The Income Tax Officer (Exemptions) Ward-1 , Mangalore V. M/s Srinivas Institute of Health Sciecne Trust , Mangalore

ITA 1343/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4712 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 26-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR NAGENDRA REBELLY BENGALURU
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 143(3); 12A; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 1343/BANG/2018 ASSESSMENT YEAR : 2014 - 15 THE INCOME TAX OFFICER (EXEMPTIONS), WARD-1, MANGALURU. VS. M/S. SRINIVAS INSTITUTE OF HEALTH SCIENCE TRUST, 13-2-116, HOTEL SRINIVAS BUILDING, GHS ROAD, MANGALURU 575 001. PAN: AAETS 0523Q APP ELLANT RESPONDENT APPELLANT BY : DR. NAGENDRA REBELLY, ADDL. CIT(DR)(ITAT), BENGALURU. RESPONDENT BY : SHRI BALRAM R. RAO, ADVOCATE DATE OF HEARING : 31 .05.2018 DATE OF PRONOUNCEMENT : 01 .06. 2018 O R D E R THIS IS AN APPEAL BY THE REVENUE AGAINST THE O RDER DATED 12.02.2018 OF THE CIT(APPEALS), MANGALURU RELATING TO ASSESSMENT YEAR 2014-15. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL WHICH IS PROJECTED BY THE REVENUE IN GROUNDS OF APPEAL, IS A S TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING THAT ASSESSEE , A TRUST, IS ENTITLED TO CARRY FORWARD EXPENDITURE INCURRED IN EXCESS OF ITS INCOME FOR SETTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS AND CLAIM IT AS APPLICATION OF INCOME IN THE SUCCEEDING YEARS? ITA NO. 1343/BANG/2018 PAGE 2 OF 7 3. THE ASSESSEE IS A TRUST REGISTERED U/S. 12A OF T HE ACT. FOR THE A.Y. 2014-15, THE ASSESSEE FILED A RETURN OF INCOME CLAI MING CARRY FORWARD OF EXCESS APPLICATION OF INCOME FROM EARLIER YEARS TO THE TUNE OF RS.2,23,44,229/-. THE ASSESSEE SOUGHT TO CARRY FORW ARD THE EXCESS APPLICATION FOR SETTING OFF AS APPLICATION OF INCOM E IN THE SUBSEQUENT ASSESSMENT YEARS. ACCORDING 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 SUBSEQUENT YEAR AND HE THEREF ORE DENIED THE CLAIM OF THE ASSESSEE. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED T HE CLAIM OF THE ASSESSEE BUT HE WORKED OUT THE ACTUAL QUANTUM OF CA RRY FORWARD THAT HAS TO BE ALLOWED AT RS.1,80,96,580/-. THE FOLLOWING W ERE THE RELEVANT FINDINGS OF THE CIT(A) IN THIS REGARD: 5.7 AR'S WRITTEN SUBMISSIONS DATED 06-02-2018 : THE AR WAS ASKED TO FILE THE STATEMENT OF EXCESS AP PLICATION ALLOWED BY THE AO/CIT(A) ALONG WITH SUPPORTING ORDERS/COMPUTATION OF INCOME OF THE RELEVANT YEARS. THE AR FILED THE FOLLOWING STATEMENT: AY AY 2012 - 13 TOTAL CARRIED FORWARD OF EXCESS APPLICATION OF INCOME UPTO THE ASSESSMENT YEAR 2012-13 DETERMINED BY THE LEARNED ASSESSING OFFICER AS PER ORDER U/S 143(3) OF THE INCOME-TAX ACT, 1961 DATED 04.03.2015 FOR THE ASSESSMENT YEAR 2012 - 13 RS. ( - ) 1,09,55,784 AY 2012-13 ADD : DEPRECIATION DIRECTED TO BE ALLOWED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2012-13 AS PER APPELLATE ORDER DATED 20.10.2016 (THIS HAS BEEN ALLOWED BY THE ASSESSING OFFICER VIDE ORDER GIVING EFFECT TO THE ORDER OF THE C1T(A), MANGALORE DATED 22-11-2016 COPY OF THE ORDER IS ENCLOSED.) RS.16,28,981 C/DOWN RS. ( - )1,25,64.76 ITA NO. 1343/BANG/2018 PAGE 3 OF 7 B/FORWARD RS. ( - )1,25,84,765 AY 2013 - 14 ADD: EXCESS OF EXPENDITURE OVER INCOME RS.( - )72,61,653 AS PER MEMO ADD: CAPITAL EXPENDITURE BEING FIXED ASSETS PURCHASED RS.,( - )6,29,745 RS. 78,91,398 OF INCOME - TAX RS. (-)2,04,76,163 AY 2014 - 15 EXCESS OF INCOME OVER EXPENDITURE RS. 31,63,953 AS PER MEMO LESS : CAPITAL EXPENDITURE BEING FIXED ASSETS PURCHASED RS. 7.84.370 RS. 23,79,583 FOR INCOME - TAX NET DEFICIENCY UPTO ASSESSMENT YEAR 2014-15 TO BE CARRIED FORWARD RS_( - )1,80 96,580 5.8 THE SUBMISSION OF THE AR AND ASSESSMENT ORDER WERE CAREFULLY CONSIDERED. IT IS SEEN THAT THERE IS NO E XCESS APPLICATION FOR THE CURRENT AY 2014-15. IN FACT FOR CURRENT AY THERE WAS EXCESS OF INCOME OVER APPLICATION OF RS.23,79,583/- WHICH WAS SET OFF AGAINST THE BROUGHT FORWARD DEFICIT OF EARL IER YEARS AMOUNTING TO RS. 2,04,76,163/-. THE EXCESS APPLICAT ION CLAIMED TO BE CARRIED FORWARD IN AY 2014-15 WAS RS.2,23,44, 229/-. AS PER THE STATEMENT FILED ABOVE, THE EXCESS APPLICATI ON (OF EARLIER YEARS) TO BE CARRIED FORWARD WORKS OUT TO RS.1,80,9 6,580/- ONLY. THE AR SUBMITTED COPIES OF THE EXCESS APPLICATION D ETERMINED AND COMPUTED IN RESPECTIVE YEARS BY THE AO. I VERIF IED THE SAME. THERE IS MERIT IN THE SUBMISSION OF THE APPELLANT. THE EXCESS APPLICATION (OF EARLIER YEARS) TO BE CARRIED FORWAR D WORKS OUT TO RS.1,80,96,580/- ONLY. 5.9 THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, BANGALOR E BENCH IN THE FOLLOWING CASES ALLOWED THE CARRY FORW ARD OF EXCESS APPLICATION OF EARLIER YEARS TO BE SET OFF AGAINST THE INCOME IN THE SUBSEQUENT YEARS AS APPLICATION OF INCOME. A) ACIT V MANIPAL HOTEL & RESTAURANT MANAGEMENT COLLEG E TRUST (ITA NO.1142/BANG/2013), DATED 31.10.2014 AY 2010-2 011. B) DCIT V MANIPAL ACADEMY OF HIGHER EDUCATION, MANIPAL (ITA. NO.658(B)/2014, DATED 24.7.2015 (AY 2011-2012) C) ACIT V DR.T.M.A. PAI FOUNDATION, (ITA NO. 1140/BANG / 2013, VIDE ITS ORDER DATED 21.3.2014 (AY 2010-2011) D) ACIT V CITY HOSPITAL CHARITABLE TRUST IN ITA 676/ 2 014 DATED 20.03.2015 E) ACITV MEDICAL RELIEF SOCIETY OF SOUTH CANARA IN ITA 1713/2013 DATED10.12.2014. 5.10 RESPECTFULLY FOLLOWING THE BINDING DECISIONS OF TH E JURISDICTIONAL ITAT IN THE ABOVE CASES, I HEREBY DI RECT THE AO TO ITA NO. 1343/BANG/2018 PAGE 4 OF 7 ALLOW CARRY FORWARD OF EXCESS APPLICATION (PERTAIN ING TO EARLIER YEARS) AMOUNTING TO RS.1,80,96,580/- (AS AGAINST T HE CLAIM OF RS.2,23,44,229) TO SUBSEQUENT YEARS AS APPLICATION OF INCOME AFTER DUE VERIFICATION OF THE FIGURES WITH THE ASSE SSMENT RECORDS. THE GROUND ON THE ISSUE IS PARTLY ALLOWED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE H AS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL, RAISING THE FOL LOWING GROUNDS: 1. THE ORDER OF THE LD. CIT (A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. CARRY FORWARD AND SET OFF OF UNABSORBED DEFICIT :- 2.1 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FACT THAT THE NORMAL COMPUTATION OF INCOME UNDER RESPECT IVE HEADS AS ENVISAGED U/S.15 TO 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PURPOSE OF CLAIMING EXEMP TIONS UNDER SECTION 11, 12 AND 13 AND THEREFORE, THE PROV ISIONS RELATING TO SET OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF LOSS FROM ONE HEAD AGA INST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS ENVI SAGED U/S.70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITA BLE TRUSTS/ INSTITUTIONS. 