The Income Tax Officer (Exemptions) Ward-1 , Mangaluru V. M/s Medical Relief Society of South kanara , Manipal

ITA 160/BANG/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5651 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 16-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Benefit of exemption; Capital expenditure; Capital Gains
• Section: 143(3); 12A; 12AA; 143(1); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NOS.160,161 & 737/BANG/2018 ASSESSMENT YEAR : 2008-09 - 2010-11 THE INCOME-TAX OFFICER (EXEMPTIONS), WARD-1, MANGALURU. VS. M/S MEDICAL RELIEF SOCIETY OF SOUTH KANARA, UNIVERSITY BUILDING, MANGALURU-576 104. PAN AAAAM 2004P. APPELLANT RESPONDENT APPELLANT BY : MS. NEERA MALHOTRA, CIT (DR) RESPONDENT BY : SMT. SHEETAL BORKAR, ADVOCATE DATE OF HEARING : 08.07.2019 DATE OF PRONOUNCEMENT : 01.10.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER ALL THESE THREE APPEALS FILED AT THE INSTANCE OF RE VENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-10, BENGALURU AND THEY RELATE TO THE ASSESSMENT YEARS 2008-09 TO 2010 -11. SINCE COMMON ISSUES ARE URGED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER, FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HEREIN IS A PUBLIC CHARITABLE T RUST REGISTERED U/S 12A OF THE ACT AS WELL AS U/S 10(23C)(VIA) OF THE A CT. THE RETURNS OF INCOME FILED FOR AY 2008-09 AND 2009-10 WERE PRO CESSED U/S ITA NO.160, 161 & 737 /BANG/2018 PAGE 2 OF 10 143(1) OF THE ACT. THE ASSESSMENT FOR ASSESSMENT Y EAR 2010-11 WAS COMPLETED U/S 143(3) OF THE ACT ON 27-12-2012. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED REPAYMENT OF LOANS MADE DURING THE YEAR AS APPLICATION OF INCOME IN ALL TH E ABOVE SAID THREE YEARS. THE AO NOTICED THAT THE LOAN TAKEN BY THE A SSESSEE WAS NOT SHOWN AS RECEIPTS OF THE TRUST NOR THE SAME IS REDU CED FROM THE OPERATING EXPENSES OR CAPITAL EXPENDITURE. ACCORDI NGLY THE AO TOOK THE VIEW THAT THE ABOVE SAID CLAIM OF THE ASSESSEE WAS WRONG AND THE SAME HAS RESULTED IN ESCAPEMENT OF INCOME. ACC ORDINGLY, THE AO REOPENED THE ASSESSMENT OF ALL THE THREE YEARS U NDER CONSIDERATION. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF AY 2008-09 AND 2010-11, THE AO ALSO NOTICED THAT THE ASSESSEE HAS SOLD CERTAIN CAPITAL ASSETS AND THE SURPLUS ARISING ON THE SALE OF ASSETS HAS BEEN DIRECTLY TAKEN TO CAPITAL FUND. THE AO TOOK THE VIEW THAT THE GROSS SALE CONSIDERATION ARISING ON SALE OF ASSET S HOULD BE ASSESSED AS INCOME OF THE ASSESSEE, SINCE THE ORIGINAL COST OF ASSET WAS ALLOWED IN THE EARLIER YEARS AS APPLICATION OF INCO ME. 4. WITH REGARD TO THE CLAIM OF REPAYMENT OF LO AN AS APPLICATION OF INCOME, THE AO TOOK THE VIEW THAT THE SAME WOULD AMOUNT TO DOUBLE DEDUCTION, SINCE THE ORIGINAL COST OF ASSET (WHICH WAS PURCHASED BY USING LOAN PROCEEDS) WAS ALLOWED AS AP PLICATION OF INCOME IN THE EARLIER YEARS. 5. ACCORDINGLY, THE AO COMPLETED THE ASSESSME NTS BY DISALLOWING THE CLAIMS OF REPAYMENT OF LOAN AS AP PLICATION OF ITA NO.160, 161 & 737 /BANG/2018 PAGE 3 OF 10 INCOME IN ALL THE THREE YEARS AND ALSO BY ASSESSING THE SALE CONSIDERATION ARISING ON SALE OF CAPITAL ASSETS IN AY 2008-09 AND 2010-11 AS INCOME OF THE ASSESSEE. 6. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF REPAYMENT OF LOAN AS APPLICATION OF INCOME U/S 11 OF THE ACT. WITH REGARD TO THE SALE CONSIDERATI ON ARISING ON SALE OF CAPITAL ASSETS, THE LD CIT(A) DIRECTED THE AO TO DELETE THE ADDITION MADE AND SUBSTITUTE THE SAME WITH THE FIGU RE OF CAPITAL GAINS AS COMPUTED U/S 45 TO 55A. FOR THIS PURPOSE, THE LD CIT(A) RELIED UPON THE DECISION RENDERED BY THE CO-ORDINAT E BENCH IN THE CASE OF AL-AMEEN EDUCATIONAL SOCIETY (ITA NO.575 (B )/2011). 7. THE FIRST ISSUE RELATES TO THE CLAIM OF RE PAYMENT OF LOAN AS APPLICATION OF INCOME. THE LD D.R SUBMITTED THAT T HE ASSESSEE HAD ALREADY CLAIMED THE COST OF CAPITAL ASSETS PURCHA SED OUT OF LOAN PROCEEDS AS APPLICATION OF INCOME IN THE EARLIER YEARS, WHEN THE SAID ASSETS WERE PURCHASED. HENCE THE REPAYMENT OF LOAN TAKEN FOR ACQUIRING VERY SAME ASSET WOULD RESULT IN DOUBLE DE DUCTION OF SAME ITEM. HE SUBMITTED THAT THE VARIOUS CASE LAWS RELI ED UPON BY LD CIT(A) WOULD BE APPLICABLE ONLY IN CASES, WHERE THE COST OF CAPITAL ASSET WAS NOT ALLOWED AS APPLICATION OF INCOME. HE SUBMITTED THAT THE CONCEPT OF DEDUCTION WHEN THE LOAN WAS TAKEN FO R PURCHASING THE ASSET HAS BEEN EXPLAINED BY THE CO-ORDINATE BEN CH IN THE CASE OF DCIT VS. M/S PEOPLES EDUCATION SOCIETY (ITA NO.1074/BANG/2016 DATED 09-06-2017). IN THE ABOVE SAID CASE, THE TRIBUNAL HAD EXPRESSED THE VIEW THAT BENEFIT OF EXEMPTION U/S 11 CANNOT BE EXTENDED TO THE ASSETS ACQUIRED OUT OF BORROWED ITA NO.160, 161 & 737 /BANG/2018 PAGE 4 OF 10 FUNDS, SINCE BORROWED FUNDS IS NOT INCOME IN THE HA NDS OF TRUST. IT WAS FURTHER HELD THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 11 ONCE ON ACQUISITION OF ASSET AND AGAIN ON REPAYMENT OF LOAN TAKEN WOULD RESULT IN DOUBLE BENEFIT, WHICH CANNOT BE THE INTENTION OF THE STATUTE. ACCORDINGLY, THE LD D.R SUBMITTED THAT TH E LD CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE . 8. ON THE CONTRARY, THE LD A.R SUBMITTED THA T THE REPAYMENT OF LOAN IS HELD TO BE APPLICATION OF INCOME BY HON 'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. JANMABHUMI PRESS TRUST (2000)(242 ITR 457). 9. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. THE ASSESSEE IS REGISTERED U/S 12AA OF THE ACT AS WELL AS U/S 10(23C)(VI) OF THE ACT. HENCE THE ASSESSEE IS ELIGIBLE FOR EXEMPTION BOTH U/S 11 AND SEC. 10(23C)(VIA) OF THE ACT. FROM THE ASSESSMENT ORDERS, WE NOTICE THAT THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10(23C)(VIA) OF THE ACT IN ALL THE TH REE YEARS UNDER CONSIDERATION. 10. WE NOTICE THAT THE THIRD PROVISO TO SEC.10( 23C)(VIA) IS AKIN TO SEC. 11(1) OF THE ACT. THE THIRD PROVISO, REFERRED ABOVE, READS AS UNDER:- PROVIDED ALSO THAT THE FUND OR TRUST OR INSTITUTIO N OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB-CLAUSE (IV) OR SUB- CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CLAUSE (VIA) ITA NO.160, 161 & 737 /BANG/2018 PAGE 5 OF 10 (A) APPLIES ITS INCOME, OR ACCUMULATES IT FOR APPLICATI ON, WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH IT IS ESTABLISHED AND IN A CASE WHERE MORE THAN FIFTEEN P ER CENT OF ITS INCOME IS ACCUMULATED ON OR AFTER THE 1 ST DAY OF APRIL, 2002, THE PERIOD OF THE ACCUMULATION OF THE AMOUNT EXCEEDING FIFTEEN PER CENT OF ITS INCOME SHALL IN N O CASE EXCEED FIVE YEARS; AND (B) .. THE PROVISIONS OF SECTION 11(1) ALSO REQUIRES THAT THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR C HARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INCO ME IS APPLIED TO SUCH PURPOSES IN INDIA, AND WHERE ANY SUCH INCOME I S ACCUMULATED OR SET APART FOR APPLICATION FOR SUCH P URPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF FIFTEEN PER CENT OF THE INCOME FRO M SUCH PROPERTY. 11. IT CAN BE NOTICED THAT BOTH THE THIRD PROVI SO TO SEC. 10(23C) AS WELL AS SECTION 11(1) OF THE ACT ALLOWS EXEMPTIO N OF INCOME APPLIED TO OBJECTS OF THE TRUST. THE PROVISIONS OF SEC.11(1) WAS INTERPRETED BY THE CO-ORDINATE BENCH IN THE CASE OF M/S PEOPLES EDUCATION SOCIETY (SUPRA). IT IS PERTINENT TO NOTE THAT THE HON'BLE KARNATAKA HIGH COURT HAS HELD IN THE CASE OF JANMAB HUMI PRESS TRUST (SUPRA) THAT THE REPAYMENT OF LOAN IS APPLI CATION OF INCOME WITHIN THE MEANING OF SEC.11(1) OF THE ACT. HENCE THE CO-ORDINATE BENCH HELD AS UNDER IN THE CASE OF M/S PEOPLES EDUC ATION SOCIETY (SUPRA):- 19. IN OUR VIEW, SECTION 11 ONLY CONTEMPLATES T HE APPLICATION OF INCOME AND IF THE SAID INCOME IS APP LIED FOR THE ITA NO.160, 161 & 737 /BANG/2018 PAGE 6 OF 10 AIMS AND OBJECTIVES OF THE TRUST, THEN THE TRUST IS ENTITLED FOR EXEMPTION UNDER THE PROVISION. THE SAID ANALOGY CA NNOT BE EXTENDED TO ACQUISITION OF ASSETS FROM THE BORROWED FUNDS. IF WE HOLD SO, THEN WE WOULD BE EQUATING THE BORROWED FUND WITH THE INCOME OF THE TRUST. UNDER THE LAW, IT IS THE APPLICATION OF INCOME AND NOT OF THE FUND THAT IS R EQUIRED TO BE SEEN FOR THE PURPOSE OF GRANTING THE EXEMPTION. IN FACT, THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION IN VIEW OF THE JUDGEMENT OOF HON'BLE JURISDICTIONAL HIGH COURT IN THE MATTER OF JANMABHOOMI TRUST (SUPRA), AS AND WHEN THE LOAN IS REPAID TO THE FINANCIAL INSTITUTIONS. IN VIEW THER EOF, IF THE CLAIM OF THE ASSESSEE THAT THE BORROWED FUNDS WERE UTILIZED FOR THE OBJECTS OF THE TRUST, IS ENTERTAINED AND AC CEPTED AT THIS STAGE, IT WOULD TANTAMOUNT TO DOUBLE BENEFIT WHICH CANNOT BE THE INTENTION OF THE STATUTE. IN VIEW THEREOF, WE FIND THAT THE CIT(A) ERRED IN ALLOWING THE CLAIM FOR ACQUISITION OF CAPITAL ASSETS FROM THE BORROWED FUNDS. 12. IN THE CASE BEFORE THE CO-ORDINATE BENCH, T HE ASSESSEE SOUGHT EXEMPTION OF COST OF ASSETS ACQUIRED OUT OF BORROWE D FUNDS. THE SAID CLAIM WAS REJECTED ON THE FOLLOWING REASONS:- (A) THE ASSETS WERE NOT ACQUIRED OUT OF INCOME DER IVED FROM THE PROPERTY HELD UNDER THE TRUST AND (B) THE REPAYMENT OF LOAN WAS HELD TO BE APPLICAT ION OF INCOME WITHIN THE MEANING OF SEC.11(1) BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF JANMABHUMI PRES S TRUST (SUPRA). THE RATIO OF THE ABOVE SAID DECISION IS THAT THE AS SESSEE WOULD BE ENTITLED TO DEDUCTION ONLY ONCE. ITA NO.160, 161 & 737 /BANG/2018 PAGE 7 OF 10 13. THE LD D.R SUBMITTED THAT THE CLAIM OF THE ASSESSEE TO TREAT REPAYMENT OF LOAN AS APPLICATION OF INCOME WOULD RE SULT IN DOUBLE EXEMPTION OF SAME AMOUNT. WE FIND FORCE IN THE SAI D SUBMISSIONS. WE MAY GIVE AN ILLUSTRATION TO EXPLAIN THIS POSITIO N. (A) LET US ASSUME THAT TRUST A ACQUIRES A PROPE RTY FOR RS.10.00 LAKHS OUT OF ITS OWN INCOME. IT SHALL BE CLAIMING EXEMPTION OF THE ABOVE SAID AMOUNT OF RS.10.00 LAKH S U/S 11(1) OF THE ACT IN THE YEAR IN WHICH THE ASSET WAS ACQUIRED . (B) LET US TAKE ANOTHER EXAMPLE. LET US ASSUME T HAT TRUST B ACQUIRES A PROPERTY FOR RS.10.00 LAKHS BY AVAILI NG LOAN OF RS.10.00 LAKHS. THE ASSESSEE MAY CLAIM EXEMPTION A S UNDER:- (I) IN THE FIRST INSTANCE, IT WILL CLAIM EXEMPTION OF RS.10.00 LAKHS, WHEN THE ASSET WAS ACQUIRED AND (II) IN THE SECOND INSTANCE, IT WILL CLAIM EXEMPTI ON OF RS.10.00 LAKHS, WHEN THE LOAN IS REPAID. IT CAN BE SEEN THAT TRUST B WOULD BE GETTING EXEM PTION TWICE FOR THE SAME ASSET, I.E., ONCE AT THE TIME OF PURCHASE OF ASSET AND AGAIN ON REPAYMENT OF LOAN. AS OBSERVED BY THE CO-ORDINA TE BENCH, IT COULD NOT BE INTENTION OF THE STATUTE. 14. IN THE INSTANT APPEALS, IT IS THE CASE OF THE AO THAT THE COST OF ASSETS ACQUIRED OUT OF LOAN FUNDS HAVE BEEN CLAI MED BY THE ASSESSEE AS APPLICATION OF INCOME IN THE YEARS IN W HICH THOSE ASSETS WERE ACQUIRED. IN THAT CASE, IF THE ASSESSEE IS AL LOWED TO CLAIM EXEMPTION AGAIN ON REPAYMENT OF LOAN TAKEN FOR ACQU IRING THE VERY SAME ASSET, THEN THE SAME WOULD RESULT IN DOUBLE EX EMPTION FOR THE VERY SAME AMOUNT, WHICH CANNOT BE THE INTENTION OF THE