N.A.SHAHUL HAMEED, CHENNAI V. ITO NON CORPORATE WARD-12(4), CHENNAI

ITA 2523/CHNY/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6101 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 02-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Revised return
• Section: 28; 11; 143(3); 264; 43; 13; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: “B” NEW DELHI BEFORE SHRI A.D.JAIN, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA No: 1665/Del/2012 A.Y. : - 2006-07 Fateh Chand Charitable Trust vs. ACIT, Range 2 115 KM Mile Stone Meerut, UP Delhi Dehradun Highway Muzaffarnagar (U.P.). (Appellant) (Respondent) Appellant by : Shri K.Sampath, Adv. Respondent by : Shri S.Krishna, CIT, D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the assessee directed against the order of the CIT(A), Muzaffarnagar dated 16.12.2011 for the A.Y. 2006-07. 2. The facts in the order of the CIT(A) as brought out at para 2 of his order is extracted for ready reference hereunder:- “The facts of the case are that the assessee is a charitable trust running a medical college as well as hospital. Return declaring Nil income was filed on 31.10.2006. During the course of original assessment proceedings it was gathered by the A.O. that the assessee had filed a revised return on 24.3.2008 wherein loss at Rs.5,83,85,975/- to be carried forward to A.Y. 2007-08. However, assessment was completed u/s 143(3) on 27.3.2008 at nil income wherein claim of loss was disallowed by the AO. Aggrieved with the order of the A.O. the assessee filed an appeal before CIT(A), Muzaffarnagar who vide order dated 13.10.2008 directed the A.O. to verify claim of loss and allow loss for carry forward. Against the order of the CIT(A), Muzaffarnagar, the department filed appeal before the Hon’ble ITAT, Delhi who vide order dated 17.11.2009 set aside the matter to the file of the A.O. to decide the same afresh in accordance with the law after examining, the case laws cited by the assessee. In the written submissions filed, the ITA No. 1665/Del/2012 Page 2 of 6 Fateh Chand Charitable Trust., Muzaffarnagar A.Y. 2006-07 assessee over and above the income for that year, it had to be recognized in terms of carrying it forward and then applying it in the next year by setting it off against the income which was generated in that year. Reliance was placed by the assessee on the following decisions. i. CIT vs. Seth Manilal Ranchhoddas Vishram Bhavan Trust, 198 ITR 598 (Guj.) ii. CIT vs. Bhorukar Public Welfare Trust 240 ITR 513 (Cal.) iii. CIT vs. Rao Bahadur Calavala Cunnon Chetty Charities 135 ITR 484 (Mad) iv. CIT vs. Institute of Banking 264 ITR 110 (Bom.) However the A.O. found the case relied upon by the assessee as distinguishable as under:- “.....Case I: The question that Hon’ble High Court, Gujarat has answered are related to depreciation u/s 11(1) (a) and not excess application of income. Case 2: Here also the Hon’ble High Court, Madras decided that depreciation to be allowed on house property while computing income for the purposes of section 11(1a). Case 3: The Hon’ble High Court, Madras decided that depreciation to be allowed on house property while computing income for the purposes of sec.11(1)(a). Case 4: The Hon’ble High Court, Bombay decided that there is no bar to claim depreciation even when the entire cost of asset was allowed as deduction u/s 11...... It was held by the A.O. that the assessee failed to justify how the excess expenses or excess application of income could merit allowance of loss to the assessee. According to the A.O. the pith and substance of the matter was that the income from properties held under trust had to be arrived in normal commercial manner or as per provisions of Income Tax Act. Therefore, in the given circumstances the excess application could not be allowed to the assessee to be carried forward. The A.O. also relied on the recent decision of the Hon’ble ITAT, Delhi in the case of Pushpawati Singhania Research Institute of Liver, Renal & Digestive diseases vs. Dy.DIT(2009) 29 SOPT 316 (Del) wherein the Hon’ble Court relying upon the decision of the Hon’ble High Court, Delhi in the case of CIT vs. Indian National Theatre Trust (2008) 305 ITR 149 (Del) held that excess income applied in earlier year could not be ITA No. 1665/Del/2012 Page 3 of 6 Fateh Chand Charitable Trust., Muzaffarnagar A.Y. 2006-07 treated as application of the current year. According to the A.O. the trust income was exempt u/s 11 of the Act. The only criterion was 85% application of income by charitable institutions/trust. However if there was excess expenditure it was deliberate and could not be carried forward being related to earlier year’s application of income. It was held by the AO that excess application of funds in earlier year amounted to double benefit, one being exempt income and other being carry forward of loss. In view of the above, it was held by the A.O. that the assessee was not entitled to carry forward the amount of expenditure over the income, to the next year. Therefore, the claim of loss and its carry forward was held as unacceptable by the A.O. Consequently, the assessment was again completed at Nil income.” 