Dy.Director of Income-Tax, Bangalore V. Society of Friars Minor(Karnataka), Bangalore

ITA 2161/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7633 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BIJU
• Keywords: Depreciation; Charitable institution
• Section: 143(3); 12A; 12; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH 'C' BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.2161/BANG/2016 (ASST. YEAR 2012-13) THE DY. DIRECTOR OF INCOME-TAX (EXEMPTION), BANGALORE. . APPELLANT VS. SOCIETY OF FRIARS MINOR (KARNATAKA), BANGALORE. . RESPONDENT APPELLANT BY : SHRI M.K BIJU, JCIT RESPONDENT BY : SHRI SURESH MUTHUKRISHNAN, C.A DATE OF HEARING : 30-8-2017 DATE OF PRONOUNCEMENT : 6-9-2017 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) - 14, LTU, BAN GALORE DATED 22/9/2016 FOR ASST. YEAR 2012-13. 2. BRIEFLY STATED, THE FACTS OF THE CASE RELEVANT F OR THE PRESENT APPEAL ARE AS UNDER:- ITA NO. 2161/B/16 2 2.1 THE ASSESSEE, A TRUST REGISTERED U/S 12A OF TH E INCOME-TAX ACT 1961 (IN SHORT THE ACT), FILED ITS RETURN FOR ASS T. YEAR 2012-13 ON 23/9/2012 DECLARING NIL INCOME. IN THE COMPUTATION OF INCOME, THE ASSESSEE CLAIMED A DEFICIT OF RS.48,18,831/- TO BE CARRIED FORWARD AND SET OFF AS APPLICATION AGAINST INCOME OF THE ASSESS EE FOR FUTURE YEARS. THE ASSESSING OFFICER (AO) DENIED THE AFORESAID C LAIM OF THE ASSESSEE, HOLDING THAT SECTIONS 11 TO 13 OF THE ACT , WHICH ARE RELEVANT FOR THE ASSESSMENT OF TRUSTS DOES NOT EXPRESSLY ALL OW FOR CARRY FORWARD OF DEFICIT ARISING DUE TO EXCESS APPLICATIO N OF ANY YEAR FOR SET OFF AS APPLICATION AGAINST THE ASSESSEES INCOME FO R FUTURE YEARS. THE ASSESSMENT WAS ACCORDINGLY COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 25/2/2015. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 25/2 /2015 FOR ASST. YEAR 2012-13, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A)-14, LTU, BANGALORE . THE LD CIT(A) VIDE THE IMPUGNED O RDER DATED 22/9/2016 ALLOWED THE ASSESSEES APPEAL ON THIS ISS UE, FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBU NAL IN THE CASES OF ACIT VS. CITY HOSPITAL CHARITABLE TRUST (2015) 42 I TR (TRIB) 583 ITA NO. 2161/B/16 3 (BANGALORE) AND DCIT VS. MANIPAL ACADEMY OF HIGHER EDUCATION (2015) 44 ITR (TRIB) 18 (BANGALORE). 3.1 REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CI T(A)-14, LTU, BANGALORE DATED 22/9/2016 FOR ASST. YEAR 2012-13 H AS PREFERRED THIS APPEAL RAISING THE FOLLOWING GROUNDS:- CARRY FORWARD OF EXCESS APPLICATION: I) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT WITHOUT APPREC IATING THE FACT THAT THE NORMAL COMPUTATION OF INCOME UNDE R RESPECTIVE HEADS AS ENVISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PURPOSE OF CLA IMING EXEMPTION UNDER SECTION 11, 12 AND 13 AND, THEREFOR E, THE PROVISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOU RCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOM E OF SUBSEQUENT YEARS AS ENVISAGED U/S 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/INSTITUTIONS. II). WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CLT(A) IS CORRECT IN LAW WITHOUT APPRECIATING THE F ACT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE IN COME COMPUTED DOES NOT ARISE, EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCURRED HUGE AMOUNT OF CAPITAL EXPEND ITURE ITA NO. 2161/B/16 4 SOURCED OUT OF BORROWED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME. HOWEVER, EXPENDITURE INCURRED OUT OF THE ABOVE SOURCES CANNO T BE TERMED AS APPLICATION OF FUNDS OUT OF THE INCOME EA RNED IN A PARTICULAR ASSESSMENT YEAR INASMUCH AS LOAN BORRO WED DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED B Y THE ASSESSEE, CORPUS FUND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INC OME SET APART IN EARLIER ASSESSMENT YEAR CANNOT BE CONS TRUED AS INCOME OF THE CURRENT YEAR AND 15% SET APART OUT OF THE CURRENT YEAR INCOME IS EXCLUDED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS TO SHOW THAT THE INCO ME IS FULLY UTILIZED RATHER THAN CLAIMING EXCESS EXPENDIT URE EITHER REVENUE OR CAPITAL OVER AND ABOVE THE INCOME SO AS TO CLAIM EXCESS APPLICATION OR DEFICIT/LOSS TO BE C ARRIED FORWARD TO SUBSEQUENT ASSESSMENT YEARS. EVEN IN THE CASE OF APPLICATION BY VIRTUE OF BORROWED FUNDS/CORPUS FUND DONATIONS/15% SET APART OF EARLIER YEARS, THE INCO ME OF THE ASSESSEE CANNOT BE CONVERTED TO LOSS BUT AT BES T IT CAN BE MADE