITY THEREFORE NO AMOUNT SHOULD BE SUBJECT TO TAX IN THE HANDS OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BEL OW IN THE LIGHT OF THE COMPILATION FILED BEFORE US. AT THE OUTSET IT IS NECESSARY TO REPRODUCE ONE OF THE MAIN CLAUSE OF THE LEASE AGREEMENT DATED 5 TH DAY OF JANUARY-2000 WHICH WAS EXECUTED BETWEEN THE ASSESSEE (PARTY OF THE FIRST PART) AND M/S.SHYAM DEVELOPERS (PARTY OF THE SECOND PART) REPRODUCED BELOW:- (A) TO ENSURE THAT THE PARTY OF SECOND PART PAYS ANNUAL RENT OF LAND AMOUNTING TO RS.8 40 000/- (RUPEES EIGHT LA CS FORTY THOUSAND ONLY) FOR TOTAL ADMEASURING 14000 SQ.YARDS WITHOUT ANY INTERRUPTION IT IS DECIDED TO PAY A SU M OF RS.70 00 000/- (RUPEES SEVENTY LACS ONLY) IN FIXED DEPOSIT IN NATIONALIZED BANK IN JOINT NAME OF PARTY OF THE SEC OND SIDE AND PARTY OF THE FIRST SIDE WHICH WILL FETCH INTERE ST OF RS.8 40 000/- (RUPEES EIGHT LACS FORTY THOUSAND ONL Y) EQUAL TO THE SAID RENT. THE OWNERSHIP OF DEPOSIT AND RIGHT THERE OF ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 8 - SHALL BE OF PARTY OF SECOND SIDE AND THE PARTY OF F IRST SIDE SHALL ONLY HAVE THE RIGHT OF RENEWAL THEREOF WHATEVER INTEREST INCOME IS RECEIVED WILL CREDITED BY VIRTUE OF RENT AGREEMENT IN THE ACCOUNT OF VADIL SABHA TRUST ASSOCIATION ON WHI CH THE ENTIRE RIGHT SHALL BE OF PARTY OF THE FIRST SIDE AN D NEITHER PARTY SHALL BE CREATE AND CHARGED ON THE SAID DEPOSIT NOR TAKE ANY LOAN OR MORTGAGED. THE PARTY OF SECOND SIDE THOUGH OWNER OF THE SAID DEPOSIT SHALL NOT BE ENTITLED TO ENCASH R ECOVERS OR CHARGED THE SAID DEPOSIT TILL POSSESSION OF THE LA ND UNDER LEASE IS NOT HANDED OVER TO THE ASSOCIATION. 6. AS PER THE CONTENTS OF THIS LEASE AGREEMENT IT APPEARS THAT THE PARTY OF THE SECOND PART( M/S SHYAM DEVELOPERS ) HA D MADE AN ARRANGEMENT FOR SAFE AND SECURED PAYMENT OF RENT. T HERE ARE FEW OTHER FATCS WHICH WERE NOT EXAMINED IN THE RIGHT PE RSPECTIVE. WE HAVE NOTICE THAT THE ASSESSEE COUNCIL HAD MADE THE CONTRIBUTION IN AN ANOTHER TRUST STATED TO BE A PARENT BODY AND IN THA T MANNER THE ENTIRE RECEIPTS HAVE BEEN APPLIED FOR THE CHARITY. THERE WAS NO FINDING BY THE A.O. IN THIS WHETHER THE APPLICATION OF INCOME WAS FOR THE OBJECTS OF THE TRUST AND THEREFORE ENTITLED FOR THE EXEMPTION AS PER SEC.11 OF THE ACT. AN ANOTHER CONSPICUOUS FA CT HAS ALTOGETHER ESCAPED THE ATTENTION OF THE A.O. THAT WHETHER THE PROPERTY IN QUESTION IS A BUILDING PLUS LAND APPURTENANT OR ON LY LAND. ONLY AFTER ASCERTAINING THIS VITAL FACT IT CAN BE DECIDED WHET HER THE ASSESSEE TRUST CAN BE TAXED UNDER THE PROVISIONS SEC 22 & SE C.23 OF THE ACT. IT ALSO APPEARS THAT LD.CIT(A) AS ALSO THE A.O. HAD NOT THOROUGHLY EXAMINED THE CLAUSES AS ALSO THE TERMS AND CONDITIO NS OF THE IMPUGNED LEASE-DEED. AN ANOTHER FEATURE OF THE CLA USE REPRODUCED ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 9 - HEREINABOVE HAD COME TO OUR NOTICE THAT THE OWNERS HIP OF THE SAID DEPOSIT WAS AGREED TO BE VESTED WITH THE PARTY OF T HE SECOND PART I.E. SHYAM DEVELOPERS. THEREFORE THE ISSUE OF THE CHAR ACTER AS WELL THE NATURE OF THE INCOME IN THE HANDS OF THE ASSESSEE H AS TO BE DETERMINED IN THE LIGHT OF THE CLAUSES OF THE SAID AGREEMENT. TOTALITY OF THE CIRCUMSTANCES AS ALSO IN OUR CONSIDERED VI EW THE A.O. SHOULD RE-EXAMINE THE ISSUE AFRESH AFTER CONSIDERIN G SOME OF THE GUIDELINES AS FOLLOWS:- (I) THE ASSESSEE SHOULD BE ASKED TO PRODUCE THE ORI GINAL CERTIFICATES ISSUED BY UTI-64 TO CONFIRM THE OWNERS HIP OF THE SAID INVESTMENT. (II) THE ASSESSEE SHOULD BE ASKED TO PRODUCE THE DI VIDEND WARRANTS TO AFFIRM THE NAME OF THE PERSON IN WHOSE FAVOUR THE DIVIDEND IS DECLARED. (III) THE LD. A.O. SHALL EXAMINE THE CLAUSES OF THI S AGREEMENT AFRESH TO ASCERTAIN WHETHER IT WAS AN ARRANGEMENT FOR SAFE AND SECURED PAYMENT OF RENT. (IV) THE LD. A.O. SHALL EXAMINE THE MODE AND METHOD BY WHICH THE SECURITY AMOUNT OF RS.70 LACS WAS TRANSFE RRED FROM SHYAM DEVELOPERS TO THE ACCOUNTS OF THE ASSESS EE. (V) THE LD. A.O. SHALL EXAMINE THE MODE OF INVESTME NT AND TO AFFIRM AS TO HOW THE AMOUNT WAS TRANSFERRED FROM THE ACCOUNT OF THE ASSESSEE TO UTI-64. ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 10 - (VI) THE LD.A.O. SHALL EXAMINE THE ENCASHMENT PROCE SS FOLLOWED BY THESE TWO PARTIES ON ENCASHMENT OF UTI- 64 ON EXPIRY OF THE INVESTMENT. (VII) THE ASSESSEE SHALL PLACE ON RECORD THE COMPLE TE DETAILS OF APPLICATION OF INCOME AND THE A.O. SHALL ASCERTAIN THE ENTITLEMENT OF EXEMPTION U/S 11 IF ANY AS PER LAW. (VIII) THE A.O. SHALL EXAMINE THE EXACT CHARACTER/ NATURE / QUALITY OF THE PROPERTY IN QUESTION SO THAT THE COR RECT HEAD OF INCOME SHOULD BE DETERMINED I.E. WHETHER TO BE TAXED U/S 22 & 23 OR U/S 56 OF THE ACT. 6.1 ON EXAMINATION OF THESE FACTS IN OUR OPINION IT SHALL BE EASY TO DETERMINE WHETHER THE IMMEDIATE AND DIRECT SOURC E OF INCOME IN THE HANDS OF THE ASSESSEE IS THE DEPOSIT WITH UTI-6 4 OR IT WAS MERELY AN ARRANGEMENT BY M/S.SHYAM DEVELOPERS FOR UNINTERR UPTED SECURED PAYMENT OF RENT TO THE ASSESSEE-TRUST. WITH THES E OBSERVATIONS THIS GROUND OF THE REVENUE MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 7. APROPOS GROUND NO.2 THE LEASE AGREEMENT WAS STATED TO BE FOR 99 YEARS. AS PER THE SAID AGREEMENT LEASE REN T WAS FIXED AT RS.8.40 LACS PER ANNUM. IT WAS FOUND BY THE AO THA T THE ASSESSEE HAS ONLY RECEIVED RS.6 89 000/- WHICH WAS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. THE BALANCE AMOUNT OF RS.1 51 00 0/- WAS ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 11 - THEREFORE ASSESSED BY THE AO AS RENT ACCRUED FOR TH E YEAR UNDER CONSIDERATION. 