STATUTE. ITA NO.160, 161 & 737 /BANG/2018 PAGE 8 OF 10 SINCE THE ASSESSEE HAS ALREADY CLAIMED EXEMPTION TO WARDS THE COST OF ASSET AS APPLICATION OF INCOME, IN OUR VIEW, THE ASSESSEE CANNOT TAKE SUPPORT OF THE DECISION RENDERED BY HON'BLE KA RNATAKA HIGH COURT IN THE CASE OF JANMABHUMI PRESS TRUST (SUPRA) TO CLAIM EXEMPTION ON ACCOUNT OF REPAYMENT OF LOAN TAKEN FOR ACQUIRING THE ABOVE SAID ASSET. WE NOTICE THAT THE LD CIT(A) HAS OMITTED TO CONSIDER ABOVE SAID FACTUAL ASPECTS AND HENCE WE CA NNOT SUSTAIN HIS ORDER PASSED ON THIS ISSUE. ACCORDINGLY, WE SE T ASIDE THE ORDER PASSED BY LD CIT(A) IN ALL THE THREE YEARS ON THIS ISSUE AND RESTORE THE ADDITION MADE BY THE AO IN ALL THE THREE YEARS. 15. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF SALE CONSIDERATION RECEIVED ON SALE OF ASSETS. THIS ISSUE ARISES IN AY 2008-09 AND 2010-11. THE ASSESSING OFFICER HAS ASSESSED THE ENT IRE VALUE OF SALE CONSIDERATION RECEIVED ON SALE OF ASSETS AS INCOME OF THE ASSESSEE. THE REASONING GIVEN BY THE ASSESSING OFFICER IS THA T THE ASSESSEE HAD CLAIMED ENTIRE COST OF ASSETS AS APPLICATION O F INCOME IN THE EARLIER YEARS AND HENCE THE SALE CONSIDERATION SHOU LD BE TAKEN AS INCOME OF THE ASSESSEE. THE LD CIT(A), HOWEVER, HE LD THAT THE CAPITAL GAINS ARISING ON SALE OF ASSET SHOULD BE AS SESSED IN TERMS OF SEC.11(1A) OF THE ACT. 16. WE HEARD THE PARTIES ON THIS ISSUE. WE NOT ICE THAT THE PROVISIONS OF SEC.11(1A) OF THE ACT PRESCRIBE THE P ROCEDURE FOR ASSESSMENT OF INCOME ARISING ON TRANSFER OF CAPITAL ASSET HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURP OSES. THE PROVISIONS OF SEC.11(1A) HAS BEEN EXPLAINED BY THE CO-ORDINATE BENCH IN THE CASE OF AL-AMEEN EDUCATIONAL SOCIETY V S. ITA NO.160, 161 & 737 /BANG/2018 PAGE 9 OF 10 DCIT(E)(2012)(139 ITD 245)(BANG.). FURTHER, THE CB DT HAS ALSO EXPLAINED THE PROVISIONS OF SEC.11(1A) IN CIRCULAR NO.72 DATED 06- 01-1972. WE NOTICE THAT THE LD CIT(A) HAS DIRECTE D THE AO TO COMPUTE CAPITAL GAINS ARISING ON SALE OF CAPITAL AS SET FOLLOWING THE DECISION RENDERED IN THE CASE OF AL-AMEEN EDUCATION AL SOCIETY (SUPRA). HENCE WE DO NOT FIND ANY REASON TO INTERF ERE WITH THE DECISION RENDERED BY LD CIT(A) ON THIS ISSUE. 17. IN THE RESULT, THE APPEALS OF THE REVENUE FOR AY 2008-09 AND 2010-11 ARE PARTLY ALLOWED AND THE APPEAL RELATING TO AY 2009-10 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST OCTOBER, 2019. SD/ - (BEENA PILLAI) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 1 ST OCTOBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. ITA NO.160, 161 & 737 /BANG/2018 PAGE 10 OF 10 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DICTATION NOTE ENCLOSED DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED