ITO (OSD), CHENNAI V. Soosaiya Peter, CHENNAI

ITA 2561/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8599 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 08-10-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEBENDRA N KAR
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income; Depreciation; Charitable institution; Reasonable cause; Capital expenditure
• Section: 143(3); 32; 6; 63; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , . , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.2561/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) THE INCOME TAX OFFICER (OSD) (EXEMPTIONS)-III, AAYAKAR BHAVAN ANNEX BLDG.III FLOOR, CHENNAI-34. VS M/S.SOOSAIYA PETER EDUCATIONAL TRUST, 15, VARGHESE AVENUE, CHENNAI-600 002. PAN: AAATS3020Q ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. DEBENDRA N.KAR, CIT /RESPONDENT BY : MR. T.BANUSEKAR, C.A /DATE OF HEARING : 28 TH JUNE,2016 /DATE OF PRONOUNCEMENT : 7 TH SEPTEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- VII, CHENNAI DATED 14.03.2014 IN ITA NO.149/13-14 P ASSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BY HOLDING THAT RUNNING OF PETROL PUMP IS ONLY AN INCIDENTAL ACTIVITY TO THE MAIN ACTIVITY BEING EDUCATION AND THEREFORE ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT. 2 ITA NO.2561MDS/2014 II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN GRANTING DEPRECIATION TO THE ASSESSEE WHILE COMPUTING THE INCOME OF THE ASSESSEE TRUST DISREGARDING THE FACT THAT IT WAS ALREADY ALLOWED AS APPLICATION OF INCOME. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT THE REFUNDS TO STUDENTS HAS BEEN RECONCILED BY THE ASSESSING OFFICER WHEN THE REMAND REPORT STATES OTHERWISE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC CHARITABLE TRUST ENGAGED IN THE FIELD OF EDUCATION AND ALSO REGISTERED UNDER SECTION 12A(A) OF THE ACT VIDE ORD ER DATED 1.6.1988 IN DIT(E.NO).(458)/97-98. GROUND NO.1- RUNNING OF PETROL PUMP: 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE WAS OPERATING A PETROL PUMP. THE LEARNED ASSESSING OFFICER OPINED THAT RUNNING OF A PETROL PUMP IS NOT INCIDEN TAL TO THE ACTIVITY OF EDUCATION AND THEREFORE INVOKED THE PR OVISO TO SECTION 2(15) OF THE ACT AND BROUGHT THE PROFIT FRO M THE SAME TO TAX AS THE REVENUE EXCEEDED OVER RS.10.00 LAKHS STIPULATED IN THE PROVISO TO SECTION 2(15) OF THE A CT. ON 3 ITA NO.2561MDS/2014 APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HELD THAT RUNNING OF A PETROL BUNK IN THE CASE OF T HE ASSESSEE IS INCIDENTAL TO THE MAIN ACTIVITY OF EDUCATION A ND THEREFORE GRANTED THE BENEFIT OF SECTION 11 OF THE ACT. 4.2 BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT RUNNING OF PETROL PUMP IS A DISTINCT AND SEPARATE BUSINESS ACTIVITY OF THE ASSESSEE BECAUSE IT WAS OPEN TO THE GENERAL PUBLIC. HE FURTHER ARGUED BY ST ATING THAT THE ASSESSEES OWN VEHICLES CONSUMED FUEL FOR RS.43,27,176/- WHICH WORKS OUT TO ONLY 5% OF THE TO TAL TURNOVER OF THE ASSESSEE BEING RS.8,77,83,819/-. TH E LEARNED DEPARTMENTAL REPRESENTATIVE THEREFORE PLEADED THAT THE BENEFIT OF SECTION 11 MAY NOT BE GRANTED FOR THIS A CTIVITY OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE REL IED ON THE DECISION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 4.3 AFTER HEARING BOTH SIDES, WE FIND MERIT IN THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. RUNNING OF A PETROL PUMP IS A SEPARATE COMMERCIAL ACTIVITY OF TH E ASSESSEE 4 ITA NO.2561MDS/2014 WHICH IS TOTALLY UNCONNECTED WITH THE MAIN ACTIVITY OF THE ASSESSEE WHICH IS EDUCATION. IT IS APPARENT FROM T HE FACTS OF THE CASE THAT