Deputy Commissioner of Income TAx Central Circle-1 , Mangalore V. M/s Navodaya Grama Vikas Charitable Trust , Bangalore

ITA 1108/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7607 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-01-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 05-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVASAN
• Assessee Lawyers: SOWMYA ACHAR CIT BENGALURU
• Keywords: Depreciation; Charitable institution
• Section: 201; 264; 11; 15

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE-PRESIDENT AND SHRI B.R.BASKARAN , ACCOUNTANT MEMBER ITA NO S . 1108 & 1109 /BANG/201 8 ASSESSMENT YEAR S : 201 4 - 15 & 2009 - 10 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, MANGALURU. VS. M/S. NAVODAYA GRAMA VIKAS CHARITABLE TRUST, 14-7-1005, SDCC BANK LTD., HEAD OFFICE BUILDING, KODIALBAIL, MANGALURU-575003. PAN: AAATN 7594E APPELLANT RESPONDENT APPELLANT BY : SMT. SOWMYA ACHAR, ADDL.CIT (DR)(ITAT), BENGALURU. R EVENUE BY : SHRI V. SRINIVASAN, ADVOCATE DATE OF HEARING : 29 - 01 - 2020 DATE OF PRONOUNCEMENT : 29 - 01 - 2020 O R D E R PER N.V. VASUDEVAN, VICE-PRESIDENT THESE ARE APPEALS BY THE REVENUE AGAINST TWO ORDE RS BOTH DATED 11.1.2018 OF CIT(A)-10, BENGALURU, RELATING TO ASSE SSMENT YEARS 2014-15 & 2009-10 RESPECTIVELY. 2. THE ONLY COMMON ISSUE THAT ARISES FOR CONSIDERAT ION IN THESE APPEALS BY THE REVENUE IS AS TO, WHETHER THE CIT(AP PEALS) WAS JUSTIFIED IN HOLDING THAT ASSESSEE, A TRUST, IS ENTITLED TO CARR Y FORWARD EXPENDITURE INCURRED IN EXCESS OF ITS INCOME FOR SETTING OFF AG AINST INCOME OF THE SUCCEEDING YEARS? 3. THE ASSESSEE IS A CHARITABLE TRUST WITH OBJECT O F FORMING SELF-HELP GROUPS AND FINANCING THEM USING FUNDS RECEIVED FROM SCDCC BANK. IN AY 2014-14 & 2009-10, THE ASSESSEE FILED A RETURN OF I NCOME CLAIMING CARRY ITA NOS. 1108 & 1109/BANG/2018 PAGE 2 OF 4 FORWARD OF EXCESS APPLICATION OF INCOME FROM EARLIE R YEARS FOR SETTING OFF AGAINST APPLICATION OF INCOME IN SUCCEEDING AYS. AC CORDING TO THE AO THERE WAS NO PROVISION IN THE ACT FOR CARRY FORWARD OF EXCESS EXPENDITURE OF EARLIER YEAR TO BE ADJUSTED AGAINST INCOME OF THE S UBSEQUENT YEAR AND HE THEREFORE DENIED THE CLAIM OF THE ASSESSEE. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) DIRECTED T HE AO TO ALLOW THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. 5. THE LEARNED DR REITERATED THE STAND OF THE AO TH AT THERE IS NO PROVISION IN THE ACT TO ALLOW CARRY FORWARD OF EXCE SS APPLICATION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND THE DECISIONS REFERRED TO IN HIS ORDERS IN SUPPORT OF THE CLAIM O F THE ASSESSEE. 6. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11(1 )(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ON LY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITAB LE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET THE EXPENSES INCURRED FO R CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURP OSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUB SEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURP OSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SE T-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEA RS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME O F SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ) & CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ. ) . IN CIT VS. INSTITUTE ITA NOS. 1108 & 1109/BANG/2018 PAGE 3 OF 4 OF BANKING PERSONNEL SELECTION 264 ITR 110 (BOM) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AG AINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLI CATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF I NCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD) , THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF T HE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRIN CIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCU RRED ON RELIGIOUS OR CHARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT T HE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FRO M THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED WAS F OR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE O F LOSS OF AN EARLIER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUE NT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST S HOULD HAVE AN INCOME. SO LONG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF WHICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LI ABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJU STED AGAINST THE INCOME OF A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FROM THE INCOME O F THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLI ER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HA D BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE O F CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.) . ITA NOS. 1108 & 1109/BANG/2018 PAGE 4 OF 4 7. WE ARE THEREFORE OF THE VIEW THAT THERE IS NO ME RIT IN THESE APPEALS BY THE REVENUE AND ACCORDING WE DISMISS THE APPEALS OF THE REVENUE. PRONOUNCED IN OPEN COURT ON THE 29 TH DAY OF JANUARY, 2020. SD/- SD/- (B.R.BASKARAN) (N.V.VASUDEVAN) ACCOUNTANT MEMBER VICE-PRESIDENT BANGALORE, DATED, THE 29 TH JANUARY, 2020. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.