3. The assessee carried the matter in appeal. The First Appellate Authority for various reasons given in his order rejected the claim of the assessee. The assessee had relied on a number of decisions including the judgement of Hon’ble Bombay High Court in the case of CIT vs. Institute of Banking, 264 ITR 110. The First Appellate Authority distinguished this decision by observing that the Hon’ble Bombay High Court has not noticed the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. And others vs. Union of India, 119 ITR 43 (S.C.). He chose to follow the decision of Cochi Bench of the Tribunal in the case of Dy.DIT(E) vs. Adishankara Trust, 12 Taxman, 105 Cochin, wherein the Tribunal followed another decision of the Coordinate Bench in the case of DIT(E) vs. Medical Institution Lissie. Aggrieved the assessee is in appeal on the following grounds. “1. That the Ld.CIT(A) has erred in sustaining the disallowance of brought forward and set off of loss holding the same to be a case of double deduction, although, the assessee has not claimed depreciation at all. Hence the entire discussion and findings of his order are rendered prejudicial and against the actual facts of the case. ITA No. 1665/Del/2012 Page 4 of 6 Fateh Chand Charitable Trust., Muzaffarnagar A.Y. 2006-07 2. That the Ld.CIT(A) has erred on facts and in law in disallowing the claim of assessee on account of brought forward and set off of loss emanating from excess application of funds.” 4. Ld.Counsel for the assessee Mr.K.Sampath, Advocate submitted that the assessee falls under the jurisdiction of Hon’ble Allahabad High Court and the A.O. as well as the CIT(A) were bound to follow the judgement of the Hon’ble Allahabad High Court on this issue. He claimed that the issue is covered in favour of the assessee by the following decisions. a. ACIT, Range I-Meerut vs. City Education Social Welfare Society Order of Delhi B Bench dt. 26.8.2011 in ITA 5627/Del/2010; b. ACIT vs. M/s Subrathi KKB Charitable Trust Delhi G Bench order dt. 11.5.2012 in ITA no. 1553/Del/2011 for A.Y. 2006-07. 5. Ld.CIT, D.R. Mr.S.Krishna submitted that the issue has been considered by the Cochin Bench of the Tribunal in the case of Adisankara Trust (supra) and that the CIT(A) has rightly followed this decision. 6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, we hold as follows:- Delhi ‘B’ Bench in ITA 5627/Del/2010 for A.Y. 2005-06 in M/s City Educational & Social Welfare Society vide order dt. 26.8.2011 held as follows: “4. We have duly considered the rival contention and gone through the record carefully. Ld.CIT(A) while permitting the ITA No. 1665/Del/2012 Page 5 of 6 Fateh Chand Charitable Trust., Muzaffarnagar A.Y. 2006-07 assessee to claim set off against the brought forward losses has put reliance upon the following decisions:- i. CIT vs. Matri Sewa Trust, 242 ITR 20 (Mad.); ii. CIT vs. Institute of Banking, 264 ITR 110 (Bom); iii. CIT vs. Maharana of Mewar Charitable Foundation, 164 ITR 439 & iv. Govindu Naicker Estate vs. ADIT, 248 ITR 368. 5. We have gone through the order of the CIT(A) in A.Y. 2001-02, 2003-04 and 2004-05. In those years, the assessee has been permitted to carry forward the losses and also to claim set off such losses against the income. The CIT(A) has made a reference in those A.Ys to s.11(4) of the I.T.Act. In the case of CIT vs. Institute of Banking reported in 264 ITR page 110 an argument was raised before the Hon’ble Mumbai High Court by the revenue that in the case of a charitable trust, their income was assessable under self contained code mentioned in section 11 to 13 of I.T.Act and that the income of the charitable trust was not assessable under the head ‘profit and gains of business’ u/s 28 in which the provision for carry forward of losses was relevant. According to the revenue, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against the income of subsequent years. This argument was rejected by the Bombay High Court and it has been held that 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 religious purpose in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of the income of the trust for charitable and religious purpose. The ld.CIT(A) has followed this decision apart from others referred above. The order of the CIT(A) in three A.Ys have been accepted by the revenue. In this year, the ld.CIT(A) has simply based his decision on the finding given in earlier A.Ys. Keeping in view the principle of consistency, we do not see any reason to interfere in the order of ld.CIT(A). In view of the above discussion, the appeal of the revenue is dismissed.” 7. Recently the Hon’ble Delhi High Court in the case of Director of Income Tax vs. Vishwajagrithi Mission judgement dt. 29 th March, 2012 in ITA 140/2012 considered a similar issue and followed the judgement of ITA No. 1665/Del/2012 Page 6 of 6 Fateh Chand Charitable Trust., Muzaffarnagar A.Y. 2006-07 the Hon’ble Bombay High Court in the case of CIT vs. Institute of Banking (2003) 264 ITR 110. Hon’ble Court has held that the judjgement of Hon’ble Supreme Court in Escorts Ltd. (supra) is inapplicable to the case on hand. 8. Respectfully the following the same we uphold the contention of the assessee and allow the appeal. 9. In the result the appeal of the assessee is allowed. Order pronounced in the Open Court on 29 th June, 2012. Sd/- Sd/- (A.D.JAIN) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: the 29 th June, 2012 *manga Copy of the Order forwarded to: 1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Dy. Registrar // C O P Y //