PREDOMINANTLY THE PETROL PUMP IS SERV ICING THE PUBLIC AT LARGE ON COMMERCIAL BASIS AND ONLY 5% OF THE FUEL SOLD IS PURCHASED BY THE EDUCATIONAL INSTITUTION. T HEREFORE, WE ARE OF THE CONSIDERED VIEW THAT BENEFIT OF SECTI ON 11 CANNOT BE EXTENDED TO THIS ACTIVITY OF THE ASSESSEE AND THE PROFIT ARRIVED OUT OF THE SAME HAS TO BE TAXED. HOW EVER, THE PROFIT ARISING OUT OF THE CONSUMPTION OF FUEL BY TH E EDUCATIONAL INSTITUTION HAS TO BE EXCLUDED BECAUSE THE ASSESSEE CANNOT MAKE PROFIT OUT OF ITSELF WHICH WILL BE TAXABLE. IT IS ORDERED ACCORDINGLY. GROUND NO.2 DEPRECIATION: 5.1 ON THIS ISSUE, WE HAVE ALREADY HELD ON THE EARL IER OCCASION IN THE CASE OF THE ANJUMAN-E-HIMAYATH-E IS LAM VS. ADIT IN ITA NO.2271/MDS/2014 VIDE ORDER DATED 02.06.2015 THAT THE BENEFIT OF DEPRECIATION UNDER SECTION 32 CANNOT BE EXTENDED FOR ARRIVING AT THE INCOME OF TH E TRUST UNDER SECTION 11 OF THE ACT. THE GIST OF THE DECISI ON IS REPRODUCED HEREIN BELOW FOR REFERENCE. 5 ITA NO.2561MDS/2014 5.1 GROUND NO.(II) - DISALLOWANCE OF THE DEPRECIATION WHILE COMPUTING THE INCOME OF THE ASSESSEE TRUST . THE ASSESSEE TRUST HAD CLAIMED DEPRECIATION ON TH E ASSETS AS APPLICATION OF INCOME IN THE RETURN OF IN COME. THE LD. ASSESSING OFFICER OPINED THAT THE CLAIM OF DEPRECIATION BY THE ASSESSEE WOULD AMOUNT TO DOUBLE DEDUCTION BECAUSE THE ENTIRE COST OF ASSET HAS ALRE ADY BEEN CLAIMED AS APPLICATION OF INCOME IN THE YEAR I N WHICH THE ASSETS WERE PURCHASED. THEREAFTER, THE LD. ASSE SSING OFFICER CITING CERTAIN DECISIONS HELD THAT THE CLAI M OF DEPRECIATION CANNOT BE CONSIDERED AS APPLICATION OF INCOME. ON APPEAL, THE LD. CIT (A) WAS ALSO OF THE VIEW OF THE LD. ASSESSING OFFICER AND THEREFORE CONFIRME D LD. ASSESSING OFFICERS ORDER. 5.2 WE FIND THIS ISSUE IS ELABORATELY DISCUSSED IN THE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [201 2] 348 ITR 344(KER.) AND HELD THE ISSUE AGAINST THE ASSESSEE. WHILE DOING SO, THE HONBLE KERALA HIGH COURT HAD CONSIDERED THE CIRCULAR NO.5P(LLX-6) DATED 19.06.1968 WHICH HAS NOT BEEN CONSIDERED BY THE OTHER DECISION S. THE CIRCULAR NO. 5P(LLX-6) IS REPRODUCED HEREIN BEL OW FOR REFERENCE:- 1. CIRCULAR NO. 5-P (LXX-6) OF 1968, DATED 19-6-196 8. SUBJECT : SECTION 11CHARITABLE TRUSTSINCOME REQUI RED TO BE APPLIED FOR CHARITABLE PURPOSEINSTRUCTIONS REGARDI NG. IN BOARD'S CIRCULAR NO. 2-P(LXX-5) OF 1963, DATED T HE 15TH MAY, 1963, IT WAS EXPLAINED THAT A RELIGIOUS OR CHARITAB LE TRUST CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE INCOM E- TAX ACT, 1961, MUST SPEND AT LEAST 75 PER CENT OF ITS TOTAL INCOME, FOR RELIGIOUS OR CHARITABLE PURPOSES. IN OTHER WORDS, I T WAS NOT PERMITTED TO ACCUMULATE MORE THAN 25 PER CENT OF IT S TOTAL INCOME. THE QUESTION HAS BEEN RECONSIDERED BY THE B OARD AND THE CORRECT LEGAL POSITION IS EXPLAINED BELOW. 2. SECTION 11(1) PROVIDES THAT SUBJECT TO THE PROVI SIONS OF SECTIONS 60 TO 63 'THE FOLLOWING INCOME SHALL NOT B E INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR . . . '. THE REFERENCE IN SUB-SECTION (A) IS INVARIABLY TO 'INCOME' AND NOT TO 'TOTAL INCOME'. THE EXPRESSION 'TOTAL INCOME' HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(45) OF THE ACT AS 'THE TOTAL A MOUNT OF INCOME . . . COMPUTED IN THE MANNER LAID DOWN IN TH IS ACT'. IT WOULD ACCORDINGLY BE INCORRECT TO ASSIGN TO THE WOR D 'INCOME' USED IN SECTION 11(1)(A), THE SAME MEANING AS HAS BEEN SPECIFICALLY ASSIGNED TO THE EXPRESSION 'T OTAL INCOME' VIDE SECTION 2(45). 6 ITA NO.2561MDS/2014 3. IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TRUST, ITS 'INCOME' WILL BE THE INCOME AS SHOWN IN THE ACCOUNT S OF THE UNDERTAKING. UNDER SECTION 11(4), ANY INCOME OF THE BUSINESS UNDERTAKING DETERMINED BY THE INCOME-TAX OFFICER IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, WHICH IS IN EXCESS OF THE INCOME AS SHOWN IN ITS ACCOUNTS, IS TO BE DEEME D TO HAVE BEEN APPLIED TO PURPOSES OTHER THAN CHARITABLE OR R ELIGIOUS, AND HENCE IT WILL BE CHARGED TO TAX UNDER SUB-SECTION ( 3). AS ONLY THE INCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBL E FOR EXEMPTION UNDER SECTION 11(1), THE PERMITTED ACCUMU LATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCOME. 4. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPER TY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WORD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME , AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATI ONS THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERW ISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPEN DITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE . IT SHOULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDE D BACK WILL BECOME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN TH OSE OF THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSE S OF THE TRUST FROM OUT OF THE INCOME COMPUTED IN THE AFORESAID MA NNER, SHOULD BE NOT LESS THAN 75 PER CENT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION UNDER SECTION 11(1). 5. TO SUM UP, THE BUSINESS INCOME OF THE TRUST AS DISCLOSED BY THE ACCOUNTS PLUS ITS OTHER INCOME COM PUTED ABOVE, WILL BE THE 'INCOME' OF THE TRUST FOR PURPOS ES OF SECTION 11(1). FURTHER, THE TRUST MUST SPEND AT LEAST 75 PER CENT OF THIS INCOME AND NOT ACCUMULATE MORE THAN 25 PER CENT THEREOF. THE EXCESS ACCUMULATION, IF ANY, WILL BECO ME TAXABLE UNDER SECTION 11(1). AFTER CONSIDERING THE CIRCULAR, THE HONBLE KERALA HIGH COURT HELD AS FOLLOWS:- HELD, THAT AFTER WRITING OFF THE FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSE E AGAIN CLAIMED THE SAME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECAME A CASH SUR PLUS AVAILABLE WITH THE ASSESSEE, WHICH WAS OUTSIDE THE BOOKS OF ACCOUNT OF THE TRUST UNLESS IT WAS WRITTEN BACK WHICH WAS NOT DONE BY THE ASSESSEE. IT WAS NOT PERMISSIBL E FOR A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE T HE BOOKS IN THIS FASHION AND THERE WOULD BE VIOLATION OF SEC TION 11(1)(A). IT WAS FOR THE ASSESSEE TO WRITE BACK THE DEPRECIATION AND IF THAT WAS DONE, THE ASSESSING OF FICER 7 ITA NO.2561MDS/2014 WOULD MODIFY THE ASSESSMENT DETERMINING HIGHER INCO ME AND ALLOW RECOMPUTED INCOME WITH THE DEPRECIATION W RITTEN BACK BY THE ASSESSEE TO BE CARRIED FORWARD FOR SUBS EQUENT YEARS FOR APPLICATION FOR CHARITABLE PURPOSES . FURTHER HONBLE CALCUTTA HIGH COURT HAS HELD IN THE CASE DCIT VS. GIRDHARILAL SHEWNARAIN TANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) THAT THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECTION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSESSABLE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH COURT AND TAKIN G CUE FROM THE DECISION OF THE HONBLE CALCUTTA HIGH COUR T , WE DO NOT FIND ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT(A) AND ALSO THE VIEWS EXPRESSED BY HIM IN HIS O RDER. ACCORDINGLY THIS APPEAL IS HELD IN FAVOUR OF THE RE VENUE. 5.2 FOLLOWING THE SAME, WE HEREBY HOLD THAT THE ASS ESSEE WILL NOT BE ELIGIBLE TO CLAIM THE BENEFIT OF DEPREC IATION WHILE COMPUTING THE INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT. GROUND NO.3 RECONCILIATION OF REFUND TO STUDENTS: - 6.