M/s Dominican Sisters of Presentation, Bangalore V. DYt,D,I,T, Bangalore

ITA 318/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8718 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-01-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 05-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAMBIRAJAN
• Keywords: Depreciation; Charitable institution
• Section: 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE C BENCH, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.318(BNG)/2015 (ASSESSMENT YEAR : 2011-12) M/S DOMINICAN SISTERS OF PRESENTATION, DOMINICAN ASHRAM, 80 FT. ROAD, INDIRANAGAR, BANGALORE-560 038 APPELLANT VS THE DEPUTY DIRECTOR OF INCOME-TAX, CIRCLE-17(1), BANGALORE RESP ONDENT ASSESSEE BY : SHRI SURESH MUTHUKRISHNAN, CA REVENUE BY : SHRI NAMBIRAJAN, JCIT DATE OF HEARING : 05-01-201 6 DATE OF PRONOUNCEMENT : 08-01-2016 O R D E R PER SHRI INTURI RAMA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LEARNED CIT(A)-14,LTU, BANGALORE, DATED 24-02-2014 FOR THE ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE SOCIETY RAISED THE FOLLOWING GROUND S OF APPEAL; 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR A S THEY ARE AGAINST THE ASSESEE ARE OPPOSED TO LAW, EQUITY, WEI GHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO.318(B)/15 2. THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE DENIAL OF CARRY FORWARD OF THE DEFICIT BEING THE EXCESS APPLI CATION OF INCOME AMOUNTING TO RS.97,00,224/- TO BE SET OFF AG AINST THE INCOME FROM PROPERTY HELD UNDER TRUST IN THE FUTURE UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEES CA SE. 3. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E CARRY FORWARD OF THE DEFICIT TO BE SET OFF AGAINST THE IN COMES FROM PROPERTY HELD UNDER TRUST IN FUTURE IS PERMISSIBLE AND THE SAME IS NOT PROHIBITED UNDER THE SCHEME OF THE ACT AND THEREFORE, THE DENIAL OF THE CLAIM MADE BY THE ASSE SSEE IS UNJUSTIFIED AND THE SAME IS LIABLE TO BE VACATED. 4. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGE D AT THE TIME OF HEARING OF THE APPEAL, YOUR ASSESSEE HUMBLY PRAYED THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED AND THE ASSESSEE MAY BE AWARDED COSTS IN PROSECUTING TH E APPEAL AND ALSO ORDER FOR THE REFUND OF THE INSTITU TION FEES AS PART OF THE COSTS. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASS ESSEE PUBLIC CHARITABLE INSTITUTION REGISTERED UNDER THE PROVISION OF KARNA TAKA SOCIETIES REGISTRATION ACT, 1960. IT FILED ITS RETURN OF IN COME FOR THE ASSESSMENT YEAR 3 ITA NO.318(B)/15 2011-12 DECLARING NIL INCOME. DURING THE PREVIOUS Y EAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE S OCIETY HAD APPLIED EXCESS INCOME OF RS.97,00,224/- FOR CHARITABLE PURP OSES. THIS WAS NOT ALLOWED TO BE CARRY FORWARD FOR FUTURE YEARS WHICH HAD TO BE SHOWN AS APPLICATION OF INCOME IN THE FUTURE YEARS. 4. BEING AGGRIEVED BY THIS ORDER, AN APPEAL WAS FI LED BEFORE THE CIT(A) WHO VIDE IMPUGNED ORDER HAD CONFIRMED THE ACTION OF THE AO, RELYING ON THE DECISION OF THE HONBLE MUMBAI BENCH IN THE CAS E OF ITO VS TRUSTEES OF SRI SATYA SAI TRUST (33 ITD 320) AND ALSO IN THE CA SE OF PUSHPAVATI SINGHANIA RESEARCH INSTITUTE FOR LIVER, RENAL AND D IGESTIVE DISEASES VS DDIT (E) (29 SOT 316). 5. BEING AGGRIEVED BY THE ORDER OF THE LOWER AUTHO RITIES THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THIS ISSUE IN HAND IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN 4 ITA NO.318(B)/15 THE CASE OF SOCIETY OF ST. FRANCIS DE SALES IN ITA NO.315(B)/2015 DATED 10- 07-2015. 6. ON THE OTHER HAND, LEARNED SR.DR RELIED ON THE DECISIONS IN THE CASE REFEREED ABOVE I.E ITO VS TRUSTEES OF SRI SATY A SAI TRUST (33 ITD 320) AND ALSO IN THE CASE OF PUSHPAVATI SINGHANIA RESEAR CH INSTITUTE FOR LIVER, RENAL AND DIGESTIVE DISEASES VS DDIT (E) (29 SOT 31 6). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. 7.1. THE ISSUE IN APPEAL IS WHETHER THE EXCESS APPL ICATION OF INCOME DURING THE YEAR FOR CHARITABLE PURPOSES CAN BE CARR IES FORWARD AND ALLOWED TO BE SET OFF IN FUTURE YEARS. THE ISSUE IS NO MOR E RES-INTEGRA , AS IT WAS COVERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF ST. FRANCIS DE SALES (SUPRA) WHEREIN IT IS HELD AS FOLLOWS; 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF B OTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL O N RECORD; INCLUDING JUDICIAL PRONOUNCEMENTS, CITED AND PLACED RELIANCE 5 ITA NO.318(B)/15 UPON. WE FIND THAT THE CASE OF INSTITUTE OF BANKI NG (SUPRA), THE HON'BLE HIGH COURT OF BOMBAY HAS HELD AS UNDER :- NOW COMING TO QUESTION NO. 3, THE POINT WHICH ARISE S FOR CONSIDERATION IS : WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUEN T YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLIC ATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT Y EAR AND THAT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDIT URE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES. IN THE PRESENT CASE, THE AO DID NOT ALLOW CARRY FORWARD OF THE EXCESS OF EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOME WAS ASSESSABLE UNDER SELF-CONTAINED CODE MENTIONED IN S. 11 TO S. 13 OF THE IT ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS' UNDER S. 28 IN WHICH THE PRO VISION FOR CARRY FORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE O F A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF THE EXCESS OF EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERC IAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YE ARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR W ILL HAVE TO BE 6 ITA NO.318(B)/15 REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISION S CONTAINED IN S. 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER S. 11(1)(A) OF T HE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE GUJARAT HI GH COURT IN THE CASE OF CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAI N MANDAL (1994) 119 CTR (GUJ) 144 : (1995) 211 ITR 293 (GUJ). ACCOR DINGLY, WE ANSWER QUESTION NO. 3 IN THE AFFIRMATIVE I.E., IN F AVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 5.3.2 THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BALDWIN METHODIST EDUCATIONAL SOCIETY (SUPRA), HAS HELD AS UNDER :- WE ALSO FIND THAT A BENCH OF THIS TRIBUNAL IN TH E CASE OF ACADEMY OF LIBERAL EDUCATION IN ITA NO.687/BANG/201 4 DATED 20/2/2015, TO WHICH ONE OF US I.E. THE ACCOUNTANT M EMBER IS THE SIGNATORY, HAS CONSIDERED THIS ISSUE AND IN PARA.8 OF ITS ORDER, HELD AS UNDER: 8. WE ARE OF THE VIEW THAT PENDENCY OF A N APPEAL BEFORE THE HON'BLE HIGH COURT OF KARNATAKA CANNOT BE THE B ASIS NOT TO FOLLOW THE DECISION ON THE ISSUE ALREADY RENDERED I N IDENTICAL CASES. SECTION 11(1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITABLE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHIC H THE INCOME IS 7 ITA NO.318(B)/15 ADJUSTED TO MEET THE EXPENSES INCURRED FOR CHARITAB LE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURP OSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXP ENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, T HE INCOME OF SUCH SUBSEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES IN THE YEAR IN WHICH SUCH ADJUST MENT TAKES PLACE. IN OTHER WORDS, THE SET-OFF OF EXCESS OF EXP ENDITURE INCURRED OVER THE INCOME OF EARLIER YEARS AGAINST T HE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CAS E OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ) CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ.). IN CIT VS. INSTITUTE OF BANKING PERSONNEL S ELECTION 264 ITR 110 (BOM), IT WAS HELD THAT IN CASE OF CHARITABLE T RUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASS ETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADI T 248 ITR 368 (MAD), THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THAT S. 11 IS A BENEVOLENT P ROVISION, AND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR CHARI TABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST TH E INCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT THE LOSS INCURR ED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM TH E SAME HEAD 8 ITA NO.318(B)/15 IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRE D WAS FOR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITU RE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEA R, WOULD NOT AMOUNT TO AN INCIDENCE OF LOSS OF AN EARLIER YEAR B EING SET OFF AGAINST THE PROFIT OF A SUBSEQUENT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURR ING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LONG AS THE EXPENDITURE I NCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDI TURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF W HICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LIABLE TO TAX . THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJU STED AGAINST THE INCOME OF A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PU RPOSES FROM THE INCOME OF THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOO KS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HAD BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND C HARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). WE FIND THAT THE ORDER OF THE CIT(A) IS IN CONSONAN CE WITH THE JUDICIAL PRECEDENTS REPRODUCED ABOVE. THEREFORE, W E SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THE REVENUES APPEAL IS, ACCORDINGLY, DISMISSED. 9 ITA NO.318(B)/15 5.3.3 IT IS CLEAR FROM THE RELEVANT PORTIONS OF THE AFORESAID DECISIONS OF THE HON'BLE HIGH COURT OF BO MBAY (SUPRA) AND THE CO-ORDINATE BENCH OF THE ITAT, BANG ALORE (SUPRA) EXTRACTED ABOVE THAT THE INCOME OF CHARITAB LE TRUSTS IS REQUIRED TO BE COMPUTED ON COMMERCIAL PRINCIPLES . THE CONCEPT OF APPLICATION OF THE INCOME FOR THE YEAR I N WHICH THE INCOME HAS ARISEN IS NOT FOUND IN SECTION 11(1) (A) OF THE ACT. NO LIMITATION TO THE ABOVE EFFECT IS FOUND IN THE LANGUAGE OF THE SECTION. IT MERELY REQUIRES APPLIC ATION OF THE INCOME THAT HAS ARISEN FROM THE PROPERTY HELD UNDER TRUST. IN THIS VIEW OF THE MATTER, THE PRINCIPLES RELATIN G TO SET OFF OF LOSSES, ETC. IS NOT OF ANY RELEVANCE AND THEREFO RE ANY EXCESS APPLICATION OF INCOME DURING THE YEAR CAN BE REGARDED AS APPLICATION OF THE INCOME OF FUTURE YEARS AND CA N BE ADJUSTED. THEREFORE, IN OUR VIEW, THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF EXCESS APPLICATION IS IN ACCO RDANCE WITH THE JUDICIAL PRECEDENTS ON THE ISSUE AND THE SAME I S ALLOWABLE. 5.3.4 IN THE CASE OF INDIAN NATIONAL THEATER (S UPRA) RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THE HON'BLE HIGH COURT OF DELHI HAS HELD THAT TO SATISFY THE RE QUIREMENTS 10 ITA NO.318(B)/15 OF SECTION 11(2)(B) OF THE ACT, THE INVESTMENT MUST NECESSARILY COME OUT OF CURRENT YEARS INCOME AND T HE INVESTMENT MADE IN THE PAST OBVIOUSLY CANNOT SATISF Y THE REQUIREMENTS FOR THE CURRENT YEAR. THE ABOVE DECIS ION OF THE HON'BLE DELHI HIGH COURT HAS CONSIDERED THE PRO VISIONS OF SECTION 11(2) OF THE ACT AND HAS TAKEN THE VIEW THAT THE ACCUMULATION UNDER SECTION 11(2) OF THE ACT CAN BE ONLY OUT OF CURRENT INCOME. WE, HOWEVER, FIND THAT THE CO-O RDINATE BENCHES OF THE BANGALORE TRIBUNAL HAVE CONSISTENTLY FOLLOWED THE VIEW OF THE HON'BLE BOMBAY HIGH COURT (SUPRA) I N WHICH THE APPLICATION HAS BEEN REGARDED AS ADJUSTABLE AGA INST THE INCOME OF THE FUTURE YEARS. WE ARE, THEREFORE, INC LINED TO FOLLOW THE VIEW TAKEN BY THE CO-ORDINATE BENCHES OF THIS TRIBUNAL, INTER ALIA, IN THE CASE OF BALDWIN METHOD IST EDUCATIONAL SOCIETY (SUPRA), BASED ON THE VIEW/DECI SIONS OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTIT UTE OF BANKING (SUPRA) AND THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL REPORTED IN 211 ITR 293. IN THIS VIEW OF THE MATTE R, THE ASSESSING OFFICER IS DIRECTED TO ALLOW CARRY FORWAR D OF THE EXCESS APPLICATION OF RS.17,35,360 FOR THE YEAR TO BE 11 ITA NO.318(B)/15 ADJUSTED FROM INCOME FROM PROPERTY HELD UNDER TRUST OF THE SUBSEQUENT YEARS. IT IS ORDERED ACCORDINGLY. CONS EQUENTLY, GROUNDS 2 AND 3 OF ASSESSEE'S APPEAL ARE ALLOWED. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH, WE DIRECT THE AO TO ALLOW THE CARRY FORWARD OF THE AMO UNT OF EXCESS INCOME APPLIED DURING THE YEAR TO THE FUTURE YEAR FOR SET OFF AGAINST HE INCOME. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE (VIJAYPAL RAO) (INTURI RAMARAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE D A T E D : AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR,ITAT, BANGALORE