DDIT, Hyderabad v. NTR Memorial Trust, Hyderabad

ITA 461/HYD/2010 | 2003-2004
Pronouncement Date: 18-03-2011 | Result: Dismissed

Appeal Details

RSA Number 46122514 RSA 2010
Assessee PAN AAATN2108G
Bench Hyderabad
Appeal Number ITA 461/HYD/2010
Duration Of Justice 11 month(s) 23 day(s)
Appellant DDIT, Hyderabad
Respondent NTR Memorial Trust, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 18-03-2011
Date Of Final Hearing 10-03-2011
Next Hearing Date 10-03-2011
Assessment Year 2003-2004
Appeal Filed On 25-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI G.C. GUPTA VP & SHRI CHANDRA POOJARI AM I.T.A. NO. 461/HYD/2010 (ASSESSMENT YEAR 2003-04) I.T.A. NO. 462/HYD/2010 (ASSESSMENT YEAR 2005-05) DY. DIRECTOR OF I.T. (E) - II HYDERABAD VS. M/S. N.T.R. MEMORIAL TRUST HYDERABAD PAN: AAATN 2108 G APPELLANT RESPONDENT APPELLANT BY: SHRI K.E. SUNIL BABU RESPONDENT BY: SHRI P. MURALI MOHANA RAO O R D E R PER CHANDRA POOJARI AM: THE ABOVE TWO APPEALS OF THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE CIT(A)-IV HYDERABA D DATED 29.12.2009 FOR THE ASSESSMENT YEARS 2003-04 A ND 2004-05. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEARS THESE WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS A CHARITABLE TRUST REGISTERED U/S. 12A OF THE INCOME-TAX ACT 1961 AND FILED ITS RETUR NS OF INCOME FOR THE A.YS. 2003-04 AND 2004-05 CLAIMING EXEMPTION U/S. 11 OF THE ACT WHICH WERE ACCEPTED. SUBSEQUENTLY THE ASSESSMENTS WERE REOPENED BY ISSU ING NOTICES U/S. 148 DATED 18.10.2007 AS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD MADE A WRONG CL AIM I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 2 OF DOUBLE DEDUCTION BY CLAIMING BOTH DEPRECIATION A ND TOTAL COST OF ADDITIONS TO ASSETS AS APPLICATION OF INCOME. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OF FICER NOTICED THAT ONE SHRI M. VENKAT RAO ENGINEERING CONTRACTOR HAD DONATED RS. 5 LAKHS IN FAVOUR OF TH E ASSESSEE TRUST BY CHEQUE ON 3.7.2002. IT WAS FOUND BY THE ASSESSING OFFICER THAT DURING THE YEAR RELEVANT TO A.Y. 2003-04 SRI VENKAT RAO GOT A BUILDING CONTRACT FOR RS. 8 LAKHS FOR CONSTRUCTION WORKS OF THE TRUST AND FOR T HE A.Y. 2004-05 CONTRACT OF CIVIL CONSTRUCTION TO THE TUNE OF RS. 23 47 200. THE ASSESSING OFFICER HELD THAT ANY PER SON WHO MAKES A TOTAL CONTRIBUTION EXCEEDING RS. 50 000 TO THE TRUST UP TO THE END OF THE RELEVANT PREVIOUS YE AR IS COVERED U/S. 13(3)(D) OF THE ACT. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS ARGUED BEFORE THE ASSESSING OFFICER THAT THE CONSIDERATION PAID TO MR. VENKAT RAO FOR THE CONTRA CT WORK WAS LOWER THAN THE ARMS LENGTH PRICE. WITH R EGARD TO THE POSITION IN A.Y. 2004-05 IT WAS CONTENDED B Y THE ASSESSEE THAT THE DONATION OF RS. 5 LAKHS FROM MR. VENKAT RAO WAS RELEVANT TO THE A.Y. 2003-04 AND NOT TO THE A.Y. 2004-05. THE ASSESSING OFFICER DID NOT AGREE WITH T HE ASSESSEE AND OBSERVED THAT THE PROVISIONS REFER TO THE TOTAL CONSIDERATION UP TO THE END OF THE RELEVANT P REVIOUS I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 3 YEAR I.E. DONATIONS TAKEN CUMULATIVELY AND NOT LIM ITED TO ANY PARTICULAR YEAR. HE FURTHER POINTED OUT THAT I T IS NOT THE NET BENEFIT BUT IT IS ANY BENEFIT DIRECT OR IN DIRECT THAT IS HIT BY THE PROVISIONS OF SECTION 13(1)(C)(II). HE FELT THAT IN RESPECT OF ASSESSMENT YEAR 2003-04 THE ASSESSEE HAD NOTIONALLY WORKED OUT THE PROFIT OF MR. VENKAT RAO U/S. 44AD @ 8% AT RS. 64 000 WHEREAS THE PROFITS FOR A.Y . 2004-05 WERE ESTIMATED AT RS. 2.56 LAKHS. THE ASSE SSING OFFICER HELD THAT THE BENEFIT OF RS. 64 000 IS HIT BY THE PROVISIONS OF SECTION 13(1)(C)(II) AS THE SIZE OF T HE BENEFIT WHETHER DIRECT OR INDIRECT IS IMMATERIAL UNLESS IT IS LESS THAN RS. 1 000 IF THE CASE IS COVERED UNDER ONE OF THE DEEMED SITUATIONS U/S. 13(2)(G) OF THE ACT. 4. IN RESPECT OF A.Y. 2004-05 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD FAILED TO ESTABLISH THA T THE CONSIDERATION PAID TO MR. VENKAT RAO WAS LESS THAN THE MARKET CONSIDERATION AS THE ASSESSEE COULD NOT ADDU CE ANY SUPPORTING EVIDENCE OR COMPARABLE CASES. HE DI D NOT ACCEPT THE ARGUMENT THAT MR. VENKAT RAO WAS KNOWN T O THE ASSESSEE AND IS EXPECTED TO DELIVER QUALITY WOR K WHICH HE FELT IS AGAINST THE NORMAL PRINCIPLES OF AWARDIN G CONTRACTS BY OPEN INVITATION WHERE THE WORKS WILL B E AWARDED TO THE LOWEST BIDDER. WITH REGARD TO THE EXPLANATION ON REASONABLENESS THE ASSESSING OFFICE R FELT I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 4 THAT THE REASONABLENESS OR ADEQUACY OF PAYMENTS MAD E TO INTERESTED PERSONS LISTED U/S. 13(3) IS LIMITED ONL Y TO THE DEEMED TRANSACTIONS SPECIFIED U/S. 13(2) SPREAD OVE R THE EIGHT CLAUSES (A) TO (H) AND NONE OF THOSE SITUATI ONS ARE RELATED TO THE PAYMENTS ON ACCOUNT OF CONTRACTS. 5. BEFORE THE CIT(A) THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME ARGUMENTS AS MADE BEFO RE THE ASSESSING OFFICER. