M/s Infosys Science Foundation , Bangalore V. Income TAx Officer (Exemption) Ward-1 , Bangalore

ITA 2163/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5031 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 13-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS JT BENGALURU
• Assessee Lawyers: P C KHINCHA
• Keywords: Charitable institution
• Section: 143(3); 54F; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 2163/BANG/2017 ASSESSMENT YEAR : 2012 - 13 INFOSYS SCIENCE FOUNDATION, ELECTRONIC CITY, HOSUR ROAD, BANGALORE 560 100. PAN: AAATI 7155G VS. THE INCOME TAX OFFICER (EXEMPTIONS), WARD 1, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI P.C. KHINCHA, CA RE SPONDENT BY : SMT. SWAPNA DAS , JT.CIT(DR)(ITAT), BENGALURU. DATE OF HEARIN G : 26 .06 .201 8 DATE OF PRONOUNCEMENT : 08 .08.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE O RDER DATED 31.08.2017 OF THE CIT(APPEALS)-14, BANGALORE RELATI NG TO ASSESSMENT YEAR 2012-13. THE GROUNDS OF APPEAL RAISED BY THE ASSES SEE ARE AS FOLLOWS:- 1. THE ORDER PASSED BY THE LEARNED CIT(A) 14, BAN GALORE IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. THE LEARNED ASSESSING OFFICER AND THE CIT(A) 14, BANGALORE HAVE ERRED IN NOT CONSIDERING THE APPLICA TION OF INCOME AMOUNTING TO RS 3,45,65,489 DURING THE FY 20 11-12, AS RELATABLE TO INCOME ACCUMULATED UNDER SECTION 11(2) IN THE FY 2010-11 WITHOUT ANY REASONS. ITA NO. 2163/BANG/2017 PAGE 2 OF 16 3. THE LEARNED ASSESSING OFFICER AND THE CIT(A) 14, BANGALORE HAVE ERRED IN NOT APPRECIATING THAT INCOM E ACCUMULATED UNDER SECTION 11(2) IN THE FY 2010-11 A MOUNTING TO RS 3,45,65,489 WAS APPLIED DURING THE YEAR UNDER CO NSIDERATION. 4. ON FACTS AND CIRCUMSTANCES OF THE CASE AND LAW A VAILABLE, THE SUM OF RS 3,45,65,489/-, APPLIED DURING THE YEA R HAS TO BE CONSIDERED AS RELATABLE TO INCOME ACCUMULATED UNDER SECTION 11(2) IN THE FY 10-11 AND AS CLAIMED IN THE RETURN OF INCOME. 5. IN THE VIEW OF ABOVE AND OTHER GROUNDS TO BE ADD UCED AT THE TIME OF HEARING THE APPELLANT PRAYS THAT THE OR DER PASSED BY THE LEARNED CIT(A) 14, BANGALORE BE QUASHED; OR IN THE ALTERNATIVE (I) APPLICATION OF INCOME DURING THE YEAR AMOUNTING TO RS. 3,45,65,489 BE CONSIDERED AS RELATABLE TO INCOME AC CUMULATED UNDER SECTION 11(2) IN THE FY 2010-11 AS CLAIMED IN THE RETURN OF INCOME. (II) INCOME ACCUMULATED UNDER SECTION 11(2) DURING THE YEAR BE CONSIDERED AT RS. 5,99,82,888 AS CLAIMED IN THE RETURN OF INCOME. THE APPELLANT PRAYS ACCORDINGLY. 2. THE ASSESSEE IS A TRUST. THE OBJECT OF THE TRUS T WAS TO PROVIDE EDUCATION TO THE PUBLIC, RELIEF TO THE POOR, MEDICA L RELIEF AND OTHER OBJECTS OF GENERAL PUBLIC UTILITY. THE ASSESSEE INSTITUTES PR IZES WHICH ARE MEANT TO ACHIEVERS IN VARIOUS FIELDS AND ENDEAVOURS TO ELEVA TE THE PRESTIGE OF SCIENTIFIC RESEARCH IN INDIA AND INSPIRE YOUNG INDI ANS TO CHOOSE A VOCATION IN SCIENTIFIC RESEARCH. 3. THE ASSESSEE FILED RETURN OF INCOME FOR THE AY 2 012-13 ON 24.09.2012 DECLARING NIL INCOME. THE TOTAL RECEIPT S OF THE ASSESSEE IN THE FORM OF BANK INTEREST AND INTEREST ON INCOME-TAX RE FUND WAS RS.9,28,05,186. UNDER SECTION 11(1)(A) OF THE INCOM E-TAX ACT, 1961 [THE ITA NO. 2163/BANG/2017 PAGE 3 OF 16 ACT], THE ASSESSEE CAN CLAIM THAT ITS INCOME IS NO T INCLUDIBLE IN THE TOTAL INCOME, SUBJECT TO CERTAIN CONDITIONS. 