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TMI Blog2021 (1) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed under section 263 of the Act be set aside. 2. On the facts and under the circumstances of the case and in law, the learned CIT(E) erred in holding that the assessment order passed by the Deputy Commissioner of Income-tax (Exemptions) - 2(1) ('the learned Assessing Officer') was erroneous as due verification was not undertaken by the learned Assessing Officer. The Appellant prays that it be held that the assessment order passed was not erroneous since adequate verification had been undertaken by the learned Assessing Officer. 3. On the facts and under the circumstances of the case and in law, even assuming the assessment order was erroneous, the learned CIT(E) erred in exercising jurisdiction under section 263 of the Act by holding the assessment order was prejudicial to the interest of the Revenue without appreciating that there is no tax effect of the proposed directions given by the CIT(E). The Appellant prays that it be held that assessment order was not prejudicial to the interest of the Revenue since there is no tax effect of the proposed directions/verifications. 4. On the facts and under the circumstances of the case and in law, the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Commissioner of Income-tax (Exemptions) [hereinafter referred to as 'the Commissioner '] issued a show cause notice requiring the assessee to show cause as to why this order not be subjected to revision under section 263 of the Act.... (Paragraphs 4,5 and 6 are not relevant in the present context, as the issues on which this show-cause notice was initially issued do not exist in this appeal) 6. Rather than yielding to these submissions, learned Commissioner issued a further show cause notice on 15th March 2019 which was as follows: 1. On verification of records, it is noticed that there is an investment of funds of assessee in shares which is in a prohibited mode of investment prescribed in the section 11(5) r.w.s. 13(1)(d) of the Act, unless it is covered by exceptions. Further the same may result into denial of exemption if such investment is not covered by exceptions. This important aspect, however, has not been verified as it comes out from the following: (a) Vote letter dated 2-12-2016, the AO asked certain details of investment in shares. Vide letter dated 9-12-2016, it was stated that none of the investment are covered by section 13(1)(d) of the I.T. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng officer has not examined the applicability of provisions of section 13(2)(h) of the Act. 3. The AO during the assessment proceedings raised issue of holding & controlling shares of Tata Sons Ltd. by you and also your control in the business of the company. He also gathered certain information & evidences from third parties but failed to make proper verification & investigation and to reach to proper conclusion. (a) In view of close relationship of trustees and investee company i.e. Tata Sons Ltd., the AO vide notice dated 2-12-2016 asked you about Veto/Special Right of benefits derived by the trustees from any of the investee companies and ought the subsidiaries. It was replied that the trustee of the assessee trust jointly with trustee of Sir Ratan Tata Trust only have power to appoint directors of board and Tata Sons Ltd. With reference to the query regarding benefit having derived by the trustee from the investee company. It was submitted that information is not available with the trust. (b) The AO had sought certain details from Tata Sons Ltd. vide notice issued u/s 133(6) of the Act on 29-11-2016 such as names, Article of Association, details of shares holding, detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 29-12-2016 nor it was found on record. Thus it appears that the benefit of exemption u/s.11(2) has been allowed without proper verification. 5. On perusal of records of A.Y.2014-15, it is also noticed that you have received interest of Rs. 33,58,30,979/-. However, the AO has not obtained any details of investment despite the related details/schedule being not available on records from which it could have been ascertained that whether the interest income earned is from deposit in banks or from the investment in some companies. Further, as the income from dividend was being claimed as exempt, therefore, assessee has not claimed application of the same in its return of income. The assessing officer has not asked you to demonstrate that entire income of the trust was applied or being applied for the object of the Trust. The above facts also indicate that the Assessing Officer has not made some basic verifications on facts & circumstances of case were warranted. 