Income Tax Officer (Exemptions) Ward-1 , Hubli V. M/s Sri Arya Vysya Sangha , Chitradurga

ITA 1685/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0174 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 21-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NANDINI DAS
• Keywords: Depreciation; Charitable institution; Tax effect; Capital expenditure
• Section: 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 1 6 8 5 /BANG/201 8 ASSESSMENT YEAR : 20 1 2 - 1 3 THE INCOME TAX OFFICER (EXEMPTIONS), WARD 1, HUBLI. VS. M/S. SRI ARYA VYSYA SANGHA, VASAVI MAHAL ROAD, CHITRADURGA 577 501. PAN: AAATA4349Q APPELLANT RESPONDENT ASSESSEE BY : SHRI SANDEEP .C, CA RE VENUE BY : SMT. NANDINI DAS, JCIT (DR) DATE OF HEARING : 17. 0 9 .2018 DATE OF PRONOUNCEMENT : 20. 0 9 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE SAME IS DIRECTED AGAINST THE ORDER OF LD. CIT (A), DAVANGERE DATED 20.02.2018 FOR ASSE SSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS RIGHT IN NOT APPRECIATING THE FACT THAT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S. 15 TO 59 ARE NOT APPLICABLE TO THE C OMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION F OR THE PURPOSE OF CLAIMING EXEMPTIONS UNDER SECTION 11, 12 AND 13 AND , THEREFORE, THE PROVISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS FRO M ONE HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS E NVISAGED U/S. 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRU STS/INSTITUTIONS. II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD CIT(A) IS RIGHT IN NOT APPRECIATING THE FACT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE INCOME COMPUTED DOES NOT ARISE EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCURRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF B ORROWED OR ITA NO.1685/BANG/2018 PAGE 2 OF 5 CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF LIME? (EXPENDITURE INCURRED OUT OF THE ABOVE SOURCE S HOWEVER CANNOT BE TERMED AS APPLICATION OF FUNDS OUT OF THE INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR IN AS MUCH AS LOAN BORROWED DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED BY THE ASSESSEE, CORPUS FUND DONATIONS DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INCOME SET APART IN EAR LIER ASSESSMENT YEAR CANNOT BE CONSTRUED AS INCOME OF TH E CURRENT YEAR AND 15% SET APART OUT OF THE CURRENT YEAR INCOME IS ALSO EXCLUDED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS FULL Y UTILISED RATHER THAN CLAIMING EXCESS EXPENDITURE EITHER REVENUE OR CAPITAL OVER AND ABOVE THE INCOME SO AS TO CLAIM EXCESS APPLICAT ION OR DEFICIT /LOSS TO BE CARRIED FORWARD TO SUBSEQUENT ASSESSMEN T YEARS. EVEN IN THE CASE OF EXCESS APPLICATION BY VIRTUE OF BORR OWED FUNDS/CORPUS FUND DONATIONS 15% SET PART OF EARLIER YEARS, THE INCOME OF THE ASSESSEE CANNOT BE CONVERTED TO LOSS BUT AT BEST IT CAN BE MADE NIL, HENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CLAIMED BY THE ASSESSEE BE ALLOWED). 3. THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT O RDER WHEREAS THE LD. AR OF ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN PR ESENT APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE A S PER THE TRIBUNAL ORDER RENDERED IN THE CASE OF ITO(E) VS. SHRADDHA TRUST I N ITA NO. 899/BANG/2016 DATED 07.04.2017. HE SUBMITTED A COP Y OF THIS TRIBUNAL ORDER AND DRAWN OUR ATTENTION TO PARA 8 OF THIS TRI BUNAL ORDER AND POINTED OUT THAT IN THIS TRIBUNAL ORDER, THE TRIBUNAL HAS F OLLOWED ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF DDIT VS. JYOTHY CHARI TABLE TRUST AS REPORTED IN 60 TAXMANN.COM 165. AT THIS JUNCTURE, THE BENCH WANTED TO KNOW ABOUT THE TAX EFFECT IN THE PRESENT APPEAL OF THE REVENUE . IN REPLY, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ALTHOUGH THE E XCESS APPLICATION IN THE PRESENT YEAR IS ONLY OF RS. 3,14,139/- AS NOTED BY THE AO IN PARA 3 OF THE ASSESSMENT ORDER BUT THE ASSESSEE HAS SOUGHT CARRY FORWARD OF THE SAME ALONG WITH THE EXCESS APPLICATION OF FUNDS OF EARLI ER YEARS TOTAL OF RS. 1,27,16,177/- AND THEREFORE, IF TOTAL AMOUNT IS CON SIDERED THEN THE TAX EFFECT IS MORE THAN RS. 20 LAKHS BUT IF ONLY THE EXCESS AP PLICATION OF THE PRESENT YEAR OF RS. 3,14,139/- IS CONSIDERED THEN THE TAX E FFECT IN THE PRESENT YEAR IS BELOW RS. 20 LAKHS. ITA NO.1685/BANG/2018 PAGE 3 OF 5 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT IN THE GROUNDS RAISED BY THE REVENUE BEFORE THE TRIBUNAL, THE AMOU NT OF DISPUTE IS NOT MENTIONED. AS PER THE ORDER OF CIT(A) ALSO, IT IS SEEN THAT THE FACTS ARE MENTIONED BY CIT(A) IN PARA 4 OF HIS ORDER AS PER W HICH ALSO, THE ASSESSEES CLAIM FOR CARRY FORWARD OF EXCESS APPLIC ATION IN PRESENT YEAR IS OF RS. 3,14,139/- ONLY WHICH IS SOUGHT TO BE CARRIED F ORWARD ALONG WITH THE EXCESS APPLICATION IN EARLIER YEARS TOTALING TO RS. 