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2017 (7) TMI 1396 - AT - Income TaxValidity of order passed by JCIT u/s.144A - limited scrutiny or complete scrutiny - proceedings converted into a complete scrutiny based on an approval received from the PCIT - Assessment of trust - Addition u/s. 56(2)(vii) - difference between turnover shown in the Income Tax return and turnover shown in Service Tax return - assessee is a private discretionary trust - JCIT, Non Corporate Range 2, Chennai passed an order u/s. 144A directing to treat a corpus donation received by the assessee trust during the relevant previous year, as income under the head income from other sources - AR submitted that ld. JCIT had invoked Sec. 144A of the Act, even when an assessment was not pending HELD THAT - As the assessment order clearly states that notice u/s. 143(2) of the Act was issued to the assessee on 01.06.2016. Thus, clearly when the ld. JCIT passed his order under Sec. 144A of the Act, assessment proceedings were pending. We are in agreement with the contention of the ld. Departmental Representative that it mattered little whether such assessment proceedings was for a limited scrutiny or complete scrutiny assessment.Section simply states that an assessment has to be pending and nothing more. We cannot read into the section, words which are not there and give an interpretation as canvassed by the ld. Authorised Representative. Nature of directions issued by the ld. JCIT - Section itself says that the directions under section 144A of the Act are binding on the ld. Assessing Officer. Thus, in our opinion, the distinction sought to be drawn between guidance and directions hardly mattered. It might be true that ld. Assessing Officer had simply followed the directions of the ld. JCIT without applying his mind. However ld. Assessing Officer being duty bound under law to follow the directions of ld. JCIT, the question whether he had applied his mind over that issue, in our opinion became irrelevant. Thus we are of the opinion that the directions issued by the ld. JCIT were within the parameters of Sec. 144A of the Act and valid. Corpus donation - There can be absolutely no doubt on this aspect. In fact ld.CIT(A) had clearly held that amount received could not be considered as benefit or perquisite and Sec.2(24)(iva) of the Act. There can also be no doubt that the amount did not fall within the Sec.2(24)(iia) of the Act since assessee was not a trust created for a religious or charitable purpose. Status of an assessee for the purpose of assessment cannot be determined by the form in which a return of income was filed. Definition of a person u/s. 2(31) of the Act does not give a specific classification for a trust, whether it is for private purpose or for public charity. However, the definition is an inclusive one and this by itself mean that all possible status in which a person can be assessed are not exhaustively detailed in it. Or in other words how the assessee described itself in its return may not be determinative of its status. Status under Income Tax is a matter of law and not of choice. Application of Sec.56(2)(vii) - As the provisions as it stood prior to introduction of clause (x) covered only individuals and HUF and the legislature wanted to include in its fold other entities also, which were receiving gratuitous payments. Applicability of this provision is only from 01.04.2017 We are of the opinion that the sum of ₹ 25,00,00,000/- received by the assessee could not have been considered as income from other source u/s. 56(2)(vii) of the Act r.w.s 2(24)(xv) of the Act. The said addition stands deleted. Disallowance u/s. 14A - Contention of the assessee is that dividend on which exemption was claimed by it, was only on few investments, whereas majority of its investments did not yield any income at all - HELD THAT - In the decisions of Interglobe Enterprises Ltd 2014 (4) TMI 269 - ITAT DELHI and Rei Agro Ltd 2013 (9) TMI 156 - ITAT KOLKATA it has been held that investments on which no income was received by an assessee, should not be considered while calculating the disallowance u/s. 14A of the Act. Therefore this aspect in our opinion, requires a revisit by the ld. Assessing Officer. We set aside the orders of the lower authorities and remit the issue regarding disallowance u/s. 14A of the Act back to the file of the ld. Assessing Officer for computation of such disallowance, after excluding those investments, which yielded no income during the relevant previous year. Ordered accordingly. Non grant of credit for TDS - HELD THAT - This can be verified by the ld. Assessing Officer and if such credit is available to the assessee under law it has to be given. Ordered accordingly.
Issues Involved:
1. Addition of ?25,00,000 under section 56(2)(vii) of the Income Tax Act, 1961. 2. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962. 3. Credit for TDS of ?1,22,329 for the assessment year 2013-2014. Detailed Analysis: 1. Addition of ?25,00,000 under section 56(2)(vii) of the Income Tax Act, 1961: The assessee, a private discretionary trust, filed its return of income for the assessment year 2014-15 disclosing an income of ?107,72,76,893/-. The return was initially taken up for complete scrutiny but was later modified to limited scrutiny to examine the difference between turnover shown in the Income Tax return and Service Tax return. Subsequently, it was converted back to complete scrutiny. The JCIT directed the Assessing Officer to treat a corpus donation of ?25,00,000 received by the trust as income under "income from other sources" under section 56(2)(vii) of the Act, considering the trust as an 'individual' due to its beneficiaries being individuals. The assessee argued that it should be considered as an 'Association of Persons' (AOP) and not an 'individual'. The JCIT, however, held that the trust should be treated as an individual for taxation purposes, relying on several judicial precedents. The Assessing Officer, following the JCIT's directions, added ?25,00,000 to the returned income. On appeal, the Commissioner of Income Tax (Appeals) upheld the addition, stating that the directions issued by the JCIT under section 144A were binding and correctly applied. The Commissioner also noted that the assessee could not be considered as an AOP and that section 56(2)(vii) applied to the trust as an individual. The Tribunal, however, disagreed with this view. It held that the term 'individual' in section 56(2)(vii) implied a natural person and not a private discretionary trust. The Tribunal referenced the decision of the Delhi Bench in Mridu Hari Dalmia Parivar Trust vs. ACIT, which held that a gift received by a private discretionary trust could not be considered income under section 56(2)(vi). The Tribunal also noted that the amendment by Finance Act, 2017, which broadened the scope of section 56(2) to include entities other than individuals and HUFs, was prospective and not applicable for the assessment year in question. Therefore, the addition of ?25,00,000 was deleted. 2. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962: The assessee contended that only those investments which yielded exempt dividend income should be considered for disallowance under section 14A. The Tribunal, referencing decisions of the Delhi Bench in Interglobe Enterprises Ltd vs. DCIT and the Kolkata Bench in Rei Agro Ltd vs. DCIT, agreed that investments which did not yield any income should not be considered while calculating the disallowance. The Tribunal set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for recomputation, excluding investments that did not yield income during the relevant year. 3. Credit for TDS of ?1,22,329 for the assessment year 2013-2014: The assessee claimed that credit for TDS of ?1,22,329 was not given. The Tribunal directed the Assessing Officer to verify the claim and allow the credit if it was found to be correct. Conclusion: The appeals of the assessee were allowed to the extent of deleting the addition of ?25,00,000 under section 56(2)(vii) and remitting the disallowance under section 14A back to the Assessing Officer for recomputation. The issue of TDS credit was also remitted back for verification and appropriate action.
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