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From the Courts »
  Vatsala Shenoy vs. JCIT (Supreme Court)
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DIRECTOR OF INCOME TAX-(EXEMPTION) Vs. THE AJAY G. PIRAMAL FOUNDATION
October, 20th 2014
$~15
*       IN THE HIGH COURT OF DELHI AT NEW DELHI
                                     Date of Decision: August 25, 2014

+       ITA 188/2014
        DIRECTOR OF INCOME TAX-(EXEMPTION)
                                                         ..... Appellant
                           Through     Mr.Kamal Sawhney, Senior
                                       Standing Counsel

                           versus

        THE AJAY G. PIRAMAL FOUNDATION
                                                       ..... Respondent
                           Through     Mr.Ajay Vohra, Advocate with
                                       Ms.Kavita Jha, Advocate

        CORAM:
        HON'BLE MR. JUSTICE SANJIV KHANNA
        HON'BLE MR. JUSTICE V. KAMESWAR RAO

        SANJIV KHANNA, J (ORAL)


1.      This appeal by the Revenue, under Section 260A of the

Income Tax Act, 1991 (,,Act), impugns the order dated 30.06.2013

passed by the Income Tax Appellate Tribunal (,,Tribunal), in the

case of Ajay G. Piramal Foundation (assessee) and pertains to the

assessment year 2006-07.

2.      Ajay G.Piramal Foundation was founded on 30.07.2005 with

the object to establish, develop, maintain and operate hospitals,

ITA 188/2014                                            Page 1 of 13
medical schools, medical colleges, nursing institutions, dispensaries,

maternity homes and child welfare centres etc. It was granted

registration under Section 12AA with effect from 30.07.2005 and

approval under Section 80G was also accorded vide order dated

31.01.2006.




3.      Return, declaring income ,,Nil income, for the assessment

year 2006-07 was filed on 30.10.2006. On 10.01.2007, the

respondent assessee filed a revised return declaring income of

Rs.13,95,711/-. We shall be referring to the note appended by the

assessee, as to why the revised return was filed, subsequently.

During the course of the assessment proceedings the assessee

claimed that the revised return, dated 10.1.2007, be ignored and the

first return should be treated as the correct and true return. Revised

computation was filed. The Assessing Officer did not agree and

held that in terms of the decision of the Supreme Court in Goetze

(India) Limited vs. CIT [284] ITR 323, the assessee could not have

filed the revised computation and said claim could have been only

made by way of a re-revised return. Further, the time period for

filing of a revised or re-revised return under Section 139(5) had

come to an end. Thus, the revised return dated 10.01.2007, could

only be taken into consideration.
ITA 188/2014                                             Page 2 of 13
4.      The Assessing Officer thereafter went into the question

whether 16,50,000/- shares of Nicholas Piramal India Limited

received by way of gift/donation, from The Piramal Enterprises

Executives Trust on 03.08.2005 was, towards corpus of the

respondent trust. He held that the market value of the shares

received was taxable in terms of Section 2(24)(iia) of the Act and

accordingly made an addition of Rs.42,41,32,500/-. On the question

of income from capital gains, as the respondent assessee had sold 4

lac shares of Nicholas Piramal India Limited during the period

20.12.05 to 03.01.06 for consideration of Rs.11,41,95,430/-, the

Assessing Officer held that there was a distinction between donation

and gift and being a donation the short term capital gains was

computed as Rs.1,13,75,430/-, instead of declared income of

Rs.13,95,711/-, in the revised return dated 10.01.2007.

5.      In the first appeal, the Commissioner of Income Tax

(Appeals) came to the conclusion that the assessee could not have

filed the revised computation and decision of Goetze (India)

Limited case (supra) was applicable. Reliance placed on the

decisions by the respondent assessee did not permit the assessee

from getting over the revised return. However, he deleted addition

of Rs.1,13,75,430/-. With regard to addition of Rs.42,41,32,500/-,
ITA 188/2014                                              Page 3 of 13
he upheld the order of the Assessing Officer.

6.      Assessee preferred further appeal before the Tribunal.

Revenue accepted the order passed by the Commissioner of Income

Tax (Appeals).