NIL. HENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CLAIMED BY THE ASSESSEE CA NNOT BE ALLOWED. ITA NO. 2161/B/16 5 THE LD DR FOR REVENUE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED. 3.2 PER CONTRA, THE LD AR FOR THE ASSESSEE SUPPORTE D THE IMPUGNED ORDER OF LD CIT(A) ON THE ISSUE IN DISPUTE, SUBMIT TING THAT IN DOING SO, THE LD CIT(A) FOLLOWED THE BINDING DECISIONS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASES OF CITY HOSPITA L CHARITABLE TRUST (SUPRA) AND MANIPAL ACADEMY OF HIGHER EDUCATION (SU PRA). IT IS SUBMITTED THAT THE SAME ISSUE WAS ALSO CONSIDERED AND HELD IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE IN THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO (E) VS. SHRADDHA TRUST IN ITA NO.899/BANG/2016 DATED 7/4/2017. 3.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED (SUPRA). THE SOLE ISSUE FOR A DJUDICATION BEFORE US IS WHETHER A DEFICIT ARISING ON ACCOUNT OF SURP LUS APPLICATION OF FUNDS CAN BE CARRIED FORWARD AND SET OFF AS APPLICA TION AGAINST INCOME OF SUBSEQUENT YEARS. WE FIND THAT A COORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRADDHA TRUST IN ITA NO.89 9/BANG/2016 DATED 7/4/2017 HAD CONSIDERED THE IDENTICAL ISSUE A ND FOLLOWING THE ITA NO. 2161/B/16 6 DECISION OF ANOTHER CO-ORDINATE BENCH IN THE CASE O F JYOTHY CHARITABLE TRUST (60 TAXMAN.COM 165) DECIDED THE IS SUE IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE HOLDING AS UNDER A T PARA 8 OF ITS ORDER:- 8. THE FINAL GROUNDS OF APPEAL RELATES TO CARRY FORWARD OF EXCESS APPLICATION OF INCOME TO SUBSEQUE NT YEARS. THIS ISSUE IS COVERED AGAINST THE REVENUE BY CO- ORDINATE BENCH OF TRIBUNAL IN THE CASE OF DEPUTY DIRECTOR OF INCOME-TAX VS. JYOTHY CHARITABLE TRUST (60 TAXMANN.COM 165). THE RELEVANT PART OF THE ORDER IS REPRODUCED BELOW: '14. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 1 1(1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITABLE PURPOSES AS CONTEMPLATED IN SECTION 1 1(L)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURPOSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH ITA NO. 2161/B/16 7 SUBSEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SET-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEARS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT V. MAHARANA OF MEWAR CHARITABLE FOUNDATION [1987] 164 ITR 439/[1986] 29 TAXMAN 476 (RAJ) AND CIT VS. PLOT SWETAMBER MURTI PUJAK JAIN MANDAL [1995] 211 ITR 293 (GUJ.). IN CIT VS. 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 YEARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE V. ASSTT. DIT [2001] 248 ITR 368/[1999] 105 TAXMAN 719 (MAD.), THE HON'BLE MADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE ARRIVED AT HAVING ITA NO. 2161/B/16 8 DUE REGARD TO THE COMMERCIAL PRINCIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR CHARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT THE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED WAS FOR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE OF LOSS OF AN EARLIER YEAR BEING 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 EXPENDITURE, THE TRUST SHOULD 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 LIABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJUSTED 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 OF THE SUBSEQUENT YEAR, ITA NO. 2161/B/16 9 EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HAD 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 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 REVENUE. 3.3.2 RESPECTFULLY FOLLOWING THE DECISION OF THE C O-ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASES OF JYOTHI CHA RITABLE TRUST (SUPRA) AND SHRADDHA TRUST (SUPRA), WHICH IN OUR VI EW SQUARELY COVERS THE ISSUE IN FAVOUR OF THE ASSESSEE, WE UPHO LD THE FINDING OF THE LD CI(A) IN THE IMPUGNED ORDER ALLOWING THE ASS ESSEES CLAIM OF CARRY FORWARD OF EXCESS APPLICATION/DEFICIT FOR SET OFF AS APPLICATION AGAINST INCOME OF THE ASSESSEE FOR SUBSEQUENT YEARS . CONSEQUENTLY, THE GROUNDS (I) TO (III) RAISED BY REVENUE (SUPRA) ARE DISMISSED. ITA NO. 2161/B/16 10 4. IN THE RESULT, REVENUES APPEAL FOR ASST. YEAR 2 012-13 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH SEPTEMBER, 2017 . SD/- SD/- (LALIET KUMAR) (JA SON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE DATED : 6/9/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.