2020 (1) TMI 153 - AT - Income Tax

Exemption u/s 11 and 12 - assessee has transferred the lands to the members of the Society, hence, the assessee has clearly violated the provisions of section 13(1)(c) - HELD THAT - In the instant case, during the previous year, relevant to the A.Y. 2007-08, the assessee had transferred the lands to G.Jojappa, Y.Bala Reddy, M.Marreddy and others for a consideration less than the market consideration or for no consideration. The transfer of lands was mainly done due to the impression that Govt. of Andhra Pradesh was intending to bring a legislation, prohibiting the Christian churches to transfer the land without the approval of Govt.of Andhra Pradesh. At the same time, the Society was intending to start Engineering College for which the Society was searching the funds. For procurement of funds for engineering college the society planned to sell it s lands. Due to the impression given by the Govt. of Andhra Pradesh that the churches would be barred from selling the immovable properties, the Society had transferred the lands to the members of the Society to preempt the legislation, so that it can procure the funds without any difficulty. Though the Society had transferred the lands to the members of the Society, the lands were in possession of the Society and the Society did not receive any amount from the purchasers of the land which was evidenced from the order as well as the appellate order. As seen from the orders of the lower authorities, the purchasers were not in a position to make the payment even for stamp duty charges, hence the Society had to incur the stamp duty charges for registering the properties in the names of the purchasers. The assets continued to be held by the Society. It is apparent from the orders of the lower authorities and from the facts that though the lands were transferred in the name of G.Jojappa and others, they were holding the lands as custodians, but not as the owners. Subsequently, the lands were gifted back to the Society or the sale proceeds of the lands were directly deposited in the Society s account. The assets were removed from the Balance Sheet only in 2011-12 when the assets were sold. Till such time, the assets were continued to be held by the assessee society. From the above facts, we understand the contention of the Ld.AR that in the instant case, substance over form prevails is correct. Apart from the above, though the lands were sold in 2011-12, the department did not tax the capital gains in the hands of the transferors. In fact, the AO had accepted the contention of Y.Raghunadha Rao, one of the purchasers that no investment need to be taxed in his hands and the AO also had accepted the fact that the transaction was arrangement to hold the properties of the society in the hands of the purchasers as the custodian. On consideration of the entire issue, it appears that there is no diversion of income or violation of section 13(1) and no benefit was derived by the members of the society. Anonymous Donations receipts - HELD THAT - In the instant case, the assessee had received anonymous donations without any specific purpose. There is no specific direction as far as the sum of ₹ 2,10,52,000/- is concerned. Therefore, as rightly held by the Ld.CIT(A), the donations received by the assessee society are covered by sub section 2 of section115BBC of the Act. Further, the Ld.CIT(A) has given a finding that there was no misappropriation of funds by the members of the Society. The assessee has sold the lands, received the consideration over and above the registered document, which was deposited in the bank account without any diversion or misappropriation of funds. Similarly, the assessee had received anonymous amounts from various intending buyers. Since the priests did not support the contention, the amount was treated as anonymous donations. The said amount was deposited in the bank and the AO did not give any finding that the funds were misappropriated. Since sub section 2 of section115 BBC allows religious and charitable institution to receive anonymous donations, the case of the assessee is squarely covered by sub section 2 of section 115BBC of the Act and we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. Accordingly, appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Applicability of Section 13(1)(c) and 13(2)(g) of the Income Tax Act, 1961.
2. Validity of invoking provisions under Section 13(1)(c) and 13(2)(g).
3. Treatment of anonymous donations under Section 115BBC.
4. Taxability of income and capital gains under Sections 11, 12, and 69 of the Income Tax Act.

Detailed Analysis:

1. Applicability of Section 13(1)(c) and 13(2)(g) of the Income Tax Act, 1961:
The primary issue was whether the assessee, a religious and charitable trust, forfeited its exemption under Sections 11 and 12 by transferring properties to members of the society for less than market value or no consideration, thereby violating Section 13(1)(c) and 13(2)(g). The AO argued that the trust forfeited its exemption as it transferred immovable properties without consideration to persons specified under Section 13(3). The AO emphasized that no discretionary power is given to consider intentions or motives, and the trust's actions invoked the provisions of Section 13(1)(c) and 13(2)(g), leading to the denial of exemptions and taxing the income at the maximum marginal rate.

2. Validity of invoking provisions under Section 13(1)(c) and 13(2)(g):
The CIT(A) held that there was no diversion of income and invoking the provisions under Sections 13(1)(c) and 13(2)(g) was not valid. It was found that the lands transferred to the society members were later sold, and the proceeds were credited to the society’s bank accounts. Some lands were even gifted back to the Diocese. The CIT(A) concluded that the transfer was only on paper and did not result in any substantial transfer of rights or ownership. The AO’s acceptance of the sale proceeds in AY 2012-13 further indicated that the transfer in AY 2007-08 was merely nominal and did not affect the society’s interests. Thus, the CIT(A) allowed the appeal, dismissing the AO's invocation of Sections 13(1)(c) and 13(2)(g).

3. Treatment of anonymous donations under Section 115BBC:
For AY 2011-12, the AO found unexplained deposits and treated them as anonymous donations, taxing them under Section 115BBC r.w.s. 69. The CIT(A) found that the AO did not establish any misappropriation of funds and that the funds were deposited in banks and used for the society’s objectives. The CIT(A) cited Section 115BBC(2), which exempts anonymous donations received by trusts established for religious purposes from taxation. The CIT(A) concluded that the society, being a religious institution, was exempt from tax on these donations, dismissing the AO’s addition.

4. Taxability of income and capital gains under Sections 11, 12, and 69:
The AO assessed the total income for AY 2007-08 by denying exemptions under Sections 11 and 12 and invoking Section 164(2), taxing the market value of properties at the maximum marginal rate. For AY 2011-12, the AO treated unexplained deposits as income from unknown sources under Section 69. The CIT(A) found that the funds were properly accounted for and used for the society’s objectives, and there was no misappropriation. The CIT(A) upheld that the society was entitled to exemptions under Sections 11 and 12 and that the anonymous donations were exempt under Section 115BBC(2).

Conclusion:
The Tribunal upheld the CIT(A)’s orders, dismissing the revenue’s appeals and confirming that the trust did not violate Sections 13(1)(c) and 13(2)(g), and was entitled to exemptions under Sections 11 and 12. The Tribunal also upheld the CIT(A)’s decision that anonymous donations received by the religious trust were exempt under Section 115BBC(2), dismissing the AO’s additions under Section 69. The cross objections filed by the assessee were dismissed due to a delay without a condonation petition.