M/s. Divine Trust, Cochin V. PR.CIT(Exemptions), Cochin

ITA 245/COCH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7544 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHANTOM BOSE
• Assessee Lawyers: T K MATHEW
• Keywords: Charitable institution; Opportunity of being heard; Capital expenditure
• Section: 143(3); 12AA; 263; 154

Judgement Text

ITA NO . 245/COCH/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 245/COCH/2015 (ASST YEAR 2010 - 11 ) M/S DIVINE TRUST DIVINE RETREAT CENTRE MURINGOOR(PO) CHALAKUDY 680 316 PAN NO. AAATD 1949H VS THE PR C OMMISSIONER OF INCOME TAX(EXEMPTION) KOCHI ( APPELLANT) (RESPONDENT) ASSESSEE BY SH T K MATHEW REVENUE BY SH SHANTOM BOSE, CIT - DR DATE OF HEARING 11 TH JAN 2015 DATE OF PRONOUNCEMENT 22 ND JAN 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS APPE AL, AT THE INSTANCE OF THE ASSESSEE, IS DIRECTED AGAINST THE ORDER OF THE CIT DATED 11.3.2015 PASSED U/S 263 OF THE ACT. THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. 2 THE GROUNDS RAISED READ AS FOLLOWS: 1 THE ORDER OF THE LEARNED PRO COMMISSIONER OF INCOME TA X (EXEMPTIONS) IS CONTRARY TO LAW FACTS AND OTHER EVIDENCE . 2 THE LEARNED COMMISSIONER ERRED IN ISSUING ORDER REFUSING TO ACCEPT THE CONTENTIONS OF THE APPELLANT IN THE SECTION 263 PROCEEDINGS, TO GRANT 15% ACCUMULATION ON THE GROSS INCOME . 3 THE LEARN ED COMMISSIONER OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO RECTIFY THE ASSESSMENT AS PER SECTION 154 APPLICATION FILED BY THE ASSESSEE. ITA NO . 245/COCH/2015 2 4 THE LEARNED COMMISSIONER ERRED IN POINTING OUT THAT THE APPELLANT HAD FAILED TO EXERCISE THEIR OPTION FOR ACCUM ULATION VI] S 11 (2) AS THE BENEFITS UNDER THIS SUB SECTION CAN BE AVAILED AFTER EXHAUSTING THE BENEFITS AVAILABLE UNDER SUB SECTION (1). 5 THE LEARNED COMMISSIONER OUGHT TO HAVE FOUND THAT ACCUMULATION OR SETTING APART OF SURPLUS AS PER SECTION 11(1)(A ) SHALL BE ON THE GROSS INCOME AND NOT ON NET SURPLUS AS SHOWN IN THE INCOME AND EXPENDITURE ACCOUNT. CIRCULAR NO.5 - P(LXX - 6) OF 1968 ISSUED ON 19.06 . 1968 CATEGORICALLY STATED THAT THE 'INCOME' MENTIONED IN SECTION 11(1)(A) IS NOT THE 'TOTAL AMOUNT OF INCOME COMPUTED IN THE MANNER LAID DOWN IN THIS ACT'. ALSO THE SUPREME COURT OF INDIA IN ADDL . CIT VS. ALN RAO CHARITABLE TRUST (1995) 216 ITR 697 DISCUSSED THE MATTER ELABORATELY AND ORDERED THAT THE ACCUMULATION IS ON GROSS INCOME AND NOT ON NET INC OME . 3 THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A RELIGIOUS TRUST . IT IS ESTABLISHED FOR RELIGIOUS RETREAT FUNCTIONS. THE ASSESSEE TRUST WAS REGISTERED U/S 12AA OF THE ACT AND AS SUCH ASSESSEES INCOME WAS ENTITLED TO EXEMPTION U/S 11 O F THE I T ACT, 1961. THE AUDITED ACCOUNT OF THE ASSESSEE TRUST FOR THE RELEVANT YEAR REVEALED THE FOLLOWING RESULTS: GROSS INCOME RS. 13,56,67,475 REVENUE EXPENSES FOR THE OBJECTIVES RS. 9,09,91,754 SURPLUS AS PER I/E STATEMENT RS. 4,46,75,721 CAPITAL EXPENDITURE RS. 3,54,03,781 BALANCE SUR PLUS RS 92,71,940 4 ACCORDING TO THE ASSESSEE TRUST, IT WAS ELIGIBLE FOR CLAIMING 15% OF INCOME AS ACCUMULATED OR SET APART AS PER SECTION 11(1)(A) OF THE ACT ON THE GROSS INCOME OF RS. 13,56,67,475/ - WHICH COMES TO RS. 2,03,50,12 1/ - . AS THE SURPLUS WAS ONLY RS. 92,71,940/ - , THE INCOME RETURNED WAS NIL ITA NO . 245/COCH/2015 3 5 F OR THE RELEVANT YEAR, THE ASSESSMENT WAS COMPLETED AS SHOWN BELOW: EXCESS OF INCOME OVER EXPENDITURE IN I/E ACCOUNT RS. 4,46,75,721 LESS: 15% RETAINED (15% OF RS. 4,46,75,721/ - ) RS 67,01,358 AMOUNT TO BE UTILIZED RS. 3,79,74,363/ - UTILIZATION AS CAPITAL EXPENDITURE RS. 3,54,03,78 1/ - TOTAL INCOME RS. NIL 6 THE AO GAVE ACCUMULATION U/S 11(1)(A) OF THE ACT ON 15% OF THE SURPLUS / NET INCOME (RS.4,46,75,721) AS SHOWN IN THE INCOME AND EXPENDITURE A CCOUNT. SINCE THE ACCUMULATION/SET APART AS PER SECTION 11 (1)(A) OF THE ACT WAS GIVEN ONLY ON THE NET INCOME AND NOT ON THE GROSS INCOME, THE ASSESSEE FILE D RECTIFICATION U/S 154 OF THE AC T , BEFORE THE A O WHICH IS PENDING DISPOSAL . 7 IN THE MEANWHILE , THE CIT (E) PASSED AN ORDER U/S 263 OF THE ACT. A CCORDING TO CIT, THERE WAS A SURPLUS TO THE EXTENT OF RS. 25,70,582/ - ( RS. 3,79,74,363 RS 3,54,03,781) AND THE ASSESSEE TRUST HAVING NOT FILED THE FORM 10 BEFORE THE AO NOR HAV ING INVESTED THE ABOVE SUM OF RS. 25,70,582/ - IN THE MODE SPECIFIED IN SECTION11(5) OF THE I T ACT, THE SAME WAS NOT ENTITLED TO EXEMPTION. THE RELEVANT FINDINGS OF THE CIT(A) IN PASSING 263 ORDER READ AS UNDER: 5. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE ASSESSEE D URING THE COURSE OF HEARING OF THE 263 PROCEEDINGS AND ALSO THE FACTS POINTED OUT BY THE AUTHORIZED REPRESENTATIVE. HOWEVER, I FIND THAT THE REPLY FURNISHED BY THE ASSESSEE IS NOT ACCEPTABLE. AS ALREADY STATED, IT IS A FACT THAT THE R E IS A SHORT APPLICATIO N OF INCOME OF RS.25,70,582/ - DURING THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDING TO THE PROVISIONS OF SECTION 11(2) OF INCOME TAX ACT, IF THERE IS ANY SHORTFALL IN APPLICATION OF INCOME DURING ITA NO . 