1,27,16,177/-. WE FAIL TO UNDERSTAND HOW THE EXCESS APPLICATION IF ANY OF AN EARLIER YEAR CAN BE CLAIMED AND ALLOWED IN THE PRESENT YEAR AND IF SUCH EXCESS APPLICATION IS ALLOWED IN THE EARLIER YEAR THEN THE SAME CANNOT B E DISPUTED AGAIN IN THE APPEAL BEFORE THE TRIBUNAL IN THE PRESENT YEAR. IN THIS VIEW OF THE MATTER, WE FIND THAT THE TAX EFFECT OF THE PRESENT APPEAL IS B ELOW RS. 20 LAKHS ONLY BECAUSE ONLY DISPUTE IS REGARDING REJECTING THE CLA IM OF THE ASSESSEE FOR CARRY FORWARD OF EXCESS APPLICATION IN THE PRESENT YEAR OF RS. 3,14,139/-. TO THIS EXTENT, THE ISSUE IN DISPUTE IS COVERED IN FAV OUR OF THE ASSESSEE ALSO BY THE TRIBUNAL ORDER CITED BY LD. AR OF ASSESSEE BEFO RE US. THE RELEVANT PARA IS PARA 8 OF THIS TRIBUNAL ORDER WHICH IS REPRODUCE D HEREINBELOW. 8. THE FINAL GROUNDS OF APPEAL RELATES TO CARRY FOR WARD OF EXCESS APPLICATION OF INCOME TO SUBSEQUENT YEARS. THIS ISS UE IS COVERED AGAINST THE REVENUE BY CO-ORDINATE BENCH OF TRIBUNA L IN THE CASE OF DEPUTY DIRECTOR OF INCOME-TAX VS. JYOTHY CHARITA BLE TRUST (60 TAXMANN.COM 165). THE RELEVANT PART OF THE ORDER IS REPRODUCED BELOW: 14. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11( 1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT T HAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOU S PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. TH E APPLICATION FOR CHARITABLE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOM E IS ADJUSTED TO MEET THE EXPENSES INCURRED FOR CHARITABLE OR REL IGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURP OSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXP ENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, T HE INCOME OF SUCH SUBSEQUENT YEAR CAN BE SAID TO BE APPLIED F OR CHARITABLE OR RELIGIOUS PURPOSES IN THE YEAR IN WHI CH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SET-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEA RS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATI ON OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LA W AS HELD IN THE CASE OF CIT V. MAHA RANA OF MEWAR CHARITABLE FOUNDATION [1987] 164 ITR 439/[1986] 29 TAXMAN 476 (RAJ) ITA NO.1685/BANG/2018 PAGE 4 OF 5 AND CIT V. PLOT SWETAMBERMURTIPUJAK JAIN MANDAL [19 95] 211 ITR 293 (GUJ.). IN CIT V. INSTITUTE OF BANKING PERSONNEL SELECTION [2003] 264 ITR 110/131 TAXMAN 386 (BOM.) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EARLIER Y EARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUC H ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSE QUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASS ETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF I NCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE V. A SSTT. DIT [2001] 248 ITR 368/[1999] 105 TAXMAN 719 (MAD.), TH E HON'BLE MADRAS HIGH COURT HELD THAT THE INCOME OF T HE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMME RCIAL PRINCIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, A ND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR CHARITABLE PUR POSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE I NCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT THE LOSS INCURR ED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM TH E SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRE D WAS FOR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITU RE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEA R, WOULD NOT AMOUNT TO AN INCIDENCE OF LOSS OF AN EARLIER YEAR B EING SET OFF AGAINST THE PROFIT OF A SUBSEQUENT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO INCUR THAT EX PENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LONG AS THE EXP ENDITURE 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, WOU LD NOT BE LIABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN E ARLIER YEAR IS ADJUSTED AGAINST THE INCOME OF A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOU S AND CHARITABLE PURPOSES FROM THE INCOME OF THE SUBSEQUE NT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLI ER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER E XPENDITURE HAD BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUE NT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXP ENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE OF SOCIETY OF SISTERS OF ST. ANNE (SUPRA ). RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE A BOVE DECISION WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVEN UE. 5. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE D ECLINE TO INTERFERE IN THE ORDER OF CIT(A) REGARDING HIS DECISION TO ALLOW CARRY FOR WARD OF EXCESS APPLICATION IN THE PRESENT YEAR OF RS. 3,14,139/-. ITA NO.1685/BANG/2018 PAGE 5 OF 5 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 20 TH SEPTEMBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.