Indian Red Cross Society, Hyderabad vs Assessee

This is an appeal filed by the assessee, against the order of

the CIT (A)-IV, Hyderabad, dated 7.11.2014 passed for A.Y 2005-

06, u/s 143(3) r.w.s. 254(1) of the I.T. Act, 1961.

2. Briefly stated, the Indian Red Cross Society (IRCS) was set

up under an Act of Parliament in 1922, with its National Head

Quarters in New Delhi. The assessee is a branch of IRCS set up

on 28.09.1969 and is based in Hyderabad. Assessee had filed its

return of income for the first time on 18.02.2008 showing 'nil'

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income. On verification of the application of the assessee u/s

35AC filed on 2.6.2008 showed that the registration u/s 12AA

was effective only from A.Y 2008-09. Since the assessee had

received a sum of Rs.2,94,08,733 from the public during the

year, the AO issued a notice u/s 148.

3. In the course of assessment proceedings, assessee

submitted that assessee had been under the bonafide belief that

there was no requirement for it to file a return of income and

that the national head quarter has been granted registration by

the Director of Income Tax (Exemption) New Delhi vide his order

u/s 12A, dated 29.6.2000. AO noted that the National Head

Quarter has been advised on 2.1.2003 by the AO in New Delhi to

approach the jurisdictional AOs for issue of certificates u/s 194

since the accounts of the branches were kept and maintained

independently of the National Head Quarter.

4. In the light of the above, the Assessing Officer

concluded that it was incumbent upon the appellant to file

returns of income with the jurisdictional Assessing Officer at

least from AY 2003-04 onwards. The Assessing Officer noted

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that for AY 2005-06, the annual report had been

finalized on 12.6.2006, i.e. much after the due date and' the

assessee had failed to file the audit report in Form 10B. As a

last resort, the Assessing Officer required the assessee to at

least file a copy of the return of income filed by IRCS, New

Delhi though the Assessing Officer felt that in

any case, even this return could not be considered as the

return filed by the assessee.

5. During the reassessment' proceedings, the Assessing

Officer noted that the assessee appeared to have

maintained various accounts like General Funds, Trust

Fund, Red Cross Cyclone Relief and Reconstruction Corpus

Fund and National Calamity fund. The general fund showed

an income of Rs.1,39,80,896 and exp of Rs.67,01,698 on

establishments, Rs.18,60,153 on other expenditure with

surplus of Rs.41,63,196. The Assessing Officer also noted

that the assessee had received a grant of Rs.45.00 lakhs

from Andhra Pradesh which had been reflected in the

Balance Sheet but not in the Income and Expenditure

Statement and that unless this receipt was in the nature of

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a donation to the corpus; this should have been shown as

an income. The Assessing Officer also noted that the Trust

Fund account showed expenditure of Rs.17,434 while the

Cyclone Relief and Reconstruction Corpus Fund showed

income of Rs.9,497.

6. The Assessing Officer noted that the Natural Calamities

Relief Fund, which he considered the most important of all,

showed zero donations, interest of Rs.10,68,232, zero relief

expenditure, depreciation of Rs.53,167, salaries of

Rs.96,993 and surplus of Rs.9,18,073. The Assessing

Officer also noted that the Balance Sheet reported a sum of

Rs.2,94,08,733 as amount received for tsunami victims.

Since the tsunami had occurred on 26.12.2004, the

Assessing Officer wondered how the amount had been

left unspent for three months till 31.3.2005 showing zero

relief work. The Assessing Officer held that the assessee's

claims of humanitarian work had thereby been put to a

severe test since time was of the essence in

such situations.

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7. The Assessing Officer held that there being no exemption

from filing of return of income for a society registered u/s

12AA, the benefit of sec.11 had to be denied to a non-filer

and accordingly, the excess of income as well as the

tsunami donations and the grant received from the

Government of Andhra Pradesh were brought to tax.