245/COCH/2015 4 THE PREVIOUS YEAR, IT SHAL L BE ACCUMULATED OR SET APART FOR FUTURE APPLICATION AND DEPOSITED IN THE MODES SPECIFIED IN SECTION11(5) BY GIVING A NOTICE IN WIRING TO THE AO IN FORM NO.10 PRESCRIBED U/R 17 OF THE I T RULES SPECIFYING THE PURPOSES FOR WHICH THE INCOME IS BEING ACCUMU LATED OR SET APART. HOWEVER, THE ASSESSEE HAS NEITHER PRODUCED FORM 10 NOR DEPOSITED THE AMOUNT SHORT APPLIED IN THE MODES SPECIFIED IN SECTION 11(5) OF THE I T ACT. 6. IN THE LIGHT OF THE ABOVE DISCUSSION, I FIND THAT THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) OF THE I T ACT DATED 6.3.2013 FOR THE ASSESSMENT YEAR 2010 - 11 IS ERRONEOUS IS SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, INVOKING THE PROVISIONS OF SECTION 263 OF THE I T ACT, 1961, THE ASSESSMENT ORDER DATED 6.3.2013 IS SET ASIDE WITH A DIRECTION TO THE AO TO REDO THE SAME AFRESH AFTER CONSIDERING ALL ISSUES RAISED HEREINABOVE AND AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LD COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE ACCUMULATION OF 15% U/S 11(1)(A) OF THE ACT IS TO BE CALCULATED ON THE GROSS INCOME AND NOT ON THE SURPLUS /NET INCOME AS PER INCOME AND EXPENDITURE STATEMENT. IN SUPPORT OF THE ABOVE CONTENTION, THE ASSESSEE RELIED ON THE CB DT CIRCULAR NO.5 - P(LXX - 6 OF 1968 DATED 19.6.1968 AND THE FOLLOWING JUDICIAL PRONOUNCEMENTS : I ) CIT VS PROGRAMME FOR COMMUNITY ORGANIZATION (1997) 228 ITR 620 (KER) II ) CIT VS PROGRAMME FOR COMMUNITY ORGANIZATION((2001) 166 CIT 401 (SC) III ) S. RM M CT.M TIRUPPANI TR UST VS CIT (1998) 145 CTR 176(SC) IV ) ACIT & ANOTHER VS ALN RAO CHARITABLE TRUST (1995) 216 ITR 697(SC) 9 THE LD DR PRESENT WAS DULY HEARD. 10 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLITARY ISSUE THAT ARISES FOR OUR CO NSIDERATION IS WHETHER 15% OF THE ACCUMULATION PERMITTED U/S 11(1)(A) OF THE ACT IS TO BE CALCULATED ON THE GROSS ITA NO . 245/COCH/2015 5 INCOME OR ON THE NET INCOME . ON A PLAIN READING OF SECTION 11 (1) (A) OF THE ACT , IT CAN BE SEEN THAT 85% OF THE INCOME OF THE TRUST TO BE APPLIED FOR CHARITABLE/RELIGIOUS PURPOSES AND UPTO15% IS PERMITTED FOR ACCUMULATION IN ORDER TO AVAIL FULL EXEMPTION. THERE IS NO CONDITION STATED/S 11(1)(A) OF THE ACT TO INVEST THE 15% ACCUMULATED INCOME IN THE MODES SPECIFIED AS PER SECTION 11(5) OF THE ACT. SECTION 11(2) OF THE ACT IS FOR GIVING RELIEF TO UNAPPLIED INCOME WHICH IS SHORT OF 85% WITH A CONDITION OF KEEPING SUCH SURPLUS IN THE SPECIFIED MODE AS PER SECTION 11(5) OF THE ACT. THIS IS TO BE DONE AFTER GIVING NOTICE TO THE AO BY THE ASSESS EE IN FORM NO.10 OF THE INCOME TAX RULES. THE ISSUE, IN THE INSTANCE CASE IS WHETHER AT THE FIRST STAGE OF ACCUMULATION OF 15% SURPLUS U/S 11(1)(A) THE CALCULATION IS MADE ON THE GROSS INCOME OR ON THE NET INCOME. THIS ISSUE HAS BEEN