ITO (E) 1(1), MUMBAI V. BAI KABIBAI & HANSRAJ MORARJI CHARITY TRUST, MUMBAI

ITA 2019/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87918 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 08-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Valuation report; Reason to believe; Capital expenditure
• Section: 147; 28; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , . , ! BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.2019/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2007-08 ITO(E)-I(1) ROOM NO.504, PIRAMAL CHAMBERS, 5 TH FLOOR, PAREL, MUMBAI 12. ' ' ' ' / VS. BAI KABIBAI & HANSRAJ MORARJI CHARITY TRUST FOR A.Y.2007-08. LAKHAMSEY NAPOO ROAD, MATUNGA, MUMBAI 400 018. $ ./ % ./ PAN/GIR NO. : AAATB0159K ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) APPELLANT BY SHRI JEETENDRA KUMAR RESPONDENT BY SHRI JEETENDRA KUMAR ' ) *+ / DATE OF HEARING : 13/01/2015 ,-# ) *+ / DATE OF PRONOUNCEMENT : 13/01/2015 . / O R D E R PER I.P.BANSAL,J.M: THIS IS AN APPEAL FILED BY THE REVENUE AND IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-1, MUMBAI DATED 07/10/2010 FOR ASSESSMENT YEAR 2007-08. GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LD. CIT (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW PROVISION FOR GRATUITY OF RS.49,16,762/- IN SPITE OF THE FACT THAT PROVISI ONS CANNOT BE CLAIMED AS EXPENSES IN THE TRUST AND EVEN AS PER PROVISIONS OF SEC. 40A(7), PROVISION FOR GRATUITY IS ALLOWABLE ONLY FOR THE PURPOSE OF PAYME NT ON A SUM BY WAY OF CONTRIBUTION TOWARDS APPROVED GRATUITY FUND. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON FIXED ASSETS WITHOUT APPRECIATING THE FACT THAT THE CAPIT AL EXPENDITURE INCURRED ON ACQUIRING THE ASSETS HAS ALREADY BEEN CLAIMED AS AP PLICATION OF INCOME U/S.11 OF THE IT. ACT 1961 IN THE CURRENT / PAST YE ARS. ./ I.T.A. NO.2019/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2007-08 2 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT ALLO WING OF DEPRECIATION WILL RESULT IN DOUBLE DEDUCTION WHICH IS CONTRARY TO THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD., V/S. UNION OF INDIA 199 ITR 43 AND J.K.SYNTHETICS V/S. UNION OF INDIA.(1920 65 TAXMAN 420 ). 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE DEFICIT ARISES OUT OF EXPENDITURE OUT OF INCOME ON WHICH EXEMPTION HAS AL READY BEEN CLAIMED AND ALLOWING OF SET OFF OF DEFICIT OF EARLIER YEAR AGAI NST INCOME OF CURRENT YEAR WILL RESULT IN DOUBLE DEDUCTION WHICH IS CONTRARY TO THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD., V/S UOI 199 ITR 43 AND J.K. SYNTHETICS V/S UNION OF INDIA (1992) 65 TAXMAN 420. 2. APROPOS GROUND NO.1, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.49,16,762/- ON ACCOUNT OF PROVISION OF GRATUITY. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SAME. WHILE DISALLOWING THE SAID AMOUNT IT HAS BEEN OBSERVED BY AO THAT AS SESSEE IN THE PRESENT CASE HAS MERELY MADE AN ENTRY IN ITS ACCOUNT OF EXP ENDITURE WHICH IS OF CONTINGENT IN NATURE. THE DISALLOWANCE MADE BY TH E AO WAS CONTESTED IN THE APPEAL FILED BEFORE LD. CIT(A). IT WAS SUBMITT ED THAT THE LIABILITY FOR STAFF GRATUITY WAS PROVIDED AS PER ACTUARIAL VALUATION REPORT OBTAINED BY THE ASSESSEE. IT WAS ON ACCOUNT OF GRATUITY DUE TO THE EMPLOYEES AS ON 31/3/2007 BASED ON SERVICES RENDERED BY THE EMPLOYE ES. THUS, IT WAS CLAIMED THAT THIS AMOUNT IS NOT MERE PROVISION BUT ACTUAL LIABILITY ON ACCOUNT OF GRATUITY. IT WAS SUBMITTED THAT TRUST H AS ALSO PAID THIS AMOUNT IN THE SUCCEEDING YEAR TO HDFC STANDARD LIFE INSURA NCE GROUP GRATUITY SCHEME. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTE M OF ACCOUNTING, ACCORDING TO WHICH THE PROVISION FOR GRATUITY WAS M ADE. ON SUCH SUBMISSIONS OF THE ASSESSEE LD. CIT(A) HAS GIVEN RE LIEF ON THE GROUND THAT THE ASSESSEE TRUST HAS MADE PAYMENT IN SUBSEQUENT F INANCIAL YEAR TO THE HDFC STANDARD LIFE INSURANCE UNDER THE GROUP GRATUI TY SCHEME. HE ALSO ACCEPTED THE SUBMISSION OF THE ASSESSEE, SUBJECT TO VERIFICATION OF AO, THAT INSTEAD OF A SUM OF RS.49,16,762/- THE PROVISION WA S MADE ONLY TO THE EXTENT OF RS.21,53,386/-. THE REVENUE IS AGGRIEVED , HENCE, HAS RAISED GROUND NO.1. ./ I.T.A. NO.2019/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2007-08 3 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. T HE RELIEF HAS BEEN GRANTED BY LD. CIT(A) ON THE GROUND THAT THE ASSESS EE HAS MADE THE PAYMENT OF IMPUGNED SUM IN SUBSEQUENT YEAR. LD. AR OF THE ASSESSEE WAS REQUIRED TO REFER TO THE DOCUMENTS ON THE BASIS OF WHICH SUCH FINDINGS HAS BEEN RECORDED BY LD. CIT(A). LD. AR WAS NOT ABLE T O SUBMIT THE RELEVANT DOCUMENTS. IN SUCH CIRCUMSTANCES, WE ARE LEFT WITH NO ALTERNATIVE OTHER THAN TO RESTORE THIS ISSUE TO THE FILE OF AO TO VER IFY SUCH CONTENTION OF THE ASSESSEE AND IF IT IS FOUND THAT THE IMPUGNED AMOUN T IS BASED UPON THE ACTUARIAL VALUATION REPORT AND IT IS PAID IN SUBSE QUENT YEAR THEN NO DISALLOWANCE ON THIS ACCOUNT SHOULD BE MADE. 4. APROPOS GROUND NO.2 & 3, IT WAS SUBMITTED THAT T HESE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSESSEE ITSELF IN RESPECT O F A.Y 2003-04, COPY OF THIS ORDER IS ALSO FILED IN THE PAPER BOOK AT PAGES 24 T O 26, WHEREIN THEIR LORDSHIPS HAVE OBSERVED THAT BOTH THE ISSUES ARE CO VERED BY THE EARLIER DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS . INSTITUTE OF BANKING PERSONNEL SELECTION, 264 ITR 110 (BOM). FOR THE SA KE OF CONVENIENCE THE GROUNDS FOR REOPENING OF THE ASSESSMENT WERE STATED AS UNDER: THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WA S FINALIZED BY THE THEN ASSESSING OFFICER, WHEREIN BASED UPON THE ASSESSEE S CLAIM HE ALLOWED DEPRECIATION OF RS.68,04,426/-. THE DEPRECIATION I S CLAIMED AND ALLOWED ON THE ASSET, THE CAPITAL EXPENDITURE INCURRED IN RESP ECT OF WHICH WAS ALLOWED AS EXEMPTION ON ACCOUNT OF APPLICATION OF INCOME U/S.1 1 OF THE INCOME TAX ACT, 1961. THIS ACT OF THE ASSESSEE AMOUNTS TO CLAIM OF DOUBLE DEDUCTION IN CONTRAVENTION OF THE LAW LAID BY THE HONBLE SUPREM E COURT OF INDIA IN THE CASE OF ESCORTS LIMITED VS. UOI, 1999 ITR (43). FURTHER, THE ASSESSEE TRUST HAS CLAIMED DEFICIT OF RS.15,72,000/- AND WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFICER. NEEDLES S TO SAY THAT THE DEFICIT ARISES ON ACCOUNT OF EXPENDITURE AND APPLICATION OF FUNDS OVER THE RECEIPTS. THE SOURCE OF THIS EXPENDITURE AND APPLICATION OF FUNDS OVER THE RECEIPTS OF THE TRUST IS A CORPUS FUND AND ACCUMULATION UNDER S ECTION 11 OF THE IT ACT, WHICH HAS ALREADY BEEN CLAIMED AND ALLOWED AS EXEM PTION U/S.11 OF THE I.T ACT. THIS VERY ACT OF THE ASSESSEE AMOUNTS TO CLAI M OF DOUBLE EXEMPTION CONTRARY TO THE LAW LAID DOWN BY THE HONBLE APEX C OURT CITED IN PARAGRAPH ABOVE. I HAVE THEREFORE REASON TO BELIEVE THAT THE CAUSE O F ESCAPEMENT OF INCOME WITHIN THE MEANING OF SECTION 147 OF THE INCOME TAX ACT, 1961 IS FAILURE ON THE ./ I.T.A. NO.2019/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2007-08 4 PART OF THE ASSESSEE TRUST TO MAKE FULL AND TRUE DI SCLOSURE OF THE MATERIAL FACTS AS FAR AS BOTH THE ABOVE ISSUE IS CONCERNED. THEIR LORDSHIPS HAVE OBSERVED THAT THE ISSUES RAIS ED BY THE REVENUE IN RE- ASSESSMENT PROCEEDINGS WERE COVERED AGAINST THE REV ENUE BY THE AFOREMENTIONED DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BAKING