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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 ..... la, for example, have been held to be wholly and exclusively for the purposes of the business of Tata Sons Ltd and, therefore, the stand that these payments amounted to benefit to the trustees is ex facie incorrect. In any case, as we have noted earlier, all these aspects were duly examined at the assessment stage, and the defects that the learned Commissioner has pointed out in the said examination during the assessment proceedings, for the detailed reasons we have set out earlier, cannot meet our judicial approval. We are, therefore, of the considered view that learned Commissioner was not justified in subjecting the assessment order to revision proceedings on the ground that the Assessing Officer did not examine the matter regarding assessee s control over Tata Sons Ltd, and whether, by virtue of such alleged control, any of the specified persons under section 13(3) received any benefits, and whether the investments made by the assessee trust were in violation of Section 13(2)(h). Non-verification of accumulation of unspent surplus under section 11(2) was wrongly stated to be allowed though the same was neither asked nor required as the surplus was less than 15%.This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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(E) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned 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) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (3) has substantial interest, it shall be deemed that the assessee trust has used or applied its income for the benefit of such person and thereby operation of section 11 or 12 would cease so as to exclude it from the total income. Despite, your holding of 27.98% shares of Tata Sons Ltd. and close relationship of trustees with the above company, the Assessing 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The AO has allowed you to accumulate unspent surplus u/s.11(2) amounting to ₹ 10,04,61,710/- (which arises by virtue of the order u/s.143(3)) referring letter dated 29-12-2016 of assessee by noting that the assessee has filed form 10 and copy of Resolution along with it, for exercising its option u/s.11(2). However, neither there is reference of Form 10 in assessee's letter 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 ₹ 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by providing funds for instituting professorships or lectureships or giving scholarships or travelling fellowships in any branch of science or art in assisting students to study abroad either by payment of lump sum or by payment of periodical sums or in giving further aid to any other charitable institutions or objects endowed by the Settlor in his lifetime or by the grandfather father and brother of the Settlor. Since 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 ₹ 714 crs. In addition, the Trust is also supporting a variety of cancer care initiatives for an outlay of ₹ 66 crs. The Trust has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned AO has sought information on the points mentioned in the notice under section 263 of the Act. All the information required by the Learned AO was submitted during the course of the proceedings. Thus, the Learned AO had complete information during assessment proceedings. It was only after considering the information that he had passed the order under section 143(3). Merely because the AO has not discussed Or commented upon the information/details given in 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to make bass but necessary verification on this issue. In this connection, the assesses submits that: (a) The AO during the course of assessment proceedings had sought details about the investments held by the Trust, (b) The Trust duly replied and filed for all the details and information. (c) Thus, the AO has made enquiries and it cannot be said that the AO has failed to make basic but necessary verification on the issue. In fact, it is submitted that the AO made detailed 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification undertaken by the Learned AO. The assessee respectful submits that if after due inquiries, the Learn. AO has not held that the assessee is controlling the business of TSL in his assessment order, it cannot be regarded as erroneous under section 263 and hence, it would not warrant a revision under section 263. Exercise of option under section 11(2) As regards pars 4 of the notice, the assessee submits that even as per the assessment order dated December 30, 2016 as against the income of ₹ 132.32 crs, the assessee has applied an amount of ₹ 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. (21) The assessee submits that the exclusion of dividend income from total income is only for the purpose of computing the total income under the Act. However, the Trust expends its entire income (including dividend income) for charitable purposes. (22) Thus, you goodself's allegation that the assessee does not apply its funds for charitable purposes is baseless and unfounded. Prayer We submit that as evident from the above discussion that all information was made available to the Learned AO and Learned AO has verified. Further, the Learned AO has applied his mind and adjudicated the issue having regard to the facts and material on record and come to an appropriate conclusion on the