85% OF THE RECEIPTS WHICH ARE CONSIDERED AS INCOME HAS TO BE APPLIED FOR CHARITAB LE PURPOSE IN THE SAME YEAR. 15% OF SUCH INCOME COULD BE ACCUMULATED WITH OUT ANY RESTRICTION U/S. 11(1)(A) OF THE ACT. TO THE EXTENT 85% IS NOT APPLIED FOR CHARITABLE PURPOSE, THE ASSESSEE HAS TO MAKE AN APPLICATION FO R ACCUMULATION OF THE DEFICIT FOR APPLICATION FOR CHARITABLE PURPOSE IN F UTURE. 4. IN THE AY 2011-12, THE TOTAL INCOME OR RECEIPTS OF THE ASSESSEE WAS RS.6,18,50,737. UNDER SECTION 11(2) OF THE ACT, IF 85% OF THE INCOME WHICH IS NOT SPENT FOR CHARITABLE PURPOSE, THE ASSESSEE H AS TO MAKE AN APPLICATION FOR ACCUMULATION OF SUCH DEFICIT FOR AP PLICATION FOR CHARITABLE PURPOSE IN FUTURE. IN AY 2011-12, THE ASSESSEE MAD E APPLICATION FOR ACCUMULATION FOR APPLICATION CHARITABLE PURPOSE IN FUTURE OF A SUM OF RS.3,45,65,488. 5. IN AY 2012-13, THE TOTAL RECEIPTS OR INCOME OF T HE ASSESSEE WAS RS.9,28,05,186. DURING THE PREVIOUS YEAR RELEVANT TO AY 2012-13, THE ASSESSEE APPLIED A SUM OF RS.5,34,67,009 FOR CHARIT ABLE PURPOSE. OUT OF THE TOTAL INCOME OF RS.9,28,05,186 15% OF THE RECEI PTS WHICH IS ELIGIBLE FOR ACCUMULATION IN FUTURE U/S. 11(1)(A) OF THE ACT WHI CH WAS A SUM OF RS.1,31,20,778 AND 85% TO BE APPLIED FOR CHARITABLE PURPOSE WOULD BE RS.7,88,84,408. THE ASSESSEE CLAIMED THAT OUT OF I NCOME APPLIED FOR CHARITABLE PURPOSE IN AY 2012-13 OF RS.5,34,67,009/ -, (I) RS 3,45,65,489/- SHOULD BE CONSTRUED AS HAVING BEEN SPENT OUT OF INCOME ACCUMULATED UNDER SECTION 11(2) IN THE FINAN CIAL YEAR 2010-11 RELEVANT TO AY 2011-12; (II) BALANCE AMOUNT SPENT RS 1,89,01,520/- SHOULD B E CONSTRUED AS INCOME APPLIED FROM THE CURRENT YEAR'S INCOME. ITA NO. 2163/BANG/2017 PAGE 4 OF 16 SINCE AMOUNT SPENT RS. 3,45,65,489/- WAS RELATABLE TO INCOME ACCUMULATED UNDER SECTION 11(2) IN THE FY 2010-11 R ELEVANT TO AY 2011- 12, THE BALANCE AMOUNT SPENT RS. 1,89,01,520/- WAS CONSIDERED AS APPLICATION OF INCOME OF AY 2012-13 FOR CHARITABLE PURPOSE. 85% OF THE TOTAL RECEIPTS IN AY 2012-13 OF RS. 9,28,05,186 WAS RS.7,88,84,408/- BEING 85% OF GROSS RECEIPTS OF CURRENT YEAR. IF THE SUM O F RS.1,89,01,520 SPENT FOR CHARITABLE PURPOSE IN AY 2012-13 IS REDUCED FRO M RS.7,88,84,408 THE RESULTANT FIGURE OF RS.5,99,82,888/- WHICH WOULD BE THE DEFICIT IN APPLYING 85% OF THE TOTAL INCOME OF AY 2012-13 U/S.11(2) OF THE ACT. 15% OF THE RECEIPTS OF AY 2012-13 OF RS.9,28,05,186 WHICH CAN BE ACCUMULATED AS A MATTER OF RIGHT WOULD BE A SUM OF RS.1,39,20,778. THE FOLLOWING STATEMENT WILL EXPLAIN THE CLAIM OF THE ASSESSEE FOR ACCUMULA TION U/S.11(2) AND 11(1)(A) OF THE ACT:- PARTICULARS AMOUNT (RS) AMOUNT (RS) BANK INTEREST 9,26,53,299 INTEREST ON INCOME. AX REFUND 151,887 TOTAL RECEIPTS 9,28,05,186 LESS:- INCOME SET APART FOR FUTURE UNDER SECTION 11(1)(A) 15% OF TOTAL RECEIPTS 1,39,20,778 BALANCE 7,88,84,408 ITA NO. 2163/BANG/2017 PAGE 5 OF 16 TOTAL EXPENDITURE INCURRED TOWARDS OBJECTS OF THE TRUST 5,34,67,009 LESS:- AMOUNT UTILIZED