8. BEFORE THE FIRST APPELLATE AUTHORITY IT WAS CON TESTED THAT THE ASSESSEE HAS FOLLOWED CASH SYSTEM OF ACCOUNTING HE NCE THE AMOUNT OF RS.6 89 000/- WHICH WAS ACTUALLY RECEIVED WAS ONLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. THE LD.CIT(A) HAS H ELD THAT AS PER THE COMPANY LAW A COMPANY CAN FOLLOW CASH AS WELL AS M ERCANTILE SYSTEM OF ACCOUNTING. HENCE LD.CIT(A) HAS HELD THA T THE ASSESSEE IS SUBJECT TO TAX ON CASH SYSTEM OF ACCOUNTING THEREF ORE THE AO HAD WRONGLY TAXED THE RENT ON ACCRUAL BASIS. THE ADD ITION WAS DELETED. 9. FROM THE SIDE OF THE REVENUE LD. DR MR.B.L. YA DAV HAS PLACED RELIANCE ON THE ORDER OF THE AO HOWEVER LD .AR MR.SUNIL H.TALATI HAS SUPPORTED THE ORDER OF THE LD.CIT(A). IT WAS CONTESTED BEFORE US THAT AS PER THE PROVISIONS OF S ECTION 209 OF COMPANIES ACT A COMPANY CAN FOLLOW BOTH CASH SYSTE M OF ACCOUNTING AS WELL AS MERCANTILE SYSTEM OF ACCOUNTI NG. NO CORRESPONDING AMENDMENT U/S.145 HAS BEEN INCORPORAT ED THEREFORE IT WAS WRONG ON THE PART OF THE AO TO ASSESS THE AM OUNT ON ACCRUAL BASIS. 10. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES WE ARE OF THE VIEW THAT THE FACTS PERTAINING TO THIS GROUND HAVE NOT CLEARLY ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 12 - EMERGED FROM THE OBSERVATIONS MADE IN THE RESPECTIV E ORDERS BY THE AUTHORITIES BELOW. ONCE THE LEASE AGREEMENT HAS AF FIRMED THAT THE ANNUAL RENT WAS FIXED AT RS.8.4 LAKHS THEN HOW THE BALANCE AMOUNT WAS ADJUSTED FOR THE YEARS UNDER CONSIDERATI ON ?. AS FAR AS THE ACCOUNTS OF THE ASSESSEE ARE CONCERNED UNDISPU TEDLY UNDER INCOME AND EXPENDITURE ACCOUNT ONLY A SUM OF RS.6 89 000/- WAS STATED TO BE CREDITED. IT IS NOT OUT OF PLACE TO M ENTION THAT AS PER THE INCOME AND EXPENDITURE ACCOUNT THE SAID ENTIRE AMO UNT OF RS.6 89 000/- WAS TRANSFERRED TO AN ANOTHER TRUST CLAIMED TO BE UTILIZED AS PER THE OBJECTS OF THE TRUST. AS FAR AS THE NOTES ANNEXED TO THE AUDITED ACCOUNTS ARE CONCERNED IT WAS QUALI FIED THAT THE INCOME AS UN-REALIZED RENT WAS NOT SHOWN IN THE BOO KS OF ACCOUNT. HAD THAT AMOUNT BE TAKEN INTO ACCOUNT THEN THE INC OME AS PER THE AUDITOR WOULD BE MORE BY RS.1 51 000/-. THE MOOT QUESTIONS ARE FIRST THAT WHETHER THE ASSESSEE CAN FOLLOW CASH SYSTEM O F ACCOUNTING WHEN THE ONLY SOURCE OF INCOME IS RENTAL INCOME AND SECOND THAT WHETHER THE BALANCE RENT WAS EVER TAXED ON CA SH BASIS IN ANY OF THE ASSESSMENT YEAR SUBSEQUENTLY. AUTHORI TY BELOW IS EXPECTED TO ADDRESS THESE ASPECTS FIRST SO THAT THE HIGHER FORUM CAN GIVE ITS FINDING. IN THE ABSENCE ANY VERSION ON T HESE TWO ASPECTS IT IS NOT PROPER TO ARRIVE AT THE CONCLUSION EITHER TO ASSESS ON ACCRUAL BASIS OR TO ASSES ON CASH BASIS. WE THEREFORE DI RECT A.O. TO EXAMINE THESE FACTS AFRESH . THIS GROUND OF THE RE VENUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 13 - 11. IN THE RESULT ALL THE THREE APPEALS OF THE REV ENUE ARE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. ASSESSEES CROSS OBJECTION NOS.49 50 & 51/AHD/2011 FOR AYS 2001-02 2002-03 & 2003-04 (ARISING OUT OF ITA NOS. 3456 3457 & 4191/AHD/2007) 12. FOR THE SAKE OF CONVENIENCE GROUNDS ARE REPROD UCED FROM A.Y. 2001-02. THE ASSESSEE BEING AGGRIEVED BY THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) PRESENTS THIS CROSS OBJECTION AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GROUNDS. 1. THE LEARNED C.I.T. (APPEALS) HAS ERRED IN UPHOL DING THE ORDER PASSED U/S.143(3) R.W.S.147 AND HOLDING THAT NOTICE U/S.143(2) CAN BE ISSUED AFTER 12 MONTHS IN A CASE WHERE NOTICE U/ S.148 IS ISSUED. IT IS SUBMITTED THAT THE FINDING GIVEN BY THE LEARN ED C.I.T.(APPEALS) IS BAD IN LAW AND THE ORDER PASSED U/S.143(3) R.W.S .147 BE ANNULLED AS TIME BARRED. 2. THE LEARNED C.I.T. (APPEALS) HAS ERRED IN CONFI RMING THE STATUS OF THE APPELLANT AS THAT OF A COMPANY WHEREAS THE A PPELLANT IS A CHARITABLE TRUST AND THE STATUS OF THE APPELLANT SH OULD BE A.O.P. 3. THE LEARNED C.I.T. (APPEALS) HAS ERRED IN NOT G RANTING DEDUCTION OF RS.6 89 000/- (A.Y.2002-03 OF RS.4 77 800/- & A.Y.2003-04 OF RS.8 40 000/-) PAID OVER / EXPENDED FOR THE PURPOSES OF THE TRUST AND THEREBY TAXING THE ENTIRE GROSS RECEIPTS WHICH WERE DIVERTED BY OVERRIDING CHARGE. IT IS SU BMITTED THAT THE INCOME SO UPHELD BE DELETED NOW. ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 14 - 4. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED C.I. T.(APPEALS) HAS ERRED IN MAKING AND CONFIRMING THE ADDITION OF RS.6 89 000/- (A.Y.2002-03 OF RS.4 77 800/- & A.Y.2003-04 OF RS.8 40 000/-) WHICH WAS NOT AT ALL AN INCOME OF THE APPELLANT. I T IS SUBMITTED THAT THE FINDING OF LEARNED C.I.T. (APPEALS) THAT T HE INTEREST INCOME RECEIVED BY THE APPELLANT OF RS.6 89 000/-(A.Y.2002 -03 OF RS.4 77 800/- & A.Y.2003-04 OF RS.8 40 000/-) BE TA XED AS INCOME FROM OTHER SOURCES BE DELETED AND THE APPELLANT BE NOT TAXED ON THE SAID INCOME. 13. BEFORE WE PROCEED WITH THESE GROUNDS IT WAS IN FORMED THAT THE CROSS OBJECTIONS HAVE BEEN BELATEDLY FILED. T HE LD.AR MR SUNIL H.TALATI HAS INFORMED THAT THE TRUSTEES OF TH E TRUST ARE AT ADVANCED AGE AND COULD NOT PURSUE THE LEGAL MATTERS EFFICIENTLY. AT THE TIME WHEN THE GROUND OF APPEAL OF THE REVENUE W ERE RECEIVED IT WAS NOT ADVISED TO FILE THE CROSS OBJECTIONS. LATE R ON WHEN THE HEARING WAS IN PROGRESS IT WAS ADVISED TO FILE THE CROSS OBJECTIONS THOUGH BELATEDLY. ON HEARING BOTH THE SIDES WE ARE OF THE VIEW THAT THE CROSS OBJECTOR DESERVES THE RIGHT OF HEARI NG. THOUGH UNDISPUTEDLY THE LAW OF LIMITATION IS ENSHRINED IN THE MAXIM INTEREST REPUBLICA UT SIT FINIS LITIUM ( IT IS FOR GENERAL WELFARE THAT A PERIOD BE PUT TO LITIGATION) BUT WHEN SUBSTANTIAL JUSTICE AN D TECHNICAL CONSIDERATION ARE PITTED AGAINST EACH OTHER; THE CAUSE OF SUBSTAN TIAL JUSTICE DESERVES TO BE PREFERRED. OTHERWISE ALSO THE PRIMARY FUNCTION