PERSONNEL SECTION (SUPRA). THO SE OBSERVATIONS OF THEIR LORDSHIPS ARE REPRODUCED BELOW: 5. MOREOVER, COUNSEL ON BOTH SIDES AGREE THAT EVEN ON MERITS THE QUESTION IS COVERED AGAINST THE REVENUE BY THE DECISION OF THI S COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING REPORTED IN (2003) 264 ITR 110 . IN THIS VIEW OF THE MATTER, THE NOTICE DATED 24/03/2010 IS QUASHED AND SET ASID E AND IN CONSEQUENCE THEREOF THE REASSESSMENT ORDER PASSED ON 7/12/2010 PURSUANT TO THE AFORESAID NOTICE DATED 24/03/2010 IS ALSO SET ASIDE . 4.1 IN THIS VIEW OF THE SITUATION WE FIND NO INFIRM ITY IN THE RELIEF GRANTED BY LD. CIT(A) ON ACCOUNT OF GROUND NO.2 & 3 OF THE REVENUES APPEAL AND THEY ARE DISMISSED. 5. APROPOS GROUND NO.4, IT WAS SUBMITTED THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SECTION (SUPRA), WHEREIN FOLLO WING QUESTION WAS REFERRED TO THEIR LORDSHIPS FOR DECISION: 3.WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW FORWARD THE DEFICIT OF EARLIER YEAR AND SET IT OFF AGAINST THE SURPLUS OF SUBSEQUENT YEARS WHEN THE SAME WAS NOT ALLOWABLE IN THE CASE OF ASSESSEE TRUST IN WHOSE CASE INCOME EXEMPTED UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961.? THEIR LORDSHIPS HAVE ANSWERED THIS QUESTION AS UNDE R: 5. NOW COMING TO QUESTION NO. 3, THE POINT WHICH A RISES FOR CONSIDERATION IS WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJU STMENT SHOULD BE TREATED AS APPLICATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDI TURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF T HE SUBSEQUENT YEAR AND THAT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDIT URE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES. IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT ALLOW C ARRY FORWARD OF THE EXCESS OF EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEI R INCOME WAS ASSESSABLE ./ I.T.A. NO.2019/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2007-08 5 UNDER SELF-CONTAINED CODE MENTIONED IN SECTION 11 T O SECTION 13 OF THE INCOME- TAX ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS UNDER SECTI ON 28 IN WHICH THE PROVISION FOR CARRY FORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF THE EXCESS OF EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND R ELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUS T IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME O F THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WH ICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CON TAINED IN SECTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUD ED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A) OF THE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF C IT V. SHRI PLOT SWETAMBER MURTI PUJZK JAIN MANDAL [1995] 211 ITR 293. ACCORDI NGLY, WE ANSWER QUESTION NO. 3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE AS SESSEE AND AGAINST THE DEPARTMENT. 6. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES WE F IND NO INFIRMITY IN THE ORDER OF LD. CIT(A) ON ACCOUNT OF GROUND NO.4. GRO UND NO.4 IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 13/01/2015 . . ) ,-# / 0'1 13/01/2015 - ) 2 SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 0' DATED 13/01/2015 ./ I.T.A. NO.2019/MUM/2011 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2007-08 6 . . . . ) )) ) '*3 '*3 '*3 '*3 43#* 43#* 43#* 43#* / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 362 '*' , , / DR, ITAT, MUMBAI 6. 27 8 / GUARD FILE. .' .' .' .' / BY ORDER, (3* '* //TRUE COPY// 9 99 9 / : : : : (DY./ASSTT. 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