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE TOTAL FEES COLLECTION OF THE EDUCATIONAL INSTITUTION WAS RS.20 ,40,11 620/- WHICH WAS REMITTED IN THE BANK ACCOUNT OF THE ASSES SEE. OUT OF THE SAME, RS.65,34,810/- WAS REFUNDED TO THE STU DENTS SINCE THE FEES WAS REDUCED. HENCE, THE LEARNED ASS ESSING OFFICER WAS OF THE VIEW THAT THE GROSS TOTAL INCOME OF THE 8 ITA NO.2561MDS/2014 INSTITUTION WOULD BE RS.19,74,76,810/- (20,40,11,62 0 65,34,810). HOWEVER, SINCE THE ASSESSEE HAD DISCLO SED IN ITS INCOME & EXPENDITURE ACCOUNT THE AMOUNT OF RS.19,04,48,048/- AS THE FEES RECEIVED, THE LD. AS SESSING OFFICER OPINED THAT THE ASSESSEE HAD NOT DISCLOSED THE FEE RECEIPT OF RS.70,28,762/- (19,74,76,810 19,04,48, 048) IN ITS BOOKS OF ACCOUNTS. THEREFORE HE MADE THE ADDITION O F RS. 70,28,762/- IN THE HANDS OF THE ASSESSEE AS SHORTFA LL IN REVENUE. 6.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) DELETED THE ADDITION BY OBSERVING AS UNDE R:- REGARDING THE ADDITION OF RS.70,28,762/- REPORT WA S CALLED FOR FROM THE ASSESSING OFFICER. IN HER REPOR T, THE ASSESSING OFFICER STATED THAT THE PROOF IN THE FORM OF LEDGER EXTRACT, DD, A/C PAYEE CHEQUE ETC. WERE FURN ISHED FOR ALL THE PAYMENTS EXCEPT FOR THE REFUND TO STUDE NTS AMOUNTING TO RS.8,95,650/-. THE REPORT WAS HANDED O VER TO THE APPELLANT FOR REBUTTAL. THE AR IN HIS LETTER FILED ON 14.03.2014 STATED THAT THE ASSESSING OFFICER ACCEPT ED THE EVIDENCES PERTAINING TO ALL RECEIPTS EXCEPT FOR THE REFUND TO STUDENTS. THE AR ALSO STATED THAT COMPLET E DETAILS IN RESPECT OF SUCH REFUNDS WERE ALSO SUBMIT TED BUT IT APPEARS THAT THE ASSESSING OFFICER MIGHT HAV E INADVERTENTLY OVERLOOKED THE SAME. RECONCILIATION STATEMENT FILED BY THE ASSESSING OFFICER IS PERUSED . IT IS FOUND TO BE IN ORDER. TAKING INTO CONSIDERATION THE STATEMENT FILED, REPORT OF THE ASSESSING OFFICER AN D THE REPLY OF THE AR, I AM OF THE CONSIDERED VIEW THAT N O ADDITION IS WARRANTED ON THIS ASPECT. I DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.70,2 8,762/- MADE BY THE ASSESSING OFFICER. 9 ITA NO.2561MDS/2014 6.3 ON PERUSING THE ABOVE, WE FAIL TO UNDERSTAND AS TO HOW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S DELETED THE ADDITION OF RS.70,28,762/-. IT APPEARS FROM THE ABOVE THAT THE LEARNED ASSESSING OFFICER IN HER REM AND REPORT HAS NOT RECONCILED THE FIGURES SO AS TO DELE TE THE ADDITION MADE. HOWEVER, IN THE INTEREST OF JUSTICE, WE REMIT BACK THE MATTER TO THE FILE OF THE LEARNED ASSESSIN G OFFICER FOR FRESH CONSIDERATION. WE FURTHER MAKE IT CLEAR THAT IF THE ASSESSEE HAS ESTABLISHED THAT IF SUCH SHORTFALL IS ACCOUNTED AND EXPENDED AS PER THE PROVISIONS OF THE ACT, THE BENEFIT OF SECTION 11 CANNOT BE DENIED BECAUSE THE FEES COLLEC TED IS FROM THE ACTIVITY OF PROVIDING EDUCATION. 7. THIS APPEAL FILED BY THE REVENUE IS BARRED BY LI MITATION OF 88 DAYS. THE REVENUE HAS FILED AN AFFIDAVIT EXPL AINING THE REASON FOR THE DELAY IN FILING THE APPEAL STATING T HAT THE RECORDS OF THIS CASE INADVERTENTLY GOT MIXED UP WIT H OTHER FILES IN THE OFFICE OF DIRECTOR OF INCOME TAX (EXEMPTIONS ), CHENNAI AND THEREFORE PRAYED FOR CONDONATION OF DELAY. CONS IDERING THE SUBMISSIONS OF THE REVENUE, WE WERE SATISFIED T HAT THERE WAS REASONABLE CAUSE FOR THE DELAY IN FILING THE AP PEAL. 10 ITA NO.2561MDS/2014 HENCE IN THE INTEREST OF JUSTICE, WE HAVE CONDONED THE DELAY IN FILING THE APPEAL BY ADMITTING AND ADJUDICATING THE SAME AS HEREINABOVE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 7 TH SEPTEMBER, 2016 SD/- SD/- ( . ) ( . ) (G.PAVAN KUMAR) ( A.MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 7 TH SEPTEMBER, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF