Gnyan Dham Vapi Charitable Trust, Vapi V. The DCIT(Exemptions), Circle-2, Ahmedabad

ITA 2208/AHD/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9425 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 01-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 11; 143(3)

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (THROUGH VIRTUAL COURT) BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 2208/AHD/2018 ( ASSESSMENT YEAR : 2015-16) GNYAN DHAM VAPI CHARITABLE TRUST 11, GIDC ESTATE, VAPI 396195 / VS. THE DEPUTY COMMISSIONER OF INCOME- TAX (EXEMPTIONS) CIRCLE - 2, AHMEDABAD ./ ./ PAN/GIR NO. : AAATG7795C ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S. N. SOPARKAR, SR. ADVOCATE & SHRI PARIN SHAH, A.R. / RESPONDENT BY : SHRI VIDHYUT TRIVEDI, SR. D.R. DATE OF HEARING 10/08/2020 !'# / DATE OF PRONOUNCEMENT 19/08/2020 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS)-9, AHMEDABAD (CIT(A) IN SHORT), DATED 3 0.08.2018 ARISING IN THE ASSESSMENT ORDER DATED 28.12.2017 PA SSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOM E TAX ACT, 1961 (THE ACT) CONCERNING AY 2015-16. ITA NO. 2208/AHD/18 [GNYAN DHAM VAPTI CHARITABLE TRUST VS. DCIT] A.Y. 2015-16 - 2 - 2. THE SUBSTANTIVE GROUND OF APPEAL RAISED BY ASSES SEE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDI NG THAT THE 15% OF GROSS RECEIPTS ALLOWED TO BE ACCUMULATED UNDER SECT ION 11(1)(A) OUGHT TO BE REDUCED FROM THE AMOUNT ALLOWED TO BE CARRIED FORWARD AS DEFICIT. 3. THE ASSESSEE IS A PUBLIC CHARITABLE TRUST ENGAG ED IN EDUCATIONAL ACTIVITIES AND REGISTERED UNDER S.12AA OF THE ACT. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2015-16, IT WAS N OTICED BY THE AO THAT ASSESSEE HAS CLAIMED CARRIED FORWARD DEFICI T OF RS.72,03,285/- FOR THE YEAR UNDER CONSIDERATION TOG ETHER WITH DEFICITS OF OTHER ASSESSMENT YEARS. IT WAS CLAIMED BY THE ASSESSEE TRUST THAT IT HAS INCURRED EXCESS EXPENDITURE OVER VOLUNTARY CONTRIBUTIONS RECEIVED BY IT FOR ASSESSMENT YEAR IN QUESTION AND IN SOME OTHER ASSESSMENT YEARS AMOUNTING TO RS.3,79,25 ,029/- IN AGGREGATE. THE AO WHILE PASSING THE ASSESSMENT ORD ER UNDER S.143(3) OF THE ACT DENIED THE CARRY FORWARD OF EXC ESS APPLICATION OVER SUCH CONTRIBUTIONS BEING DEFICIT FOR THE PUR POSES OF SET OFF AGAINST THE CONTRIBUTIONS TO BE RECEIVED IN THE SUB SEQUENT ASSESSMENT YEARS. 4. IN THE FIRST APPEAL AGAINST THE AFORESAID ACTION OF THE AO, THE CIT(A), IN PRINCIPLE, ALLOWED CARRY FORWARD OF EXCE SS EXPENSES BEING ELIGIBLE FOR SET OFF OVER NEXT YEARS. WHILE HOLDING IN FAVOUR OF THE ASSESSEE, THE CIT(A) APPLIED THE LAW INTERPR ETED BY THE JURISDICTION HIGH COURT IN THE CASE OF CIT VS. SHRI PLOT SHWETAMBAR MURTIPUJAK JAIN MANDAL 211 ITR 293 (GUJ). HOWEVER, WHILE GRANTING RELIEF TO THE ASSESSEE TOWARDS ALLOWABILIT Y OF CARRY FORWARD OF DEFICIT, THE CIT(A) DIRECTED THE AO TO EXCLUDE 1 5% OF INCOME FROM THE QUANTUM OF DEFICIT OBSERVING THE SAME TO B E NOT A REAL ITA NO. 2208/AHD/18 [GNYAN DHAM VAPTI CHARITABLE TRUST VS. DCIT] A.Y. 2015-16 - 3 - DEFICIT BUT A NOTIONAL DEDUCTION. HENCE, THE CIT(A ), IN EFFECT, REDUCED THE QUANTUM OF DEFICIT ELIGIBLE FOR CARRY F ORWARD AND SET OFF IN SUBSEQUENT YEARS. 