The Udhna Udyognagar Sangh Charitable Foundation, Surat V. The Dy.CIT, Circle-2, Surat

ITA 3015/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0119 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 10-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANTONY PARIATH
• Assessee Lawyers: RUSHI PARIKH; JAYRAJ DHAKAN
• Keywords: Charitable institution
• Section: 12; 2; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.3015/AHD/2013 / ASSTT. YEAR: 2010-2011 THE UDHNA UDYOGNAGAR SANGH CHARITABLE FOUNDATION CENTRAL ROAD NO.10, UDHNA UDYOGNAGAR SANGH COMPLEX, UDHNA SURAT 394 210. VS DCIT, CIR.2 SURAT. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI RUSHI PARIKH, AND SHRI JAYRAJ DHAKAN REVENUE BY : SHRI ANTONY PARIATH, SR.DR / DATE OF HEARING : 10/11/2016 / DATE OF PRONOUNCEMENT: 15/11/2016 $%/ O R D E R ASSESSEE IS APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF LD.CIT(A)- II, SURAT DATED 15.10.2013 PASSED FOR THE ASSTT.YEA R 2010-11. 2. THOUGH ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL , BUT GRIEVANCES REVOLVES AROUND A SINGLE ISSUE WHEREBY IT HAS PLEAD ED THAT THE LD.CIT(A) HAS ERRED IN UPHOLDING DENIAL OF 15% DEDUCTION OUT OF T OTAL FUND AVAILABLE WITH THE ASSESSEE FOR APPLICATION UNDER SECTION 11(1) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST AND ENJOYING REGISTRATION UNDER SECTION 12A(A) OF THE INCOME TAX ACT. IT HAS FILED ITS RETURN OF INCOME ON 28.12.2010 DECLARING INCOME OF RS.1,44,200/-. CONTROVERSY INVOLVED IN THIS APPEAL IS WHETHER DEDU CTION AVAILABLE UNDER ITA NO.3015/AHD/2013 2 SECTION 11(1) OF THE INCOME TAX ACT AT THE RATE OF 15% IS A STANDARD DEDUCTION OR IT IS TO BE ALLOWED, IF ASSESSEE HAS APPLIED SOM E PART OF ITS INCOME ON ITS OBJECTS DURING THE RELEVANT YEAR. THE LD.CIT(A) HA S HELD THAT TOTAL APPLICATION OF THE INCOME FOR THE PURPOSE OF ASSESSEES OBJECT WAS NOT UPTO TO 85% OF THE TOTAL INCOME. IN OTHER WORDS, IT HAS FALLEN SHORT. THEREFORE, DEDUCTION UNDER SECTION 11(1)(A) OF 15% HAS BEEN DENIED TO THE ASSE SSEE. THE LD.CIT(A) HAS MADE REFERENCE TO THE DECISION OF THE ITAT RENDERED IN THE CASE OF ACIT VS. KARNAL IMPROVEMENT TRUST, 40 SOT 258. THE FINDING OF THE LD.CIT(A) IN THIS CONNECTION IS WORTH TO NOTE. IT READS AS UNDER: 7.5 NOW, COMING TO THE ISSUE OF DEDUCTION U/S 11 ( 2) OF THE ACT, THE TOTAL INCOME OF THE APPELLANT IS OF RS. 11,11,185/- , APART FROM THIS THE APPELLANT HAS RECEIVED DONATIONS OF RS 14,81,000/-. THEREFORE, THE INCOME OF THE APPELLANT FOR THE PURPOSE OF DETERMIN ING 85 % OF INCOME UNDER CLAUSE 11 (2) SHOULD BE RS. 25,92,185, IN VIE W OF EXPLANATION BELOW SECTION 11(1)( D) OF THE ACT, IF THE NATURE O F DONATION IS SUCH THAT THESE ARE COVERED BY SECTION 12(1). 