OUT OF INCOME ACCUMULATED UNDER SECT ION 11(2) FOR FY 2010-11 3,45,65,489 1,89,01,520 BALANCE 5,99,82,888 LESS:- INCOME OF THE CURRENT YEAR ACCUMULATED UNDER SECTION 11(2) 5,99,82,888 TAXABLE INCOME NIL 6. AN INTIMATION UNDER SECTION 143(1) WAS PASSED O N 30.03.2014 ACCEPTING THE INCOME RETURNED. SUBSEQUENTLY NOTICE UNDER SECTION 143(2) WAS ISSUED ON 23.09.2013. NOTICE UNDER SECTION 142( 1) WAS ISSUED ON 23- 05-2014. DETAILS / INFORMATION / SUBMISSIONS CALLED FOR BY THE LEARNED INCOME TAX OFFICER (EXEMPTIONS) WARD -1, BENGALURU [LEARNED ASSESSING OFFICER FOR SHORT HEREAFTER] WERE FURNISHED BY THE ASSESSEE. THE ASSESSMENT WAS COMPLETED AND AN ORDER UNDER SECTION 143(3) WAS PASSED ON 24.2.2015. 7. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER CONSIDERED THE ENTIRE AMOUNT SPENT DURING THE YEAR AMOUNTING TO RS 5,34,6 7,009/- AS AMOUNT APPLIED FOR OBJECTS OF THE TRUST FROM THE CURRENT Y EAR'S INCOME. IN OTHER WORDS, THE SUM OF RS 3,45,65,489/- ACCUMULATED UNDE R SECTION 11(2) IN THE FINANCIAL YEAR 10-11 WAS NOT CONSIDERED AS APPLIED DURING THE YEAR. AMOUNT ACCUMULATED UNDER SECTION 11(2) DURING THE YEAR WAS DETERMINED AT RS 2,54,17,400/- TAXABLE INCOME WAS DETERMINED AS NIL. THE COMPUTATION OF TAXABLE INCOME AS PER ASSESSMENT ORDER WAS AS UNDER :- ITA NO. 2163/BANG/2017 PAGE 6 OF 16 PARTICULARS AMOUNT (RS) AMOUNT (14S) BANK INTEREST 9,26,53,299 INTEREST ON INCOME TAX REFUND 151,887 TOTAL RECEIPTS 9,28,05,186 LESS:- TOTAL EXPENDITURE INCURRED TOWARDS OBJECTS OF THE TRUST 5,34,67,009 SURPLUS AS PER INCOME AND EXPENDITURE ACCOUNT 3,93,38,177 LESS :- INCOME SET APART FOR FU TURE UNDER SECTION 11(1)(A) 15% OF TOTAL RECEIPTS 1,39,20,777 BALANCE 2,54,17,400 INCOME OF THE CURRENT YEAR ACCUMULATED UNDER SECTIO N 11(2) 2,54,17,400 TAXABLE INCOME NIL 8. THE TABLE ANNEXED AS ANNEXURE-1 TO THIS ORDER WO ULD MAKE THE POSITION VERY CLEAR. 9. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONF IRMED THE ORDER OF AO FOR THE FOLLOWING REASONS:- 5. TO EXAMINE WHETHER THIS IS PERMISSIBLE UNDER T HE PROVISIONS OF THE ACT, SECTION 11(1) IS REPRODUCED BELOW : 11. (1). SUBJECT TO THE PROVISIONS OF SECTIONS 60 T O 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE T OTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIP T OF THE INCOME - (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT ITA NO. 2163/BANG/2017 PAGE 7 OF 16 TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, WHERE ANY SUCH INCOME IS ACCUMULATED TO SET AP ART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE E XTENT TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF [FIFTEEN] PER CENT OF THE INCOME FROM SUC H PROPERTY. 6. AND FURTHER SECTION 11(2) PERMITS ACCUMULATION WHERE 85% OF THE INCOME COULD NOT BE OR IS DEEMED TO BE N OT TO HAVE BEEN APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA DURING THE PREVIOUS YEAR. 7. EXAMINATION OF THE PROVISIONS OF SECTION 11(1) MAKE IT CLEAR THAT THE INCOME DERIVED FROM PROPERTY DURING THE PREVIOUS YEAR IS NOT EQUATED WITH ACCUMULATED INCOM E U/S. 11(2). THE PROVISIONS REQUIRE THAT THE INCOME EARNE D FROM THE PROPERTY HELD UNDER TRUST MUST BE FIRST APPLIED TO THE OBJECTS OF THE TRUST AND IF ANY INCOME IS REMAINING THEN AC CUMULATION TO THE EXTENT OF 15% OF SUCH INCOME IS PERMITTED AN D IF THE TOTAL INCOME COULD NOT BE UTILISED TOWARDS THE OBJE CTS OF THE TRUST THEN THE ASSESSEE CAN RESORT TO FURTHER ACCUM ULATION U/S. 11(2) OVER AND ABOVE THE AMOUNT OF 15%. IN VIEW OF THE ABOVE, THE CONTENTION OF THE ASSESSEE THAT APPLICAT ION OF INCOME FROM OUT OF THE ACCUMULATED INCOME SHOULD BE CONSIDERED BEFORE THE INCOME DERIVED FROM THE PROPE RTY DURING THE PREVIOUS YEAR IS CONSIDERED FOR APPLICAT ION APPEARS TO BE NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC.11(1). 8. THE AO HAS COMPLETED THE ASSESSMENT IN ACCORDANC E WITH THE PROVISIONS LAID DOWN IN SEC.11 AND, HENCE, THE ASSESSMENT ORDER DOES NOT REQUIRE ANY INTERFERENCE. IN VIEW OF THIS, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE FAIL. 10. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASS ESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LD. CO UNSEL FOR THE ASSESSEE SUBMITTED BEFORE THAT ULTIMATELY THE PURPOSE IS TO SPEND INCOME ONLY FOR CHARITABLE PURPOSES. THE AMOUNT SPENT FOR CHARITAB LE PURPOSE IN AY 2012- 13 SHOULD BE CONSIDERED AS HAVING BEEN SPENT FIRST OUT OF ACCUMULATION FOR ITA NO. 2163/BANG/2017 PAGE 8 OF 16 AY 2011-12. AFTER EXHAUSTING ACCUMULATION IN AY 20 11-12, WHATEVER IS SPENT SHOULD BE CONSIDERED AS HAVING BEEN SPENT FRO M THE INCOME OF THE TRUST FOR THE AY 2012-13. THIS WOULD BE THE ORDER OF PRIORITY IN THE MATTER OF DECIDING AS TO THE QUANTUM OF ACCUMULATION FOR AY 2 012-13. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE ALSO FILED BEFORE US COPY OF THE ACKNOWLEDGEMENT OF RETURN OF INCOME, WHEREIN THE AS SESSEE HAD MADE A PRAYER FOR ACCUMULATION U/S. 11(2) OF THE ACT ON TH E LINES INDICATED ABOVE. IT WAS SUBMITTED THAT THE AO CANNOT REDUCE THE QUAN TUM OF ACCUMULATION U/S. 11(2) OF THE ACT. THE LD. COUNSEL FOR THE ASS ESSEE ALSO BROUGHT TO OUR NOTICE THAT WHATEVER ARE THE RECEIPTS OF THE ASSESS EE ARE DEPLOYED IN FDS AS IS REQUIRED BY THE PROVISIONS OF SECTION 11(5) O F THE ACT. A CHART WAS BEFORE US, SHOWING THE BREAK-UP OF THE ENTIRE DEPOS ITS OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR, WHICH IS AS UNDE R:- DETAILS OF INTEREST EARNED ON FIXED DEPOSITS FD NO. DATE OF DEPOSIT DATE OF MATURITY FD AMOUNT ROI ICICI FD 1194 30-MAR-10 2-MAY-10 15,52,74,404* 3.75 ICICI FD 1237 5-MAY-10 11-MAY 10 23,15,00,000* 3.00 ICICI FD 1237 12-MAY-10 18-MAY-10 23,16,19,873* 3.00 ICICI FD 1237 19-MAY-10 25-MAY-10 22,59,807* 3.25 ICICI FD 4087 25-MAY-10 02-JUL 10 13,32,430* 2.50 IDBI FD NO. 1199 27-JUL-09 27-JUL 10 1,00,00,000* 7.25 IDBI FD NO. 1205 27-JUL-09 27-JUL-10 1,00,00,000* 7.25 IDBI FD NO. 1175 27-JUL-09 27 JUL-10 1,00,00,000* 7.25 IDBI FD NO 1182 27-JUL-09 27 JUL-10 1,00,00,000* 7.25 IDBI FD NO. 1243 27-JUL-09 27-JUL-10 1,00,00,000* 7.25 IDBI ED NO. 1168 27-JUL-09 27-JUL-10 1,00,00,000* 7.25 IDBI FD NO. 1229 27-JUL-09 27-JUL-10 1,00,00,000* 7.25 IDBI FD NO. 1236 27-JUL-09 27-JUL-10 1,00,00,000* 7.25 IDBI FD NO. 1212 27-JUL-09 27-JUL-10 1,00,00,000* 7.25 SBH FD NO.1674 27-JUL-09 27-JUL-10 