Per N.R.S.Ganesan, JM This appeal by the assessee is directed against the order of the CIT(A)-II, Kochi dated 31.12.2008 and pertains to the assessment year 2005-06.
2. Shri K.R.Sudhakaran Pillai, the ld. Counsel for the assessee submitted that the assessee is a charitable institution The ld. Counsel for the assessee submitted that the assessee institution was established by the Government of Kerala u/s. 53A of the Town Planning Act. The main object of the assessee is to carry out integrated development of certain areas outside the limits of the Corporation of Cochin. Though initially the registration u/s. 12AA was granted, the Commissioner cancelled the same. However, on appeal by the assessee, this Tribunal vide order dated 30.1.2008 in I.T.A No. 361/Coch/2006 set aside the order of the Commissioner. Therefore, the ld. Counsel for
I.T.A. No.128 /Coch/2009 2 the assessee submitted that the assessee is now a registered Trust u/s. 12AA of the Act. The only issue arising for our consideration is whether the repayment of loans, by making a deposit in the Escrow Account, would amount to application of income for the purpose of claiming deduction u/s. 11(5) of the Act. The ld. Counsel for the assessee submitted that the assessee borrowed loans from Consortium of Banks lead by the Union Bank of India for the purpose of development of the land assigned by the Government of Kerala. An escrow account was opened with the Union Bank of India on 19.4.2002. As per the condition of the grant of loan, the sale proceeds of the land has to be deposited in the escrow account. The ld. Counsel for the assessee submitted that once the sale proceeds of the land was deposited in the escrow account, it would amount to repayment of loan, and has to be treated as application of income for charitable purposes. Referring to clause 12(k) of the Memorandum of Understanding, the ld. Counsel for the assessee submitted that no doubt the repayment of the loan should commence from 1.4.2005, however, clause 12(1) clearly says that pre-payment of loan. is also permitted. Therefore, when the assessee deposited the sale proceeds of the land on 31.3.2005 in the escrow account, it would amount to application of income during the year under consideration. Merely because the bank debited the account on 2.4.2005, it cannot be said that the amount was utilised only in the next financial year. According to the ld. Counsel, the deposit would be considered as application of income. The ld. Counsel for the assessee placed reliance on the judgment of the Calcutta High Court in the case of CIT vs. Hindustan Welfare Trust, 206 ITR 138. The ld. Counsel for the assessee further submitted that alternatively the income of the assessee shall be computed on commercial principles so that the expenses appearing in the books of accounts for carrying out the object of the Trust has to be allowed as expenditure and net income alone shall be chargeable to tax.
3. On the contrary, Ms. S.Vijayaprabha, the ld. Departmental Representative submitted that no doubt the assessee-Trust was a registered Trust by virtue of order by this Tribunal dated 30.1.2008. Referring to the Memorandum of Understanding, the ld. Departmental Representative submitted that the repayment of loan was to commence
I.T.A. No.128 /Coch/2009 3 only from 1.4.2005. The banker actually deducted the amount from the escrow account only on 2.4.2005. Therefore, the payment does not fall within the financial year under consideration. Therefore, it cannot be allowed as application income for the year under consideration. Hence, the lower authorities have rightly disallowed the claim of the assessee for exemption u/s. 11 of the Act.
4. We have considered the rival submissions on either side and perused the material on record. No doubt, the assessee was a registered Trust during the year under consideration u/s. 12AA of the Act by virtue of the order of this Tribunal. It is not disputed that the sale proceeds were deposited in the escrow account on 31.3.2005. The banker deducted the amount on 2.4.2005. The question arising for consideration is when the assessee deposited the amount on 31.3.2005 with escrow account, whether it would amount to application of income. We have carefully gone through the judgement of the Calcutta High Court in the case of CIT vs. Hindustan Welfare Trust (supra). The assessee before the Calcutta High Court claimed that the money deposited with the banker becomes property/new asset. The claim of the assessee was upheld by Calcutta High Court holding that investment by the assessee-Trust in fixed deposit out of sale proceeds of shares amounts to acquiring another capital asset. In the case before us, as per the terms and conditions of loan, the assessee has to deposit the sale proceeds of the land in the escrow account. Of course, the assessee has time till April, 2005 for depositing the amount with escrow account. However, the assessee admittedly deposited the amount on 31.3.2005. The banker debited the account on 2.4.2005. The assessee was also given discretion for pre-payment of the loan. In these circumstances, in our considered opinion, the deposit of sale proceeds of land in escrow account on 31.3.2005 amounted to application of income for the purpose of Trust. Once the amount is deposited in the escrow account, the assessee complied with the terms and conditions of the loan. Therefore, it is for the banker to debit the account at its discretion. Therefore, this Tribunal is of the opinion, that the deposit of sale proceeds in escrow account on 31.3.2005 amounted to application of income for the object of the Trust. Accordingly, the orders of the lower authorities are set aside and the assessing officer is directed to
I.T.A. No.128 /Coch/2009 4 grant exemption u/s. 11 of the Income Tax Act in respect of the sale proceeds of the land deposited in escrow account on 31.3.2005.
5. In the result, the appeal of the assessee stands allowed. sd/- sd/- (SANJAY ARORA) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Place: Ernakulam Dated: 16th December, 2011 Copy to:
1. Goshree Islands Development Authority, Park Avenue Bldgs., Kochi-682011.
2. The Assistant Commissioner of Income-tax, Circle-2(1), range-2, Ernakulam.
3. The Commissioner of Income-tax (Appeals)-II, Kochi.
4. The Commissioner of Income-tax, Kochi.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.