M/s. SOMAIYA VIDYAVIYAR, MUMBAI V. ADDL. DIT (EXEMP.) -1(2), MUMBAI

ITA 279/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7436 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 18-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 10-01-2007
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Keywords: Charitable institution; Benefit of exemption; Capital expenditure
• Section: 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E BEFORE SHRI N.V. VASUDEVAN (JM) & T.R. SOOD (AM) I.T.A.NO. 279/MUM/07 (ASSESSMENT YEAR : 2003-04) SOMAIYA VIDYAVIYAR FAZALBHOY BUILDING 45-47 M.G. ROAD FORT, MUMBAI-400 001. VS. ADIT(E)-I(2) PIRAMAL CHAMBERS LAL BAUG, LOWER PAREL MUMBAI-400 013. APPELLANT RESPONDENT PAN/GIR NO. : AAATS2056G ASSESSEE BY : SHRI VIPUL JOSHI DEPARTMENT BY : SHRI NAVEEN GUPTA ORDER PER N.V. VASUDEVAN, JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 3.11.2006 OF LEARNED CIT(A)-XXXII, MUMBAI RELATING TO A.Y. 2003-04. 2. GROUNDS OF APPEAL OF THE ASSESSEE READ AS FOLLOW S :- 1) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF RESTRICTING DEDUCTION FOR ACCU MULATION UNDER SECTION 11(1)(A) TO RS 74,80,230/- BEING 15% OF RS. 4,98,68,204/-. YOUR APPELLANTS SUBMIT THAT THE PERM ITTED ACCUMULATION OUGHT TO BE WORKED OUT ON THE GROSS IN COME. YOUR APPELLANTS SUBMIT THAT THE PERMITTED ACCUMULAT ION U/S. 11(1)(A) WORKS OUT TO RS. 4,99,17,862/- BEING 15% OF RS. 33,27,85,745/- AND THAT THE SAME OUGHT TO HAVE BEEN ALLOWED TO THEM. WITHOUT PREJUDICE TO THE ABOVE, YOUR APPELLANTS SUB MIT THAT THE ACCUMULATION AS PERMITTED BY THE ASSESSING OFFI CER REQUIRES TO BE INCREASED SUBSTANTIALLY. 2) YOUR APPELLANT FURTHER RESERVE THE RIGHTS TO ADD, A MEND OR ALTER THE AFORESAID GROUNDS OF APPEAL AS THEY MAY T HINK FIT BY THEMSELVES OR BY THEIR REPRESENTATIVE. SOMAIYA VIDYAVIYAR 2 3. THE ASSESSEE IS A TRUST. IT RUNS VARIOUS EDUCATI ONAL INSTITUTIONS. GROSS TOTAL RECEIPTS OF ALL THE INSTITUTIONS RUN BY THE ASSESSEE WAS RS. 33,27,85,745/-. THE ASSESSING OFFICER COMPUTED GROS S TOTAL INCOME AT RS. 4,98,68,204/-. WHILE GIVING DEDUCTION U/S. 11, THE ASSESSING OFFICER ALLOWED 15% OF THE GROSS TOTAL INCOME AS COMPUTED B Y HIM. THE ASSESSEE CLAIMED THAT DEDUCTION U/S. 11 AT 15% SHOULD BE ALL OWED ON THE GROSS TOTAL RECEIPTS OF ALL THE INSTITUTIONS OF RS. 33,27 ,85,745/-. 4. ON THE ABOVE ISSUE, ASSESSEE SUBMITTED BEFORE LE ARNED CIT(A) THAT SECTION 11(1)(A) OF THE INCOME TAX ACT, 1961 PERMIT S ACCUMULATION TO THE EXTENT OF 15% OF THE INCOME DERIVED FROM PROPERTY H ELD UNDER TRUSTS. THAT INCOME FOR THIS PURPOSE HAS TO BE CONSIDERED A S GROSS INCOME THAT IS WITHOUT CONSIDERING THE AMOUNTS APPLIED FOR THE CHARITABLE OBJECTS. IT WOULD MEAN, THEREFORE, THAT 15% IN THE ASSESSEES C ASE WOULD BE OF THE GROSS REVENUE. IT WAS SUBMITTED THAT EXPENSES ON RU NNING OF VARIOUS INSTITUTIONS, ADMINISTRATIVE EXPENSES