OF A COURT IS TO ADJUDICATE THE DISPUTE BETWEEN PARTIES AND TO ADVAN CE SUBSTANTIAL JUSTICE. THE QUESTION OF EXPLAINING THE REASONS OF EACH DAY S DELAY HAS ALSO BEEN ADDRESSED BY SEVERAL HON'BLE COURTS AND HELD THAT W HILE EXERCISING THE DISCRETION OF SEC.5 OF LIMITATION ACT A PRAGMATIC APPROACH SHOULD BE ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 15 - MADE TO BE COUPLED WITH APPLICATION OF A RATIONAL C OMMON SENSE RATHER A PEDANTIC ONE. WE HAVE TAKEN THIS GIST FROM THE CIT ATIONS VIZ. COLLECTOR LAND ACQUISITION VS. MST. KATIJI & ORS. REPORTED A S 62 CTR 23 (S.C.) AUTO CENTRE VS. STATE OF UTTAR PRADESH REPORTED AS 204 CTR 142 (ALL.) AND STATE OF HARYANA VS. CHANDRA MANI REPORTED AS AIR 1996 (SC) 1623. FOLLOWING THESE PRECEDENTS THE DELAY IS HEREB Y CONDONED AND PROCEED TO DECIDE ON MERITS. 14. GROUND NOS.1 & 2 ARE NOT CONTESTED HENCE DISMISSED. 15. APROPOS GROUND NOS.3 & 4 THE CROSS OBJECTOR HAS OBJECTED THE DIRECTIONS OF LD.CIT(A) TO TAX THE IMPUGNED AMO UNT OF RS.6 89 000/- UNDER THE HEAD INCOME FROM OTHER SOU RCES. AS PER THE CONTENTION OF THE LD.AR THE SAME SHOULD NOT BE SUBJECTED TO TAX AT ALL BECAUSE THE ENTIRE AMOUNT IS TRANSFERRED TO AN ANOTHER TRUST TO FULFILL THE OBJECTS OF THIS TRUST. THE ENTIRE AMOU NT BEING UTILISED FOR CHARITABLE PURPOSES THEREFORE NO AMOUNT SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE-TRUST. 16. ON HEARING THE SUBMISSIONS SINCE WE HAVE ALREA DY RESTORED THE ISSUE BACK TO THE FILE OF THE LD A.O. FOR DE NOVO CONSIDERATION WITH CERTAIN DIRECTIONS THEREFORE IT IS ADEQUATE TO FIRST ASCERTAIN THE CHARACTER OF THE INCOME AND THEN TO DECIDE THE ASSE SSABILITY OF THE AMOUNT. SINCE THE ISSUE IN ALL THE THREE CROSS OBJ ECTIONS ARE IDENTICAL THEREFORE TO BE DECIDED AFRESH AS PER TH E DIRECTIONS LISTED ITA NOS.3 456 3457 & 4191/AHD/2007 (BY REVENUE) & CO NOS.49 50 & 51/AHD/2011 (BY ASSESSEE) AYS 2001-02 2002-03 & 2003-04 RESPECTIVELY - 16 - HEREINABOVE. GROUND NOS.3 & 4 ARE ALLOWED BUT FOR STATISTICAL PURPOSES. 17. IN THE RESULT APPEALS OF THE REVENUE ARE TREA TED AS ALLOWED ONLY FOR STATISTICAL PURPOSES WHEREAS CRO SS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY ALLOWED BUT FOR S TATISTICAL PURPOSES. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 29 TH JULY 2011. SD/- SD/- ( A.K. GARODIA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD; DATED 29/ 07 /2011 T.C. NAIR SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED. 4. THE LD. CIT(APPEALS)-VI & VIII AHMEDABAD 5. THE DR AHMEDABAD BENCH.6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD 1. DATE OF DICTATION.. 07/07/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 07/07/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S29.7.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.7.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER