ACIT Range -2, V. Nirmal Society U.P. (Regd.),

ITA 1169/DEL/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3993 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 12AA; 10; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI I. P. BANSAL, JM AND SHRI K. D. RA NJAN, AM I. T. A. NO. 1169 (DEL) OF 2008. ASSESSMENT YEAR : 2006-07. ADDL. COMMISSIONER OF INCOME-TAX, NIRMAL SOCIETY U. P. [REGD.], MUZAFFAR NAGAR, R A N G E : 2, VS. 228ARYAPURI, MOHALLA OPP. OLD BHOPA BUS STAND, MUZAFFAR NAGAR. M U Z A F F A R N A G A R. P A N / G I R NO. AAA AN 0171 A. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI RAKESH KUMAR, C. A.; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS), MUZAFFAR NAGAR. 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO EXE MPTION OF INCOME UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS TH E ACT]. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS A SOCIETY REGISTERED WITH THE REGISTRAR OF SOCIETIES. THE SOCIETY IS ALSO REGISTERED UNDER SECTION 12-AA OF THE ACT. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE RECEIVED INCOME OF RS.1,87,84,622/-. THE ASSESSEE INCURRED EXPENDITURE OF RS.1,63,97,609/- AND AFTER CLAIM OF DEPRECIATION OF RS.8,10,804/- THE BA LANCE INCOME WAS SHOWN AS RS.15,76,209/-. THE ASSESSEE FURTHER DEDUCTED RS.6,89,846/- ON ACCO UNT OF CAPITAL EXPENDITURE INCURRED 2 I. T. A. NO. 1169 (DEL) OF 2008. AND DETERMINED THE BALANCE INCOME OF RS.8,86,361/- WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 11 OF THE ACT. HOWEVER, THE ASSESSING OFFI CER OUT OF TOTAL RECEIPTS OF RS.1,87,84,622/- DEDUCTED EXPENDITURE OF RS.1,72,08,413/- EXCLUDING CAPITAL EXPENDITURE OF RS.6,89,846/- AND CALCULATED SURPLUS OF RS.15,76,209/-. HE FURTHER N OTED THAT THE ASSESSEE SHOULD HAVE APPLIED 85 PER CENT OF RS.15,76,209/- I.E. RS.13,39,775/- AGAI NST WHICH THE ASSESSEE HAD APPLIED IN THE FORM OF CAPITAL EXPENDITURE TO THE EXTENT OF RS.6,8 9,846/-. SINCE THE ASSESSEE HAD NOT APPLIED 85 PER CENT OF HIS INCOME AND SINCE THE ASSESSEE HA D NOT FILED FORM NO. 10 IN TERMS OF SECTION 11(2) OF THE ACT, THE ASSESSING OFFICER DENIED EXE MPTION U/S 11 OF THE ACT AND ASSESSED THE INCOME AT RS.15,76,209/-. 3. ON APPEAL IT WAS SUBMITTED THAT THE ASSESSING OF FICER HAD TAKEN THE VIEW THAT STIPULATION OF 85 PER CENT OF INCOME TO BE APPLIED FOR CHARITAB LE PURPOSES WAS TO BE CALCULATED NOT ON THE BASIS OF GROSS RECEIPTS BUT ON SURPLUS I.E GROSS RE CEIPTS MINUS RECURRING EXPENDITURE MINUS DEPRECIATION. IT WAS FURTHER SUBMITTED THAT DURING THE YEAR THE GROSS RECEIPTS FROM THE TRUST WERE AT RS.1,87,84,622/- AND AS PER THE PROVISIONS OF SE CTION 11, 85 PER CENT OF THIS AMOUNT WORKED OUT TO RS.1,59,66,928/-. DURING THE YEAR UNDER CONSIDER ATION THE ASSESSEE HAD APPLIED RS.1,78,98,260/- BY WAY OF RECURRING EXPENDITURE OF RS.1,63,97,609.66; ON DEPRECIATION RS.8,10,804.90 AND CAPITAL EXPENDITURE OF RS.6,89,8 46/-. THEREFORE, THERE WAS NO SHORTFALL WITHIN THE MEANING OF SECTION 11 OF THE ACT IN APPL ICATION OF INCOME AND, HENCE, THE ASSESSEE WAS NOT REQUIRED TO FILE APPLICATION ON FO RM NO. 10. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. PROGRAMME FOR COMMUNITY ORGANIZATION 248 ITR 1 (SC). 4. THE LD. CIT (APPEALS) ON CONSIDERATION OF THE SU BMISSIONS AND PROVISIONS OF THE LAW HELD THAT THE VIEW TAKEN BY THE ASSESSING OFFICER T HAT IT WAS THE SURPLUS TOTAL INCOME, 85 PER CENT OF WHICH WAS TO BE APPLIED WAS LEGALLY UNTENAB LE. HE WAS OF THE OPINION THAT FOR THE PURPOSES OF SECTION 11 THE EXPRESSION IS INCOME A ND NOT TOTAL INCOME. HE ALSO NOTED THAT THE INCOME COVERED UNDER SECTION 11 WHICH IS NOT CH ARGEABLE TO TAX DOES NOT FALL UNDER SECTION 14 AND UNDER VARIOUS COMPUTATIONS FROM SECTION 15 T O 59. THE LD. CIT (A), THEREFORE, HELD 3 I. T. A. NO. 1169 (DEL) OF 2008. THAT APPLICATION OF INCOME IS TO BE DETERMINED ON T HE BASIS OF GROSS RECEIPTS AND NOT ON TOTAL INCOME, AS DETERMINED BY THE ASSESSING OFFICER. HE ACCORDINGLY ALLOWED THE GROUND RAISED BY THE ASSESSEE. 5. BEFORE US THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF T HE LD. CIT (APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. UNDER SECTION 11(1)(A) OF THE ACT INCOME DERIVED FROM PROPERTY HE LD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INC OME IS APPLIED TO SUCH PURPOSES IN INDIA AND WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART F OR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR SE T APART IS NOT IN EXCESS OF 15 PER CENT OF SUCH INCOME FROM SUCH PROPERTY SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF SUCH INCOME. IT MEANS THAT IN A CASE THERE IS APPLICATION OF INCOME OF 85 PER CENT OF THE INCOME DURING THE YEAR THE ENTIRE INCOM E WILL BE EXEMPT. IN THE CASE OF THE ASSESSEE THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST I S AT RS.1,87,84,622/- AND 85 PER CENT OF WHICH WORKS OUT TO RS.1,59,66,928/-. THE ASSESSEE HAD AP PLIED BY WAY OF RECURRING EXPENDITURE AMOUNTING TO RS.1,63,97,609/-. IN ADDITION TO THIS THE ASSESSEE HAS INCURRED RS.6,89,846/- ON PURCHASE OF FIXED ASSETS. THUS TOTAL INCOME APPLIE D FOR THE CHARITABLE PURPOSE BY WAY OF RECURRING EXPENDITURE AS WELL AS CAPITAL EXPENDITUR E AMOUNTS TO RS.1,70,87,455/-. THEREFORE, THE TOTAL INCOME APPLIED BY THE ASSESSEE IN THE YEAR UN DER CONSIDERATION IS MUCH MORE THAN 85 PER CENT OF THE INCOME RECEIVED BY THE ASSESSEE. IN CA SE OF A TRUST OR CHARITABLE INSTITUTION, IT IS INCOME AND EXPENDITURE STATEMENT WHICH IS TO BE CON SIDERED AND NOT PROFIT AND LOSS ACCOUNT UNLESS THE BUSINESS IS HELD AS PROPERTY IN THE TRUS T. THERE IS NO CONCEPT OF REVENUE AND CAPITAL EXPENDITURE IN THE APPLICATION OF INCOME. THEREFO RE, BOTH THE EXPENSES INCURRED FOR RUNNING THE EDUCATIONAL INSTITUTION AND ALSO THE EXPENDITURE IN CURRED ON ACQUISITION OF CAPITAL ASSET HAS TO BE TREATED AS APPLICATION OF INCOME FOR THE PURPOSES O F COMPUTATION OF 85 PER CENT OF INCOME APPLIED. SINCE CAPITAL EXPENDITURE IS TREATED AS A PPLICATION OF INCOME, DEPRECIATION CANNOT BE ALLOWED BEING NOTIONAL EXPENDITURE. IT IS ACTUAL A PPLICATION OF INCOME AND NOT THE NOTIONAL 4 I. T. A. NO. 1169 (DEL) OF 2008. EXPENDITURE IN THE FORM OF DEPRECIATION TO BE CONSI DERED FOR COMPUTATION OF APPLICATION OF INCOME. IN THE INSTANT CASE, SINCE THE ASSESSEE HA S INCURRED RS.1,70,87,455/- AS AGAINST THE AMOUNT AT RS.1,59,66,928/- BEING 85% OF INCOME, NO ADDITION CAN BE MADE AS DONE BY THE ASSESSING OFFICER. 85 PER CENT OF APPLICATION OF I NCOME IS TO BE COMPUTED WITH REFERENCE TO GROSS RECEIPTS AND NOT WITH REFERENCE TO TOTAL INCOME. A CCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS) DELETING THE ADDITION. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO ADDI TION OF RS.20,95,670/- ON ACCOUNT OF DONATIONS GIVEN TO NORTHERN PROVINCE OF CARMELITE S ISTERS OF ST. TERESA, BHOPAL, A PUBLIC CHARITABLE TRUST REGISTERED UNDER SECTION 12-A OF T HE ACT. THE ASSESSING OFFICER HAD DISALLOWED THE AMOUNT HOLDING THAT PROVISIONS OF SECTION 11(3) (D) OF THE ACT DO NOT PERMIT THE ASSESSEE TO GIVE ANY SUM TO OTHER CHARITABLE INSTITUTIONS AN D THE SAME WOULD NOT BE TREATED AS APPLICATION OF INCOME. 8. ON APPEAL THE LD. CIT (APPEALS) HAS HELD THAT TH E ASSESSING OFFICER HAD FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 13(3)(D) AND 13(3A) ARE APPLICABLE ONLY IN REFERENCE TO SECTION 11(2) I.E. WHEN DONATIONS ARE BEING MADE OU T OF INCOME DEEMED TO HAVE BEEN APPLIED. IN THE YEAR UNDER CONSIDERATION SINCE DONATION HAS BEE N GIVEN OUT OF THE CURRENT YEARS INCOME, PROVISIONS OF SECTION 11(3)(D) OR SECTION 11(3A) OF THE ACT ARE NOT APPLICABLE. HE ACCORDINGLY DELETED THE ADDITION. 9.1 WE HAVE HEARD BOTH THE PARTIES. UNDER SECTION 11(1)(A) OF THE ACT ANY INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABL E OR RELIGIOUS PURPOSES, WILL BE EXEMPT FROM TAX, IF REQUISITE PERCENTAGE OF SUCH INCOME IS APPL IED FOR THE PURPOSE OF THE TRUST. EXEMPTION UNDER SECTION 11(1) WILL ALSO BE AVAILABLE IF THE I NCOME IS ACCUMULATED OR SET APART U/S 11(2) FOR APPLICATION TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA. UNDER SECTION 11(2) OF THE ACT WHERE 85 PER CENT OF INCOME IS NOT APPLIED FOR THE REASON S MENTIONED IN SUB SECTION THE ASSESSEE AT HIS OPTION TO BE EXERCISED IN WRITING BEFORE EXPIRY OF TIME ALLOWED UNDER SECTION 139(1) FOR FURNISHING THE RETURN CAN ACCUMULATE OR SET APART F OR APPLICATION OF INCOME, THEN SUCH INCOME 5 I. T. A. NO. 1169 (DEL) OF 2008. WILL BE DEEM TO BE INCOME APPLIED FOR SUCH PURPOSES DURING THE PREVIOUS YEAR IN WHICH INCOME WAS DERIVED. SUB SECTION (3) OF SECTION 11 OF THE ACT READS AS UNDER: (3) ANY INCOME REFERRED TO IN SUB-SECTION (2) WHIC H (A) IS APPLIED TO PURPOSES OTHER THAN CHARITABLE O R RELIGIOUS PURPOSES AS AFORESAID OR CEASES TO BE ACCUMULATED OR SET APA RT FOR APPLICATION THERETO, OR (B) CEASES TO REMAIN INVESTED OR DEPOSITED IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5), OR (C) IS NOT UTILISED FOR THE PURPOSE FOR WHICH IT I S SO ACCUMULATED OR SET APART DURING THE PERIOD REFERRED TO IN CLAUSE (A) O F THAT SUB-SECTION OR IN THE YEAR IMMEDIATELY FOLLOWING THE EXPIRY THEREOF, (D) IS CREDITED OR PAID TO ANY TRUST OR INSTITUTI ON REGISTERED UNDER SECTION 12AA OR TO ANY FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER ME DICAL INSTITUTION REFERRED TO IN SUB-CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI ) OR SUB-CLAUSE (VIA) OF CLAUSE (23C) OF SECTION 10,] SHALL BE DEEMED TO BE THE INCOME OF SUCH PERSON OF THE PREVIOUS YEAR IN WHICH IT IS SO APPLIED OR CEASES TO BE SO ACCUM ULATED OR SET APART OR CEASES TO REMAIN SO INVESTED OR DEPOSITED OR CREDITED OR PAID OR, AS THE CASE MAY BE, OF THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE EXPIRY OF T HE PERIOD AFORESAID. (3A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (3), WHERE DUE TO CIRCUMSTANCES BEYOND THE CONTROL OF THE PERSON IN R ECEIPT OF THE INCOME, ANY INCOME INVESTED OR DEPOSITED IN ACCORDANCE WITH THE PROVISIONS OF CLAUSE (B) OF SUB-SECTION (2) CANNOT BE APPLIED FOR THE PURPOSE F OR WHICH IT WAS ACCUMULATED OR SET APART, THE ASSESSING OFFICER MAY, ON AN APPLICA TION MADE TO HIM IN THIS BEHALF, ALLOW SUCH PERSON TO APPLY SUCH INCOME FOR SUCH OTH ER CHARITABLE OR RELIGIOUS PURPOSE IN INDIA AS IS SPECIFIED IN THE APPLICATION BY SUCH PERSON AND AS IS IN CONFORMITY WITH THE OBJECTS OF THE TRUST; AND THERE UPON THE PROVISIONS OF SUB- SECTION (3) SHALL APPLY AS IF THE PURPOSE SPECIFIED BY SUCH PERSON IN THE APPLICATION UNDER THIS SUB-SECTION WERE A PURPOSE S PECIFIED IN THE NOTICE GIVEN TO THE ASSESSING OFFICER UNDER CLAUSE (A) OF SUB-SECTI ON (2): PROVIDED THAT THE ASSESSING OFFICER SHALL NOT ALLOW APPLICAT ION OF SUCH INCOME BY WAY OF PAYMENT OR CREDIT MADE FOR THE PURPOSES REFE RRED TO IN CLAUSE (D) OF SUB- SECTION (3) OF SECTION 11: PROVIDED FURTHER THAT IN CASE THE TRUST OR INSTITUTION, WHICH HAS IN VESTED OR DEPOSITED ITS INCOME IN ACCORDANCE WITH THE PROVISI ONS OF CLAUSE (B) OF SUB- SECTION (2), IS DISSOLVED, THE ASSESSING OFFICER MA Y ALLOW APPLICATION OF SUCH INCOME FOR THE PURPOSES REFERRED TO IN CLAUSE (D) O F SUB-SECTION (3) IN THE YEAR IN WHICH SUCH TRUST OR INSTITUTION WAS DISSOLVED. 6 I. T. A. NO. 1169 (DEL) OF 2008. 9.2 FROM CLOSE READING OF SECTION 11(3A) OR SECTION 11(3)(D) IT IS CLEAR THAT THESE PROVISIONS ARE APPLICABLE IN RESPECT OF INCOME, WHICH IS ACCUM ULATED OR SET APART FOR THE OBJECTS OF THE TRUST UNDER SECTION 11(2) OF THE ACT AND DOES NOT APPLY I N RESPECT OF CURRENT INCOME, WHICH IS TO BE APPLIED IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 11(1)(A) OF THE ACT. THIS MEANS THAT THE ASSESSEE CAN APPLY ITS CURRENT YEAR INCOME BY WAY O F DONATIONS, IF THE OBJECTS OF THE DONOR AND THE DONEE TRUST ARE SAME. IN THE INSTANT CASE, THE OBJECTS OF THE DONEE TRUST ARE OF IMPARTING OF EDUCATION AND THE OBJECT OF THE ASSESSEE TRUST IS A LSO PROMOTION OF EDUCATION. THEREFORE, THE AMOUNT PAID TO NORTHERN PROVINCE OF CARMELITE SISTE RS OF ST. TERESA, BHOPAL, AS DONATION IS TO BE TREATED AS APPLICATION OF INCOME FOR THE OBJECTS OF THE TRUST. HENCE, THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. ACCORDINGLY, WE DO NOT F IND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A) DELETING THE ADDITION ON ACCOUNT OF DONATIO NS MADE TO OTHER CHARITABLE INSTITUTIONS, HAVING SIMILAR OBJECTS. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 20 TH MAY, 2011. SD/- SD/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20 TH MAY, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.