5. AGGRIEVED BY THE REDUCTION IN QUANTUM OF DEFICIT TO THE EXTENT OF 15% OF INCOME AS ENTITLED TO BE ACCUMULATED BY A TRUST UNDER S.11(1)(A) OF THE ACT, THE ASSESSEE HAS PREFERRED A PPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE WHIL E ADVERTING TO THE ISSUE, MADE REFERENCE TO THE DECISION OF THE CO -ORDINATE BENCH IN MAHARSHI KARVE STREE SHIKSHAN SAMSTHA KARVENAGAR VS . ITO 174 ITD 591 (PUNE) WHICH, IN TURN, INTER ALIA RELIED UPON THE OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN T HE CASE OF CIT VS. PROGRAMME FOR COMMUNITY ORGANISATION [2001] 248 ITR 1 (SC) AND ADDL.CIT VS. A. L. N. RAO CHARITABLE TRUST [1995] 216 ITR 697 (SC). IT WAS THUS CONTENDED ON BEHALF OF THE ASSESSEE T HAT TRUST IS ENTITLED TO WHOLE OF THE DEFICIT RESULTING FROM EXC ESS APPLICATION OF ITS INCOME WITHOUT ANY ARTIFICIAL REDUCTION EQUIVAL ENT TO 15% ENTITLEMENT CONTEMPLATED UNDER S.11(1)(A) OF THE AC T. 7. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE OBSERVATIONS MADE BY THE CIT(A) FOR REDUCTION IN TH E QUANTUM OF DEFICIT ALLOWED TO BE CARRIED FORWARD BY 15% OF INC OME OF RESPECTIVE YEARS AS PER STATUTORY FORMULA PROVIDED UNDER S.11 OF THE ACT. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO N. THE SOLITARY QUESTION THAT ARISES FOR ADJUDICATION IS W HETHER WHERE A TRUST HAS INCURRED SHORTFALL DUE TO ITS EXCESS SPEN DING ON THE OBJECTS OF THE TRUST IN A PARTICULAR YEAR, SUCH DEFICIT OR SHORTFALL COULD BE ITA NO. 2208/AHD/18 [GNYAN DHAM VAPTI CHARITABLE TRUST VS. DCIT] A.Y. 2015-16 - 4 - ALLOWED TO BE CARRIED FORWARD IN FULL FOR SET OFF A GAINST THE INCOMES GENERATED IN THE SUBSEQUENT YEARS OR THE QUANTUM OF CARRY FORWARD OF DEFICIT FOR SET OFF AGAINST INCOME OF SUBSEQUENT YEARS IS TO BE RESTRICTED TO A RECALIBRATED AMOUNT AFTER DEDUCTION OF 15% OF RECEIPTS CONTEMPLATED UNDER S.11(1)(A) AND SECTION 11(1)(B) OF THE ACT. 8.1 UNDER S.11 OF THE ACT, INCOME DERIVED FROM PROP ERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELATES PURPOS ES SHALL NOT BE INCLUDED IN THE TOTAL INCOME SUBJECT TO CERTAIN CON DITIONS. ON A COMBINED READING OF SECTION 11(1)(A) AND SECTION 11 (2) OF THE ACT, IT EMERGES THAT THE TRUST IS ALLOWED TO ACCUMULATE 15% OF ITS INCOME WITHOUT ANY TIME LIMIT AND BALANCE 85% CAN BE SET A PART FOR SPECIFIED PERIOD TO FIVE YEARS. IN THE INSTANT CAS E, THE ASSESSEE IN THE ASSESSMENT YEAR IN QUESTION AS WELL AS IN SOME OTHER ASSESSMENT YEARS HAVE MADE SPENDINGS IN EXCESS OF ITS RECEIPTS RESULTING IN CERTAIN DEFICIT. OWING TO EXCESS SPENDING OVER REC EIPTS, A PECULIAR SITUATION HAS ARISEN IN THE PRESENT CASE TOWARDS T HE MANNER OF COMPUTATION OF QUANTUM OF DEFICIT ELIGIBLE TO BE CA RRIED FORWARD FOR SET OFF IN SUBSEQUENT ASSESSMENT YEARS HAVING REGAR D TO STATUTORY PERMISSION TOWARDS 15% ACCUMULATION UNDER S.11(1)(A )/11(1)(B) OF THE ACT WITHOUT ANY TIME LIMIT. 