matter. Therefore, the assessee submits that the order of the Learned AO is neither erroneous nor prejudicial revenue to warrant any revision. Without prejudice, in any event, even if the Learned AO has not verified certain details this would not result in any prejudice to the revenue or the sections 11 to 13. The assessee therefore prays that the current proceedings initiated be dropped. Should your goodself require any further clarifications, please let us k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso (i) and (ia). The provisions are reproduced hereunder: Section 13(1)(d) :in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company, other than- (A) Shares in a public sector company; (B) Shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983 Provided that nothing in this clause shall apply in relation to- (i) any assets held by the trust or institution where such assets form part of the corpus of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not seek complete details which were required for due verification of this aspect. From the details it does not come out that the shares were held as corpus on 1-6-1973, which is an exempt category. For this reason, due compliance of assessee also does not help its case because it is the failure of Assessing Officer to make due verification on the basis of which jurisdiction u/s.263 can be invoked. It is further contended by the assessee that as the details relate back to a period of more than 45 years, it craves leave to produce further information and documents to substantiate its position, if required. In this regard, it is stated that the undersigned has not formed any opinion about the applicability of section 13(1)(d) of the I.T. Act on the basis of facts available on record. The conclusion drawn by the undersigned is that due verification required to reach to a conclusion on this issue has not been made. Therefore, the assessee is free to furnish further information and documents to substantiate it position before the Assessing Officer, who is being directed to give assessee sufficient opportunity and reach to a conclusion in accordance with law, after going through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether there was any failure on the part of the Assessing Officer to examine the issue of control of affairs of Tata Sons Limited, as also the question as to whether any direct or indirect benefit in terms of the provisions of Section 13(1)(c) is being taken by the connected persons, learned Commissioner's conclusions were as follows: 10.3 The assessee's contention that all the points raised in the show cause notice u/s.263 of the IT. Act were put to it by the Assessing Officer and appropriate response to the same was submitted by the assessee, there is no infirmity of verification undertaken by the Assessing Officer, is not acceptable for the following reasons : (i) As confronted in Para 3(b) of the show cause notice u/s.263 of the IT. Act, it was noticed on receipt of these basic details from Tata Sons Ltd. and its examination, the Assessing Officer vide another notice u/s. 133(6) dated 13-12-2016 asked for some more details and explanation citing various Article of Association of the company. This notice was issued to the company as well as by e-mail to 4 directors. The details were received from Tata Sons Ltd. on 21-12-2016 and also from one of the directors on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnal communication between Tata Sons Ltd. and the trustees, prima facie, it appears that Trustees are having control over the affairs of the company. Presently, since the case is getting time barred on 31/12/2016, order is being passed. Remedial action may be taken as per I.T. Act, 1961, if required, on detailed examination of submissions/allegations made by Mr. Cyrus P. Mistry, which are on record and any new facts which may come to notice subsequently. This clearly shows that the Assessing Officer did not use the material available with him to take the matter to the logical conclusion and has acted against his own prima facie opinion. This note itself makes the order of Assessing Officer on this issue erroneous and prejudicial to the interest of revenue. To sum up, on the basis of the above facts, I am of the opinion that despite the material being available on records, which could lead to prima facie opinion that the trustees are having control over the affairs of Tata Sons Ltd., the Assessing Officer has failed to take the issue to any logical conclusion. The above indicates that examination of such material was necessary in order to ascertain the facts as also w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 263, now the legal position itself has been made it clear by inserting Explanation (2) to Section 263 of the I.T. Act, which is declaratory nature of providing clarity on the issue. The amended law is also squarely applicable in the case of the assessee for the following reasons : 15.1 By Finance Bill 2015, Explanation 2 to section 263 was inserted w.e.f 1st June 2015 to declare the law which reads as under:- [Explanation 2, - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner - (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the Assessing Officer shall be deemed to be erroneous in so far as it prejudicial to the interests of the revenue, if, in the opinion commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or the order has not been passed in accordance with any decision, prejudicial (d) to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment will take effect from 1st day of June, 2015. Thus, as can be seen above, 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. 15.3 Earlier also, the Hon'ble Supreme Court has time and again declared various explanations in certain statute as declaratory in nature. For example: In CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541 (SC), the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramed under section 143(3) of the Act, and concluded as follows 16. Thus, it clearly comes out from the above judgments that not conducting due verification amounts to the order being erroneous and prejudicial to the interest of revenue. No enquiry or due verification, even in cases where the issue was debatable also amounts to the order being erroneous and prejudicial to the interest of revenue. Similarly, adopting the pertinent line of enquiry but not taking it to the logical end also renders the order erroneous and prejudicial to the interest of revenue. 17. In the light of the discussion in the preceding paragraphs, I am of the opinion that the order u/s 143(3) dated 30-12-2016 for the assessment year 2014-15 is erroneous in so far as it is prejudicial to the interests of the revenue. Therefore, order is set aside to the file of the A.O. for making a de- novo assessment after proper examination of various issues including the aforesaid issues. Needless to mention, the Assessing Officer must decide the issue after affording reasonable opportunity of being heard to the assessee and must pass a speaking and well reasoned order dealing with all the submissions of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner's view that the order is passed without making inquiries or verification which should have been made . Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an Assessing Officer is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. ACI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, 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. It is also important to bear in mind the fact that lack of bonafides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. On a similar note, a coordinate bench of the Tribunal, in the case of Narayan T. Rane v. ITO [(2016) 70 taxmann.com 227 (Mum)] has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in the exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and ask the Assessing Officer to conduct such inquiries or verifications afresh. 23. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Satisfied with the details filed by the assessee, the Assessing Officer had no issues with respect to section 11 and 15, and he noted that the income derived from property held under trust, which included these investments, is covered by the exemption under section 11 and, accordingly, he disallowed exemption of dividend under section 10(34). Learned Commissioner does not dispute these facts but adds that the Assessing Officer did not examine the fundamental question as to whether these shareholdings, as on 1st June 1973, were part of the corpus or not. Unless, according to the learned Commissioner, these shareholdings were held to be part of the corpus of the trust, these investments can not be held to be permissible investments under section 13(1)(d), and it is Assessing Officer's not looking into this aspect of the matter that rendered the subject assessment order erroneous and prejudicial to the interests of the revenue. 32. There is no dispute with the proposition that in terms of the provisions of Section 11(1)(d)(iii) the assessee trust could not have invested in the shares of a company, other than in shares of a public sector company or shares prescribed as a fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 13(1)(d) inasmuch as it was provided that if the funds were invested in modes other than those specified under section 11(5), the benefit of 10(23C) would not be available but an exception was made if such assets were to form part of the corpus as on 1st June 1973. On these facts, while granting the exemption under section 10(23C), Under Secretary in the Central Board of Direct Taxes, Govt of India, vide letter no 197/126/91-ITA-I dated 31st July 1992, had written a letter to the assessee trust seeking clarification whether all the shares form part of the corpus. The assessee trust, vide letter dated 21st August 1992, had clarified the said position, and it was only thereafter, on 10th May 1993, notification was issued by the Government of India notifying the assessee trust under section 10(23C). These facts, which are set out on page 17 of the second compilation filed before us, do show that the assessee trust was accepted to be holding these shares as part of the corpus by the CBDT itself. When an issue has been decided in a certain way by the CBDT, it cannot normally be open to the field officers to question the correctness of that position- particularly when it' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Union of India [2006] 282 ITR 273 has after referring to the decision of Radhasoami Satsang (supra) has observed as under :- 20. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision of where the earlier decision is per incuriam. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservations made by Hon'ble jurisdictional High Court, in the case of DIT v. Sheth Mafatlal Gaganbhai Foundation Trust [(2001) 249ITR 533 (Bom)]: In other words, only the non-exempt income portion would fall in the net of tax as if it was the income of an AOP. Section 11(5) lays down various modes or forms in which a trust is required to deploy its funds. Section 13(1) lays down cases in which section 11 shall not apply. Under section 13(1)(d)(iii), it has been laid down that any share in a company, not being a Government company, held by the trust after 30-11-1983 shall result in forfeiture of exemption. By virtue of the proviso (iia) it has been laid down that any asset which does not form part of permissible investment under section 11(5) shall be disposed of within one year from the end of the previous year in which such asset is acquired or by 31-3-1993, whichever is later. In the present case, the assessee was required to dispose of the shares under the said proviso by 31-3-1993 [See the judgment of this Court in IT Appeal No. 81 of 1999 dated 14-9-2000]. The shares have not been disposed of even during the assessment year in question. Now, under section 164(2), it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fact, the Assessing Officer has declined the exemption under section 10(34) only on the ground that the assessee was eligible for exemption under section 11 on this income. Therefore, even if the assessee is to be declined exemption under section 11 in respect of dividend income on these shares, he will be eligible for exemption under section 10(34). In the case of DIT v. Jasubhai Foundation [(2016) 374ITR 315 (Bom)], Hon'ble jurisdictional High Court has also observed as follows: ..........The provisions, namely, sections 10 and 11 fall under a Chapter which is titled Incomes Which Do Not Form Part of Total Expenditure (Chapter III). Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purposes. We have not found anything in the language of the two provisions nor was Mr. Malhotra able to point out as to how when certain income is not to be included in computing total income of a previous year of any person, then, that which is excluded from section 10 could be included in the total income of the previous year of the person/assessee. That may be a person who receives or derives in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) 39. These reasons are, however, not the only reasons as to why the stand of the Commissioner, in invoking section 263, is wholly unsustainable in law. Even on merits, for the reasons we will set out now, it is clear that the investments in questions were held as the corpus, and, as such, the provisions of Section 13 (1)(d) were not attracted. 40. Explaining the scope of expression corpus, Hon'ble Karnataka High Court, in the case of DIT v. Shri Ramakrishna Seva Ashram [(2013) 357 ITR 731 (Kar)] has observed as follows: 11. The word 'corpus' is not defined under the Act. We do not find any judgment explaining the meaning of 'corpus'. In the Chambers 21st Century Dictionary, the meaning of the word 'corpus' has been given as under: (i) body of writings, e.g: by a particular author, on a particular topic, etc.; (ii) a body of written and/or spoken material for language research; (iii) anatomy any distinct mass of body tissue that may be distinguished from its su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj.) dealing with such contributions held that, the principles enunciated in various cases when applied to the present case, leave no room for debate that the intention of the donor-trust as well as donee-trust was to treat the money as capital to be spent for Ladnu Water Supply Scheme. It is of no consequence whether the amount had since been paid to the State Government or kept in the account of the above-referred scheme by the assessee-trust. From whatever angle it may be seen, the deposited amount cannot be said to be income in the hands of the recipient-trust. Therefore, what ultimately reveals that,-(i) the intention of the donor and (ii) how the recipient-assessee treat the said income. If the intention of the donor is that the amount/donation given is to be treated as capital and the income from that capital has to be utilised for the charitable purposes, then the said voluntary contribution is towards the part of the corpus of the trust. Similarly, the assessee after receiving the amount, keeps the amount in deposit and only utilise the income from the deposit to carry out the charitable activities, then also the said amount would be a contribution to the corpus of the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ationship of trustees of the trust and Tata Sons Ltd. through appointed directors seeking reply as to whether the activities are in accordance with the objects of the trust, what kind of control trust is exercising on business of Tata Sons Ltd. and also the issue that the trustee who were earlier directors/employees of Tata Sons Ltd. are taking benefit from the company through the control of directors appointed by the trust but does not find that inquiry to be sufficient on the ground, as is stated in the immediately following sentence, that but it was done without mentioning the facts or evidence on the basis of which the above preliminary inference was drawn by the Assessing Officer . What essentially follows is that not putting the material on the basis of which this preliminary inference was drawn rendered the inquiry insufficient. It is difficult to understand this approach. The issue is admittedly looked into by the Assessing Officer and the Assessing