ETC. WOULD BE APPLICATION OF INCOME FOR THE PURPOSES OF THE OBJECTS OF THE TRUST. IT W AS SUBMITTED THAT THE THE ASSESSING OFFICER SHOULD HAVE BEEN GRANTED RS. 4,98 ,68,204/- BEING 15% OF RS. 33,27,85,745/- INSTEAD OF RS. 74,82,030/- WH ICH IS 15% OF RS. 4,98,08,204/-. IN SUPPORT OF ITS CONTENTION, THE AS SESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS :- (I) CIT VS. PROGRAMME FOR COMMUNITY ORGANIZATION, 248 I TR 1 (SC) (II) CIT VS. PROGRAMME FOR COMMUNITY ORGANIZATION, 228 I TR 620 (KERALA) (III) CIRCULAR NO. 5P (LXX-6) OF 1968 DATED 17.8.1968 ON SCOPE OF TERM INCOME USED IN SECTION 11(1)(A). 5. LEARNED CIT(A), HOWEVER, REJECTED THE CLAIM OF T HE ASSESSEE HOLDING AS FOLLOWS :- I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER P ASSED BY THE ASSESSING OFFICER, WRITTEN SUBMISSION FILED BY THE APPELLANT AND OTHER MATERIAL AVAILABLE ON RECORD ON THIS ISSUE. I AM UNABLE TO ACCEPT THE CONTENTION OF THE APPELLANT ON THIS ISSU E SINCE I DO NOT FIND ANY MERIT IN THE SAME. IT IS SEEN THAT AGAINST THE GROSS SOMAIYA VIDYAVIYAR 3 INCOME/RECEIPTS OF RS. 33,27,85,745/-, THE APPELLAN T HAS INCURRED VARIOUS KIND OF EXPENSES INCLUDING ADMINISTRATIVE E XPENSES AND AFTER REDUCING THESE EXPENSES FROM THE GROSS INCOME /RECEIPTS OF THE TRUST, THE ASSESSING OFFICER HAS CORRECTLY ALLO WED DEDUCTION @ 15% OF THE SURPLUS AS WORKED OUT BY HIM IN THE ASSE SSMENT ORDER. FURTHER, THE CASE LAWS RELIED UPON BY THE APPELLANT DOES NOT COME TO ITS AID AS THE FACTS OF THE APPELLANTS CASE ARE DIFFERENT. BESIDES, BOARD CIRCULAR DATED 17.8.2006 RELIED UPON BY THE A PPELLANT IS ALSO NOT APPLICABLE TO ITS CASE SINCE THE FACTS OF THE APPELLANTS CASE ARE DIFFERENT. IN VIEW OF THE ABOVE DISCUSSIO N, THE STAND OF THE ASSESSING OFFICER IN ALLOWING DEDUCTION U/S. 11 @ 15% OF THE SURPLUS AS WORKED OUT BY HIM IS UPHELD AND THE APPE AL FILED BY THE APPELLANT ON THIS GROUND OF APPEAL IS REJECTED. 6. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE AS SESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE STAND AS WAS TAKEN BEFORE THE LEARNED CIT(A). LEARNED DR RELIED ON THE ORDER OF LEARNED CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT WOU LD BE NECESSARY TO REFER TO PROVISIONS OF SECTION 11(1)(A) OF THE A CT :- 11. (1) (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA ; AND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOM E SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF FIFTEE N PER CENT. OF THE INCOME FROM SUCH PROPERTY. FINANCE ACT, 2002 W.E.F. 1-4-2003 REDUCED THE PERCE NTAGE OF ACCUMULATION THAT IS PERMITTED TO 15% FROM 25%. TH E HONBLE KERALA HIGH COURT HAD TO DEAL WITH AN IDENTICAL ISSUE IN T HE CASE OF CIT VS. PROGRAMME FOR COMMUNITY ORGANISATION 228 ITR 620 (K ER). THE FACTS OF THE CASE BEFORE THE HONBLE KERALA HIGH COURT WAS T HAT THE ASSESSEE WAS AN ASSOCIATION OF PERSONS DULY REGISTERED UNDER SEC TION 12A OF THE INCOME TAX ACT, 1961. THE TOTAL INCOME DETERMINED B Y THE AO WAS RS.87,010/-. THE EXEMPTION U/S.11(1)(A) TOWARDS AC CUMULATION WAS SOMAIYA VIDYAVIYAR 4 AVAILABLE AT 25% OF INCOME AS PER THE LAW AS IT EXI STED PRIOR TO 1.4.2003. THE TOTAL RECEIPTS WERE RS. 2,57,376. THE INCOME-T AX OFFICER GRANTED EXEMPTION AT 25 PER CENT. OF THE TOTAL INCOME DETER MINED BY HIMRS. 