M/s Sindhi Youth Association, Bangalore V. Assistant Director of Income Tax (Exemptions), Circle-17(2), Bangalore

ITA 358/BANG/2023

AI Insights

The case revolves around the Sindhi Youth Association, a charitable trust, which appealed against the decision of the CIT(Appeals) that dismissed their claim for set off of excess application of income from earlier years against the current year's surplus. The primary legal contention was whether the excess application of income in the years 1999-2000, 2000-01, and 2001-02 could be set off against the taxable surplus of the current year (2008-09). The Tribunal examined the provisions under sections 11 to 13 of the Income Tax Act, relevant judicial precedents, and the specific circumstances of the trust's operations over the years.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124577 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-08-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2023
• Other Referred Cases: Collector, Land Acquisition Vs. MST. Katiji and Others, Govindu Naicker Estate v. ADIT, CIT v. Indian National Theatre Trust, DDIT v. Karnataka Food & Civil Supplies Ltd., CIT v. Bharti Teletech Ltd., CIT v. Jyothy Charitable Trust, ACIT v. City Hospital Charitable Trust
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Benefit of exemption
• Section: 11; 12A; 10B; 264

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.358/Bang/2023 Assessment year : 2008-09 Sindhi Youth Association, Sindhi Hospital Road, Sampangiramanagar, Bangalore – 560 027. PAN : AABTS 6116N Vs. The Assistant Director of Income Tax (Exemptions), Circle 17(2), Bengaluru. APPELLANT RESPONDENT Appellant by : Shri S.V. Ravishankar, Advocate Respondent by : Shri Veera Raghavan, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 02.08.2023 Date of Pronouncement : 07.08.2023 O R D E R Per Laxmi Prasad Sahu, Accountant Member This appeal by the assessee is in the second round of proceedings against the DIN & Order No.ITBA/NFAC/S/250/2022- 23/1043437556(1) dated 14.6.2022 of the CIT(Appeals), National Faceless Assessment Centre, Delhi [NFAC] for the AY 14.6.2022. 2. There is a delay of 264 days in filing the appeal before the Tribunal. The assessee has filed application for condonation of delay ITA No.358/Bang/2023 Page 2 of 9 along with affidavit. The reasons for the delay are stated to be that the order of the CIT(Appeals) was served on the assessee by email on 14.06.2022. However, the employee, Ms. Ramya, who was handling the statutory compliances was on intermittent leave due to health issues and further on long leave for medical treatment at NIMHANS currently. On enquiry by the counsel who represented before the CIT(Appeals), the Finance Manager came to know about the dismissal of the appeal by the CIT(A), NFAC during October, 2022 close to the Annual General Meeting and there was a change in the officer bearers and new committee members, who were informed about the dismissal of appeal by the CIT(A). Thereafter, the appeal was filed before the Tribunal giving rise to delay of 264 days. The ld. AR submitted that the delay in filing the appeal was beyond the control of the assessee as stated above. 3. After hearing both the parties, from the explanation of the delay submitted by the assessee, we are of the view that there was sufficient and reasonable cause for the delay and following the judgment of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, delay in filing the appeal before the Tribunal is condoned and the appeal is admitted. 4. The sole issue involved in this appeal is the claim of excess application of income of Rs.61,04,954 in the earlier assessment years i.e., 1999-2000, 2000-01 & 2001-02 against the current year’s surplus. ITA No.358/Bang/2023 Page 3 of 9 5. The assessee is a charitable trust registered u/s. 12A of the Act engaged in running hospital for charity. The assessee during the year has made a gross receipt of Rs.6,09,02,224 and claimed application of income u/s. 11 on account of revenue and capital expenditure at Rs.4,56,61,936. The AO after allowing accumulation of income u/s. 11(1)(a) at 15% noted that there was a taxable surplus of Rs.61,04,954 which the assessee adjusted against the excess utilization in the preceding years 1999-2000 to 2001-02. The AO called for explanation from the assessee as to why the set off should not be disallowed. The assessee relied on the decision of Govindu Naicker Estate v. ADIT (2004) 248 ITR 368 (Mad) where it was held that the expenditure incurred in advance for charitable purpose in an earlier year out of income of subsequent year should be taken to account in reckoning the amount applied for subsequent year, as otherwise there may be shortfall in application of income resulting in liability which cannot be correct. The AO was of the view that this decision is in respect of interest paid in advance and hence not applicable to present case of set off of earlier years excess application. The AO observed that the application of income for charitable purpose must be during the relevant previous year and 85% of the income of the previous year should be utilized for charitable and religious purposes during the year. Since the income of the trust is itself exempt from tax, the question of loss or deficit cannot be allowed to be carry forward. The AO relied on the CBDT Circular No.29 dated 28.3.1969 and observed that section 11(1)(a) allows exemption upto 85% of income which is applied for ITA No.358/Bang/2023 Page 4 of 9 charitable purposes and shortfall of 85% is to be charged to tax. In view of the fact that concerned income was taken out of 85% of the income required to be applied in the year of origin, the set off of earlier years excess application was disallowed by the AO. 6. On appeal in the first round, the CIT(Appeals) observed that the as per provisions of sections 11 to 13, there is no scope for computing any loss from property held under trust wholly for charitable and religious purposes. There is no provision for set off of loss from one source against income from another source. The CIT(A) agreed with the AO that carry forward and set off of loss against income of subsequent years as per section 70 to 79 of the Act is also not provided for. As per section 11, computation of total income by the AO is a first step and application of income for charitable purposes is thereafter made and considered for exemption. If the loss or deficit arose in the computation of total income in the first stage, that alone could be carried forward. He noted that in the instant case, the deficit arises as a result of excess spending for charitable purposes. Such excess cannot for part of the total income/loss and hence the same cannot be allowed. He relied on the Hon’ble Delhi High Court decision in the case of CIT v. Indian National Theatre Trust (2008) 305 ITR 459 and observed that the exemption u/s. 11(1)(a) and 11(2) are independent and assessee can claim exemption under either of these two provisions. The same ratio applies equally when a Trust seeks exemption on the basis of application of income as it is the same income which is sought to be accumulated. When income accumulated in an earlier year cannot ITA No.358/Bang/2023 Page 5 of 9 qualify for exemption u/s. 11(2), the excess income applied in earlier assessment year will also not qualify for exemption. The CIT(A) also relied on the decisions of ITO v. Trustees of Sri Satya Sai Trust (33 ITD 320) and Pushpavati Singhania Research Institute for Liver, Rengal & Digestive Diseases v. DDIT, 29 SOT 316 (Del Trib). However, the CIT(Appeals) considered the decisions of the ITAT Bangalore in the case of M/s. Jyothy Charitable Trust in ITA No.662/Bang/2015 and Academy of Liberal Education in ITA No.687/Bang/2014 dated 20.2.2015 in favour of the assessee and therefore allowed the appeal of the assessee on this issue. 7. Against the order of the CIT(Appeals) allowing the appeal of the assessee, the revenue preferred appeal before the Tribunal. The Tribunal in the first round of proceedings vide common order dated 04.04.2017 for AYs 2008-09, 2009-10 & 2011-12 held that there was no finding by the CIT(A) whether expenditure incurred in earlier years were on account of charitable or religious purposes. Therefore, the matter was remanded the issue to the CIT(Appeals) for examining this issue and for fresh decision in the light of the Tribunal’s order in the case of DDIT v. Karnataka Food & Civil Supplies Ltd. in ITA No.124/Bang/2014 for AY 2010-11 dated 20.10.2015. 8. Accordingly, in the second round of proceedings, the CIT(Appeals) noted that the expenditure was less than 85% of current year’s income and to reach the mandatory 85%, the assessee claimed adjustment of brought forward expenses. The assessee also claimed ITA No.358/Bang/2023 Page 6 of 9 accumulation of 15% u/s. 11(1)(a). He noted that the AO rejected the claim of the assessee since the correctness of such brought forward expenditure and nature of expenditure was not established. The CIT(Appeals) observed that no details of expenditure were filed by the assessee to conclusively establish that the expenditure incurred in the earlier years were only for charitable purposes and therefore dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before the Tribunal in the second round. 9. The ld. AR submitted that certain details in support of the assessee’s claim could not be furnished/uploaded on the portal in the proceedings before the CIT(Appeals) which were voluminous and the assessee had sought leave to furnish copies of annual reports of AYs 1999-2000 to 2001-02 showing the deficits. However, the CIT(Appeals) passed the order without providing opportunity to furnish the documents. The ld. AR submitted that these documents are now filed before the Tribunal as additional evidence which are as follows:- 1. Copy of annual report for FY 1998-99. 2. Copy of annual report for FY 1999-2000. 3. Copy of annual report for FY 2000-01. 4. Copy of computation of income for AY 1999-2000 5. Copy of computation of income for AY 2000-01 6. Copy of computation of income for AY 2001-02 10. The ld. AR submitted these documents are required to demonstrate the brought forward deficits of earlier years incurred for objectives of the trust and hence the same may be admitted for ITA No.358/Bang/2023 Page 7 of 9 adjudication. The ld. AR submitted that the objects of the trust is similar as in the earlier years and the assessee is eligible to claim set off of excess expenditure incurred in the earlier years and relied on the following decisions:- (i) DDIT(E) v. Karnataka Food Civil Supplies Ltd., ITA No.124/Bang/2014 dated 20.10.2015. (ii) CIT v. Bharti Teletech Ltd. [2015] 60 taxmann.com 166 (Delhi) (iii) CIT v. Jyothy Charitable Trust, ITA No.707 of 2015 dated 14.8.2018 (Karnataka High Court) The ld. AR further submitted that the amount of excess deficit of earlier years has not been disputed and it is also not disputed that the assessee is engaged in charitable activities. 11. On the other hand, the ld. DR relied on the orders of the lower authorities. He further submitted that the in the second round of proceedings the assessee was unable to demonstrate before the CIT (A) for the AY 1999-2000 to 2001-02 that the assessee had carried out charitable activities as per direction of the Hon’ble Tribunal. 12. We have heard both the parties and perused the material on record. The assessee has claimed set off of excess application of income for the AYs 1999-2000 to 2001-02 of Rs.61,04,954 in the impugned assessment year. The assessee is granted registration u/s. 12A of the Act w.e.f. 01.02.1999 and since then, as per submission of the ld. AR, the assessee has not amended its objects clause and continuously availing the benefit of exemption u/s. 11 of the Act. The AO has allowed exemption u/s. 11 of the Act in the present year also. ITA No.358/Bang/2023 Page 8 of 9 The CIT(Appeals) has denied the claim of the assessee for set off earlier years. The books of accounts are audited and Form 10B has been filed and we do not find any adverse comments for the AY 1999- 2000 to 2001-02. On going through the assessment order, the claim made by the assessee for the previous three assessment years excess application has been denied stating that it is not permissible, but the AO has not disputed the figures claimed by the assessee. We note that similar issue has been decided by the assessee in favour of the assessee in the case of ACIT v. City Hospital Charitable Trust [2016] 68 taxmann.com 429 (Bang. Trib) and it is held that excess application of income of the previous years can be set off from the subsequent year’s surplus income. The judgment of the Hon’ble High Court of Karnataka in the case of relied on by the ld. AR in the case of CIT v. Jyothy Charitable Trust (supra) also supports the case of the assessee. Respectfully following these decisions, we are of the opinion that the assessee is eligible for set off of excess application of income of AYs 1999-2000 to 2001-02 from the current year’s income. Accordingly, we allow the appeal of the assessee. Pronounced in the open court on this 07 th day of August, 2023. Sd/- Sd/- ( GEORGE GEORGE K.) (LAXMI PRASAD SAHU ) VICE PRESIDENT ACCOUNTANT MEMBER Bangalore, Dated, the 07 th August, 2023. /Desai S Murthy / ITA No.358/Bang/2023 Page 9 of 9 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.