Officer has come to certain conclusions. No infirmities are pointed out in this process. The deficiency is said to be that the material, on the basis of which preliminary inference was drawn, is not confronted. How does it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in support of the content of his letter, informing the assessee the trustees of having control over the business of Tata Sons Ltd and that the trustees are taking lots of services and benefits from Tata Sons Ltd . This note also records that while prima facie there may be substance in trustees having control over the affairs of Tata Sons Ltd, since the matter is getting time-barred on 31st December 2016, the order is being passed as of now, and, the remedial measures, if required on a detailed examination of allegations made by Cyrus Mistry and on new facts coming to knowledge, will be taken. Learned Commissioner's stand is that these observations clearly shows that the Assessing Officer did not use the material available with him to take the matter to the logical conclusion and has acted against his own prima facie opinion and that this note itself makes the order of Assessing Officer on this issue erroneous and prejudicial to the interest of revenue. 46. Let's not lose sight of the legal position that so far as the exercise of powers under section 263 is concerned, these powers can only be exercised when the subject order is erroneous and prejudicial to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is against the Assessing Officer's not using the material available with him to take the matter to the logical conclusion, and it is also observed by the learned Commissioner that this note itself makes the order of Assessing Officer on this issue erroneous and prejudicial to the interests of the assessee. What is being done now is to send the matter back to the Assessing Officer for examination de novo so as to inquire into the allegations so made by Cyrus Mistry. What this approach overlooks is that it is only elementary that what can not be done directly cannot be done indirectly either. If receipt of some inputs at the last minute from a third party cannot result in an extension of time for completion of assessment under section 143(3) directly, it cannot be done by way of invoking Section 263 either. 38. It is well known that Cyrus Mistry, a former Chairman of the Tata Group, was removed from his position in the Tata Group on 24th October 2016, and within eight weeks of his removal, he sends this material, against the trusts in the Tata group- including the assessee before us, to the Assessing Officer. The objectivity of the averments made by Cyrus Mistry, in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 147 in the event of his coming to the conclusion that income has escaped assessment. There are several other consequences, as prescribed under the Act, that investigation into material received from third party, i.e. other than the assessee, can ensue, but such consequences do include the extended time for completion of a scrutiny assessment. However, in effect, that is precisely what is being sought to be done as a result of the scrutiny assessment order being subjected to revision proceedings on this count. We cannot approve of this approach. 41. That brings us to the core question that the learned Commissioner has raised apprehensions about, whether any direct or indirect benefit as stated in section 13(l)(c) is being taken by the connected persons as referred in section 13(3). However, as we do so, it is important that we understand the scheme of the Income-tax Act, 1961, in this respect. 42. Section 13(1)(c) provides that nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof.... in the case of a trust for charitable or religious purposes or a charitable or relig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for the purposes of this section, a person shall be deemed to have a substantial interest in a concern, (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in sub-section (3) . What follows is that when one or more of the specified persons hold more than 20% equity shares, carrying not less than 20% voting powers, in a company in which the trust has made investments, such an investment can be treated, to be an application of trust funds for the benefit of the specified persons, disentitling itself of the benefits of section 11 accordingly. 43. As noted by the learned Commissioner in para 9.4 of his order, the assessee has submitted that none of the trustees as on 31-3-2014 hold substantial interest in Tata Sons Ltd and, therefore, the provisions of Section 13(2)(h) of the Income-tax Act, 1961 are not applicable . His objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance of the same to the present fact situation, is evident from the material on record. We see no relevance of this observation in the present context. We are thus unable to find anything in support of the contention that any direct or indirect benefit under section 13(1)(c) read with Section 13(2)(h) was obtained by the specified persons under section 13(3), or that lack of reasonable inquiries in this regard would render the subject assessment order erroneous and prejudicial to the interests of the revenue. When none of the specified persons under section 13(3) are stated to have any substantial interest in Tata Sons Ltd, and when there is nothing on record to even suggest incorrectness of this averment of the assessee, the question of direct or indirect benefit under section 13(1)(c) read with section 13(2)(h) does not arise, and, as is well settled, provisions under section 263 cannot put into service to make some roving and fishing inquiries. 44. As repeated references are made to assessee's shareholding of more than 20%, approximately 23.5%, to be more precise) in the Tata Trust Limited, and its control over the Tata Sons for that reason, it is necessary to deal wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons Limited is in the nature of corpus, and as such, covered by the proviso to Section 13(1)(d), as we have indeed held in paragraphs 22 to 32 earlier in this order, it cannot be open to hold that the exemption will be forfeited by Section 13(2)(h). The CBDT, after a detailed examination of that aspect of the matter, has come to the conclusion that these shares were held as the corpus, which was a precondition for the issuance of notification under section 10(23C), and notified the assessee trust under section 10(23C) as such. The material facts remain exactly the same as these were at that point in time, and there is, thus, no occasion to revisit those factual findings. The application of Section 13(2)(h), in such a situation, is wholly academic. It is so for the reason that, as held by Hon'ble Bombay High Court in the case of CIT v. Trustees of Mrs Kasturbai Walchand [(1990) 181 ITR 47 (Bom)] the benefit given by proviso to section 13(1)(c) cannot be taken away by invoking section 13(2)(h). By the same logic, in our considered view, the benefit given proviso to Section 13(1)(d) cannot be taken away by invoking Section 13(2)(h). Be that as it may, even on merits, there is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee trust, as a shareholder, is the same as that of any other shareholder. It is the duty of the assessee trust to protect the assets held by the assessee trust in a fair and reasonable and lawful manner. 48. As we have noted, the business model of ownership of Tata Sons Ltd, a holding company having investments in the group companies, is somewhat unique in the sense that majority shareholding in this holding company is collectively in the hands of various charitable institutions, including the assessee before us, and the articles of association of Tata Sons Ltd has, in recognition of this ownership model, granted certain rights to these charitable institutions on a collective basis- as long as these charitable institutions collectively hold not less than 40% of the shareholdings in Tata Sons. It is important to bear in mind the fact that these rights have been granted to these charitable trusts, and the assessee before us is only of these trusts, on a collective basis, and not to this assessee alone. Therefore, these rights, even if material, are not relevant in so far as control by this assessee is concerned. The assessee trust cannot, therefore, be said to be hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits to the trustees. The pension payments to Ratan N Tata and N A Soonawala, for example, have been held to be wholly and exclusively for the purposes of the business of Tata Sons Ltd (ITA No. 4630/Mum/16), and, therefore, the stand that these payments amounted to benefit to the trustees is ex facie incorrect. 50. In any case, as we have noted earlier, all these aspects were duly examined at the assessment stage, and the defects that the learned Commissioner has pointed out in the said examination during the assessment proceedings, for the detailed reasons we have set out earlier, cannot meet our judicial approval. 51. We are, therefore, of the considered view that learned Commissioner was not justified in subjecting the assessment order to revision proceedings on the ground that the Assessing Officer did not examine the matter regarding assessee's control over Tata Sons Ltd, and whether, by virtue of such alleged control, any of the specified persons under section 13(3) received any benefits, and whether the investments made by the assessee trust were in violation of Section 13(2)(h). 52. That brings us to the Commissioner's stand that non-verification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is not even a suggestion that any part of interest income is not qualified for exemption under section 11, we are unable to uphold the stand of the learned Commissioner that the subject assessment order was erroneous and prejudicial to the interest of the revenue for want of verifications of interest income sources. We disapprove of the action of the learned Commissioner on this point as well. 54. Learned Commissioner has also noted that even though the income from dividend was treated as exempt under section 10(34), the Assessing Officer should have nevertheless examined whether the entire income of the assessee trust was applied for the purposes of the assessee trust. 55. The observations so made by the learned Commissioner show that he has not even applied his mind to the undisputed facts of the case. If he had cared to look at paragraph 8 of the subject assessment order, he would have noticed that the Assessing Officer has already included the dividend income of ₹ 95,63,30,094 in the available gross receipts of the assessee trust and examined the application of the said income. That is beside the point that such an action was contrary to the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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