Commissioner of Income Tax-I vs Dr. Vikhe Patil Foundation

In this appeal u/s 260A of the income tax Act, 1961 ("the Act"), the revenue has challenged the order dated 25 April 2013 passed by the Income Tax Appellate Tribunal (Tribunal) in relation to Assessment Year 2008-09. The following questions of law have been raised by the revenue in the appeal memo for our consideration:

(1) Whether, on the facts and in the circumstances of the case and in law, the income tax Appellant Tribunal did not err in holding that the investment made by the assessee in the shares of Pravara Sahakari Bank Ltd. was not in violation of the provision of Section 11(5) and, therefore, Section 13(1)(d) would not be attracted?

(2) Whether, on the facts and in the circumstances of the case and in law, the income tax Appellate Tribunal did not err in failing to appreciate that Section 11(5) is an unambiguous provision and investment in shares of a Sahakari Bank, for whatever reasons and of whatever amount, is not permitted thereunder?

(3) Whether, on the facts and in the circumstances of the case and in law, the order passed by the income tax Appellate Tribunal without properly appreciating and evaluating the relevant facts not perverse?

Learned counsel for the appellant - revenue presses only question No. 1 above for our consideration.

The respondent assessee had claimed in its return of Income for A.Y. 2008-09 exemption u/s 11/12 of the Act. The Assessing Officer by his order dated 30 December 2010 held that the respondent assessee was not entitled/eligible to claim exemption u/s 11 of the Act. This was on the basis that the respondent assessee had purchased shares of Rs. 51,745/in two cooperative banks which were shown as investments in its balance sheet for the period ended 31 March 2008. However, as investment in shares of a cooperative bank was not a mode of investment specified in Section 11(5) of the Act, it was held that the assessee had committed breach of the conditions of exemption u/s 13(1)(d) of the Act.

In appeal, CIT (Appeals) by order dated 6 November 2012 also upheld the order of the Assessing Officer.

On further appeal, the Tribunal by the impugned order allowed the appeal of the respondent-assessee and the Tribunal by the impugned order held that the aforesaid shares in the cooperative banks were compulsorily required to be taken in order to avail of the loan facility from the said cooperative banks. These loans raised from the cooperative banks have been utilised for construction of buildings for schools, colleges, hostels, etc. which is for furtherance of objects of assessee trust. It was held that the shares of cooperative banks were acquired as a pre-condition for availing of the loans and the shares subscribed by the assessee in the said cooperative banks were quite miniscule vis-a-vis the loan raised. The subscription to the shares was not with an intention of investment, but only to comply with the pre-condition for raising loans. Besides, the impugned order holds that the acquisition of shares existed in the earlier assessment years also and in the course of a scrutiny assessment u/s 143(3) of the Act for the Assessment Year 2006-07 no adverse view was taken with regard to the assessee''s entitlement for exemption u/s 11/12 of the Act. Thus, both on merits and on the principle of consistency, the Tribunal held that the lower authorities erred in denying exemption to the assessee u/s 11 of the Act.

Mr. Vimal Gupta, Senior Counsel, in support of the appeal submits that as the purchase of shares in cooperative banks were shown as an investment, it fell outside the purview of mode of investment specified u/s 11(5) of the Act. Thus, it was clear violation of the terms and conditions of exemption u/s 13(1)(d) of the Act. In the above circumstances, the orders of the lower authorities ought not to have been interfered with by the Tribunal.

On the other hand, Mr. Naniwadekar, the learned counsel for the assessee submitted that the shares were subscribed for in the cooperative banks only to comply with the terms and conditions for raising loans from the cooperative banks. Further, merely because the shares were shown as investment in the balance sheet, the same would not be an investment as normally understood. Besides, in the earlier years the balance sheet did reflect the same as investment, but all along the exemption granted in favour of the assessee has not been disturbed. Moreover, in the subsequent Assessment Years 2009-10, 2010-11 and 2011 -12 on same set of facts the revenue has not disturbed the exemption u/s 11/12 of the Act. Besides, as the share subscription amount was quite miniscule in the context of the loan obtained, the Tribunal was justified in allowing the appeal in favour of the assessee.

We find that the only basis of the revenue seeking to deny the benefit of exemption u/s 11/12 of the Act is that the share subscription amount is shown as investments in the balance sheet and investments in shares not being a specified mode, the benefit of exemption cannot be granted. It is well settled that the depiction in Books of Account is not a determinative test but the factual nature of the transaction which has to be considered for the purpose of taxation. In this case, the investment in shares of cooperative banks was a pre-condition for raising of loans and it was therefore not an investment as normally understood. The Tribunal has recorded a finding of fact that the shares were subscribed to only for purposes of obtaining the loan and the amounts so obtained were used for furtherance of the objects of the trust. There is also no dispute about the fact that loans taken from the said two cooperative banks were not completely repaid in the Assessment Year 2008-09 and, therefore, the assessee would be required to hold the shares to continue as member of the cooperative societies running the banking business. Besides, on identical facts, the revenue has granted the benefit of exemption u/s 11/12 of the Act for the Assessment Years 2006-07, 2009-10, 2010-11 and 2011 -12 on scrutiny assessment u/s 143(3) of the Act. Thus there is no reason to deny the benefit of exemption u/s 11 of the Act for Assessment Year 2008-09. Besides, the finding of the Tribunal is a finding of fact. In view of the above, we see no reason to entertain the proposed question of law. Accordingly appeal is dismissed with no order as to costs.