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE BENEFIT MEANS PASSING ON SOMETHING WITHOUT CONSIDERATION OR FOR INADEQUATE CONSIDERATION WHICH DOES NOT INCLUDE TRANSACTIONS IN THE NORMAL COURSE AT ARMS LENGTH OR AT FAIR MARKET VALU ES WITH ADEQUATE CONSIDERATION AND SINCE THE CONTRACT WAS AWARDED AT A PRICE LESS THAN THE MARKET PRICE NO B ENEFIT HAD PASSED ON TO THE CONTRACTOR. THE LEARNED COUNS EL FOR THE ASSESSEE MAINTAINED THAT THE CONCEPT OF REASONABLENESS OR ADEQUACY OF PAYMENTS MADE TO THE INTERESTED PERSONS IS AN IMPORTANT CRITERIA TO BE T AKEN INTO CONSIDERATION FOR INVOKING THE PROVISIONS OF S ECTION 13(1)(C) OF THE ACT. IT WAS ALSO ARGUED THAT THE ASSESSING OFFICER WAS NOT RIGHT IN HOLDING THAT THE TRANSACTI ON UNDER CONSIDERATION DID NOT FALL UNDER ANY OF THE SPECIFI C CLAUSES MENTIONED IN SECTION 13(2) AND THEREFORE THE PROV ISIONS OF SECTION 13(1)(C) WERE ATTRACTED. THE LEARNED CO UNSEL FOR I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 5 THE ASSESSEE ARGUED THAT SUFFICIENT OPPORTUNITY WAS NOT GRANTED TO THE ASSESSEE TO PROVE THAT THE CONTRACTS WERE AWARDED AT ARMS LENGTH PRICE AND LESS THAN THE MARK ET VALUE. HE ALSO SUBMITTED THAT THE ARITHMETIC EXAMP LE WORKING OUT OF PROFITS @ 8% WAS ONLY AN ILLUSTRATED EXAMPLE TO DEMONSTRATE THAT NO BENEFIT HAS BEEN PAS SED ON. 6. THE CIT(A) OBSERVED THAT THE PURPOSE OF SECTION 13(1)(C) IS TO DEPRIVE A RELIGIOUS OR CHARITABLE TR UST OF EXEMPTION IF IT IS FOUND THAT ITS INCOME IS USED O R APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF THE SPEC IFIED PERSONS. HOWEVER WHETHER ANY INCOME HAS BEEN SO U SED OR APPLIES IS TO BE DECIDED ON THE FACTS AND CIRCUM STANCES OF THE CASE. SECTION 13(1)(C) THEREFORE CARVES O UT A GENERAL EXCEPTION WHEREIN THE PROVISIONS OF SECTION 11 AND 12 WILL NOT OPERATE ON ACCOUNT OF USER OR APPLI CATION OF ANY INCOME OF THE TRUST FOR ANY DIRECT OR INDI RECT BENEFIT OF ANY SPECIFIED PERSONS. APART FROM THIS GENERAL PROVISION CERTAIN CIRCUMSTANCES HAVE BEEN ENUMERAT ED IN CLAUSES (A) TO (H) OF SUBSECTION (2) OF SECTION 13 CREATING A FICTION WHEREIN THE INCOME OR THE PRO PERTY OF THE TRUST OF INSTITUTION OR ANY PART THEREOF SHA LL BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON REFERRED TO IN SUBSECTION (3). THE CIT(A) O BSERVED I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 6 THAT THE ONLY QUESTION TO BE ANSWERED IN THIS CASE IS WHETHER ANY INCOME OF THE ASSESSEE TRUST WAS USED OR APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF A NY PERSON REFERRED TO IN SUBSECTION (3). THE CIT(A) OBSERVED THAT THE VIEW OF ASSESSING OFFICER THAT BECAUSE ANY SUM WA S PAID TO THE SPECIFIED PERSON EVEN AS A PAYMENT FOR CERT AIN CONTRACT WORK ON COMMERCIAL BASIS IT WOULD AMOUNT T O A BENEFIT CANNOT BE CONSIDERED AS CORRECT. 