87,010 GRANTING EXEMPTION OF RS. 21,752. THE ASSESS EE CONTENDED THAT IT IS NOT THE TOTAL INCOME DETERMINED WHICH SHOULD BE THE BASIS OF GRANT OF 25 PER CENT EXEMPTION, BUT IT IS THE INCOME OF THE TRUST WITH REFERENCE TO THE PROVISIONS OF SECTION 11(1)(A) OF THE INCOME-TA X ACT, 1961, THAT WOULD BE THE AMOUNT FOR GRANT OF 25 PER CENT THEREOF AS E XEMPTION. IN OTHER WORDS IT WAS CONTENDED THAT THE 25 PER CENT OF THE INCOME OF THE TRUST RS. 64,344 (25% OF RS.2,57,376 BEING THE TOTAL RECE IPTS) AND NOT RS. 21,752 (25% OF THE TOTAL INCOME OF RS.,87,010/- DET ERMINED BY THE AO) SHOULD BE ALLOWED AS ACCUMULATION U/S.11(1)(A) OF T HE ACT. ON THE ABOVE FACTS THE HONBLE KERALA HIGH COURT HELD AS FOLLOWS : AT THE OUTSET, THE STATUTORY LANGUAGE OF SECTION 1 1(1)(A) OF THE INCOME-TAX ACT, 1961, RELATES TO THE INCOME DERIVED BY THE TRUST FROM PROPERTY. THE TRUST IS REQUIRED TO BE WHOLLY F OR CHARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO H AVE RELATION TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. IT IS THEREAFTER THE STATUTORY PROVISION PRO CEEDS FURTHER THAT SUCH INCOME IS NOT TO BE UNDERSTOOD TO BE IN EXCESS OF 25 PER CENT. OF THE INCOME FROM SUCH PROPERTIES. IN OTHER WORDS, THE VERY LANGUAGE OF THE STATUTORY PROVISION UNDER CONSIDERA TION SETS APART 25 PER CENT. OF THE INCOME FROM THE SOURCE OF PROPE RTY WITH REFERENCE TO THE EXTENT TO WHICH SUCH INCOME IS APP LIED FOR SUCH PURPOSES, CHARITABLE OR RELIGIOUS. IN OTHER WORDS, FOR THE PURPOSE OF SECTION 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELEVANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WH ICH 25 PER CENT. IS SET APART IN ACCORDANCE WITH THE SPIRIT OF THE STATUTORY PROVISION. THE COURT THEN REFERRED TO CIRCULAR NO.5P(LXX-6) DA TED 17.8.1968 AND HELD AS FOLLOWS: READING OF THE CIRCULAR DATED JUNE 19, 1968, IT WO ULD BE A CONDITION BY WAY OF A CLARIFICATION. THE CIRCULAR R ELATES TO THE SUBJECT IN THE CONTEXT. IT CONTAINS INSTRUCTIONS RE GARDING INCOME REQUIRED TO BE APPLIED FOR CHARITABLE PURPOSES. EVE N THE BOARD OF REVENUE HAS UNDERSTOOD THAT IT WOULD BE INCORRECT T O ASSIGN TO THE WORD INCOME USED IN SECTION 11(1)(A) OF THE ACT, THE SAME SITUATION OF UNDERSTANDING AS IS AVAILABLE FROM THE EXPRESSION SOMAIYA VIDYAVIYAR 5 TOTAL INCOME WHICH IS USED IN SECTION 2(45) OF TH E ACT. IT IS SPECIFIED THAT IN THE CASE OF A BUSINESS UNDERTAKIN G HELD UNDER A TRUST, ITS INCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1) AND THE PERMITTED