2.2 WHETHER THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FACT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE IN COME COMPUTED DOES NOT ARISE EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCURRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOU RCED OUT OF BORROWED OR CORPUS DONATIONS OR 15% OF INCOME SE T APART OVER A PERIOD OF TIME? (EXPENDITURE INCURRED OUT OF THE ABOVE SOURCES HOWEVER CANNOT BE TERMED AS APPLICATI ON OF FUNDS OUT OF THE INCOME EARNED IN A PARTICULAR ASSE SSMENT YEAR IN AS MUCH AS LOAN BORROWED DOES NOT FALL UNDE R THE CATEGORY OF INCOME EARNED BY THE ASSESSEE, CORPUS F UND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SE CTION 11(1)(D) AND 15% OF INCOME SET APART IN EARLIER ASS ESSMENT YEAR CANNOT BE CONSTRUED AS INCOME OF THE CURRENT Y EAR AND ITA NO. 1343/BANG/2018 PAGE 5 OF 7 15% SET APART OUT OF THE CURRENT YEAR INCOME IS ALS O EXCLUDED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS FULLY UTILIZED RATHER THAN CLAIMING EXCESS EXPENDIT URE EITHER REVENUE OR CAPITAL OVER AND ABOVE THE INCOME SO AS TO CLAIM EXCESS APPLICATION OR DEFICIT/LOSS TO BE CARRIED FO RWARD TO SUBSEQUENT ASSESSMENT YEARS. EVEN IN THE CASE OF EX CESS APPLICATION BY VIRTUE OF BORROWED FUNDS/CORPUS FUND DONATIONS/15% SET APART OF EARLIER YEARS, THE INCOM E OF THE ASSESSEE CANNOT BE CONVERTED TO LOSS BUT AT BEST IT CAN BE MADE NIL. HENCE, THE CARRY FORWARD OF EXCESS APPLIC ATION OF INCOME AS CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED )? 3. FOR THESE AND SUCH OTHER GROUNDS IT IS URGED THA T THE ORDER OF THE LD. CIT(A), ON THE ABOVE POINTS MAY BE SET ASID E AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF T HE HEARING OF THE APPEAL. 6. 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 SEVERAL DECISIONS REFERRED TO IN THE ORDER OF THE CIT(A) WHEREIN THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE ON IDENTICAL ISSUE ON IDENTIC AL FACTS. 7. 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 ITA NO. 1343/BANG/2018 PAGE 6 OF 7 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 OF BANKING PERSONNEL SELECTION 264 ITR 11 0 (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 ITA NO. 1343/BANG/2018 PAGE 7 OF 7 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 HONBLE MADRAS HIGH COURT IN COMING TO THE AFOR ESAID CONCLUSION PLACED RELIANCE THE DECISION IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.) . 8. IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCE MENTS ON THE ISSUE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THIS A PPEAL BY THE REVENUE. ACCORDINGLY, THE SAME IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- ( N.V . VASUDEVAN ) JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST JUNE, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.