Action for Welfare and Awakening in Rural Environment (Aware) Vs. Dy. Cit - Court Judgment

C.V. Ramulu, J.

This appeal is filed under section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') aggrieved by the order dated 17-5-2000 in I.T.A. No. 743/Hyd/2000 of the Income Tax Appellate Tribunal, Hyderabad Bench A.

2. The assessee-AWARE (Action for Welfare & Awakening in Rural Environment) is the appellant. It is a society registered tinder the provisions of the Societies Registration Act, 1860. The Society is also registered under section 12A of the Act sand thus the exemption contemplated under section 11 of the Act is applicable. The society was assessed in the status of association of persons (Trust) filed its return for the assessment year 1993-94 on 1-1-1993 declaring 'nil' income. The return was processed under section 143(1)(a) of the Act on 31-8-1994. Thereafter, the assessing officer issued a notice under section 148 of the Act on 8-1-1998 and the assessment was reopened. After perusal of the evidence produced by the assessee and also hearing it, the assessment was completed on 29-3-2000 for total income of Rs. 10,44,82,246. After reopening, the major addition of Rs. 9,99,62,664 was the total receipts of the trust, which was brought to tax on the ground that the provisions of section 13(1)(c)(ii) read with section 13(2)(b) and 13(3)(d) of the Act were violated by the assessee.

3. The facts relating to the said addition of Rs. 9,99,62,664 are as follows :

The assessee has been receiving foreign contributions for various developmental projects in rural areas of the States of Andhra Pradesh and Orissa. Some of the projects like Rural Development Project, Warangal, Women Development, bonded labour, rehabilitation of bonded labour, new perspective plan, Yanadi Development Project etc. aim at providing financial assistance to poor and needy people. The amounts are given in the form of interest-free loans to the beneficiaries and claimed as utilization of the donations/grants in the return of income; whereas as per assessing officer, the assessee had violated provisions of section 13(1)(c)(ii) read with Sections 13(2)(b) and 13(3)(a) of the Act under the following circumstances :

(1) The Chairman of the Society (AWARE) obtained a loan of Rs. 12 lakhs from Andhra Bank, Saifabad, Hyderabad, in the name of Chairman, against pledge of FDRs of AWARE worth Rs. 16 lakhs and instructed the bank to issue four pay orders of Rs. 3 lakhs each favouring M/s. Rama Anantram, one of the Members of the AWARE. The entire loan was paid in cash by the Chief Accounts Officer and other employee of AWARE. The total amount paid to the bank including interest was Rs. 14,25,756. Thus the conclusion of the assessing officer was that Madhavan took loan in the name of Chairman and gave it to one of the members without adequate security and consideration from the ultimate recipient of the money, thus misutilizing the funds of the Trust.

(2) As per the details available in the record and also in the report of M/s. Batliboi and Company (appointed for investigation of the affairs of AWARE under the directions of High Court of Delhi) it was found that for the purchase of land AWARE routed the entire transaction through an association of persons in which all the members were the directors and employee of AWARE. Some amounts were paid directly to the land owner by AWARE but an amount of Rs. 49,24,343 was paid to association of persons. For purchase of a property by Madhavan (in his personal capacity) an amount of Rs. 2 lakhs was advanced by AWARE to association of persons, thus utilizing the trust money for personal use/gain.

The assessing officer after detailed consideration of the oral as well as documentary evidence available on record held that for the assessment year 1993-94 on two occasions, the provisions of the Act as mentioned supra were violated and as such, the total receipts of the Trust could be treated as income as per sections 11 and 12 of the Act, i.e., to the tune of Rs. 9,99,62,664. On appeal, this addition was confirmed by the Commissioner (Appeals) and hence, the assessee filed I.T.A. No. 743/Hyd/2000 before the Income Tax Appellate Tribunal, Hyderabad Bench W. The Tribunal after elaborate consideration of the oral and written submissions made on behalf of the assessee as well as the revenue affirmed the order passed by the Commissioner (Appeals). Aggrieved by the said order of the Tribunal dated 17-5-2002, the present I.T.T.A. is filed. The counsel for the appellant mainly pleaded the following questions as substantial questions of law in this appeal :

1. Whether, on facts and in the circumstances of the case, section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(a) of the Act are attracted so as to deny to the assessee the operation of and benefit under the provisions of section 11 of the Act ?

2. Whether the finding of the Income Tax Appellate Tribunal that the assessee was attracted by provisions of section 13 of the Act is perverse and not based upon any evidence ?

3. Whether the conclusions drawn holding that the assessee has violated the above provisions of the Act are perverse when the notice was issued under section 13(3)(d) of the Act and

4. Whether the assessing officer was not unreasonable in bringing the entire amount of donations received by the assessee to tax ?

4. At the outset, the learned counsel for the appellant argued that the provisions of section 13(3)(cc) are not attracted in the present case. As regards the loan of Rs. 12 lakhs taken in the name of Chairman, AWARE, which was utilized for obtaining four Pay Orders of Rs. 3 lakhs each in favour of Smt. Rama Anantram, it was submitted that as per the letter dated 22-12-1989 of the bank addressed to the assessing officer the loan was sanctioned in favour of AWARE. The bank account of the assessee is captioned as Chairman, AWARE. This is wrongly and deliberately misinterpreted by the assessing officer as Chairman Madhavans personal account to conclude that the provisions of section 13(1)(c)(ii) read with section 13(2)(b) and 13(3)(a) of the Act are violated. It was submitted that under the scheme of the Act, if any person specified in section 13(3) derives any benefit of the nature specified in section 13(2)(a) or 13(2)(b), then only section (13)(1)(c)(ii) will apply so as to disentitle the assessee to the benefit of sections 11 - 13 of the Act. The assessment order does not explain how section 13(3)(a) applies to the transactions in question and consequently, sections 13(2)(b) and 13(1)(c)(ii) have no application.

5. in this background, it is necessary to examine the relevant provision of the Act, which read as under :

'13. Section 11 not to apply in certain cases(1) 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-

** ** **

(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof

(i) ** ** **

(ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied,

directly or indirectly for the benefit of any person referred to in subsection (3)

** ** **

(2) Without prejudice to the generality of the provisions of clause (c) and clause (a) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3).

(a) ** ** **

(b) if any land, building or other property of the trust or institution is, or continues to be made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation;

(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :

(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 fifty 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 referred to in clauses (a), (b), (c), (cc) and (a) has a substantial interest.'

6. It is argued that the loan given by AWARE to Smt. Rama Anantram so as to apply section 13(1)(c)(ii), Smt. Rama Anantram should be one of those persons referred to in section 13(3)(a) of the Act, whereas the assessment order nowhere states how she can be covered under the provisions of section 13(3)(a) of the Act. Since the loan was not given to Madhavan and Smt. Rama Anantram, was not a person covered under the provisions of section 13(3)(a) of the Act, the transaction does not attract the applicability of provisions of section 13(1)(c)(ii) of the Act.

7. It is at this stage, the counsel for the revenue fairly conceded that the provisions of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(cc) of the Act are applicable and not section 13(3)(a) of the Act. In fact, even before the Income Tax Appellate Tribunal itself, the revenue conceded that a typographical error had occurred in the assessment order and that itself does not alter the position as the very facts as narrated by the assessing officer attracted the provisions of section 13(3)(cc) of the Act. Further, the assessing officer did not proceed on the footing that Smt. Rama Anantram was a relative. The assessing officer has not mentioned the word relative or held that the funds has been misused to give to a relative of Madhavan or any other person. On the other hand, the assessing officer has specifically held that Madhavan took the loan in the name of the Chairman of AWARE. Thus, mere mentioning of a wrong provision itself would not be fatal to the assessment proceedings when the assessing officer was justified in his action under some other provisions of the Act. The jurisdictional facts should attract the provisions of law. The assessing officer observed that the assessee violated the provisions of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(cc) of the Act inasmuch as the FDRs in the name of the assessee worth Rs. 16 lakhs were pledged as security to the bank enabling Smt. Rama Anantram, one of the Members of the assessee to avail the loan without adequate security and consideration, thus misutilizing the funds of the Trust. The department never proceeded on the footing that Smt. Rama Anantram was a relative. It is argued by the revenue that the exemption under section 11 of the Act is applicable to a trust, which deals itself with all fairness, If any unfairness is detected in the return submitted by the assessee, section 13 of the Act takes away the benefit conferred under section 11 of the Act to a Trust.

8. It is noticed that the Fixed Deposit Receipts of AWARE worth Rs. 16 lakhs were obtained by the Chairman and given to Smt. Rama Anantram and the statements on oath were recorded from Smt. Rama Anantram, and the Chief Accounts Officer Babu Reddy. Smt. Rama Anantram claimed that she was never a member of AWARE and she accepted the receipt of the loan of Rs. 12 lakhs. She claimed that the loan was arranged by K. Babu Reddy and she was not in the knowledge that the loan was taken against pledge of FDRs of AWARE, while Babu. Reddy stated that the said loan was arranged at the instance of the Chairman, AWARE. The assessee denied its role in arranging the loan. The assessee produced the Membership Register and membership subscription receipt to show that Smt. Rama Anantram was a Member of the Organization. The assessing officer also recorded the statements of Smt. Rama Anantram, T.K.S. Madhavan and K. Babu Reddy. Smt. Rama Anantram confirmed having received four Demand Drafts of Rs. 3 lakhs each from Babu Reddy and stated that the money was utilized by her for the salaries, phone bills and office administrative expenditure of M/s. Omnitel Industries Company Limited, a company run by her husband-Anantram. She also stated that Babu. Reddy, who was her patient, arranged the loan. Though she denied her being a member of AWARE, The assessing officer found in the minutes book of the Trust showing that she was very much a Member of AWARE. Smt. Rama Anantram. stated that she had never applied for membership of AWARE and did not know how her name was written in the Minutes Book. In fact, she had never paid any subscription at any time to AWARE and did not apply for membership of AWARE. Babu Reddy stated that the loan was arranged at the instance of Madhavan. He stated that Madhavan discharged the FDRs worth Rs. 16 lakhs. Thus, Babu Reddy also falsified the statement of Madhavan that he came to know about the incident of the loan only on 24-3-1994. When Madhavan was examined, he disagreed with the statement of Babu Reddy and denied his signatures on the vouchers of Andhra Bank for Rs. 12 lakhs. He also stated that according to the evidence of the handwriting expert, the signature on the said voucher was false and it was forged by Babu Reddy. Whereas, the handwriting expert stated that he had examined and opined only on the body writings and he never mentioned in his report that Babu Reddy forged the signatures on the bank vouchers. The assessing officer sent the original vouchers of Andhra Bank along with the return of the income of AWARE for the assessment year 1992-93 signed by Madhavan (Form 10) along with two letters signed by Madhavan to the Government Examiner of Questioned Documents (GEQD) on 25-5-2000, who opined that the person, who wrote the signatures on the letters etc. also wrote signature on the bank vouchers, i.e., Madhavan. Further, Madhavan refused to rebut the claim made by Babu Reddy that the loan was arranged at his instance by cross-examining him. Therefore, the assessing officer concluded that Madhavan took loan in the name of Chairman and gave it to one of the members without adequate security and consideration for the ultimate recipient of the money, thus misutilizing the funds of the trust and as such, the provisions of section 13(1)(c)(ii) read with section 13(2)(b) and 13(3)(d) of the Act were violated.

It is also noticed by the assessing officer that for the purchase of land, AWARE routed the entire transaction through an association of persons in which all the members were directors and employee of AWARE. Two identical properties were purchased at Visakhapatnam, one in the name of Madhavan in his personal capacity for Rs. 20 lakhs and the other in the name of AWARE for Rs. 20 lakhs. The payment for the property purchased by AWARE (Rs. 19 lakhs) was from Account No. SB 1870 with bank of Baroda, which belonged to the association of persons, which was formed to purchase Cancer hospital land. For the consideration paid by Madhavan (Rs. 7 lakhs), the explanation was that Rs. 2 lakhs was by Demand Draft from the account-SB 1870-and Rs. 5 lakhs by cash from personal savings of Madhavan. As per the extract of S3. No. 1870, on 22-10-1992 an amount of Rs. 5 lakhs was withdrawn from the said account. The amount of DD for Rs. 2 lakhs was said to be against repayment of loan by K. Satyanarayana, Director to Madhavan. After examining the details and explanation, it was noticed by the assessing officer that the money of Rs. 2 lakhs advanced by AWARE to association of persons was actually routed through the association of persons to advance the money for the purchase of the property at Visakhapatnam by Madhavan, thus, utilizing trust money for personal use/gain and this transaction also violated the provisions of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(a) of the Act.

9. Learned counsel for the appellant gave emphasis that wrong provisions of law were invoked under the facts set out by the assessing officer. As stated supr4 the learned counsel for the revenue fairly conceded that there is a mistake in the application of provision of law, but the jurisdictional facts take care of the right provision of law, i.e. Section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(cc) of the Act, as there is no change in the facts recorded by the assessing officer. It is well-settled that mention or application of a wrong provision of law to a given facts of a case itself does not make the authority incompetent to deal with the factual-situation unless and until there is no provision, which can take care of the jurisdictional facts.

10. Learned counsel for the revenue argued that so far as the appreciation of facts is concerned, at all levels, the facts were appreciated and the authorities came to the conclusion that the funds of the trust were misutilized by the assessee attracting the provisions of the act. Thus, the argument of the learned counsel for the appellant that a wrong provision has been applied, which contemplates that a person referred to in clause (iii) of sub-sections (1) and (2) of section 13 of the Act is any relative of any such author, founder, person (member, trustee or manager) of the same trust and it was argued that neither Smt. Rama Anantram was a relative of the Chairman Madhavan nor was claimed as such in her statement. Thus, the application of section 13(3)(a) does not arise and it cannot be said that the assessee has violated the provisions of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(d) of the Act. It is an admitted fact that Smt. Rama Anantram has never claimed that she is a relative of Madhavan, Chairman of AWARE. But, it is a finding of fact by all the authorities that she was a member of AWARE and the loan was advanced to the Member of AWARE by its Chairman. In this view of unaltered jurisdictional facts as confessed by the counsel for the revenue that though section 13(3)(d) of the Act is not applicable, section 13(3)(cc) is very much applicable and it does not alter the situation anyway. Thus, the misutilization of the funds being a question of fact need not be gone into in this appeal. He further argued that, in fact, no substantial question of law is raised in this appeal and thus it does not call for interference of this Court.

It is also argued on behalf of the appellant that Smt. Rama Anantram took loan without any security does not itself attract section 13 of the Act since the trust property has been pledged by way of FDRs. Further, these monies were all received by way of donations for a specific purpose of utilization of the same for the welfare schemes adopted by it, thus this court should, in alternative, limit the amount, which could be brought to tax for the assessment year 1993-94 only to Rs. 16 lakhs, which would be reasonable and proportionate to that of the violations alleged against the appellant-assessee. It was also argued that the very section 13 of the Act contemplates the income or the property of the trust or institution or any part of such income or property, thus the only portion of the amount, which is said to be misutilized alone should be brought to tax and to that extent alone the benefits under section 11 of the Act could be withdrawn and not for the entire amount of money received by the Trust for the assessment year 1993-94.

11. Learned counsel for the appellant submits that an exemption provision should be liberally construed and it cannot be given a narrow construction. In this regard, he relied upon a judgment in Petron Engineering Construction (P) Ltd. v. CBDT AIR 1989 SC 501 particularly paragraph 18, which reads as under :

'... It is true that an exemption provision should be liberally construed, but this does not mean that such liberal construction should be made doing violence to the plain meaning of such exemption provision. Liberal construction will be made whenever it is possible to be made without impairing the legislative requirement and the spirit of the provision...'

In fact, the said judgment has no help to the appellant, as it is made clear in it that though it is the general principle that the exemption provisions should be construed liberally, the same should be done without impairing the legislative requirement of the spirit of the provision. In this view of the matter, the provisions of section 11 read with section 13 of the Act, on a plain reading, are not applicable to a case of unfair dealing of the trust funds, as the legislative requirement under section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(cc) of the Act is not to extend the exemption under section 11 of the Act under such circumstances. Thus, the question of reasonable or liberal construction of the exemption provision does not arise.

12. Learned counsel for the revenue emphatically submitted that the question of examining the reasonableness and proportionality of the amount of money that should be brought to tax does not arise.

It is also argued on behalf of the appellant that this is a sole incident of misutiliztion of funds without there being any intention on the part of the assessee. Thus, this need not be taken very seriously for the amounts with which it deals with are nowhere can be compared with that of the amounts sought to be misutilized. This argument cannot hold good for the reason that for the purpose of the Act, every assessment year is a separate cause of action and neither the earlier nor the subsequent conduct of the assessee can be taken into consideration. The interpretation that requires to be given is strictly in the teeth of the provisions of the Act. In this case, the misutilization is glaring and it cannot escape the clutches of law, nor any sympathy or equities can be extended particularly for an organization, which receives donations purely for the welfare of the under privileged and needy class of the society.

Further it is noticed that the entire transaction was conducted by Babu Reddy behind the back of the assessee and the assessee or Madhavan were aware of the transactions. This was not believed by the authorities below. On the other hand, it was found that the top management of AWARE was well aware of the transaction from the very beginning. It is also noticed by the authorities below that the assessee came to know of the irregularities in the matter on 24-3-1994. It is surprising to note that Babu Reddy was continued in service upto May, 1995, i.e., one year four months thereafter. Further, as pet-the record, one instalment of repayment was deposited in the bank on 5-2-1998 by Satyanarayana, Assistant Cashier of AWARE. It is not the case of the assessee that Satyanarayana also played a fraud in the transactions. Further, though the irregularity was noticed by the assessee on 24-3-1984, no immediate action was taken by it against Babu Reddy. It is further noticed that it was more likely that after Delhi High Courts order dated 9-11-1998 and subsequent deep investigations by M/s. Batliboi & Company, the assessee tried to cover up its tracks by falsely claiming that Babu Reddy had undertaken the transaction fraudulently and created misleading evidence by filing false cases against Babu Reddy and to cover up the misdeeds of the Chairman of the Trust in siphoning off and misusing trust funds Babu Reddy was made a scapegoat. In fact, Babu Reddy made a clear statement that he air-ranged the loan on the direction of Madhavan after completion of all the formalities required by the bank for obtaining the loan of Rs. 12 lakhs against the pledge of FDRs of Rs. 16 lakhs belonging to the assessee. It is also proved from the record that the four pay orders of Rs. 3 lakhs each were prepared and given to Smt. Rama Anantram on the instructions of Madhavan. It has been admitted by Smt. Rama Anantram in her statement that she received the said money and utilized (lie same by her for the salaries, phone bills and office administrative expenditure of M/s. Omnitel Industries Limited, a company run by her husband-Anantram and she repaid the loan amount with interest totalling to Rs. 14,25,756, Viewed from any angle, the only conclusion that could be reached is that tile whole transaction was within the personal knowledge of the trustees and there is no scope to infer that the Chairman and other trustees are not aware of the same. In fact, it is a case where the funds of the trust were diverted and misutilized deliberately.

The further contention of the appellant that proper opportunity was not given to cross-examine the Government Examiner of Questioned Documents cannot be believed as it had riot summoned or stated specifically that it wanted to cross-examine him. In fact, when the opportunity was given cross-examine, it has failed establish its case that the opinion of the said Examiner is incorrect. Apart from this, all the questions raised are not substantial questions of law as contemplated under section 260A of the Act. They are mere questions of fact and the authorities below have taken on c plausible view and as such, it is not for this court to interfere into such findings of fact.

13. Insofar as the finding that for the purchase of land AWARE routed the entire transaction through association of persons in which all the members were directors and employee of AWARE is concerned, some amounts were paid directly to the land owner by AWARE, but an amount of Rs. 49,24,343 was paid to association of persons for the purchase of a property by K. Madhavan (in his personal capacity) an amount of Rs. 2 lakhs was advanced by AWARE to association of persons; thus, utilizing the trust money for personal gain. This is a pure question of fact and this court cannot interfere into the same under section 260A of the Act.

14. For all these reasons, the appeal fails and neither there is any perverse of finding of facts nor error apparent on the face of record. The order passed by the appellate authority is perfectly valid and justified in the circumstances of the case. Thus the appeal is dismissed; but, in the circumstances, without costs.