7.6 UNDER SECTION 11 (2) OF THE INCOME TAX ACT, THE APPELLANT IS ENTITLED TO TRANSFER THE INCOME WHICH IS NOT SO APPLIED, PRO VIDED IT IS SET APART/ ACCUMULATED AND INVESTED IN SPECIFIED MODES AND FOR MS AND THE FORM NO. 10 REFERRED ABOVE IS SUBMITTED. THE APPELLANT C LAIMED THAT DURING THE RELEVANT PREVIOUS YEAR, IT HAD MADE ADDITION TO FIXED ASSETS TO THE EXTENT OF RS. 20,09, 495/-. EVEN IF THE DONATIONS A RE TAKEN AS INCOME, THE 85 % OF RS.25,92,185/- COMES TO RS.22,03,357/-. AGAINST THIS, APPELLANT CLAIMED THAT IT SPENT AN AMOUNT OF RS. 20 ,09,495/-THEREFORE, AS PER APPELLANT FURTHER APPLICATION OF ONLY RS.1,9 3,862/-IS REQUIRED AND THE EXPENSES OF THE APPELLANT ARE RS 1,41,181 ( SUPRA). HOWEVER, SINCE AN AMOUNT OF RS. 6, 50,000/- HAS BEEN ACCUMUL ATED, THE CONDITION OF 85 % IS MET AS PER APPELLANT. 7.7 MOREOVER, IT IS NOT VERY CLEAR FROM THE ASSESSM ENT ORDER AS TO WHETHER DONATIONS OF RS 14,81,000/- ARE COVERED U/S 12(1) OF THE INCOME TAX ACT OR NOT ? IF THESE DONATIONS WERE SPE CIFIC CONTRIBUTIONS, WHICH SHOULD FORM PART OF CORPUS OF THE TRUST, THEN , THE SAME ARE NOT COVERED U/S 12 (1) AND FOR THE PURPOSE OF DETERMINI NG 85 % OF THE INCOME, THE INCOME WILL HAVE TO BE TAKEN AT RS 11, 11, 185/-WHICH HAS BEEN DONE BY THE ASSESSING OFFICER. THE ASSESSMENT ORDER IN PARA 8 ITA NO.3015/AHD/2013 3 REFERS TO THIS AMOUNT OF RS. 14,81,000/- AS CORPUS DONATION. IF THAT FINDING IS CORRECT, THE AMOUNT OF 85 % WILL ONLY BE RS 9,44,507/- { 85 % OF RS 11, 11, 185/-) AGAINST WHICH APPLICATION / AC CUMULATION IS ONLY TO THE EXTENT OF RS. 7,91,181 I.E. THERE IS A SHORT FA LL WHICH IS A CORRECT WORKING BY THE ASSESSING OFFICER. 7.8 SINCE THE APPELLANT HAS FAILED TO APPLY 85 % OF THE INCOME, THEREFORE, IT WILL BE ENTITLED TO DEDUCTION ONLY TO THE EXTENT OF INCOME APPLIED, I.E. OF RS 6, 50,000/-. THE DEDUCTION OF 1 5% OF RS. 11,11,1857- WILL NOT BE ALLOWED AS DEDUCTION AS HELD BY THE ITA T DELHI D BENCH IN ITS DECISION DATED 21.10.2011 IN THE CASE OF ACI T V/S KARNAL IMPROVEMENT TRUST REPORTED IN 40 SOT 258. THEREFORE , GROUND NO. 4 IS ALLOWED IN FAVOUR OF THE APPELLANT WHILE, GROUND NO . 2 IS DISMISSED. 