7. THE CIT(A) NARRATED THE CASE OF KOHINOOR CHARITABLE TRUST VS. ITO (37 ITD 406) WHEREIN THE ASSESSEE TRU ST HAD TAKEN A PREMISES ON LEASE ON RENTAL BASIS FROM ANOT HER TRUST CREATED FOR THE BENEFIT OF THE CHILDREN OF ON E OF THE TRUSTEES OF THE ASSESSEE TRUST. THE SAID PREMISES WAS GIVEN BY THE LESSEE TRUST TO A SCHOOL BEING RUN BY THE TRUSTEES FOR THE LESSEE TRUST AND APPLYING THE PROV ISIONS OF SECTION 13(3) THE ASSESSEE TRUST WAS DENIED EXEMPTI ON U/S. 11 OF THE ACT. THE ITAT EXAMINED THE ISSUE WH ETHER SECTION 13 PROHIBITS OR PRESCRIBES A TOTAL BAN OF A NY TRANSACTION BY A CHARITABLE TRUST WITH THE FAMILY M EMBERS OF THE TRUSTEES OR CONCERNS IN WHICH THE TRUSTEES A RE PARTNERS DIRECTORS PROPRIETORS ETC. THE ITAT OB SERVED THAT THE CIRCUMSTANCES BETWEEN PERSONS RELATED TO E ACH OTHER IS NOT BARRED UNDER THE ACT. THE RESTRICTIVE CONDITIONS ARE PROVIDED SO AS TO SEGREGATE THE NON- I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 7 GENUINE TRUSTS FROM GENUINE TRUSTS AND NON-GENUINE TRANSACTIONS FROM GENUINE-TRANSACTIONS ETC. THE I TAT HELD THAT SINCE THE ASSESSEE TRUST HAD TAKEN THE PR EMISES ON RENT SLIGHTLY LOWER THAN THE MARKET RATE WHICH COULD NOT BE SAID TO EXCESSIVE THE EXEMPTION COULD NOT H AVE BEEN DENIED. 8. FOR THE PROPOSITION THAT TRANSACTIONS WITH SPECIFIE D PERSONS ALONE WILL NOT ATTRACT THE PROVISIONS OF SE CTION 13(1)(C) OF THE ACT THE CIT(A) RELIED ON THE DECIS ION OF DELHI HIGH COURT IN THE CASE OF DIT VS. PARIWAR SEV A SANSTHAN (118 TAXMAN 587) WHEREIN THE DELHI HIGH COURT HELD THAT SINCE THE RENT SO PAID WAS REASONAB LE CONSIDERING THE LOCATION OF THE HOUSE AND NOT EXCE SSIVE THE EXEMPTION U/S. COULD NOT BE DENIED. THE CIT(A) ALSO CITED THE DECISION OF DELHI HIGH COURT IN DIT(E) VS . SPAN FOUNDATION ORDER DATED 4.11.2008 IN ITA NOS. 767 AN D 789 OF 2008 WHEREIN THE HIGH COURT OPINED THAT WITH REGARD TO THE BENEFIT BEING DERIVED BY INTERESTED P ERSONS ADEQUACY IS THE ONLY QUESTION OF RELEVANCE. 9. THE CIT(A) HELD THAT THE PROVISIONS OF SECTION 13(1)(C) DO NOT RESTRICT ANY COMMERCIAL TRANSACTION S EVEN WITH THE SPECIFIED PERSONS IF SUCH TRANSACTIONS AR E AT AN ARMS LENGTH AND NO BENEFIT IS PASSED ON BY THE T RUSTS ON ACCOUNT OF SUCH TRANSACTIONS. FOR THIS PROPOSITION THE I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 8 CIT(A) RELIED ON THE CASE IN SHUBHRAM TRUST VS. DIT (E) [317 ITR (AT) 65] WHEREIN THE TRUSTEE HAD LEASED OU T A LAND TO THE ASSESSEE TRUST ON RENT. THE ASSESSEE TR UST CONSTRUCTED A COMMUNITY HALL (KALYANA MANTAPAM) ON THE SAID LAND AT A SUBSTANTIAL COST AND LEASED BACK THE LAND ALONG WITH THE BUILDING TO THE SAID TRUSTEE ON A MO NTHLY RENT. THE ITAT FELT THAT IN CASE ONLY THE BUILDING WAS BEING LEASED OUT AS THE LAND BELONGED TO SHRI RAMAMURTHY THE ASSESSEE HAD NOT TAKEN ADEQUATE STE PS TO PROTECT ITS INVESTMENTS