Income Tax Officer(Exemptions) ward-1 , Mysore V. M/s Namma Sangha , Chamarajanagar

ITA 1562/BANG/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9723 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SIDDAPPAJI R N BENGALURU
• Keywords: Depreciation; Charitable institution
• Section: 12A; 12; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K. GARODIA , ACCOUNTANT MEMBER I TA NO. 1562/BANG/2018 ASSESSMENT YEAR : 2012 - 13 THE INCOME TAX OFFICER, WARD 1, MYSORE. VS. M/S. NAMMA SANGHA, BANDIPURA GRAMA, GUNDLUPET TALUK, CHAMARAJANAGAR 571 126. PAN: AAAAN 3295R APPELLANT RESPONDENT APPELLANT BY : SHRI SIDDAPPAJI R.N., ADDL.CIT(DR)(ITAT), BENGALURU . RE SPONDENT BY : NONE DATE OF HEARING : 05 .0 9 .201 8 DATE OF PRONOUNCEMENT : 24. 09.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 13.10.2017 OF THE CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEAR 2012-13. ITA NO. 1562/BANG/2018 PAGE 2 OF 6 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 CLAIM SET OFF OF BROUGHT FORWARD EXPENSES OF RS.1,7 8,15,835 AND CARRY FORWARD OF CURRENT YEAR EXPENDITURE OF RS.1,30,33,4 85/-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? 3. THE ASSESSEE IS A TRUST REGISTERED U/S. 12A OF T HE ACT. FOR THE A.Y. 2012-13, THE ASSESSEE FILED A RETURN OF INCOME CLAI MING SET OFF OF BROUGHT FORWARD EXPENSES OF RS.1,78,15,835 AND CARRY FORWAR D OF CURRENT YEAR EXPENDITURE OF RS.1,30,33,485/- INCURRED IN EXCESS OF ITS INCOME FOR SETTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS AND CLAI M IT AS APPLICATION OF INCOME IN THE SUCCEEDING YEARS. ACCORDING TO THE AO, THERE WAS NO PROVISION IN THE ACT FOR CARRY FORWARD OF EXCESS EX PENDITURE OF EARLIER YEAR TO BE ADJUSTED AGAINST INCOME OF THE SUBSEQUENT YEA R AND HE THEREFORE DENIED THE CLAIM OF THE ASSESSEE. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED TH E CLAIM OF THE ASSESSEE, BUT HE WORKED OUT THE ACTUAL QUANTUM OF C ARRY 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:- 3. THE THIRD GROUND OF APPEAL PERTAINS TO THE APPELLANTS CLAIM BOTH FO R BRINGING FORWARD THE AMOUNT OF EXCESS OF EXPENDITURE OVER AP PLICATION MADE IN THE EARLIER YEARS BESIDES THE APPELLANTS C LAIM FOR THE EXCESS OF EXPENDITURE OF THE CURRENT YEAR TO BE CAR RIED OVER. THIS ISSUE IS COVERED IN FAVOUR OF THE APPELLANT VIDE TH E DECISION OF THE HONORABLE JURISDICTIONAL ITAT, BANGALORE RENDERED I N ITA NO.124/BANG/2014, DT. 20/10/2015 IN THE CASE OF KAR NATAKA FOOD ITA NO. 1562/BANG/2018 PAGE 3 OF 6 AND CIVIL SUPPLIES VS. DEPT. OF INCOME-TAX. THEREF ORE, AFTER DUE CONSIDERATION OF THE FACTS OF THE APPELLANT AS PER LAW, THE 3 RD GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HA S PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL, RAISING THE FOL LOWING GROUNDS:- 2) ON CARRY FORWARD OF EXCESS EXPENDITURE/APPLICATI ON/DEFICIT/ LOSS:- A) THE CIT (A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW SET-OFF OF EXCESS EXPENDITURE/APPLICATION PER TAINING TO CURRENT ASST. YEAR AND EARLIER YEARS AGAINST THE IN COME OF THE FUTURE ASST. YEAR WITHOUT APPRECIATING THE FACT THA T AS PER THE SCHEME OF TAXATION OF CHARITABLE OR RELIGIOUS TRUST /INSTITUTION AS CODIFIED U/S.11,12 AND 13, THERE IS NO PROVISION FO R COMPUTING LOSS FROM PROPERTY HELD UNDER TRUST/INSTITUTION ON ACCOUNT OF EXCESS APPLICATION OF INCOME/FUNDS OF THE TRUST. B) THE CIT (A) HAS FAILED TO APPRECIATE THE FACT TH AT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE CO MPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION F OR THE PURPOSE OF CLAIMING EXEMPTION UNDER SEC.11, 12 AND 13 AND, THE REFORE, THE PROVISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOU RCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS FROM ON E HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET- OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS ENVISAGED U/S 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/IN STITUTIONS. C) THE CIT (A) HAS FAILED TO DISCUSS THE ISSUE IN DETAIL BRINGING OUT THE FACTS AND APPLYING THE RELEVANT PR OVISIONS OF THE ACT, BUT CAME 'TO A CONCLUSION THAT EXCESS EXPENDIT URE/EXCESS APPLICATION SHALL BE ALLOWED TO BE CARRIED FORWARD AND SET-OFF AGAINST THE INCOME OF THE FUTURE ASSESSMENT YEARS A ND, THEREBY, RENDERING THE ORDER PERVERSE. ITA NO. 1562/BANG/2018 PAGE 4 OF 6 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 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 V S. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ. ) . IN CIT VS. INSTITUTE 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 ITA NO. 1562/BANG/2018 PAGE 5 OF 6 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 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.) . ITA NO. 1562/BANG/2018 PAGE 6 OF 6 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. 9. IN THE RESULT, APPEAL BY THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JU DICIAL MEMBER BANGALORE, DATED, THE 24 TH SEPTEMBER, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APP ELL ANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.