DECIDED BY THE SEVERA L JUDICIAL PRONOUNCEMENTS AND ALSO CLARIFIED BY THE BOARD CIRCULAR , WHICH ARE AS UNDER: I) . CIRCULAR NO.5 - P(LXX - 6) OF 1968 DATED 19.6.1`968 THE CIRCULAR CLEARLY STATED THAT THE REFERENCE IN CLAUSE (A) OF SECTION 11(1) IS INVARIABLY TO INCOME AND NOT T O TOTAL INCOME. THE EXPRESSION TOTAL INCOME HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(45) AS THE TOTAL AMOUNT OF INCOME COMPUTED IN THE MANNER LAID DOWN IN THIS ACT. IT WOULD ACCORDINGLY, BE INCORRECT TO ASSIGN TO THE WORD INCOME USED IN SECTION 1 1(1)(A), THE SAME MEANING AS HAS BEEN SPECIFICALLY ASSIGNED TO THE EXPRESSION TOTAL INCOME VIDE SECTION2(45). II ) CIT VS PROGRAMME FOR COMMUNITY ORGANIZATION 228 ITR 620 (KER) THE HONBLE HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWI NG THE CBDT CIRCULAR DATED 19.6.1968. THE HONBLE HIGH COURT HELD ( AT PAGE 625 ) : ITA NO . 245/COCH/2015 6 TAKING INTO CONSIDERATION ALL THE FACTS AND THE CIRCUMSTANCES, THE SITUATION NEEDS NO DISTURBANCES OF ANY KIND. FOR THE ABOVE REASONS, WE ANSWER QUESTION NO.1 TO THE EFFECT THAT THE ASSESSEE IS ENTITLED TO EXEMPTION OF 25% ON RS. 2,57,376/ - AND NOT ON RS. 87,010/ - (HERE RS. 2,57,376 IS THE GROSS INCOME AND RS. 87,010/ - IS THE SURPLUS AFTER APPLICATION. III) CIT VS PROGRAMME FOR COMMUNITY ORGANIZATION REPORTED IN 248 ITR 1/ 166 CTR 401 (SC) THE REVENUE WENT ON APPEAL BEFORE THE SUPREME COURT AGAINST THE JUDGMENT OF THE HONBLE KERALA HIGH COURT MENTIONED ABOVE . THE HONBLE SUPREME COURT CONFIRMED THE VIEW OF THE HONBLE HIGH COURT AND HELD (166 CTR 401 ( AT PAGE 40 1) : HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISIONS, IT IS CLEAR THAT CHARITABLE OR RELIGIOUS TRUST IS ENTITLED TO ACCUMULATE TWENTY FIVE PER CENT OF THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRESENT PURPOSES, THE DONATIONS T HE ASSESSEE RECEIVED, IN THE SUM OF RS. 2,57,376/ - WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY FIVE PERCENT THERE OUT. IT IS UNCLEAR ON WHAT BASIS THE REVENUE CONTENDED THAT IT WAS ENTITLED TO ACCUMULATE ONLY TWENTY FIVE PERCENT O F RS. 87,010/ - IV) S RM M /CT M TIRUPPANI TRUST VS CIT 145 CTR 176(SC): THE HONBLE SUPREME COURT HELD THAT ( AT PAGE 180 ): A MERE LOOK AT SECTION11 ( 1) AND 11(2) IS SUFFICIENT TO DISPEL THIS ARGUMENT. U/S 11(1) EVERY CHARITABLE OR RELIGIOUS TRUST, I RRESPECTIVE OF WHETHER IT HAS FILED A DECLARATION U/S 11(2) OR NOT, IS ENTITLED TO DEDUCTION OF CERTAIN INCOME FROM ITS TOTAL INCOME OF THE PREVIOYS YEAR. THE INCOME SO EXEMPT IS THE INCOME WHICH IS APPLIED BY THE CHARITABLE OR RELIGIOUS TRUST TO ITS CHARI TABLE OR RELIGIOUS