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TMI Blog2022 (3) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... go through relevant agreements and give findings as to whether the same would fall within the objects of the assessee trust so as to fall within the ambit of business income of the assessee. If the same was to construed as income from other sources even then the allowability of expenses would have to be considered in the light of the provisions of Sec.57(iii) of the act. It was agreed position that findings given in earlier years with regard to incubation of new entities would not apply to the facts during the years under appeal. Accordingly, entire assessment was restored to the file of Ld. AO for de-novo adjudication. Ignoring the same and without making due examination / verification as directed by the Tribunal, Ld. AO merely held that the activities undertaken by the assessee were in continuation of incubation activities. The two streams of income were shown as other income and therefore, the same were non-operational income. The two streams of income were shown as other income and therefore, the same were non-operational income. Another allegation was that the assessee was exercising significant control over related parties and since the expenses were already claimed by its 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-15. The grounds raised by the revenue in AY 2011-12 read as under: - 1. The order of the learned CIT(A) is contrary to facts and circumstances of the case. 2. The Ld. CIT(A) erred in deleting the additions made in the assessment order to the extent of ₹ 12,84,12,920/- 3.1 The Ld. CIT(A) erred in his decision that cost along with the markup was recovered from the concerned companies while facts on record show that even the cost was not recovered from the parties in spite of an agreement to do so. 3.2 The Ld. CIT(A) ought to have appreciate the fact that the related entities can claim such cost allocation in their hands. Assessing Officer has not made any such disallowance in their hands. 3.3 The Ld. CIT(A) failed to appreciate that the assessee is not earning any profit/loss in the transaction and it is only providing common facilities to related parties and recouping the expenses by way of cost allocation. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. Similar are the grounds of revenue in other years. The grounds raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred in connection with the operational expenses of the incubated entities but were exclusively incurred for the Segment I business of the Appellant. 4. The Appellant craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 2. The assessee has preferred application under Rule 27 for AYs 2011-12, 2012-13 & 2014-15. However, the same has been withdrawn vide withdrawal letter dated 18.02.2021. 3. Our attention has been drawn to earlier orders of Tribunal in assessee's own case for AY 2009-2010, ITA No.1035/Mds/2013 order dated 07.07.2014, order for AY 2012-13, ITA No.962/Mds/2016 dated 16.02.2017, order for AY 2010-11, ITA No.232/Chny/2019 dated 26.08.2019. The assessee (earlier known as M/s IFMR Trust) was set up as a private trust on 19.10.2006 with an objective to finance the rural segment and to support entrepreneurs, promote innovative business opportunities in rural area and earn income from such business activities. The assessee trust is taxable at maximum marginal rate under the act. 4. The assessee is stated to have undertaken two disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al / physical but only supportive in nature. The assessee was striving for financial inclusion and market inclusion. It did not carry out any business directly and it also did not act as partner of micro-units set up by it. Finally, the income was held to be assessable as 'income from other sources'. The assessee was allowed deduction of expenditure @2% of gross income reported by the assessee. In other words, the assessee's appeal was dismissed. 6. In AY 2012-13 (supra), the only issue in assessee's appeal was whether Ld. CIT(A) was justified in upholding the decision of Ld. AO that the income derived by the assessee was to be assessed as 'income from other sources' and allowing only 2% of expenditure on adhoc basis. In that year, the assessee earned income from shared services, income from infrastructure services, interest on loans to third parties, interest on investments, provisions written-back and other income which were offered as 'business income'. However, interest on fixed deposits out of surplus funds was offered as 'income from other sources'. Against 'business income', the assessee claimed staff cost and administration cost. The Ld. AO proposed estimated deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other incomes. The Ld. AO disallowed the various expenditure claimed by the assessee which was agitated by the assessee up-to the level of Tribunal. The Tribunal remitted the matter back to the file of Ld. CIT(A). The Ld. CIT(A) passed order against which the assessee was again in appeal before Tribunal. The Ld. CIT(A) rendered a finding that in AY 2009-10 as well as in AY 2010-11, the assessee operated only in Segment-I activity and the decision of Tribunal for AY 2009-10 was applicable. Accordingly, the assessee's claimed was rejected by Ld. CIT(A). Since Ld. CIT(A) had followed the Tribunal order, the bench confirmed the stand of Ld. CIT(A) and dismissed assessee's appeal. 8. Thus, the position that emerges is that in AYs 2009-10 & 2010-11, the assessee operated in Segment-I activity only whereas in AY 2012- 13, the assessee operated in Segment-II activity. Noticing this vital difference, the issue in AY 2012-13 was restored back by the bench to the file of Ld. AO for de-novo assessment. Assessment Proceedings 9.1 During set-aside proceedings for AY 2012-13, the assessee submitted that it pursued business activity under Segment-II which would consist of income from providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same would fall within the objects of the trust so as to fall within the ambit of business income of the assessee. The Hon'ble Tribunal had also held that in case if the same is to be construed as 'income from other sources' even then the allowability of various expenses would have to be considered in the light of the provisions of Sec.57(iii) of the Act. As against this, Ld. AO simple stated that the activities of providing shared services and infrastructure services was only a continuation of incubation activity carried on by the assessee for the new entities. The Assessing Officer relied upon the website of IIT Madras Incubation Cell (IIT MIC) as an assessee providing post incubation facilities. The Assessing Officer also restricted the expenses to 2% of the gross receipts. Thus, it would appear that Ld. AO merely followed the directions of the Tribunal for AY 2009-10 and not for AY 2012-13. While setting aside the case for AY 2012-13, the Tribunal had clearly held that the assessee had not carried out Segment-I activity relating to incubation of new entities during AY 2012-13. Therefore, Ld. AO could not say that Segment-II activity relating to shared services and infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; c) To form, constitute, promote, subsidise, organize or aid in forming, constituting, promoting, organizing or assisting or aiding any companies / trusts (including any kind of funds in the form of companies / trusts) in consultation with the Advisory Council, to subscribe to, invest in or acquire and hold and otherwise dispose of any shares or securities or other instruments pursuant thereof, and to exercise any rights and derive any benefits as a result of subscribing to, investing in or acquiring and holding such shares or securities; d) To advise, guide, make recommendations and otherwise participate in the management of the joint ventures, companies and trusts contemplated under sub-clauses (b) and (c) of this Section 2.06, in consultation with the Advisory Council; e) Mobilizing investments in the joint ventures, companies and trusts contemplated under sub-clauses (b) and (c) of this Section 2.06 and managing and liasioning with investors on the nature and scope of such investments; f) To invest the surplus amounts of the Trust Funds, if any, in Permitted Investments, in consultation with the Advisory Council; g) To make grants or endowments out of the Trust Funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or secured by mortgage of immovable or charge immovables or otherwise, securitized debts, asset or mortgage backed securities or mortgage backed securities debt and to manage, service or collect the same and to appoint managing, servicing or collection agent therefore and to issue certificates or other instruments in respect thereof to public or private investors and to guarantee and insure the due payment, fulfilment and performance of obligations in respect thereof or in connection therewith and to promote, establish, undertake, organise, manage, hold or dispose o.f any special purpose entity, body corporate or vehicle for carrying on all or any such activities. o) To effect, insure, guarantee, underwrite, participate in managing and carrying out of any issue, public or private, of state, municipal or other loans or of shares, stock, debentures or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue. p) To lend money, with or without interest, (with or without security} for any maturity period, in any form whatsoever including by way of loans, advances, instalment credit, trade finance, hire or otherwise to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the subsidiaries also claimed the same expenses in their account. The above argument of the Assessing Officer is not correct. The cost for the assessee is debited in its Profit & Loss a/c and the same is recovered along with the markup from the subsidiary companies. The payment made by subsidiary companies to the assessee trust will obviously be expenses for the subsidiary companies. This cannot be stated as double claim of expenses. No evidence is brought on record to show that the expenses incurred are not for the purpose of earning of income. In these circumstances, the expenses are allowed u/s 57(iii) of the Act. Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings and Adjudication 11. After going through the orders of Tribunal in earlier years, we find that in order for AY 2012-13, it was the observation of the Tribunal that the assessee had not debited any expenditure towards 'incubation expenses'. It was also observed by the bench that the assessee had not carried out any Segment-I business activity i.e. incubation of new entities during the year under appeal and it had carried out only Segment-II business activity. This vital fact was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the main objects of the assessee. Since Ld. AO had failed to carry out the directions of Tribunal, Ld. CIT(A) rightly went ahead to examine the activities carried out by the assessee. After analyzing the Trust Deed, concrete findings were rendered that shared and Infrastructure activities could not be held to be in the nature of business activities and therefore, the same would be assessable under the head 'income from other sources'. As per statutory mandate, the expenditure expanded by the assessee to earn such an income would be an allowable deduction u/s 57(iii). Since the directions of Ld. CIT(A) are in accordance with law, we concur with the findings of Ld. CIT(A) in the impugned order and accordingly, dismiss the appeal of the revenue. Cross-Appeals for AY 2011-12 13. In this year, the assessee has earned total receipts of ₹ 937.97 Lacs as detailed in para-5 of assessment order dated 12.03.2014. The assessee incurred expenditure of ₹ 1284.12 Lacs. The Ld. AO, after examining the expenditure, specifically disallowed incubation expenses, capital expenditure (consultancy and legal / professional charges) and diminution in the value of investments. However ..... X X X X Extracts X X X X X X X X Extracts X X X X
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