4. THE LD.CIT(A)HAS RELIED UPON THE ORDER OF THE IT AT IN THE CASE OF ACIT VS. KARNAL IMPROVEMENT TRUST (SUPRA). LET ME TAKE NOTE OF THE DISCUSSION MADE BY THE TRIBUNAL IN THAT CASE: 8. FROM THE PROVISIONS OF SECTION 11(1)(A) IT IS C LEAR THAT IN A CASE WHERE THE TRUST OR INSTITUTION APPLIES 85 PER CENT OF INCOME FOR ITS OBJECTS, THE ENTIRE INCOME SHALL BE EXEMPT FROM TAX . IN OTHER WORDS THE LAW PROVIDES A CONDITIONAL EXEMPTION THAT IN A CASE IF THE ASSESSEE APPLIES 85 PER CENT OF ITS INCOME FOR ITS OBJECTS D URING THE YEAR, THE WHOLE OF THE INCOME SHALL BE EXEMPT. HOWEVER, IN A CASE WHERE ASSESSEE DOES NOT APPLY ANY AMOUNT OF INCOME FOR IT S OBJECTS, THE QUESTION ARISES AS TO WHETHER THE ENTIRE INCOME WIL L BE LIABLE TO BE TAXED OR ONLY 85 PER CENT OF SUCH INCOME. THEREFORE , IT IS TO BE SEEN WHETHER 15 PER CENT OF INCOME IS A STANDARD DEDUCTI ON WHICH HAS TO BE ALLOWED IN EACH AND EVERY CASE. AS PER PROVISIONS O F SECTION 11(2) WHERE 85 PER CENT OF INCOME IS NOT APPLIED, T HE LAW PERMITS THE ASSESSEE TO ACCUMULATE THE INCOME FOR A SPECIFIC PU RPOSE TO BE APPLIED WITHIN THE SPECIFIED TIME. THEREFORE, IN A CASE WHE N 85 PER CENT OF INCOME IS NOT APPLIED, THE ASSESSEE CAN ACCUMULATE SUCH INCOME FOR SPECIFIC PURPOSE TO BE SPENT IN SPECIFIED PERIOD NO T EXCEEDING OF 5 YEARS. THUS IN ORDER TO QUALIFY FOR 100 PER CENT EX EMPTION, AS MENTIONED ABOVE, THE ASSESSEE HAS EITHER TO SPEND 8 5 PER CENT OF INCOME FOR ITS OBJECTS IN THE YEAR OF ITS RECEIPT O R ACCUMULATE U/S 11(2) FOR SPECIFIED PURPOSE TO BE SPENT IN SPECIFIED PERI OD. 9. HON'BLE DELHI HIGH COURT HAD AN OCCASION TO EXP LAIN THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T VS. ALN RAO ITA NO.3015/AHD/2013 4 CHARITABLE TRUST (SUPRA) IN THE CASE OF CIT VS. BAG RI FOUNDATION RELIED UPON BY THE ASSESSEE. IT HAS BEEN OBSERVED THAT THE EXEMPTION UNDER SECTION 11(1)(A) [THEN TO THE EXTENT OF 25 PE R CENT AND WHICH WAS REDUCED TO 15 PER CENT, ALSO BY THE FINANCE ACT, 20 02] IS UNFETTERED AND NOT SUBJECT TO ANY CONDITIONS AND IS AN ABSOLUTE EX EMPTION. IT WAS FURTHER HELD THAT IF THE CONDITIONS CONTAINED IN SE CTION 11(2) ARE READ AS APPLICABLE TO THE EXEMPTION OF UPTO 15 PER CENT UND ER SECTION 11(1)(A) ALSO, THEN WHAT IS ABSOLUTE AND UNFETTERED EXEMPTION OF ACCUMULATED INCOME GUARANTEED BY SECTION 11(1)(A) W OULD BECOME A RESTRICTED EXEMPTION AS LAID DOWN IN SECTION 11(2). SECTION 11(2) WAS HELD NOT TO OPERATE TO WHITTLE DOWN OR TO CUT ACROS S THE EXEMPTION PROVISION CONTAINED IN SECTION 11(1)(A). IN THIS RE GARD, IT WAS FURTHER NOTICED THAT SECTION 11(2) DOES NOT CONTAIN ANY NON -OBSTANTE CLAUSE LIKE 'NOTWITHSTANDING THE PROVISION OF SUB SECTION (1)'. CONSEQUENTLY, IT WAS HELD THAT AFTER SECTION 11(1)(A) HAS HELD FULL PLAY AND STILL IF ANY ACCUMULATED INCOME OF THE PREVIOUS YEAR IS LEFT TO BE DEALT WITH AND TO BE CONSIDERED FOR THE PURPOSE OF INCOME EXEMPTION, SUB SECTION (2) OF SECTION 11 CAN BE PRESSED IN SERVICE AND IF IT I S COMPLIED WITH, THEN SUCH ADDITIONAL ACCUMULATED INCOME BEYOND 15 PER CE NT [THEN 25 PER CENT] CAN ALSO EARN EXEMPTION FROM INCOME TAX ON CO MPLIANCE OF THE CONDITIONS LAID DOWN BY SECTION 11(2). SECTION 11(2 ) WHILE ENLARGING THE SCOPE OF EXEMPTION BY REMOVING THE RESTRICTION IMPOSED BY SECTION 11(1)(A) WAS HELD NOT TO TAKE AWAY THE EXEMPTION AL LOWED BYSECTION 11(1)(A). HON'BLE DELHI HIGH COURT HAS, THUS, IN BA GRI FOUNDATION'S CASE HAS HELD THAT THE ADDITIONAL CONDITION BY WAY OF SECTION 11(2) INSERTED WITH EFFECT FROM 1/04/2003 IS INTEND ED ONLY TO APPLY IN RESPECT OF ACCUMULATION IN EXCESS OF 15 PER CENT AN D NOT TO ACCUMULATION UPTO 15 PER CENT UNDER SECTION 11(1)(A ) OF THE ACT. IN VIEW OF THE DECISION OF HON'BLE DELHI HIGH COURT IT IS HELD THAT THE INCOME APPLIED U/S 11(1)(A) AND ACCUMULATED U/S11(2 ) TAKEN TOGETHER SHOULD 85% IN ORDER TO CLAIM 100% EXEMPTION OF THE INCOME DERIVED BY THE ASSESSEE U/S SECTION 11 OF THE ACT. ANY PORTION OF INCOME FALL SHORT OF 85% WILL BE LIABLE TO TAX. CONSEQUENTLY IN A CAS E WHERE NEITHER ANY INCOME IS APPLIED U/S 11(A) NOR ACCUMULATED UNDER S ECTION 11(2) ENTIRE INCOME WILL BE LIABLE TAX ON THE GROUND THAT EXEMPT ION TO BE ALLOWED IS CONDITIONAL ONE SUBJECT TO FULFILLMENT OF CERTAIN C ONDITION OF APPLICATION/ACCUMULATION OF THE INCOME. OTHERWISE I T WOULD LEAD TO AN ABSURD SITUATION WHERE AN ASSESSEE WILL GET EXEMPTI ON OF 15 PER CENT INCOME IN EACH YEAR WITHOUT CARRYING OUT CHARITABLE ACTIVITIES MERELY BECAUSE OF ITS STATUS AS A CHARITABLE INSTITUTION A ND THIS CANNOT BE A LEGISLATIVE INTENTION FOR ENACTING SECTION 11 OF TH E ACT. ITA NO.3015/AHD/2013 5 5. BEFORE ADVERTING TO THE FACTS OF THE PRESENT CAS E, I WOULD LIKE TO MAKE REFERENCE TO THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF ACIT VS. ALN RAO CHARITABLE TRUST, 83 TAXMAN 252 (SC). THIS DECISION WAS REFERRED BY THE LD.CIT(A) ALSO AND IT HAS BEEN CONS IDERED BY THE TRIBUNAL IN KARNAL IMPROVEMENT TRUST (SUPRA). THE HONBLE SUPR EME COURT HAS SUMMARIZED THE PROPOSITION LAID DOWN IN THIS DECISI ON IN PARA-12 OF THE JUDGMENT AND IT IS IMPERATIVE UPON ME TO TAKE NOTE OF THESE PROPOSITIONS. IT READS AS UNDER: (I) IF THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS DURING THE PREVIOUS YEAR IS RS.1,00,000/- AND IF RS.20,000/- THEREFROM ARE ACTUALLY APPLIED TO SUCH PURPOSES IN INDIA THEN THOSE RS.20,000/- WILL GET EXEMPTED FROM PAYME NT OF INCOME TAX AS PER THE FIRS PART OF SECTION 11(1)(A). (II) OUT OF THE REMAINING ACCUMULATED INCOME OF RS. 80,000/- FOR THE PREVIOUS YEAR, A FURTHER SUM OF RS.25,000/- WILL GE T EXEMPTED FROM PAYMENT OF INCOME TAX AS PER SECOND PART OF SECTION 11(1)(A). THUS OUT OF THE TOTAL INCOME DERIVED FROM PROPERTY AS AFORES AID DURING PREVIOUS YEAR, THAT IS, RS.1,00,000/-, RS.45,000/- IN ALL WI LL GET EXCLUDED FROM THE TAX NET ON A COMBINED OPERATION OF FIRST AND SECOND PART OF SECTION 11(1)(A). (III)THE AFORESAID CEILING OF RS.25,000/- OF ACCUMU LATED INCOME PROPERTY OF PREVIOUS YEAR, WILL GET C UNDER SECTION 11(2) TO THE EXTENT THE BALANCE OF SUCH ACCUMULATED INCOME IS INVESTED AS LAID DOWN BY SECTION 11(2).TO TAKE AN ILLUSTRATION IF, SAY, A N ADDITIONAL AMOUNT OF RS.20,000/- OUT OF THE BALANCE OF ACCUMULATED INCOM E OF RS.55,000/- IS INVESTED AS PER SECTION 11(2) THEN THIS ADDITIONAL AMOUNT OF RS.20,000/- OF ACCUMULATED INCOME WILL GET EXCLUDED FROM THE EX TENT NET AS PER SECTION 11(2). (IV) THE REMAINING BALANCE OF THE ACCUMULATED INCOM E OUT OF RS.55,000/-, THAT IS, RS.35,000/- IF NOT INVESTED A S PER SUB-SECTION (2) OF SECTION 11 WILL BE ADDED TO HE TAXABLE INCOME OF THE TRUST AND WILL NOT GET EXEMPTED FROM THE EXTENT NET. ITA NO.3015/AHD/2013 6 (V) IF OF THE OTHER HAND THE ENTIRE REMAINING ACCUM ULATED OF RS.55,000/- IS WHOLLY INVESTED AS PER SECTION 11(2) THE SAID EN TIRE AMOUNT OF RS.55,000/- WILL GET EXEMPTED FROM THE NET. 6. IF THE FINDING OF THE LD.CIT(A) IS BEING PERUSED IN THE LIGHT OF THESE TWO DECISIONS, THEN IT WOULD REVEAL THAT THE LD.CIT(A) HAS FAILED TO CONSTRUE THIS DECISION. IN THE CASE OF KARNAL IMPROVEMENT TRUST, THE TRIBUNAL HAS NOT EMPHASED THAT 85% OF THE TOTAL INCOME SHOULD BE APP LIED ON THE OBJECTS OF THE TRUST ONLY, THEN 15% WILL BE AVAILABLE. THE PROPOS ITION LAID DOWN BY THE TRIBUNAL IS THAT IF NO INCOME WAS APPLIED BY THE TR UST FOR ITS OBJECTS UNDER SECTION 11(1) AND NO AMOUNT WAS APPLIED FOR ACCUMUL ATION UNDER SECTION 11(2), THEN 15% DEDUCTION CANNOT BE CLAIMED AS STAN DARD DEDUCTION. SIMILARLY, IF ONE LOOKS INTO THE PROPOSITION NO.2 L AID DOWN BY THE HONBLE SUPREME COURT, THEN IT WOULD BE CLEAR THAT THE ASSE SSEE WILL BE ENTITLED FOR EXEMPTION QUA THE INCOME WHICH HAS BEEN APPLIED FOR ITS OBJECTS, PLUS 15% OF THE TOTAL INCOME. THE LD.CIT(A) HAS FAILED TO CONST RUE THESE TWO PROPOSITION WHILE DENYING THE EXEMPTION TO THE ASSESSEE. THERE FORE, I ALLOW THE APPEAL OF THE ASSESSEE AND SET ASIDE THE IMPUGNED ORDER OF TH E LD.CIT(A) AND DIRECT THE AO TO GRANT DEDUCTION OF RS.1,75,804/- BEING 15% OF RS.11,11,185/- I.E. INCOME DERIVED BY THE ASSESSEE FORM THE TRUST-PROPE RTY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 15 TH NOVEMBER, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 15/11/2016