PURPOSES IN INDIA. IF THE ENTIRE INCOME IS SO APPLIED, THE ENTIRE INCOME WOULD BE EXEMPTED. IF THE ENTIRE INCOME IS NOT APPLIED BUT SOME INCOME IS ACCUMULATED BY SUCH A TRUST, THEN ALSO U/S 11(1)(A) SUCH ACCUMULATED INCOME TO THE EXTENT OF 25% OF THE TOTAL INCOME (OR RS. 10,000/ - , WHICHEVER IS HIGHER) WOULD BE EXEMPTED FROM INCOME TAX. SECTION 11(2) IN TURN PROVIDES THAT THE RESTRICTION WHICH IS SPECIFIED IN CL(A) OF SUB SECTION(1) AS REGARDS ACCUMULATION SHALL NOT APPLY IF THE ASSESSEE G IVES NOTICE AS PRESCRIBED U/S11(2)(A) AND INVEST THE AMOUNT ACCUMULATED IN GOVT SECURITIES AS PER SECTION11(2) (B). THE RESTRICTION SPECIFIED IN CL.(A) OF SUB SECTION(1) IS CLEARLY THE RESTRICTION OF 25% OF THE ACCUMULATED INCOME (OR RS 10,000/ - , WHICHEVER IS HIGHER) ITA NO . 245/COCH/2015 7 BEING EXEMPT. IF MORE THAN 25% (OR RS.10,000), IS TOBE EXEMPTED THEN THE ASSESSEE HAS TO COMPLY WITH THE CONDITIONS PRESCRIBED U/S 11(2). V . CIT & ANOTHER VS ALN RAO CHARITABLE TRUST 21 6 ITR 697: IN THIS CASE, THE HONBLE SUPREME COURT OBSE RVED THAT ( AT PAGE 703 ) : A MERE LOOK AT SECTION11(1)(A) AS IT STOOD AT THE RELEVANT TIME CLEARLY SHOWS THAT OUT OF THE TOTAL INCOME ACCRUING TO A TRUST IN THE PREVIOUS YEAR FROM PROPERTY HELD BY IT WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE E XTENT THE INCOME IS APPLIED FOR SUCH RELIGIOUS OR CHARITABLE PURPOSES, THE SAME WILL GET OUT OF THE TAX NET BUT SO FAR AS THE INCOME WHICH IS NOT SO APPLIED DURING THE PREVIOUS YEAR IS CONCERNED AT LEAST 25% OF SUCH INCOME OR RS. 10,000/ - WHICHEVER IS HIGH ER, WILL BE PERMITTED TO BE ACCUMULATED FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT WILL ALSO GET EXEMPTED FROM THE NET. 6 IN THE INSTANT CASE, IF THE 15% OF THE GROSS TOTAL INCOME IS SET APART U/S 11(1)(A) OF THE ACT, IT COMES TO RS. 2,03,50,121/ - (15% OF RS. 13 ,56,67,475/ - ). A FTER INCURRING OF CAPITAL EXPENDITURE, THE SURPLUS WAS ONLY RS. 92,71,940/ - . THEREFORE, THERE IS NO NEED TO FILE FORM 10 BEFORE THE AO NOR FOR ANY INVESTMENT AS MENTIONED U/S 11(5) OF THE ACT , SINCE THE ENTIRE EXCESS WOULD BE WI THIN 15% OF THE INCOME ACCUMULATED AS PER SEC. 11(1)(A) OF THE ACT. HENCE, IN THE LIGHT OF THE VARIOUS JUDICIAL PRONOUNCEMENTS, AND CBDT CIRCULAR CITED SUPRA, WE HOLD THAT CIT IS NOT JUSTIFIED IN INVOKING HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT AND THE SAME IS QUASHED. IT IS ORDERED ACCORDINGLY. ITA NO . 245/COCH/2015 8 7 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JAN 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 22 ND JAN 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN