Assistant Commissioner of Income-tax, Bangalore V. The Akshaya Patra Foundation, Bangalore

ITA 1821/BANG/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4696 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 25-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Benefit of exemption; Revenue expenditure
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1821/BANG/2016 ASSESSMENT YEAR : 2011 - 12 THE ASSISTANT COMMISSIONER OF INCOME TAX ( E ), CIRCLE 1, BANGALORE. VS. THE AKSHAYA PATRA FOUNDATION, HK HILL, WEST OF CHORD ROAD, RAJAJINAGAR, BANGALORE 560 010. PAN: AAATT 6468P APP ELLANT RESPONDENT A PPELLANT BY : MS. NEERA MALHOTRA, CIT(DR - II)(ITAT), BENGALURU RE SPONDENT BY : NONE DATE OF HEARING : 16 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 01. 0 6 .201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 31.08.2016 OF CIT(APPEALS)-14, LTU, BANGALORE RELATING TO ASSE SSMENT YEAR 2011-12. 2. THE ASSESSEE IS A CHARITABLE TRUST WITH OBJECT S TO PROVIDING SUBSIDIZED FOOD IN GOVERNMENT SCHOOLS ACROSS THE CO UNTRY. ITA NO.1821/BANG/2016 PAGE 2 OF 6 3. THE ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER 15% ACCUMULATION FOR APPLICATION IN FUTURE HAS TO B E CALCULATED ON GROSS RECEIPTS OR NET RECEIPTS AFTER DEDUCTION OF REVENUE EXPENDITURE. THE ASSESSEE CLAIMED ACCUMULATION OF INCOME FOR APPLICA TION FOR CHARITABLE PURPOSE AT 15% OF THE GROSS RECEIPTS. THE AO WAS O F THE VIEW THAT ACCUMULATION WILL BE ALLOWED ONLY TO THE EXTENT OF 15% OF THE INCOME AFTER REVENUE EXPENDITURE. IN OTHER WORDS, INCOME TO BE SET APART U/S.11(1)(A) OF THE ACT HAS TO BE COMPUTED AT 15% OF THE NET INCOME I.E., GROSS RECEIPTS MINUS REVENUE EXPENDITURE AND NOT ON THE GROSS RECE IPTS AS CLAIMED BY THE ASSESSEE. SINCE IN THE CASE OF THE ASSESSEE, THE G ROSS RECEIPTS AFTER REVENUE EXPENDITURE WAS NIL, THE AO DENIED THE BENE FIT OF ACCUMULATION TO THE ASSESSEE. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) AGREED WIT H THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHETH ER FOR THE PURPOSE OF COMPUTING ACCUMULATION OF INCOME OF 15% UNDER SEC.1 1(1)((A) OF THE ACT, ONE HAS TO TAKE THE GROSS RECEIPTS OR GROSS RECEIPT S AFTER EXPENDITURE FOR CHARITABLE PURPOSE I.E., THE NET RECEIPTS. THIS IS ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE SPECIAL BENCH M UMBAI IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST VS. ITO 93 ITD 0070 (SB) . THE FACTS IN THE AFORESAID CASE WERE THAT THE ASSESSEE WAS A PUBLIC CHARITABLE TRUST ITA NO.1821/BANG/2016 PAGE 3 OF 6 ENJOYING EXEMPTION UNDER S. 11 OF THE IT ACT. AS PE R THE REQUIREMENT OF S. 11(1) OF THE IT ACT, AS IT PREVAILED AT THAT POINT OF TIME, THE ASSESSEE HAD TO APPLY 75 PER CENT OF ITS INCOME FOR THE OBJECTS AND PURPOSES OF THE TRUST AND THE ASSESSEE WAS PERMITTED TO ACCUMULATE OR SET APA RT UP TO 25 PER CENT OF ITS INCOME, WHICH WAS SUBJECT TO FULFILMENT OF OTHE R CONDITIONS. WHILE CALCULATING THE AFORESAID 25 PER CENT, THE IMPORTAN T QUESTION WHICH AROSE WAS AS TO WHETHER FOR THIS PURPOSE, THE GROSS INCOM E EARNED BY THE ASSESSEE IS RELEVANT OR THE INCOME AS COMPUTED IN A CCORDANCE WITH THE PROVISIONS OF IT ACT. IN OTHER WORDS, WHETHER OUTGO INGS FROM OUT OF GROSS INCOME WHICH ARE IN THE NATURE OF APPLICATION OF IN COME, SHOULD BE FIRST DEDUCTED FROM THE GROSS INCOME AND 25 PER CENT OF O NLY THE REMAINING AMOUNT SHOULD BE ALLOWED TO BE ACCUMULATED OR SET A PART. THE SPECIAL BENCH OF THE ITAT ON THE ISSUE HELD AS FOLLOWS: 9. COMING TO THE MERITS OF THE ISSUE, WE ARE OF THE VI EW THAT THE SAME IS CLEARLY COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. PROGRAMME FOR COMMUNIT Y ORGANIZATION (SUPRA). IN THE DECISION, THEIR LORDSH IPS, AFTER TAKING NOTE OF PROVISIONS OF S. 11(1)(A), HAVE HELD AS UND ER : 'HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISION, IT IS CLEAR THAT A CHARITABLE OR RELIGIO US TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRE SENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN T HE SUM OF RS. 2,57,376, WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THEREOU T. IT IS UNCLEAR ON WHAT BASIS THE REVENUE CONTENDED THAT IT WAS ENTITLED TO ACCUMULATE ONLY TWENTY FIVE PER CENT OF RS. 87,010. FOR THE AFORESAID REASONS, THE CIVIL APPEAL IS DISM ISSED.' ITA NO.1821/BANG/2016 PAGE 4 OF 6 IT IS CLEAR FROM THE ABOVE THAT DEDUCTION OF TWENTY -FIVE PER CENT WAS HELD TO BE ALLOWABLE NOT ON TOTAL INCOME AS COM PUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITURE, WHICH WAS AP PLICATION OF INCOME, IS NOT TO BE CONSIDERED FOR DETERMINING TWE NTY FIVE PER CENT TO BE ACCUMULATED. THEIR LORDSHIPS, AS NOTED E ARLIER, AFFIRMED THE DECISION OF KERALA HIGH COURT IN (1997 ) 141 CTR (KER) 502 : (1997) 228 ITR 620 (KER) (SUPRA) WHEREI N IT IS HELD AS UNDER : 'AT THE OUTSET, THE STATUTORY LANGUAGE OF S. 11(1)(A ) OF THE IT ACT, 1961, RELATES TO THE INCOME DERIVED BY THE T RUST FROM PROPERTY. THE TRUST IS REQUIRED TO BE WHOLLY F OR CHARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO HAVE RELATION TO THE EXTENT TO WHICH SU CH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. IT IS THEREAFTER THE STATUTORY PROVISION PROCEEDS FURTHER THAT SUCH INCOME IS NOT TO BE UNDERSTOOD TO BE IN EXCESS OF 25 PER CENT OF THE INCOME FROM SUCH PROPERTIES. IN OTH ER WORDS, THE VERY LANGUAGE OF THE STATUTORY PROVISION UNDER CONSIDERATION SETS APART 25 PER CENT OF THE INCOME FROM THE SOURCE OF PROPERTY WITH REFERENCE TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED FOR SUCH PURPOSES, CHARITABLE OR RELIGIOUS. IN OTHER WORDS, FOR THE PU RPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELEV ANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WH ICH 25 PER CENT IS SET APART IN ACCORDANCE WITH THE SPIRIT OF THE STATUTORY PROVISION.' THIS MEANS THAT, WHEN IT IS ESTABLISHED THAT TRUST IS ENTITLED TO FULL BENEFIT OF