1,00,00,000* 7.25 SBH FD NO.1812 27-JUL-09 28-JUL-10 1,00,00,000* 7.25 SBH FD NO.1878 27-JUL-09 29-JUL-10 1,00,00,000* 7.25 SBH FD NO.1947 27-JUL-09 30-JUL-10 1,00,00,000* 7.25 SBH FD NO.2000 27-JUL-09 2-AUG-10 1,00,00,000* 7.25 ITA NO. 2163/BANG/2017 PAGE 9 OF 16 SBH FD NO.2077 27-JUL-09 3-AUG-10 1,00,00,000* 7.25 SB11 ED NO 2146 27-JUL-09 4-AUG-10 1,00,00,000* 7.25 SBH ED NO.2179 27-JUL-09 5-AUG-10 1,00,00,000* 7.25 SBH FD NO.2248 27-JUL-09 6-AUG 10 1,00,00,000* 7.25 CANARA BANK FD 24-SEP-09 26-SEP-10 4,80,00,000' 7.00 ICICI FD 1274 19-MAY-10 09-FEB-11 270000000* 8.00 ICICI ED 1994 09-FEB-11 13-FEB-12 28,50,00,000 9.98 ICICI FD 4087 25-MAY-10 19-JUN-11 9,27,570 6.75 ICICI FD 1334 24-JUN-10 27-JUN-11 20,00,00,000 7.25 ICICI FD 1388 02-JUL-10 05-JUL-11 10,00,00,000 7.00 ICICI FD 1474 06-AUG-10 10-AUG-11 17,00,00,000 7.50 ICICI FD 1475 07-AUG-10 10-AUG-11 1,00,00,000 7.50 SBI FD 5090 05-OCT-10 05-OCT-11 8,00,00,000 8.25 SUB TOTAL 84,59,27,570 SUNDARAM BNP 04-MAY-09 04-MAY 10 4,00,00,000' 9.50 HDFC 08 JAN-101 08-JAN-13 17,00,00,000 7.85 SUB TOTAL GRAND TOTAL 101,59,27,570 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE MATURITY PROCEEDS OF THE FDS GO TO THE SB ACCOUNT AND MONIES ARE SPENT FOR CHARITABLE PURPOSE FROM THE SB ACCOUNT. IN THIS SC ENARIO, IT WAS SUBMITTED BY HIM THAT ACCUMULATION OF THE EARLIER AY AND THE RECEIPTS IN THE PRESENT AY LOOSES THEIR IDENTITY AND FORM PART OF THE POOL OF FUNDS OWNED BY THE ASSESSEE. IN SUCH A SITUATION, IT WAS SUBMITTED BY HIM THAT THE CONCLUSION DRAWN BY THE REVENUE AUTHORITIES THAT THE APPLICATI ON DONE BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR SHOULD BE CONSIDE RED AS APPLICATION OF INCOME OF THE RELEVANT PREVIOUS YEAR AND NOT THE AC CUMULATION OF INCOME OF THE EARLIER YEAR IS NOT CORRECT. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL PLACED RELIANCE ON CBDT CIRCULAR NO.26 DATED 7.7.19 55 WHEREIN IN THE CONTEXT OF SETOFF OF LOSS UNDER ONE HEAD OF INCOME AGAINST INCOME UNDER ITA NO. 2163/BANG/2017 PAGE 10 OF 16 OTHER HEAD OF INCOME, THE CBDT DIRECTED THE OFFICER S TO ACCEPT THE CLAIM OF ASSESSEE AND THE PRIORITY OF SET OFF AS CHOSEN BY T HE ASSESSEE. THE CIRCULAR READS AS FOLLOWS:- LOSS SUFFERED UNDER ONE HEAD HOW IT CAN BE SET-O FF AGAINST INCOME UNDER ANY OTHER HEAD PARTICULARLY WHERE TOTAL INCOM E INCLUDES ITEMS OF TAX-FREE INCOME. A QUESTION IS RAISED AS TO THE MANNER IN WHICH LOSS SUFFERED BY AN ASSESSEE UNDER ONE HEAD CAN BE SET OFF AGAINST INCO ME, PROFITS OR GAINS UNDER ANY OTHER HEAD, PARTICULARLY WHERE THE TOTAL INCOME, INCLUDES ITEMS OF INCOME WHICH ARE TAX FREE'. FOR INSTANCE FOR AN ASSESSMENT YEAR THE MATERIAL FIGURES IN THE CASE OF AN ASSESSEE, ARE AS FOLLOWS : . RS. INTEREST ON TAX FREE SECURITIES (UNDER S. 8) 6 ,000 PROPERTY INCOME (UNDER S. 9) 13,000 LOSS IN BUSINESS (OTHER THAN IN SPECULATIVE TRANSAC TION) 5,000 (UNDER SECTION 10 OF THE 1922 ACT) TOTAL 14,000 AN INCOME-TAX OFFICER PROPOSES TO SET OFF THE LOSS OF RS. 5,000 AGAINST TAX FREE INCOME OF RS. 6,000 AND TO TAX RS. 13,000 OUT OF THE TOTAL INCOME OF RS. 14,000. ON THE OTHER HAND, THE ASSESSEE CONTENDS THAT THE LOSS OF RS. 5,000 SHALL BE SET OFF AGAINST THE CHARGEABLE INCOME OF RS. 13,000 AND ONLY RS. 8,000 OUT OF THE TOTAL INCOME OF RS. 14,000 BE TAXED IN HIS HANDS. THERE IS NOTHING IN S. 24(1) TO INDICATE THAT A PAR TICULAR MODE OF SET OFF SHALL BE FOLLOWED. IN THE ABSENCE OF ANY SUCH I NDICATION, THE GENERAL RULE TO BE FOLLOWED IN ALL FISCAL ENACTMENT S IS THAT WHERE WORDS USED ARE NEUTRAL IN IMPORT, A CONSTRUCTION MO ST BENEFICIAL TO THE ASSESSEE SHOULD BE ADOPTED. THE WORDS HE SHALL BE ENTITLED TO HAVE THE AMOUNT OF LOSS SET OFF ACCRUING IN S. 24(1 ) WOULD SEEM TO BE CONSISTENT WITH THE CONFERMENT OF A BENEFIT ON THE ASSESSEE WHICH HE CAN CLAIM AS A RIGHT. HENCE, IN THE ABOVE ILLUSTRAT ION, THE ASSESSEE'S ITA NO. 2163/BANG/2017 PAGE 11 OF 16 CONTENTION SHOULD PREVAIL AND THE DEPARTMENT SHOULD ADOPT THAT MODE WHICH WILL GIVE THE ASSESSEE MAXIMUM BENEFIT. CIRCULAR NO.26(LXXVI-3) [F.NO.4(53)-IT/54, DATED 7- 7-1955. 12. SIMILARLY, OUR ATTENTION WAS DRAWN TO CIRCULAR NO.1 OF 2016 DATED 15.02.2016 WHEREIN THE CBDT HAS OPINED THAT THE CHO ICE OF THE FIRST YEAR IN WHICH DEDUCTION U/S. 80IA OF THE ACT IS TO BE CLAIM ED BY THE ASSESSEE SHOULD BE LEFT TO THE CHOICE OF THE ASSESSEE. OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF MILAN SHARAD RUPAREL V. ACIT [2009] 27 SOT 61 (MUMBAI) , WHEREIN THE MUMBAI BENCH ON A QUESTION OF ALLOWING DEDUCTION U/S. 54F OF THE ACT, OPINED THAT THE DEPOSIT OF THE SAME CAPITAL GAIN IN A DEPOSIT ACCOU NT TO CLAIM EXEMPTION IS NOT A REQUIREMENT OF LAW. IT WAS HELD THAT IDENTIT Y OF THE AMOUNT RECEIVED ON SALE AND UTILIZATION OF THE SAME AMOUNT IN MAKIN G INVESTMENT IN THE PURCHASE OF NEW HOUSE IS NOT A REQUIREMENT OF LAW. THE TRIBUNAL HELD THAT MONEY HAS NO COLOUR AND THAT WHAT IS REQUIRED IS CO MPLIANCE WITH THE CONDITIONS OF INVESTMENT WITHIN THE SPECIFIED TIME. 13. THE LD. DR SUBMITTED THAT THE PROVISIONS OF SEC TION 11(2) ARE SPECIFIC PROVISIONS AND THE AMOUNT ACCUMULATED U/S. 11(2) IN THE FORM OF A DEFICIT SHOULD BE ESTABLISHED BY THE ASSESSEE TO HAVE BEEN UTILIZED IN THE RELEVANT PREVIOUS YEAR AND ONLY THEN THE ASSESSEE CAN GET TH E BENEFIT AS CLAIMED BY IT. IN OTHER WORDS, IT WAS SUBMITTED BY HER THAT T HE ASSESSEE HAS TO CO- RELATE THE AMOUNT SPENT DURING THE PREVIOUS YEAR WI TH THE ACCUMULATION MADE IN AY 2011-12. 14. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. THE FIRST ASPECT WHICH WE NOTICE IS THAT THE ENTIRE DIS CUSSION IN THE ORDER OF ASSESSMENT IS ACADEMIC FOR THE PRESENT AY 2012-13 B ECAUSE ULTIMATELY ITA NO. 2163/BANG/2017 PAGE 12 OF 16 THERE IS NO TAX IMPLICATION IN AY 2012-13. IF THE STAND OF THE ASSESSEE IS ACCEPTED, THE ASSESSEE WILL GET ONE MORE YEAR TO AP PLY THE ACCUMULATED INCOME OF AY 2012-13. IF THE STAND OF THE REVENUE IS ACCEPTED, THE ASSESSEE WILL HAVE TO SPEND THE ACCUMULATION OF AY 2011-12 WITHIN THE PERIOD ALLOWED IN LAW AND PERIOD OF ONE YEAR WILL L APSE WITHOUT APPLICATION THEREBY LEAVING A SHORTER PERIOD FOR APPLICATION OF ACCUMULATION OF AY 2011-12. 