6. Thus, the discussions on various made above also prima facie show that the order passed by the AO is erroneous is so far as it is prejudicial to the interest of the revenue and requires revision. In view of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its inception, the Trust has played a pioneering role in transforming traditional ideas of charity ad introducing the concept of philanthropy to make a real difference to communities. Through grant-making, direct implementation and co-partnership strategies, the Trust supports and drives innovation in a variety of areas. The Trust engages with competent individuals and government bodies, international agencies and like-minded private sector organisations to nurture a self-sustaining eco-system that collectively works across all these areas. The Trust has over 336 grants under execution for a financial outlay of Rs. 714 crs. In addition, the Trust is also supporting a variety of cancer care initiatives for an outlay of Rs. 66 crs. The Trust has also played a pioneering role in the vision of the Government in Nation building and in partnership with the Central or State Governments and has undertaken several leading projects. The Trust has also entered into various MoUs with the Central Government, State Governments as well as other institutions on matters relating to the Trust objects. For example MoU signed with the State Government of Tripura to build capacities in various se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order, it cannot be said to be covered by section 263. Without prejudice to the above, the assessee's detailed response to the alleged omissions and errors of the Learned AO (as mentioned in the notice) is as under. Applicability of section 13(1)(d) of the Act (1) The Learned AO during the course of assessment proceedings had sought details about the investments held by the Trust vide, his notice dated December 2, 2016 of The Trust responded to this notice vide its letter dated December 9, 2016 details of the shares held by the assessee along with the year of each bonus/sub-division of such shares and the final number of shares hold by the Trust as on March 31, 2014 (copies enclosed as Annexure 2 and 3). (2) As can be seen from the response, complete details of the holding have been provided i.e. including the position as on June 1, 1973 end subsequent accretions by way of bonus to those shares. The assessee submits that all its shares held are in compliance with the provisions of the Act. (3) A perusal of these details indicates that there has been no acquisition of any shares dun, the year. Accordingly, the question of verification of any conditions year of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led verification of the claim and was satisfied by the contention of the Trust. (8) Therefore the assesses prays that no revision under section 263 is warranted on this issue. (9) In any case considering the fact that the details relate back to more than 45 years the assesses craves leave to produce further information and documents to substantiate its position, if required. Applicability of provisions of section 13(2)(h) (10) At the outset, the assesses submits that your goodselfs allegation that the Learn. AO had not examined the applicability of provisions of section 13(2) de-spite the assesses holding 27.98% shares of TSL and close relationship of the Trustees with TSL is incorrect. (11) The learned AO had vide his notice dated December 2, 2016 and December 26, 2016 had examined the applicability of provisions of section 13(2) to the assessee. The assessee vide its letters dated December 9, 2016 and December 28, 2016 had provided appropriate explanation to substantiate that there is no violation of section 13(2) in its case (copies enclosed as Annexure 4 and 5). (12) The assessee submits that none of the Trustees as on March 31, 2014 held substantial interest in TSL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has applied an amount of Rs. 122.27 crs i.e. more than 85, of the income. Thus, there is no question of surplus to be carried forward. Interest income earned - mode of investment (18) As regards pars 5, the assessee submits that all the information in relation to interest earned was available with the Learn. AO on record i.e Form 26AS and hence we would believe that he would have carried out his appropriate verification. In any case, the assessee submits that the interest earned is from the following permissible investments Particulars Rs. As per section 11(5) Interest on long term deposits with: Housing Development Finance Corporation Ltd. 20,33,64,100 11(5)(ixa) Housing & Urban Development Corporation Ltd. 2,23,51,249 11(5)(ixa) HDFC Bank Ltd. 3,34,48,993 11(5)(iii) ICICI Bank Ltd. 71,25,000 11(5)(iii) Barclays Bank PLC 90,41,992 11(5)(iii) IDBI Bank Ltd. 1,35,47,652 11(5)(iii) Interest on short term deposits with: HDFC Bank Ltd. 2,16,27,281 11(5)(iii) ICICI Bank Ltd. 93,29,943 11(5)(iii) Credit Agricole Corporate & Investment Bank 34,19,153 11(5)(iii) Standard Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: 8.3 I have considered the arguments of the assessee and also the records referred by it. It is observed that: (a) Vide letter dated 2-12-2016, the AO asked certain details of investment in shares. (b) Vide letter dated 9-12-2016, it was stated that none of the investment are covered by section 13(1)(d) of the I.T. Act, Further, the details of investment in shares have been submitted in "Annexure-1". It shows holding of shares in following companies:- Quoted Share Unquoted Shares (viii) Indian Hotel Co. Ltd. (i) Tata Sons Ltd. (ix) Tata Steel Ltd.Weaving (ii) Central IND SPG And manufacturing Co. Ltd. (x) Tata Motors Ltd. (iii)Tata Mills Co. Ltd. (xi) Tata Powers Ltd. (xii) Tata Chemical Ltd. (xiii) Associated Cement Co. Ltd. (xiv) State Bank of India (c) In the details so provided, the shares were shown as held on 01 June, 1973 and subsequently, accretion of bonus shares is there. However, nowhere, it is mentioned that the shares were part of the corpus as on 1-4-1973. The only other facts mentioned in the column seeking details of consideration paid for acquisition/value are the amounts. The amounts so mentioned d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares held in corpus and accretion of bonus to them are exempt from provisions of section 13(1)(d). To sum up, the above reply and details on records do not show as to whether the above investments in shares are covered by exception provided in proviso (i) & (ia) to section 13(1)(d) or not. As the investment in shares such as above is normally a prohibited mode of investment and unless it is covered by exceptions, it results into denial of exemptions. It is clear that the AO has failed to make basic but necessary verification on this issue. 8.4 It is also submitted in reply dated 27/03/2019 that all the shares are held by it as corpus and the income earned by way of dividend from them is used for carrying out the charitable objects. Virtually, all the shares are held by it today. The position is continuing for 4 decades. The assessee has been consistently granted the exemption u/s. 11 of the Income-tax Act. Therefore, calling upon the assessee to demonstrate the fulfilment of conditions is grossly unfair. In this regard, it is stated that: (a) It is a settled judicial principle of res judicata does not apply to the Income- tax Act. (b) Whether the records of earlier years w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also does not have any reference of applicability of provisions of section 13(2)(h). Both these documents are about the control and management of business of Tata Sons Ltd. Therefore, assessee's contention that this issue was discussed by the Assessing Officer is not factually correct. 9.4 The assessee has also submitted that none of the Trustees as on 31-3-2014 hold substantial interest in Tata Sons Limited and therefore, the provisions of section 13(2)(h) of the I.T Act should not be applicable. This submission of assessee however requires verification because in Section 13(3) there are different clauses, the application of which needs to be examined to find out whether the investment is with any connected person. It is although more necessary in the case of assessee because the investment of assessee itself in above company is more than 20%. The A.O ought to have examined the applicability of examination 3 of below section 13. In this regard, it is also pertinent to mention that in the case of the Tata Trust Group, i.e. Jamshedji Tata Trust, it has been held by the ld ITAT, Mumbai, vide order dated 26/03/2014 in ITA No. 7006/Mum/2013 for Asstt. Year 2010-11 that the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the above preliminary inference was drawn by the Assessing Officer. (iii) In the reply besides giving some explanation to the queries of Assessing Officer, the material/factual basis of allegations in the show cause notice was sought by the assessee from the Assessing Officer. In the assessee's reply, besides giving some explanation to the queries of Assessing Officer, the assessee itseslf had asked for the material/factual basis of allegation in the show cause notice, to which the Assessing Officer did not respond. The above facts and circumstances clearly show that the Assessing officer has not conducted verification/enquiries properly, which could take the issue to the logical conclusion. (iv) Importantly, the Assessing Officer, in the Office Note with the assessment order u/s. 143(3) of the I.T. Act, after referring to his show cause notice dated 26/12/2016 and assessee's reply dated 28/12/2016, has noted that: One of its Directors and Chairman for the time being Mr. Cyrus Mistry filed a letter received in this office on 22/12/2016 along with 2 box files containing various documents in support of his letter mentioning that the Trustees have lot of inference/co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. 12.4 Regarding the application of exempt income of dividend towards the object of the Trust, it is pertinent to mention that the Id ITAT, Mumbai, in the case of Jamshedji Tata Trust, for A.Y. 2010-11, in ITA No. 7006/Mum/2013, has held that: "For the purpose of application of income in terms of section 11(1) and (2), the entire income of the trust has to be considered including the dividend and long term capital gain claimed as exempt u/s. 10. It is pertinent to mention that for availing the exemption u/s 11, the income derivedfrom the property held under trust has to be considered irrespective of the fact that some of the income so derived is also exempt u/s. 10, therefore, 85% of the entire income without exclusion of dividend and long term capital gain on shares has to be applied for such purpose in India for availing deduction u/s, 22." Therefore, irrespective of the decision of Hon'ble High Court to allow exemption u/s. 10 on such dividend income, the Assessing Officer ought to have asked the assessee to demonstrate that the entire income of the Trust was applied or being applied for the purpose of the Trust. 14. As regards assessee's submission against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act if it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. At this stage, it will therefore be relevant to refer to the Memorandum to Finance Bill 2015 which is as under: "Memorandum to Finance Bill 2015 Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue The existing provisions contained in sub-section (1) of section 263 of the Income- tax Act provides that if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is held that the amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 is declaratory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue whereby it is provided, inter-alia, that if the order is passed without making inquiries or verification by the AO which, should have been made or the order is passed allowing any relief without inquiring into the claim, the order shall be deemed to be erroneous and prejudicial to the interest of Revenue. 