AND THEREFORE THE PROV ISIONS OF SECTION 13(10(C) WERE ATTRACTED. THIS DECISION OF THE BANGALORE ITAT BRINGS OUT THAT IT IS NOT THE ONLY F ACT THAT SOME RENT WAS PAID BY THE TRUST TO THE TRUSTEE WHIC H WILL DISENTITLE THE TRUST FROM EXEMPTION BUT THAT THE EXEMPTION CAN BE FORFEITED ONLY IF SUCH PAYMENT IS ESTABLISHED AS UNREASONABLE AND IN THE NATURE OF PA SSING OF ANY BENEFIT TO THE SPECIFIED PERSON. 10. THE CIT(A) OBSERVED THAT COMMERCIAL TRANSACTIONS AT ARMS LENGTH WITH THE SPECIFIED PERSONS ARE NOT BARRED. FOR THIS PROPOSITION THE CIT(A) RELIED ON THE DECIS ION OF DELHI BENCH OF THIS TRIBUNAL IN LITTLE TRADITION VS . DDIT(E) [312 ITR (AT) 147] WHEREIN THE ASSESSEE TRU ST HAD GIVEN AN AMOUNT OF RS. 11 LAKHS TO M/S. INDIGO PUBLISHING P. LTD. A COMPANY IN WHICH TWO OF THE I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 9 MEMBERS OF THE ASSESSEE SOCIETY WERE SUBSTANTIALLY INTERESTED FOR PRINTING OF MAGAZINES. SINCE THE A SSESSEE RECEIVED MAGAZINES OF THE VALUE OF RS. 3 69 369 ONL Y THE ITAT HELD THAT THE ASSESSEE TRUST HAD DIVERTED AND MISUTILISED THE FUNDS AND VIOLATED THE PROVISIONS O F SECTION 13(1)(C)(II) R.W.S. 13(2)(B) OF THE ACT. T HE PROVISIONS OF SECTION 13(1)(C) WERE FOUND APPLICABL E AS THE COMMERCIAL TRANSACTION BETWEEN THE TWO WAS NOT AT A RMS LENGTH AND BENEFIT HAD BEEN PASSED ON TO THE SPEC IFIED PERSONS IN THE FORM OF MORE THAN ADEQUATE COMMERCIA L CONSIDERATION. THE CIT(A) OBSERVED THAT THE SITUAT ION WOULD HAVE BEEN DIFFERENT HAD THE CONSIDERATION FOR GETTING THE MAGAZINES PRINTED FROM THE SAME PUBLISH ERS BEEN ADEQUATE. 11. THE CIT(A) WAS OF THE VIEW THAT DESPITE THE GENERALITY OF CLAUSE (C) OF THE PROVISIONS OF SECTI ON 13(1) THE FORFEITURE OF EXEMPTION CAN BE INVOKED ONLY IF A BENEFIT DIRECTLY OR INDIRECTLY ENURED TO THE SP ECIFIED PERSONS OUT OF ANY INCOME OF THE TRUST OR ANY PART OF TRUSTS INCOME OR PROPERTY IS USED OR APPLIED FOR T HE BENEFIT OF SUCH SPECIFIED PERSON. HE DID NOT FIN D ANY MERIT IN THE VIEW OF THE ASSESSING OFFICER THAT THE QUESTION OF REASONABLENESS IS TO BE ANSWERED ONLY IN RESPECT OF THE EIGHT SPECIFIC DEEMED SITUATIONS OF SECTION 13(2)(A ) TO (H). I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 10 THE TERM BENEFIT IMPLIES SOMETHING OVER AND ABOVE WHAT IS REASONABLE AND ADEQUATE AND FOR THE PURPOSE OF S ECTION 13(1)(C) THERE SHOULD BE A CASE OF ANY BENEFIT B ENEFICIALLY BEING PASSED ON TO THE SPECIFIED PERSONS. 