8. On appeal, the CIT(A) vide his order in ITA

No.557/DDIT(E)- II/CIT(A)-IV/09-10, dated 31.1.2011 held

as follows:

"6.....Accordingly, I am of the view that the appellant is not eligible to get the benefit of the provisions of section 10(23BBA) of the Act.

6.6 ... till the Assessment year 2008-09, the appellant did not have any individual status as a separate entity and accordingly, its income/loss was to be considered with the results of NHQ only. Therefore, in view of the fact that the appellant branch was not a separate entity in the Assessment year in appeal, all the provisions relating to application of income etc. have to be examined in the hands of NHQ only. The additions in respect of contributions, grants etc. are therefore, deleted subject to the verification of the contention that the same have been considered in the consolidated return of the IRCS."

9. In the course of the consequential assessment

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proceedings, AR submitted before the Assessing Officer

that IRCS' had been granted registration since inception,

that vide letter in F.No.176/23/94-II-AI dated 21.7.1994,

the CBDT stated that NHQ was a 'single unit and that the

branches have no separate constitution and the certificate

issued u/s 80G to the NHQ Will apply to all the State

branches mutatis mutandis', that after consultation with

the Ministry of Law, the CBDT later vide its letter dated

19.5.2010 clarified that all branches of the IRCS may be

treated as separate entities under the Income tax Act

provided they obtained registration u/s 12A/80G from the

respective jurisdictional officers, that these two letters

showed that the IRCS was a single unit,

that at the end of each financial year and after its approval

by the AGM, the financial information along with the

printed booklet was sent to NHQ for information and

necessary action, that no information was available from

NHQ about the subsequent action taken by it and that the

appellant was under the bona fide belief that IRCS was

filing the return of income at Delhi since a common PAN

was being used by all the state units across

the country and since NHQ had forwarded the certificate

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u/s 80G for use by all the state units.

10. The Assessing Officer noted that the assessee had been

requested to file copy of return filed by NHQ, that the

assessee submitted copy of acknowledgement dated

21.7.2006 for the return of income, filed

by NHQ and that other than the acknowledgment, no other

details like computation of income, consolidated income

and expenditure statement and Balance Sheet had been

filed to show that the final results of the assessee had been

incorporated in the audited results of NHQ. The Assessing

Officer noted that the assessee had been unable to furnish

any evidence that its accounts had been consolidated at

the national level with the financial results of NHQ and

that the assessee had merely been harping on the fact that

the assessee had sent its final results to New Delhi. The

Assessing Officer concluded that the assessee having failed

to establish that its transactions were included in the

audited results of NHQ in accordance with the directions of

the ITAT and having failed to file a return of income

independently, was not eligible for exemption u/s 11 of the

Act. The AO, therefore, brought the excess of income of the

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various funds as well as tsunami donation and the grant

from the Govt. Of Andhra Pradesh, aggregating to

Rs.3,89,82,064 to tax.

11. On further appeal, the ld Counsel for the assessee

submitted before the CIT (A) that:

• ',In so far as the registration of the Trust is concerned, it was submitted that the Indian Red Cross Society (IRCS) with National Headquarters at Delhi is a creation by an Act of the Parliament and the same has been granted exemption u/s 12 of the Act by the Income-tax Department at New Delhi, from inception and renewed from time to time. This registration is effective from 1.4.1989 onwards. Similarly, the IRCS was also granted registration u/s. 80-G from time to time and the latest renewal is vide order dt. 14.10.2005 effective from 1-4-

2005 to 31-3-2008.

• It was submitted that Act of Parliament relating to the establishment and constitution of the IRCS. Clause 7 of the said Act relates to the purposes to which the funds of the, Society may' be applied and more specifically the objects are set out in the First Schedule to the Act. The First Schedule is at. page 26 in the said Act. It is seen from the said Schedule that it involves provision of relief ,,' in 'cases of damage caused by floods and other disasters and also provide comfort to patients in the hospitals and health

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'institutions and incur expenses of management of the Society and its branches and affiliated societies amongst other objects mentioned therein.(Para 6,8,9,and ll). Thus it is seen that the IRCS carries out the charitable activities which are well recognised and appreciated in the public domain. The assessee society was under a bonafide belief that the IRCS was filing its return of income at Delhi, incorporating the financials of all the state branches. • It was further submitted that at the end of each financial year and after its approval at the AGM, the financial information along with printed booklet is sent to Delhi for information and necessary action. No further information thereafter is received from the NHQ and also about the action taken thereof. Thus it is once again, most humbly submitted, that the appellant society filed its return of incomes for three years on a single day to comply with the provisions of the application u/s 35 of the Act. • At this juncture, it was submitted to kindly condone the delay in filing the return of income, if any and alsoa ccept Form 10 relating to accumulation of income. This prayer is made on the premise that the appellate proceedings are a continuation of the assessment proceedings as laid down by the law.

• It was pointed out from the letter issued by the National Head Quarters in Jan, 2003, that instructions were given to all State Units/U'T branches to approach the local Income-tax Officer and obtain separate TAN No. for issuing the Tax Deducted at Source Certificates has provided in

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chapter XVII - B of the Act, as each branch has maintained the accounts separately.

• In so far as the provisions of The A.P. Charitable and The A.P. Charitable & Hindu Religious Institutions and Endowments Act, 1987, assessee submitted below explanation sub section 3 of the section 1 of the said Act:

"Explanation: In this clause, the expression "public charitable institutions and endowments"

shall include every charitable Institution or endowment the administration of which is for the time being vested in any department of Govt. or Civil Court, Zilla Praja Parishad, Municipality or local authority, or any company society, organization institution or other person".

• As it was stated that it is clearly discernible that the assessee society does not fall with the definition of The A.P. Charitable and The A.P. Charitable & Hindu Religious Institutions and Endowments Act, 1987. This is because the society is established by an Act of Parliament and is outside the realm of the entities mention in the said Explanation. The reference to the word "other person"

must be attributable to the entities of similar nature prescribed in the said term. This is based on the principle of "ejusdem generic" which Latin maxim means that the same meaning must be given to the words preceding it. However, the Assessing Officer has misunderstood this important principle and therefore erred in applying the provision is of the said Act. There: is no requirement to get the institution registered u/s. 43(1) of the Act. It is humbly submitted that this Act applies primarily to those

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institutions which have the trustees in the form of heredity trustees and the like for the management of finances and other organizational affairs. In the instant case, the appellant society functions under the aegis of HE The Governor of Andhra Pradesh through an Executive. Committee and Management Committee. There is no separate deed for its, constitution in this regard. • The assessee brought to notice the provisions of 65 of the said Act and that they are also inapplicable, as there is no mandatory liability for annual contribution to the State Government. It was submitted that the reference to the Apex Court Judgement in the case of Biharilal Jaiswal Vs. CIT reported in 217 ITR 146 is also highly improper and the assessee society did not violate or infringe any provision of any law for the time being in force more specifically the Endowment Act referred herein above and this decision is not applicable to the facts of the case.

12. Assessee also relied on the following decisions:

• Commissioner of Income-Tax v. Vidya Sagar Educational Trust (And Vice Versa) 315 ITR 298 (Karnataka).

• Commissioner of Income-tax v.Hardeodas Agarwalla Trust 198 LTR 511 (Calcutta) • Chairman, Andhra Pradesh Welfare Fund v.Commissioner of Income-tax 143 ITR 82 (Andhra Pradesh).

• Commissioner of Income-tax v.Trustees of Visha Nima Charity Trust, 138 ITR 564(Bombay)

13. The CIT (A) held as follows:

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"15. I have considered the facts on record and the submissions of the AR. The present appeal has been filed against an order consequential to the order of the ITAT. It is not an appeal against the original assessment. The three issues listed by the AR, viz.

i. Applicability of the AP Charitable and Religious Institutions' and Endowments Act, 1987 (APCRA).

ii. Contributions/donations received towards tsunami iii. Corpus grant from Government of Andhra Pradesh,

were subject matter of appeal at the original stage, in the appeal against the assessment order dated 24.12.2009. These issues Were adjudicated upon by the CIT(A) in his order dated 31.1.2011 and later by the ITAT in its order dated 19.1.2012, and are, therefore, no' longer open for adjudication. Similarly, the issue of whether the appellant is eligible for exemption u/s 10(23BBA) was decided by the CIT(A) in his order dated 31.1.2011 and upheld by the ITAT.

16. The issue to be examined in the present appeal must, therefore, be confined to examining whether the directions of the ITAT have been correctly followed.

17. As can be seen from the directions of the ITAT as reproduced above, the Assessing Officer had been tasked with the examination of whether the appellant had an independent status as an income tax assessee or whether the appellant's accounts had been consolidated with those of the NHQ. The limited issue for consideration in this appeal is, therefore, the nature of evidence submitted by the appellant in support of the claim that its financial results had been included in the consolidated report of the NHQ and consequently, whether the Assessing Officer

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had taken the correct view of such evidence.

18. The only evidence submitted by the AR before the Assessing Officer consisted of the letter of the appellant to NHQ forwarding its audited results for information and necessary action. Whether or not any 'necessary action' was taken by NHQ on the approved financial results of the appellant is not specified nor supported by any evidence. The appellant has in fact pleaded its helplessness in furnishing any further information.

19. Similarly, the acknowledgment of the return of income filed by NHQ also does not establish the appellant's claim that its financial results had been incorporated in the consolidated financial results of NHQ since the accompanying income and expenditure statements, Balance Sheet, etc have not been produced before the Assessing Officer.

20. The conclusion of the Assessing Officer that there was no evidence that the appellant's accounts were consolidated with those of NHQ or that the appellant's transactions were reflected in the return of income of NHQ, is, therefore, justified. Consequently, the assessment made by the Assessing Officer is upheld".

14. Aggrieved, assessee is in appeal before us.

15. The ld Counsel for the assessee reiterated the submissions

made before the CIT (A), whereas the ld DR pointed out that the

assessee could not furnish any evidence to confirm that its

accounts are consolidated at national level and also not in a

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position to furnish that its final results are consolidated with

that of the results of NHQ. It was argued that merely sending the

final results of the assessee to the HQs is not sufficient evidence

to prove that the assessee's transactions are reflected in the

return of the HQ.

16. We have heard both parties. In the first round of appeal

filed by the AO, the ITAT in its order dated 19.1.2012 in ITA

no.694/Hyd/2011 held as follows:

"10. ...Accordingly, the (CIT(A)) directed the Assessing Officer to examine whether the assessee is having individual status or assessee's transactions are consolidated at head office level at Delhi and decide the issue according to law.

11. In this direction of the CIT(A), we do not find any infirmity. Accordingly, we direct the Assessing Officer to examine whether the assessee is having any individual status as an income tax assessee or assessee's accounts are consolidated at national level and assessee's transactions are reflected in the return of income of head office and decide accordingly".

17. We find that the ITAT had given directions to the AO by

order dated 19.1.2012 which the AO in his consequential order

has failed to comply with. Hence we set aside the issue to the file

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of the AO to follow the directions of the Tribunal in its order

dated 19.1.2012 and decide accordingly.

18. In the result, assessee's appeal is allowed for

statistical purposes.

Order pronounced in the Open Court on 17th April, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 17th April, 2015.

Vnodan/sps Copy to:

1. Indian Red Cross Society C/o A.V.Raghuram, Advocate, 610 Babukhan Estate, Basheerbagh, Hyderabad 500001

2. Dy. Director of Income Tax (Exemptions)-II, 3rd Floor, Aayakar Bhavan Basheerbagh Hyderabad 1.

3. The CIT(A)-IV Hyderabad

1. The CIT-III, Hyderabad

2. The DR, ITAT, Hyderabad

3. Guard File By Order

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