15.5 From the reply of assessee dated 11,03.2015, it is clear that it has also accepted that Explanation (2) to Section 263 is clarificatory in nature. However, by relying on the following two judgments; (i) Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 Taxmann.com 671 (Ahemadabad Tribunal) (ii) Narayan Tatu Rane [2016] 70 Taxmann.com 227 (Mumbai), It is claimed that the explanation being clarificatory in nature, it would not lead to dilution of basic requirements of Section 263 (1) of the I.T. Act. In this regard, it is stated that the discussion made so far on facts of each issue and in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to Section 263 once Commissioner is of the view, as he has been on the facts of this case, that "the order is passed without making inquiries or verification which should have been made ", the order is required to be treated as erroneous and prejudicial to the interest of the revenue. Therefore, we must examine the nature of inquiries conducted by the Assessing Officer and whether these inquiries were so deficient as to render the order 'erroneous and prejudicial to the interests of the revenue ', within meanings of that expression assigned under section 263. 19. The question that we also need to address is as to what is the nature of scope of the provisions of Explanation 2(a) to Section 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the revenue " when Commissioner is of the view that "the order is passed without making inquiries or verification which should have been made ". 20. Undoubtedly, the expression used in Explanation 2 to Section 263 is "when Commissioner is of the view," but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made ". The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be. 21. That brings us to our next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that there is something wrong. He is a watch-dog, but not a bloodhound. ". Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bonafide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bonafide, and as long as the path adopted by the Assessing Officer is taken bonafide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case strial Co Ltd v. CIT [(2000) 243 ITR 83 (SC)], Hon'ble Supreme Court has held that "Every loss of revenue as a consequence of an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. 22. Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vention of Section 11(5) of the Income-tax Act, 1961. Also, whether any investment of the trust in the last three years is covered by the provisions of Section 13(1)(d), please specify the same ". In reply to this requisition, the assessee had duly furnished all the details of the investments held by the assessee. It was also categorically confirmed that these investments did not violate the provisions of Section 11(5) and 13(1)(d). In Annexure 1 to the letter dated 9th December 2016, the assessee filed complete details of all the scrips, the bifurcation of shares held as on 1st June 1973 and subsequent bonus shares allotted in connection with the holdings as on 1st June 1973, and it was thus made clear that no investments were made after 1st June 1973. The complete specific details about holdings in each of these shares as on 1st June 1973, and accretion in these holdings on account of allotment of bonus shares thereafter, were in 9 pages- and copies of these details were also furnished before us at pages 216-223 of the paper book filed before us. All these details were also furnished in the year- end financial statements, which were duly filed with the Assessing Officer. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June 1973 and these were allotted as bonus shares only. So far as the question of the shares being part of 'corpus' is concerned, the current financial period was over forty years after the cut-off date of 1st June 1973, and in none of those forty-plus years, the exemption was declined on the ground that these shares were not part of the corpus. There was no good reason to doubt these shares being part of the corpus. As we have noted earlier, an Assessing Officer can only be faulted for doing anything less than "what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bonafide in a real-life situation". Viewed thus, we cannot fault the conduct of the Assessing Officer in not disturbing, or even not probing, something being constantly accepted for over four decades-particularly when there is no occasion or trigger to re-examine that aspect of the matter in this particular year and when there is no change in legal or factual position in this particular year. It may also be noted that, as pointed out to us by the learned counsel, the assessee trust was notified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and taking note of subsequent legal developments, Hon'ble jurisdictional High Court has, inter alia, observed as follows: 7. We note that the impugned order of the Tribunal records the fact that the Revenue Authorities have consistently over the years i.e. for the 10 years years prior to Assessment Years 2007-08 and 2008-09 and for 4 subsequent years, accepted the principle that all expenses which has been incurred are attributable entirely to earning professional income. Therefore, the Revenue allowed the expenses