12. THE CIT(A) ALSO CITED THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN SMT. CHANDARKALA SOMANI CHARITA BLE TRUST VS. ITO (30 ITD 70) WHEREIN THE TRIBUNAL OBSE RVED THAT THE WORD BENEFIT HAS TO BE INTERPRETED AS AN ADVANTAGE PROFIT FRUIT OR PRIVILEGE AND IN THE C ONTEXT IN WHICH IT IS USED IN THE PRESENT SECTION IT HAS TO BE TREATED AS AN ADVANTAGE OF A PECUNIARY NATURE. REFERRING T O THE DECISION OF MADRAS HIGH COURT IN THE CASE OF MANICKVASAGAM CHETTIAR (53 ITR 292) THE TRIBUNAL OBSERVED THAT THE CHARACTERISTIC OF A BENEFIT IS TH AT IT IS REAL AND NOT NOTIONAL CONCRETE AND NOT ABSTRACT C ERTAIN AND NOT CONJECTURAL. THE TRIBUNAL HELD THAT IN NOR MAL AND POPULAR CONCEPTION AN ADVANCE OF LOAN ON COMMERCIAL TERMS WOULD NOT AMOUNT TO A CONFERMENT O F BENEFIT. 13. AS REGARDS THE RELIANCE OF THE ASSESSING OFFICER ON THE DECISION IN THE CASE OF AGAPPA CHILD CENTRE VS. CIT (226 ITR 211) THE CIT(A) OBSERVED THAT THE FACTS OF THE SAID CASE ARE NOT SIMILAR TO THOSE OBTAINING IN THE PRESENT CASE. THE ASSESSEE CASE HOWEVER DOES NOT INVOLVE ANY I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 11 CASE OF USER OF THE PROPERTY/ FUND OF THE ASSESSEE TRUST FOR THE PERSONAL BENEFIT OF ANY OF THE SPECIFIED PERSON S. THE QUESTION REGARDING WHETHER CONTRACT PRICE PAID TO S HRI VENKAT RAO FOR THE CONTRACT WORK DONE BY HIM WAS ADEQUATE AND REASONABLE HE OBSERVED THAT THE ASSES SING OFFICER DID NOT ADDRESS THIS ISSUE IN THE ASSESSMEN T ORDER. 14. THE CIT(A) HELD THAT THE ASSESSEE HAD ALL ALONG CONTENDED THAT THE CONTRACT HAD BEEN AWARDED TO MR. VENKAT RAO AT LESS THAN THE MARKET PRICE. THEREFOR E THERE COULD NOT HAVE BEEN ANY NORMAL BENEFIT OR EVE N ANY BENEFIT EMBEDDED THEREIN. EVEN IF THE ASSESSEE NOT IONALLY WORKED OUT THE PROFIT U/S. 44AD IN RESPECT OF THE S AID CONTRACTS IT IS CLEAR THAT THE BASIC PURPOSE OF SU CH ARITHMETICAL PRESENTATION WAS TO DEMONSTRATE THAT T HE ASSESSEE COULD HAVE AT BEST EARNED A PROFIT OF RS. 64 000. IN RESPECT OF THE CONTRACT FOR A.Y. 2003-04 AND RS. 2.56 LAKHS IN A.Y. 2004-05 WHICH EVEN TAKEN TOGETHER WOU LD BE LESS THAN THE DONATION OF RS. 5 LAKHS MADE BY MR. V ENKAT RAO AND THEREFORE EVEN AFTER CONSIDERING THE SAME NO BENEFIT COULD BE SAID AS HAVING ACCRUED TO HIM. TH E ASSESSING OFFICER HOWEVER COULD NOT BRING ANY EVI DENCE ON RECORD TO ESTABLISH AS TO HOW THE AWARDING OF CO NTRACT ON COMMERCIAL BASIS COULD HAVE AMOUNTED TO PASSING OF ANY INCOME OF THE ASSESSEE TRUST AS A BENEFIT TO TH E I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 12 SPECIFIED / INTERESTED PERSON. ACCORDINGLY THE CIT (A) HELD THAT UNDER THE CIRCUMSTANCES IT IS TO BE HELD THAT THE MERE FACT OF AWARDING OF SUCH CONTRACTS TO SHRI VEN KAT RAO CANNOT PRESS THE PROVISIONS OF SECTION 13(1)(C) IN TO SERVICE AND DEBAR THE ASSESSEE FROM CLAIMING EXEMPT ION U/S. 11 OF THE ACT. THE CIT(A) DIRECTED THE ASSESS ING OFFICER TO GRANT EXEMPTION U/S. 11 AND RECOMPUTED T HE TOTAL INCOME ACCORDINGLY. AGGRIEVED BY SUCH A DEC ISION OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE THIS TR IBUNAL WITH THE FOLLOWING EFFECTIVE GROUND OF APPEAL: THE LEARNED CIT(A) FAILED TO APPRECIATE THE STRICT LEGAL IMPLICATION LAID DOWN IN THE CASE OF AGAPPA CHILD CENTRE CITED IN 226 ITR 211 DELIVERED BY HONBLE HIGH COURT AND ALSO THAT OF AWARE 263 ITR 43 DELIVERED BY JURISDICTIONAL HIGH COURT THAT FOR THE PURPOSE OF SECTION 13(1)(C) THE WORD BENEFIT IS NOT LIMITED TO ADVANTAGE OF PECUNIARY NATURE ALONE BUT EXTENDS TO ANY INTANGIBLE AND INDIRECT BENEFIT ALSO. 15. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES AND ALSO PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE ARISING HEREIN FOR OUR CONSIDERATION IS WITH REGARD TO DENIAL OF EXEMPTION U/S. 11 OF THE ACT IN VIEW OF T HE APPLICABILITY OF SECTION 13(1)(C) OF THE INCOME-TAX ACT 1961. SECTION 13(1)(C) EXPLAINS WHERE SECTION 11 I S NOT APPLICABLE IN CERTAIN CASES. THE RELEVANT SECTION READS AS FOLLOWS: SEC. 13: (1) NOTHING CONTAINED IN SECTION 11 [OR SECTION 12] SHALL OPERATE SO AS TO EXCLUDE I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 13 FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF ( A ) ( B ) ( C ) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION ANY INCOME THEREOF HOWEVER THE OPERATION OF SECTION 13(1)(C) IS RESTRICTED BY THE CONDITIONS PROVIDED UNDER SECTION 13(2) ARE STATED AS FOLLOWS: SEC. 13(2): WITHOUT PREJUDICE TO THE GENERALITY OF THE PROVISIONS OF CLAUSE ( C ) [AND CLAUSE ( D )] OF SUB-SECTION (1) THE INCOME OR THE PROPERTY OF THE TRUST OR INSTITUTION OR ANY PART OF SUCH INCOME OR PROPERTY SHALL FOR THE PURPOSES OF THAT CLAUSE BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON REFERRED TO IN SUB-SECTION (3) ( A ) .. ( B ) .. ( C ) IF ANY AMOUNT IS PAID BY WAY OF SALARY ALLOWANCE OR OTHERWISE DURING THE PREVIOUS YEAR TO ANY PERSON REFERRED TO IN SUB-SECTION (3) OUT OF THE RESOURCES OF THE TRUST OR INSTITUTION FOR SERVICES RENDERED BY THAT PERSON TO SUCH TRUST OR INSTITUTION AND THE AMOUNT SO PAID IS IN EXCESS OF WHAT MAY BE REASONABLY PAID FOR SUCH SERVICES; ( D ) .. ( E ) .. ( F ) .. 16. NOW THE ISSUE BEFORE US IS WHETHER PAYMENT TO THE DONOR OF THE ASSESSEE TRUST TOWARDS CIVIL CONTRACT AT RS. 8 LAKHS IN THE A.Y. 2003-04 AND RS. 23 47 200 IN THE A.Y. 2004-05 WILL LEAD TO WITHDRAWAL OF EXEMPTION U/S. 1 1 OF I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 14 THE INCOME-TAX ACT 1961. IN OUR OPINION AS RIGHT LY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE EVEN IF SECTION 13(1)(C) APPLIED BUT IT IS RESTRICTED BY SE CTION 13(2) WHICH IS REPRODUCED HEREIN ABOVE. SECTION 13(2)(C) STIPULATES THAT IF AN AMOUNT IS PAID BY WAY OF SALA RY ALLOWANCE OR OTHERWISE DURING THE PREVIOUS YEAR TO ANY PERSON REFERRED TO IN SUBSECTION (3) OUT OF THE RES ERVES OF THE TRUST OR INSTITUTION FOR THE SERVICES RENDERED BY THAT PERSON TO SUCH PERSON OR INSTITUTION AND THE AMOUNT PAID IS IN EXCESS OF AMOUNT MAY BE USED/PAID FOR SUCH SERVICES THEN THE BENEFIT OF EXEMPTION U/S. 11 IS NOT AVAILABLE TO THE ASSESSEE. THE EXEMPTION U/S. 11 C AN BE DENIED ONLY WHEN THE CONDITIONS LAID DOWN IN SECTIO N 13(2)(C) ARE ATTRACTED. IN THE PRESENT CASE THERE IS NOTHING ON RECORD TO SHOW THAT THE AMOUNT PAID TO T HE DONOR OF THE ASSESSEE IS UNREASONABLE OR EXCESSIVE AS COMPARED TO PREVAILING MARKET CONDITIONS. THE DEPARTMENT HAS TO BE SPECIFIC ABOUT THE EXCESS AMOU NT PAID OR WITH REGARD TO UNREASONABLENESS IN THE PAYM ENT MADE TO DONOR TOWARDS CIVIL CONTRACT WORK ASSIGNED TO HIM. NO SUCH ATTEMPT HAS BEEN MADE BY THE ASSESSIN G AUTHORITY. HE HAS NOT EVEN BROUGHT ON RECORD THE REASONABLENESS OF PAYMENT TO BE PAID TOWARDS THE CI VIL CONTRACT WORK ASSIGNED TO THE DONOR OF THE ASSESSEE . THE ONUS LIES ON THE REVENUE TO BRING ON RECORD COGENT I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 15 MATERIAL/EVIDENCE TO ESTABLISH THAT THE ASSESSEE IS HIT BY THE PROVISIONS OF SECTION 13(2)(C) OF THE ACT. SIN CE THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECOR D TO ESTABLISH THE EXCESSIVENESS/UNREASONABLENESS IN THE PAYMENT MADE TOWARDS THE CIVIL CONTRACT TO THE DONO R THOUGH HE WAS SPECIFIED PERSON U/S. 13(2)(C) OF THE ACT. UNDER THESE CIRCUMSTANCES THE CIT(A) IS JUSTIFIED I N DELETING THE ADDITION. 17. THE CASES RELIED ON BY THE LEARNED DR REPORTED IN ACTION FOR WELFARE AND AWAKENING IN RURAL ENVIRONME NT (AWARE) V. DCIT 263 ITR 13 AND AGAPPA CHILD CENTRE V. CIT 226 ITR 211 ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HENCE WE ARE NOT CONSIDERING THESE C ASES. 18. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH 2011. SD/- (G.C. GUPTA) VICE PRESIDENT SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD DATED 18 TH MARCH 2011 TPRAO I.T.A. NOS. 461&462/HYD/2010 M/S. NTR MEMORIAL TRUST ======================= 16 COPY FORWARDED TO: 1. THE DY. DIRECTOR OF INCOME - TAX (E) - II ROOM NO. 307A 3 RD FLOOR AAYAKAR BHAVAN BASHEERBAGH HYDERABAD. 2. M/S. N.T.R. MEMORIAL TRUST BANJARA HILLS HYDERABAD. 3. THE CIT(A) - IV HYDERABAD. 4 THE DIRECTOR OF INCOME - TAX (E) HYDERABAD 5. THE DR B BENCH ITAT HYDERABAD