15. AS FAR AS THE CLAIM OF THE ASSESSEE IS CONCERN ED, IT THE PLEA OF THE ASSESSEE THAT APPLICATION OF INCOME IN AY 2012-13 S HOULD BE FIRST CONSIDERED AS HAVING BEEN MADE OUT OF THE ACCUMULAT ION OF AY 2011-12 AND ONLY THE REMAINDER SHOULD BE CONSIDERED AS APPL ICATION OF INCOME OF AY 2012-13. THE ACCUMULATION OF UNUTILIZED INCOME OF AY 2011-12 U/S.11(2) OF THE ACT AS WELL AS THE INCOME OF AY 20 12-13 ARE DEPLOYED IN THE FORM OF FIXED DEPOSITS IN BANK ACCOUNTS. THE F IXED DEPOSITS AS AND WHEN THEY MATURE ARE AGAIN RENEWED AND REINVESTED I N FIXED DEPOSITS. THEREFORE, THE IDENTIFICATION OF FUNDS OF THE ASSES SEE AS IDENTIFIABLE TO ACCUMULATION OF UNUTILIZED INCOME OF AY 2011-12 OR THAT OF RECEIPT AS INCOME OF AY 2012-13 IS NOT POSSIBLE IN THE PRESENT CASE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE OUGHT TO HAVE BEEN ACCEPTED BY THE CIT(A). THE CIT(A) HAS O PINED THAT UNDER THE PROVISIONS OF SECTION 11(1) INCOME DERIVED FROM PRO PERTY DURING THE PREVIOUS YEAR IS NOT EQUATED WITH ACCUMULATED INCOM E U/S. 11(2). THE PROVISIONS REQUIRE THAT THE INCOME EARNED FROM THE PROPERTY HELD UNDER TRUST MUST BE FIRST APPLIED TO THE OBJECTS OF THE TRUST AND IF ANY INCO ME IS REMAINING THEN ACCUMULATION TO THE EXTENT OF 15% OF SUCH INCOME IS PERMITTED AND IF THE TOTAL INCOME COULD NOT BE UTIL ISED TOWARDS THE OBJECTS OF THE TRUST THEN THE ASSESSEE CAN RESORT TO FURTHER A CCUMULATION U/S. 11(2) OVER AND ABOVE THE AMOUNT OF 15%. THE CIT(A) HAS US ED THE WORD FIRST IN ITA NO. 2163/BANG/2017 PAGE 13 OF 16 HIS ORDER WHEREAS THE EXPRESSION FIRST IS NOT FOU ND IN SEC.11(1)(A) OR SEC.11(2) OF THE ACT. THE PROVISIONS OF SEC.11(1)(A ) OF THE ACT HAVE ALREADY BEEN EXTRACTED IN THE EARLIER PART OF THIS ORDER. THE PROVISIONS OF SEC.11(2) OF THE ACT, READS AS FOLLOWS: SECTION 11(2) WHERE EIGHTY-FIVE PER CENT OF THE I NCOME REFERRED TO IN CLAUSE ( A ) OR CLAUSE ( B ) OF SUB-SECTION (1) READ WITH THE EXPLANATION TO THAT SUB-SECTION IS NOT APPLIED, OR IS NOT DEEM ED TO HAVE BEEN APPLIED, TO CHARITABLE OR RELIGIOUS PURPO SES IN INDIA DURING THE PREVIOUS YEAR BUT IS ACCUMULATED OR SET APART, EITHER IN WHOLE OR IN PART, FOR APPLICATION TO SUCH PURPOSES IN INDIA, SU CH INCOME SO ACCUMULATED OR SET APART SHALL NOT BE INCLUDED IN T HE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE I NCOME, PROVIDED THE FOLLOWING CONDITIONS ARE COMPLIED WITH, NAMELY: ( A ) SUCH PERSON SPECIFIES, BY NOTICE IN WRITING GIVEN TO THE ASSESSING OFFICER IN THE PRESCRIBED MANNER, THE PURPOSE FOR W HICH THE INCOME IS BEING ACCUMULATED OR SET APART AND THE PERIOD FOR W HICH THE INCOME IS TO BE ACCUMULATED OR SET APART, WHICH SHALL IN NO C ASE EXCEED TEN YEARS; ( B ) THE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITED IN THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) PROVIDED THAT IN COMPUTING THE PERIOD OF TEN YEARS REFERRED TO IN CLAUSE ( A ), THE PERIOD DURING WHICH THE INCOME COULD NOT BE APPLIED FOR THE PURPOSE FOR WHICH IT IS SO ACCUMULATED OR S ET APART, DUE TO AN ORDER OR INJUNCTION OF ANY COURT, SHALL BE EXCLUDED : PROVIDED FURTHER THAT IN RESPECT OF ANY INCOME ACCUMULATED OR SET APART ON OR AFTER THE 1ST DAY OF APRIL, 2001, THE P ROVISIONS OF THIS SUB- SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS 'TEN YEARS' AT BOTH