to determine professional income without any amount being allocated to earn capital gain. In the subject assessment year, the Assessing Officer has deviated from these principles without setting out any reasons to deviate from an accepted principle. Moreover, the impugned order of the Tribunal also records that the Revenue was not able to point out any distinguishing features in the present facts, which would warrant a different view in the subject assessment year from that taken in the earlier and subsequent assessment years. So far as the decision of Radhasoami Satsang (supra) is concerned, it is true that there are observations therein that restrict its app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis that there is no change in the principle which has been consistently applied for the earlier assessment years and also for the subsequent assessment years. Therefore, the view of the Tribunal in allowing the respondent's appeal on the principle of consistency cannot in the present facts be faulted with, as it is in accord with the Apex Court decision in Bharat Sanchar Nigam Ltd.'s case (supra). 35. We are not, in this context, really concerned about the final determination of merits on this issue. Our limited point is that given the accepted past history of the case, and given the fact that there were no material factual or legal developments in the relevant financial period, it was not at all unreasonable on the part of the Assessing Officer not to question whether or not the investments in shares were part of the corpus. There were no reasons to provoke such an inquiry. 36. In any event, even if these investments were to be held to be contrary to the provisions of Section 11(5), all that could have been done by the Assessing Officer was to decline exemption under section 11 in respect of income from these investments, i.e., dividends, which, for the reasons w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Under section 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the Legislature has clearly indicated its mind in the proviso to section 164(2) when it categorically refers to forfeiture of exemption for breach of section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax 37. The insertion of sub-section (6) and (7) to Section 11, it may be added, is effective from 1st April 2015, and, therefore, the tax exemption under section 10(34), so far as the present assessment year is concerned, cannot be disturbed. In any event, since the income from dividends was exempt under section 10(34), as the aforesaid amendments had not come into effect at that point of time, it was completely tax neutral, even if these amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt and to the extent indicated in section 11(1)(a) of the Income-tax Act, 1961. There is nothing in the language of sections 10 or 11 which says that what is provided by section 10 or dealt with is not to be taken into consideration or omitted from the purview of section 11. 38. It is thus clear that there is no prejudice to the legitimate interests of the revenue on this point either. Whether an income is exempt under section 10(34) or under 11, it does not prejudice the interests of the revenue in any way. Accordingly, even if the order can be said to be 'erroneous' for any reason, it cannot be said to be 'prejudicial to the interests of the revenue ', and, therefore, section 263 could not have been invoked on this point either. We may, in this regard, refer to the following observations of Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd (supra),: "A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 11(d) of the I.T. Act and is not liable to tax. Therefore, it is not necessary that a voluntary contribution should be made with a specific direction to treat it as 'corpus', If the intention of the donor is to give that money to a trust which they will keep it in trust account in deposit and the income from the same is utilised for carrying on a particular activity, it satisfies the definition part, of the corpus. The assessee would be entitled to the benefit of exemptions from payment of tax levied. 14. In fact the Bombay High Court in the case of Trustees of Kilachand Devchand Foundation v. CIT [1988] 172 ITR 382/[1987] 32 Taxman 393 dealing with the said voluntary contribution made for a charitable purpose, held that for being eligible for exemption, the donations must be voluntary and of a capital nature. That cannot be applied to charitable or religious purposes if the income thereof they must be so applied. The contribution made expressly to the capital or corpus of trust fall within the purview of sub-section (2) of Section 12. Therefore, such contributions cannot be be deemed to be the income derived from the property for the purpose of Section 11 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... east more than four decades- as conclusively established by the material before the Assessing Officer, and only income from these investments being applied for the purposes of the trust, clearly establishes the fact of these investments being part of the corpus of the trust. 42. In view of the foregoing discussions, as also bearing in mind the entirety of the case, learned Commissioner was clearly in error in invoking powers under section 263 on the ground that the Assessing Officer failed to examine the investments of the trust complying with the provisions of Section 11(5) and Section 13(1)(d) of the Act. We disapprove his action on this point as well. 43. The next issue that we need to consider it is whether there was any failure on the part of the Assessing Officer to examine whether the assessee has exercised control of affairs of Tata Sons Limited, whether, by virtue of such a control, any benefit is derived by any of the persons referred to in Section 13(3) of the Act, and if so, tax implications thereof. 44. Let us once again take a quick look at some relevant facts so far as Commissioner's stand on this issue is concerned. We have noted that, as the learned Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been pointed out in the preceding objection taken by the learned Commissioner. Not responding to the request of the assessee to share the material and factual basis on which the preliminary inference is drawn cannot be said to prejudicial to the interests of the revenue either. In fact, it has nothing to do with the adequacy of inquiry with respect to the control being exercised by the assessee over Tata Sons Limited. The inquiry having been conducted on this issue is not in dispute but what is being alleged is that the inquiry is deficient because the assessee is not confronted with the material on the basis of which the inquiries are initiated, and the initial inference is drawn against the assessee. By no stretch of logic, this inaction of the Assessing Officer, even if that be so, renders the assessment order erroneous and prejudicial to the interests of the revenue. The stand of the learned Commission, in the impugned order in this respect, cannot meet any judicial approval. 45. Learned Commissioner had also taken note of the office note appended to the assessment order, which records the fact that, on 22nd December 2016 i.e. just a week before the assessment under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infirmity in the note appended to the assessment order. If one week is not sufficient to investigate everything in the complaint and two box files of documents supplied by the complainant, that does not mean that the time limit for completion of assessment proceedings will get extended. The Assessing Officer has adopted a reasonable course of action, and, as we have noted in our analysis earlier, the test of what the ought to have done is not what an Assessing Officer should have done in the ideal circumstances and with all his calls being right, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bonafide in a real life situation. A prima facie view of the Assessing Officer cannot be reason enough to decline the assessee certain tax treatment which has been given to the assessee all along for decades, but it can surely be reason enough to leave a window for appropriate action being taken against the assessee, if so warranted- and that is exactly what the Assessing Officer has done. The stand of the Assessing Officer is, in our humble understanding, quite ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment history of the case into insignificance. 39. No doubt, dehors the credibility of such elements, even their inputs are used by the law enforcing agencies, but these inputs are not placed on such high pedestals that, even without veracity of these inputs being established beyond doubt, these inputs are considered to be material enough to dislodge the foundational facts which have been established in the assessments for several decades. Ironically, however, this is what the learned Commissioner's stand, in effect, advocates. 40. Be that as it may, the Assessing Officer received this material on 22nd August 2016, and he had just six working days for completing the assessment. Even if he was to put all this material to the assessee, which is the minimum expected of the Assessing Officer before using it against the assessee, these six days were less than sufficient for this basic exercise. Clearly, therefore, the Assessing Officer was not in a position, in the course of completion of the scrutiny assessment proceedings, to examine the correctness or otherwise of the contents of this material received from Cyrus Mistry. That, however, cannot be the end of the matter. It is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (3),if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in sub-section (3) has a substantial interest" . Therefore, as long as investment by the trust is made in a concern in which persons referred to in section 13(3) have "substantial interest", the income and the property of the trust will be deemed to have been applied for the benefit of persons specified in section 13(3). Coming to Section 13(3), it lists out such persons as (a)the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds thousand rupees; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e)any concern in which any of the persons refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial interest' in Tata Sons Limited. It is not even the case of the revenue, even today, nor is there any material even prima facie indicating that any of the persons specified under section 13(3) has substantial holdings in Tata Sons Ltd. It cannot, therefore, be open to the Commissioner to hold the order erroneous and prejudicial to the interests of the revenue that this aspect of the matter, regarding indirect or associated holding as emerging out of the scheme of Section 13(3), has not been thoroughly investigated. In any event, there was nothing to trigger or justify such a thorough probe. The decision of the coordinate bench in Jamshedji Tata Trust (supra) is in the case of some other assessee, not this