EXEMPTION UNDER S. 11(1), THE SAID TRUST IS TO GET THE BENEFIT OF TWENTY-FIVE PER CENT AND THIS TWENTY-FIV E PER CENT HAS TO BE UNDERSTOOD AS INCOME OF THE TRUST UNDER THE R ELEVANT HEAD OF S. 11(1). IN OTHER WORDS, INCOME THAT IS NOT TO BE INCLUDED FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME WOULD BE THE AMOUNT EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LORD SHIPS IN THE ABOVE CASE HAVE EMPHASIZED ON THE CLEAR AND UNAMBIG UOUS LANGUAGE OF S. 11(1)(A) AND DECIDED THE MATTER ON T HE BASIS OF THE SAME. IT HAS BEEN HELD THAT AS PER THE STATUTORY LA NGUAGE OF THE ABOVE SECTION THE INCOME WHICH IS TO BE TAKEN FOR P URPOSE OF ACCUMULATION IS THE INCOME DERIVED BY THE TRUST FRO M PROPERTY. ITA NO.1821/BANG/2016 PAGE 5 OF 6 IF BOTH THE DECISIONS ARE CAREFULLY READ, IT BECOME S EVIDENT THAT ANY EXPENDITURE WHICH IS IN THE SHAPE OF APPLICATIO N OF INCOME IS NOT TO BE TAKEN INTO ACCOUNT. HAVING FOUND THAT TRU ST IS ENTITLED TO EXEMPTION UNDER S. 11(1), WE ARE TO GO TO THE STAGE OF INCOME BEFORE APPLICATION THEREOF AND TAKE INTO ACCOUNT 25 PER CENT OF SUCH INCOME. THEIR LORDSHIPS HAVE POINTED THAT THE SAME HAS TO BE TAKEN ON 'COMMERCIAL' BASIS AND NOT 'TOTAL INCOM E' AS COMPUTED UNDER THE IT ACT. THEIR LORDSHIPS IN THE D ECIDED CASE REJECTED THE CONTENTION OF THE REVENUE THAT THE SUM OF RS 1,70,369 WHICH WAS SPENT AND APPLIED BY THE ASSESSE E FOR CHARITABLE PURPOSES WAS REQUIRED TO BE EXCLUDED FOR PURPOSE OF TAKING AMOUNT TO BE ACCUMULATED. HAVING REGARD TO THE CLEAR PRONOUNCEMENT OF THEIR L ORDSHIPS OF THE SUPREME COURT, IT IS DIFFICULT TO ACCEPT THAT O UTGOINGS WHICH ARE IN THE NATURE OF APPLICATION OF INCOME ARE TO B E EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEFORE IT WAS APPL IED IS DIRECTED TO BE TAKEN AND THE SAME IN THE PRESENT CASE IS RS. 3,42,174. TWENTY FIVE PER CENT OF THE ABOVE INCOME IS TO BE A LLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRIAN ANJUM AN TRUST VS. CIT (SUPRA). NO REASON WHATSOEVER HAS BEEN GIVE N BY THE REVENUE AUTHORITIES FOR DEDUCTING RS. 2,17,126 IN T HIS CASE FOR PURPOSES OF S. 11(1)(A). THE DECISION CITED ON BEHA LF OF THE REVENUE DID NOT TAKE INTO ACCOUNT THE DECISION OF T HE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF CBDT HAS A LSO BEEN CONSIDERED BY THE HONBLE KERALA HIGH COURT IN ITS DECISION REFERRED TO ABOVE. ACCORDINGLY THE QUESTION REFERRE D TO IS ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE AS SESSEE. 6. THE AFORESAID DECISION CLEARLY SUPPORTS THE PLEA OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ACCUMULATION U /S.11(1)(A) OF THE ACT SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. ITA NO.1821/BANG/2016 PAGE 6 OF 6 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 1ST DAY O F JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER 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, I TAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.