THE PLACES WHERE THEY OCCUR, THE WORDS 'FIVE YEARS' HAD BEEN SUBSTITUTED. EXPLANATION. ANY AMOUNT CREDITED OR PAID, OUT OF INCOME REFERRED TO IN CLAUSE ( A ) OR CLAUSE ( B ) OF SUB-SECTION (1), READ WITH THE EXPLANATION TO THAT SUB-SECTION, WHICH IS NOT APPLIED, BUT IS ACCUMULATED OR SET APART, TO ANY TRUST OR INSTITUTI ON REGISTERED UNDER SECTION 12AA OR TO ANY FUND OR INSTITUTION OR TRUST 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 ) OF CLAUSE ( 23C ) OF SECTION 10 , SHALL ITA NO. 2163/BANG/2017 PAGE 14 OF 16 NOT BE TREATED AS APPLICATION OF INCOME FOR CHARITA BLE OR RELIGIOUS PURPOSES, EITHER DURING THE PERIOD OF ACCUMULATION OR THEREAFTER. 16. THE TOTAL RECEIPTS OR INCOME OF THE ASSESSEE WA S RS.9,28,05,186. THE UNUTILIZED ACCUMULATED DEFICIT OF AY 201-11 WAS RS.3,45,65,489. DURING THE PREVIOUS YEAR RELEVANT TO AY 2012-13, TH E ASSESSEE APPLIED A SUM OF RS.5,34,67,009 FOR CHARITABLE PURPOSE. OUT OF THE TOTAL INCOME OF RS.9,28,05,186 15% OF THE RECEIPTS WHICH IS ELIGIBL E FOR ACCUMULATION IN FUTURE U/S. 11(1)(A) OF THE ACT WHICH WAS A SUM OF RS.1,31,20,778 AND 85% TO BE APPLIED FOR CHARITABLE PURPOSE WOULD BE RS.7, 88,84,408. THE ASSESSEES CLAIM THAT OUT OF INCOME APPLIED FOR CHA RITABLE PURPOSE IN AY 2012-13 OF RS.5,34,67,009/-, (I) RS 3,45,65,489/- SHOULD BE CONSTRUED AS HAVING BEEN SPENT OUT OF INCOME ACCUMULATED UNDER SECTION 11(2) IN THE FINAN CIAL YEAR 2010-11 RELEVANT TO AY 2011-12; (II) BALANCE AMOUNT SPENT RS 1,89,01,520/- SHOULD B E CONSTRUED AS INCOME APPLIED FROM THE CURRENT YEAR'S INCOME. SINCE AMOUNT SPENT RS. 3,45,65,489/- WAS RELATABLE TO INCOME ACCUMULATED UNDER SECTION 11(2) IN THE FY 2010-11 R ELEVANT TO AY 2011- 12, THE BALANCE AMOUNT SPENT RS. 1,89,01,520/- SHOU LD BE CONSIDERED AS APPLICATION OF INCOME OF AY 2012-13 FOR CHARITABLE PURPOSE. 85% OF THE TOTAL RECEIPTS IN AY 2012-13 OF RS. 9,28,05,186 WAS RS.7,88,84,408/- BEING 85% OF GROSS RECEIPTS OF CURRENT YEAR. IF THE SUM O F RS.1,89,01,520 SPENT FOR CHARITABLE PURPOSE IN AY 2012-13 IS REDUCED FRO M RS.7,88,84,408 THE RESULTANT FIGURE OF RS.5,99,82,888/- WHICH WOULD BE THE DEFICIT IN APPLYING 85% OF THE TOTAL INCOME OF AY 2012-13 U/S.11(2) OF THE ACT. 15% OF THE RECEIPTS OF AY 2012-13 OF RS.9,28,05,186 WHICH CAN BE ACCUMULATED AS A MATTER OF RIGHT WOULD BE A SUM OF RS.1,39,20,778. THE ABOVE CLAIM OF THE ITA NO. 2163/BANG/2017 PAGE 15 OF 16 ASSESSEE FOR ACCUMULATION IS IN ORDER IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE WHERE THE IDENTITY OF THE MONIES AS ACC UMULATION OF AY 2011- 12 OR THE INCOME OF AY 2012-13 IS NOT POSSIBLE. WE THEREFORE DIRECT THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE AS MADE BY T HE ASSESSEE. 17. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 08 TH DAY OF AUGUST, 2018. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER ENCL: ANNEXURE-I BANGALORE, DATED, THE 08 TH AUGUST, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APPELLANT 2. THE RESPONDE NT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6 . GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE. ITA NO. 2163/BANG/2017 PAGE 16 OF 16 ANNEXURE-I TO ORDER