7.      The Tribunal by the impugned order has held that the revised

computation filed by the assessee during the course of the

assessment proceedings and their submission that they were

withdrawing the revised return should have been accepted in view

of decisions in NTPC vs. CIT [1998] 229 ITR 383, Jute

Corporation of India Ltd. vs. CIT [1991] 187 ITR 688 (SC), CIT

vs. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 (Delhi), CIT vs.

Pruthvi Brokers & Shareholders [2012] 349 ITR 336 (Bom.),

Balmukund Acharya vs. DCIT [2009] 310 ITR 310 (Bom.) and

some decisions of the Tribunal. It was further held that in the

present case the shares which were transferred or gifted to the

respondent assessee were to form part and parcel of the corpus of

the trust and therefore Section 11(1)(d) was applicable. Further

proviso (iia) to Section 13(1)(d) would protect the assessee in

respect of the assessment year in question. Thus, addition of

Rs.42,41,32,500/- was deleted.

8.      The first issue which arises and has been raised in the present
ITA 188/2014                                              Page 4 of 13
appeal is whether the revised return filed on 10.01.2007 was binding

on the assessee, as the Trust was barred and could not have filed a

revised return. The first return was filed on 30.10.06 declaring ,,Nil

income. Then, the revised return was filed on 10.01.07. The reason

given for revising the return, as mentioned was:-

        "As the foundation is holding equity shares of a limited
        company it falls within the preview of section 13(1)(d)
        and has lost the exemption under section 11 to 13
        accordingly, a revised return of income has been field
        on 30.10.2006 vide acknowledgment 02082."

9.      The stand of the respondent assessee was that the aforesaid

statement was made on wrong legal advice and there was no

violation of Section 13(1)(d) in the assessment year in question.

Subsequently, during the course of the assessment proceedings the

assessee therefore stated that they withdraw their revised return, and

would rely upon their original return.      Revised computation of

income was filed on the said basis.

10.     We do not think that in the facts and circumstances of the

present case, the decision of Goetze (India) Limited case (supra)

would be applicable, as the assessee during the course of the

assessment proceedings, before the Assessing Officer had stated that

they had proceeded on wrong legal advice and would like to

withdraw the revised return filed on 10.01.2007 and would rely
ITA 188/2014                                             Page 5 of 13
upon the original return dated 30.10.2006. The Assessing Officer in

fact has gone into the merits and examined the assertions, made in

the original return.

11.     In the case of NTPC case (supra), the Supreme Court had

clarified that the legal issue, which does not involve disputed facts,

can be entertained even at the appellate stage. Similar view has been

expressed in the case of Jute Corporation of India case (supra), in

which Supreme Court observed that

             "6.... The declaration of law is clear that the power of
        the Appellate Assistant Commissioner is co-terminus with
        that of the Income Tax Officer, if that be so, there appears to
        be no reason as to why the appellate authority cannot modify
        the assessment order on an additional ground even if not
        raised before the Income Tax Officer. No exception could be
        taken to this view as the Act does not place any restriction or
        limitation on the exercise of appellate power. Even otherwise
        an Appellate Authority while hearing appeal against the order
        of a subordinate authority has all the powers which the
        original authority may have in deciding the question before it
        subject to the restrictions or limitations if any prescribed by
        the statutory provisions. In the absence of any statutory
        provision the Appellate Authority is vested with all the
        plenary powers which the subordinate authority may have in
        the matter. There appears to be no good reason and none was
        placed before us to justify curtailment of the power of the
        Appellate Assistant Commissioner in entertaining an
        additional ground raised by the assessee in seeking
        modification of the order of assessment passed by the Income
        Tax Officer"

ITA 188/2014                                              Page 6 of 13
In Jai Parabolic (supra), a division bench of this court, after

referring to judgment of Supreme Court in Jute Corporation (supra)

and some other judgments observed that there is no prohibition on

the powers of the Tribunal to entertain an additional ground which

according to the Tribunal arises in the matter and for the just

decision of the case.

In Pruthvi Brokers (supra), a division Bench of Bombay High

Court, referred to the judgments of Supreme Court in Jute

corporation (supra), NTPC (supra) and Goetze (India) Limited

(supra) and observed as under : -

               "23. It is clear to us that the Supreme Court did not
        hold anything contrary to what was held in the previous
        judgments to the effect that even if a claim is not made before
        the assessing officer, it can be made before the appellate
        authorities. The jurisdiction of the appellate authorities to
        entertain such a claim has not been negated by the Supreme
        Court in this judgment. In fact, the Supreme Court made it
        clear that the issue in the case was limited to the power of the
        assessing authority and that the judgment does not impinge
        on the power of the Tribunal under section 254."

Thus there cannot be any doubt or debate, that the claim and

submission could have been raised by the respondent assessee

before the appellate authorities. In either way, the issue has been

rightly decided in favour of the respondent-assessee.


ITA 188/2014                                               Page 7 of 13
12.     The next issue which arises for consideration is whether or

not there was violation of Section 13(1)(d) of the Act as the assessee

was gifted or donated 16,50,000/- shares of Nicholas Piramal India

Limited by way of gift, by The Piramal Enterprises Executives

Trust on 03.08.05. The Assessing Officer has noted that The

Piramal Enterprises Executive Trust had passed the following

resolution in their meeting held on 03.08.05.

        "Resolved that 16,50,000/- equity shares of Rs. 2/- each
        in Nicholas Piramal India Limited be and hereby
        transferred without any consideration to The Ajay G
        Piramal Foundation 58 Ring Lajpat Nagar III New
        Delhi 24 and that Mr Ajay G Piramal, and / or Dr
        Swati A Piramal and /or Mr N Santhanam are hereby
        severally authorized to do all such acts, deed mattes
        and things as are necessary to effectuate the above
        transfer."





The aforesaid resolution states that 16,50,000/ shares of Rs. 2/- each

of Nicholas Piramal India Limited should be transferred to the

respondent assessee trust and the persons, mentioned therein, were

severally authorized to do all such acts, deeds, matters and things as

were      necessary   to   effectuate   the   above   transfer.    By     a

contemporaneous letter dated 03.08.05, executed by the donor trust

to the respondent assessee, it was informed:

        "Date: August 3, 2005

ITA 188/2014                                               Page 8 of 13
        The Trustees,
        The Ajay G.Piramal Foundation,
        58, Ring Road,
        Lajpat Nagar III,
        New Delhi 110024.

        Dear Sirs,

               Re: Gift of 1,650,000 shares of Nicholas Piramal India
               Limited

               The Trustees of the Piramal Enterprises Executives
               Trust have decided in its meeting held on August
               3,2005 to irrevocably gift 1,650,000 shares of Rs.2/-
               each of Nicholas Piramal India Limited to The Ajay G.
               Piramal Foundation, 58 Ring Road, Lajpat Nagar III,
               New Delhi 110024. It is directed that the said gift is
               towards the corpus of the Trust, to be utilized in
               accordance with your Trust Deed of charitable
               purposes.

               Thanking you,

                                 For Piramal Enterpirses Limited
                                 (in its capacity as Trustees of the
                                 Piramal Enterprises Executives
                                 Trust)

                                                 Sd/-
                                              Trustee"

The aforesaid letter in categorical terms states that the gift would be

towards corpus of the respondent assessee trust. The Tribunal after

referring to the resolution and the letter, concluded and rightly

observed that both have to be read together and there was a specific

direction that 16,50,000 shares would form part of the corpus and

ITA 188/2014                                              Page 9 of 13
should not be treated as voluntary contribution. We do not see any

reason to interfere with the said finding.

13.     In these circumstances, Section 11(1)(d) of the Act would be

applicable and the donation made, would become a part of the

corpus and would not be income earned. Section 11(1)(d) reads:

               "Section 11(1): Subject to the provisions of sections
               60 to 63, the following income shall not be included
               in the total income of the previous year of the
               person in receipt of the income--

               [(a) ......

               (b) ......

               (c) ......

               [(d) income in the form of voluntary contributions
               made with a specific direction that they shall form
               part of the corpus of the trust or institution.]"


14.     Similarly in Section 12(1), it has been stated as under:-

               "Section 12: Income of trusts or institutions from
               contributions.- (1) Any voluntary contributions
               received by a trust created wholly for charitable or
               religious purposes or by an institution established
               wholly for such purposes (not being contributions
               made with a specific direction that they shall form
               part of the corpus of the trust or institution) shall
               for the purposes of section 11 be deemed to be
               income derived from property held under trust
               wholly for charitable or religious purposes and the
               provisions of that section and section 13 shall apply
               accordingly."

ITA 188/2014                                                Page 10 of 13
15.     It may be relevant to state here that in the original return filed

on 30.10.06, the respondent assessee had mentioned and given the

following note:-

        "On August 3,2005 the trust has received 1,650,000 shares of
        Nicholas Piramal Limited as a gift from the Piramal
        Enterprises Executive Trust towards the corpus of the trust
        which is exempt under section 11(1)(d) of the Act.

        During the year under consideration the trust has sold
        400,000 shares of Nicholas Piramal India Limited in terms of
        section 49(1)(ii) of the Act, the cost of acquisitions of the
        shares shall be the cost for which the donor of the shares has
        acquired it, which is Nil.

        As specified in Explanation to section 2(42A) of the Act, in
        determining the period for which the shares were held by the
        trust, the period for which the shares were held by the trust
        the period of which the shares were hold by the Donor is
        included the period of holding of the above shares were for
        more than 12 months. The shares are sold on a stock
        exchange and the transaction is chargeable to securities
        transaction tax accordingly, the gains arising on transfer of
        shares are characterized as long term capital gain and the
        same are exempt under section 10(38) of the Act."


16.     It is, therefore, clear, right from the very beginning that even

when the return of income was filed on 30.10.06, the stand of the

respondent assessee was that 16,50,000 shares of Nicholas Piramal

India Limited were gifted towards and to form part of the corpus of

the trust. It was further claimed that the respondent trust had sold 4

lac shares in terms of Section 49(1)(ii). The period of holding of the

ITA 188/2014                                                Page 11 of 13
donor had been taken into consideration and the costs of acquisition

was taken as ,,Nil but the gain from transfer of the shares were

exempt under Section 10(38) of the Act. In view of the above

discussion, this aspect requires no interference.

17.     The last issue is whether or not, the respondent assessee had

violated Section 13(1)(d) of the Act and therefore should be denied

exemption under Section 11 to 13 of the Act. Clause (iia) of proviso

to Section 13(1)(d) reads as under:-

        "any asset, not being an investment or deposit in any of
        the forms or modes specified in sub-section (5) of
        section 11, where such assets is not held by the trust or
        institution, otherwise than in any of the forms or modes
        specified in sub-section (5) of section 11, after the
        expiry of one year from the end of the previous year in
        which such asset is acquired or the 31st day of March,
        1993 whichever is later."

18.     It is an admitted position that the shares in question were

acquired by the respondent assessee on 03.08.05. As per Clause (iia)

to the proviso, Section 13(1)(d), would be applicable, post period of

one year from the end of the previous year in which the shares were

acquired. That means, there would be no violation of Section

13(1)(d) on the part of the respondent assessee till 31.03.07.

19.     In view of the aforesaid position, the assessee had rightly

claimed that they had not violated Section 13(1)(d) in the

ITA 188/2014                                             Page 12 of 13
assessment year in question. Appropriate, would be to refer to

Director of Income Tax versus Shree Radha Krishan Charitable

Trust [2011] 201 Taxman 184 (Del). In this case, the assessee had

not disinvested the shares upto 31.03.93 and the assessment year

involved was 1992-93. The High Court held that the embargo

resulting in disqualification would be only applicable after 01.04.93

and therefore would be an issue to be examined in the assessment

year 1993-94 and not an issue in the assessment year 1992-93,

though this fact was known even when the assessment order was

passed for the assessment year 1992-93.

20.     Learned counsel for the respondent assessee has pointed out

that the assessee has not claimed exemption from benefit of Section

11 to 13 of the Act with effect from 2007-08 onwards.

21.     In view of the aforesaid discussion, the appeal is dismissed.




                                               SANJIV KHANNA, J.


                                           V. KAMESWAR RAO, J.
AUGUST 25, 2014
km



ITA 188/2014                                              Page 13 of 13

 
 
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