assessee, and there is nothing to justify the application of section 13(2)(h) in this case. The relevant observation made in the said decision is anyway a sweeping observation based on conviction, rather than material on record, as it states that "As far as the violation of clause (h) of section 13(2) is concerned we find that the author of the assessee trust and its relative definitely have a substantial interest in the Tata Sons Ltd, therefore, the investment in the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to as Tata Trusts, and entire earnings from these shares is used for charitable purposes. This 23.5% shareholding by the assessee trust is thus a part of a complex, but admirably well-intentioned, model of ownership of the Tata Group wealth, with greater emphasis on the public charities being an owner rather than ownership by promotor families. A plain look at the first, second, and third schedules of the trust deed, which are on pages 23 to 33 of the paper-book filed before us, shows how almost all the personal assets of the settlor, including lands and buildings, shares in different companies and personal effects and pieces of jewellery, have been given away for the public good and charitable purposes. The investment in Tata Sons by the assessee trust is not thus for the purpose of investment in shares, but this shareholding being held by the assessee trust is undisputedly for the purpose of sharing the fruits of the success, of the Tata Group, for the benefit of the general public at large. The investments made by a charitable institution in furtherance of its objects, and the investments being held by a charitable institution, as its core corpus, for the furtherance of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned. Unless there is a specific disabling clause to that effect, merely because the assessee trust has control over the investee company, the benefits envisaged for the charitable institutions, which meet other statutory requirements, cannot be declined. Once it is found that the assessee trusts hold shares in a certain company, all that is required to be seen is whether these shares are held validly under section 11(5) read with Section 13(1)(d) of the Act- an aspect which has been found to be in order in the light of the detailed analysis earlier in this order. No legal embargo on the voting rights of the assessee trust or legal restrictions in the rights of the assessee trust to invest in the companies in which investments have been made have been shown to us. Quite clearly, therefore, the assessee trust validly holds these shares in Tata Sons Ltd, there is no legal embargo on the voting rights of the assessee trust or the manner in which these rights are exercised, and there are no legal restrictions to the rights that the assessee trust can have like any other shareholder in the company in which investments are made. There is no question of the assessee trust not exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons is whatever any majority shareholders would have had in Tata Sons anyway. As long as the investments in Tata Sons meets the tests of what is permissible in law, an issue that we have decided in favour of the assessee for the detailed reasons set out earlier in this order, no objection can be taken to the powers that flow from such shareholdings or any powers within the limits of those powers. 49. We have also taken note of the allegations about the trustee receiving certain benefits from Tata Sons Ltd, even though, as we will see a little later, whatever alleged benefits have been taken by the trustees from Tata Sons Ltd are as consideration of their services rendered in the past to Tata Sons Ltd, and have nothing to do with their role as trustees as such, it is important to bear in mind the fact that in order to invoke 13(1)(c), the "benefit" has to be out of the trust property. The assessee trust has made investments in Tata Sons Ltd, but that does not mean that Tata Sons Ltd is a property of the assessee trust- a proposition blatantly erroneous in law and in concept. What has been paid to the persons holding office as trustees, though in consideration for other roles playe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Assessing Officer "has not obtained any details of investment despite the related details/schedule being not available on record from it could have been ascertained whether the interest income earned is from deposits in the banks or from investments in some companies." In response to this proposition being put to the assessee, it was explained by the assessee that "all the information was available with the learned AO on record, i.e., form 26AS". All these details about the entities from which the interest was earned were reported in Schedule VI to the financial statements, and interest income from each of these investments was also separately reported in Schedule XIII and XIV of the financial statements. The details were also before the Assessing Officer in form 26AS. In any event, it is not even in dispute that all the investments made by the assessee trust were in conformity with Section 11(5) requirements. In these circumstances, we are unable to see any reasons for holding the suspicion that some of the interest income may be from sources that are not qualified for exemption under section 11, and, for that reason, the verification about sources of interest income is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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