ACC UMULATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCOME. (UNDERLINING BY US FOR EMPHASIS) THE COURT EXAMINED PART OF THE ABOVE SAID CIRCULAR WHICH READS AS FOLLOWS: WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY , INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WO RD INCOME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATION S THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. . . . THE A MOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT OF T HE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LES S THAN 75 PER CENT. OF THE LATTER, IF THE TRUST IS TO GET THE FUL L BENEFIT OF THE EXEMPTION UNDER SECTION 11(1). THE HONBLE COURT OBSERVED AS FOLLOWS: AS SEEN FROM THE ABOVE, WHEN THE TRUST DERIVES INC OME, IT SAY THAT THE WORD INCOME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME. IN OTHER WORDS, THE DEPAR TMENT REQUIRES ITS OFFICER TO UNDERSTAND THE INCOME OF THE TRUST W ITH REFERENCE TO THE BOOK INCOME, AFTER ADDING BACK THE ITEMS STATED THEREIN. IT IS THEREAFTER THAT WE SEE THAT WHATEVER MAY BE THE POS ITION, THE AMOUNT SPENT OR APPLIED FOR THE PURPOSES, IT IS CLA RIFIED, SHOULD NOT BE LESS THAN 75 PER CENT OF THE LATTER IF THE T RUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION UNDER SECTION 11(1). IN OUR JUDGMENT, THE STATUTORY PROVISION MAKES IT ABUNDANTLY CLEAR T HAT IN REGARD TO A TRUST WHICH IS ENTITLED TO GET THE FULL BENEFIT O F EXEMPTION OF SECTION 11(1) OF THE ACT, ITS INCOME WITH REFERENCE TO THE HEAD UNDER CONSIDERATION WOULD HAVE TO BE UNDERSTOOD ONL Y AT 75 PER CENT THEREOF, LEAVING 25 PER CENT. ALTOGETHER AT TH AT STAGE ITSELF. IN THIS SENSE OF THE SITUATION, THE CENTRAL BOARD OF R EVENUE ALSO HAS UNDERSTOOD THE SITUATION IN THE CONTEXT OF THE STAT UTORY LANGUAGE OF SECTION 11(1)(A) OF THE ACT AND NOT OTHERWISE. T HIS MEANS THAT WHEN THE SITUATION IS ESTABLISHED THAT THE TRUST IS ENTITLED TO THE FULL BENEFIT OF EXEMPTION UNDER SECTION 11(1), THE SAID TRUST IS TO GET THE BENEFIT OF 25 PER CENT AND THIS 25 PER CENT HAS TO BE UNDERSTOOD AS THAT OF THE INCOME OF THE TRUST UNDER THE RELEVANT HEAD OF SECTION 11(1)(A) OF THE ACT. (UNDERLINING BY US FOR EMPHASIS) SOMAIYA VIDYAVIYAR 6 9. THE ABOVE DECISION OF HON'BLE KERALA HIGH COURT HAS BEEN CONFIRMED BY HON'BLE SUPREME COURT IN THE CASE OF C IT VS. PROGRAMME FOR COMMUNITY ORGANIZATION, 248 ITR 1(SC). IN THE L IGHT OF THE DECISIONS REFERRED TO ABOVE, WE ARE OF THE VIEW THAT THE CLAI M MADE BY THE ASSESSEE SHOULD BE ACCEPTED AND THE ASSESSING OFFICER IS DIR ECTED TO ALLOW DEDUCTION U/S. 11 AT 15% OF THE GROSS TOTAL RECEIPT S AS CLAIMED BY THE ASSESSEE. 10. IN THE RESULT, APPEAL BY THE ASSESSEE IS ALLOWE D. ORDER HAS BEEN PRONOUNCED ON 31 ST DAY OF MARCH, 2010. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 31 ST MARCH, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS