2018 (1) TMI 858 - AT - Income Tax

Entitlement to benefit of section 11 and 12 - whether assessee continues to hold investment in foreign companies as well as in India companies and has not converted the same in the modes specified u/s 11(5)? - Held that - This Tribunal has time and again in various Assessment Years has allowed exemption under section 11 & 12 to assessee. The Trustees are duty bound and, are protecting the assets of the Trust, so that once the court embargo is taken away after the probate order, the activities of the Trust could be carried out. Till such time they have to incur certain expenditures on maintenance of these properties - immovable and movable - by maintaining staff and hiring lawyers to fight out the various cases to enable the probate to be allowed by the High Court. These expenditures are essential to save the Trust and its assets and these expenditures have been wrongly disallowed in the assessment order. - Decided against revenue

Issues Involved:
1. Eligibility for exemption under Sections 11 and 12 of the Income Tax Act, 1961.
2. Alleged violation of Section 13(1)(d) of the Income Tax Act, 1961.
3. Utilization of accumulated funds under Section 11(2) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Sections 11 and 12:
The primary issue was whether the assessee trust was entitled to the benefits of Sections 11 and 12 of the Income Tax Act, 1961. The Assessing Officer (AO) had disallowed these exemptions on the grounds that the trust was not carrying out any charitable activity and that the funds were being used for administrative expenses. However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal had previously allowed these exemptions in various assessment years. The Tribunal noted that the trust was unable to carry out charitable activities due to ongoing probate litigation concerning the will of the late Raja Bahadur Sardar Singh of Khetri. The Tribunal upheld the CIT(A)'s decision, emphasizing that the trust's inability to carry out charitable activities was due to circumstances beyond its control and that the trust was preserving its assets for future charitable use.

2. Alleged Violation of Section 13(1)(d):
The AO contended that the trust had violated Section 13(1)(d) by holding investments in foreign companies and Indian companies, which were not converted into the modes specified under Section 11(5). The Tribunal referred to the Delhi High Court's decision, which stated that until the probate of the will was granted, the trust could not acquire legal rights over the property or shares. Therefore, there was no violation of Section 11(5). The Tribunal reiterated that the shares were still in the name of the late Raja Bahadur Sardar Singh, and the trust had not acquired them due to the pending probate proceedings. Consequently, the Tribunal concluded that there was no violation of Section 13(1)(d).

3. Utilization of Accumulated Funds under Section 11(2):
The AO added ?61,98,210 to the total income of the assessee trust, arguing that the trust had failed to utilize the accumulated funds under Section 11(2) within the specified period. The Tribunal, however, noted that the trust's inability to utilize these funds was due to the ongoing probate litigation. The Tribunal referred to its previous orders, which consistently allowed the trust's claim for exemption under Sections 11 and 12, even though the funds could not be applied to charitable purposes due to the pending litigation. The Tribunal emphasized that the law does not oblige a person to do something impossible and upheld the CIT(A)'s decision to allow the exemption.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order allowing the assessee trust's exemption under Sections 11 and 12 of the Income Tax Act, 1961. The Tribunal found that the trust's inability to carry out charitable activities and utilize accumulated funds was due to circumstances beyond its control, specifically the pending probate litigation. The Tribunal also held that there was no violation of Section 13(1)(d) as the trust had not acquired the shares in question due to the ongoing probate proceedings. The Tribunal's decision was consistent with its previous orders and the Delhi High Court's ruling on similar issues.

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