8.2 TO DELINEATE ON THE ISSUE, IT MAY BE PERTINENT TO NOTE THAT IN ORDER TO BE ELIGIBLE FOR CLAIMING EXEMPTION, IT IS ESSENTIAL THAT THE INCOME OF THE TRUST IS APPLIED FOR CHARITABLE OBJEC TS. A CHARITABLE TRUST OR INSTITUTION IS REQUIRED TO APPLY AT LEAST 85% OF INCOME DERIVED FROM TRUST PROPERTY TOWARDS CHARITABLE PURP OSES. IF THE INCOME SPENT ON CHARITABLE OR RELIGIOUS PURPOSES DU RING THE PREVIOUS YEAR FALLS SHORT OF 85% OF THE INCOME DERIVED DURIN G THE YEAR, SUCH SHORTFALL MAY BE SUBJECTED TO TAX IN CERTAIN CIRCUM STANCES. HENCE, A ITA NO. 2208/AHD/18 [GNYAN DHAM VAPTI CHARITABLE TRUST VS. DCIT] A.Y. 2015-16 - 5 - STATUTORY OBLIGATION HAS BEEN CAST ON BENEFICIARY T RUSTS TO UTILIZE AT LEAST 85% OF THE INCOME DERIVED FROM THE TRUST PROP ERTY UNLESS ACCUMULATED OR SET APART FOR APPLICATION IN SUBSEQU ENT YEARS SUBJECT TO CERTAIN STIPULATED CONDITIONS. SECTION 11(1)(A) & (B) R.W.S. 11(2) OF THE ACT HOWEVER GRANTS AN ENTITLEMENT TO A CHARI TABLE TRUST TO RETAIN OR ACCUMULATE 15% OF INCOME DERIVED FROM PRO PERTY HELD IN TRUST WITHOUT ANY TIME LIMIT AND IS THUS BENEVOLENT IN NATURE. IN THIS BACKDROP, IT IS NOTICED THAT THE SITUATION HEREIN I S QUITE OPPOSITE. THE ASSESSEE IN THE INSTANT CASE HAS, IN FACT, UTIL IZED ITS INCOME FOR CHARITABLE PURPOSES IN EXCESS OF ITS RECEIPTS WITHO UT ANY ACCUMULATIONS RESULTING IN CERTAIN DEFICITS. THE CIT(A) HAS APPLIED THE GOVERNING PRINCIPLES OF SECTION 11(1)(A ) OF THE ACT TO A TOTALLY CONVERSE SITUATION OF EXCESS SPENDING RATHE R THAN ACCUMULATION AND HAS BROUGHT DOWN THE ENTITLEMENT O F DEFICITS CARRY FORWARD. 8.3 OSTENSIBLY, THE ASSESSEE HAS NOT AVAILED THE EN TITLEMENT OF ACCUMULATION OF 15% OF INCOME IN THE INSTANT CASE. NEEDLESS TO SAY, THE STATUTORY POSTULATIONS TOWARDS ACCUMULATION OF 15% OF INCOME FOR INDEFINITE PERIOD IS AN ENTITLEMENT OR A RIGHT OF ABSOLUTE NATURE VESTED UPON THE ASSESSEE BUT, HOWEVER, CANNOT BE RE GARDED AS AN OBLIGATION ENVISAGED IN LAW. THE LAW APPLICABLE TO ACCUMULATION OF INCOME CANNOT BE EXTENDED TO APPLICATION THEREOF. W HERE AN ASSESSEE TRUST HAS MADE EXCESS APPLICATION OF ITS I NCOME, THE OPTION OR ENTITLEMENT VESTED UPON AN ASSESSEE TO ACCUMULAT E 15% FOR INDEFINITE PERIOD IN OUR VIEW CANNOT OPERATE AS AN OBLIGATION ENFORCEABLE AGAINST IT IN THE ABSENCE OF ACCUMULATI ON. THE METHOD OF COMPUTATION OF DEFICIT TO BE TRUNCATED ARTIFICIA LLY 15% BASED ON AN ENTITLEMENT (OPPOSED TO AN OBLIGATION) AS SUGGES TED BY FIRST APPELLATE AUTHORITY IS TOTALLY DEVOID OF ANY LOGIC. THIS WOULD TANTAMOUNT TO APPLICATION OF CONCESSION CONFERRED O N ASSESSEE IN A ITA NO. 2208/AHD/18 [GNYAN DHAM VAPTI CHARITABLE TRUST VS. DCIT] A.Y. 2015-16 - 6 - REVERSE MANNER AND THUS PUT THE ASSESSEE IN A WORSE R POSITION IN THE EVENT OF ACCELERATED APPLICATION OF RECEIPTS FOR SA LUTARY PURPOSES. THE ACTION DIRECTED BY CIT(A) HAS THE EFFECT OF DEP RIVATION OF CONCESSION GRANTED AND IS REPUGNANT TO THE INTENDED OUTCOME. THE PUNE BENCH OF TRIBUNAL IN MAHARSHI KARVE STREE SHIKSHAN SAMSTHA KARVENAGAR VS. ITO 174 ITD 591 (PUNE) HAS ALSO ESSENTIALLY HELD THAT RELAXATIONS CONFERRED UNDER S. 11(1)(A)/(B) R. W. SECTION 11(2) OF THE ACT TO THE EXTENT OF 15% OF INCOME WOULD NOT NU LLIFY THE ENTITLEMENT OF SUCH ABSOLUTE NATURE BY WAY OF REDUC TION IN QUANTUM OF DEFICIT. WE THUS HAVE NO HESITATIONS TO QUASH T HE OBSERVATIONS OF THE FIRST APPELLATE AUTHORITY TOWARDS EXCLUSION OF 15% OF INCOME FOR THE PURPOSES OF DETERMINATION OF QUANTUM OF DEFICIT TO BE CARRIED FORWARD FOR SET OFF IN ENSUING YEARS IN ACCORDANCE WITH LAW. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMAR K EDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 19/08/2020 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED ON 19/08/2020