Addll. CIT, Meerut V. M/s. Association of Management Studies, Meerut

ITA 3726/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2361 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 02-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K SAMPATH SHRI S KRISHANAN
• Keywords: Business income; Charitable institution; Question of law; Set aside
• Section: 142(1); 264; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMEBR AND SHRI DEEPAK R SHAH, ACCOUNTANT MEMBER I.T.A NO. 3726/DEL./09 ASSESSMENT YEAR - 2005-06 ADDL. COMMISSIONER OF INCOME TAX RANGE-I, MEERUT. VS. M/S. ASSOCIATION OF MANAGEMENT STUDIES, 17, MALL ROAD, MEERUT. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ALOK SINGH, DR RESPONDENT BY : SHRI K. SAMPATH, ADVOCATE SHRI S.KRISHANAN, ADVOCATE ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LD. CIT(A) DATED 26 TH JUNE, 2009 PASSED FOR ASSTT. YEAR 2005-06. THE SOLITARY S UBSTANTIAL GROUND OF APPEAL TAKEN BY THE REVENUE READS A UNDER :- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT (A) WAS JUSTIFIED IN ALLOWING CARRY FORWARD OF LOSSES WITHOUT CONSIDERIN G THE FACT THAT AS PER SECTION 11 (1) OF THE I.T ACT 1961, THE INCOME APPLIED FOR CHARITA BLE PURPOSE IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE & WHILE THE INCOME ITSELF IS NOT TO BE INCLUDED IN THE TOTAL INCOME, THE QUESTION OF ADJUSTMENT OF CARRY F ORWARD LOSSES COULD NOT ARISE? 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING LOSSES OF RS. 56,41,320/- AND BROUGHT FORWARD DEFICIENCY OF RS. 1,41,32,428/-. THE LD. AO HAS ISSUED NOTICE U/S 143 (2) AND 142(1) OF THE ACT. HE HAS NARRATED THE ACTIVITIES OF THE ASSESSEE I.E. RUNNIN G OF SEVERAL EDUCATIONAL INSTITUTIONS AND ITA NO. 3726/DEL/09 2 FRAMED ASSTT. ORDER ON 20 TH MARCH, 2007. THE ASSTT. ORDER IS A VERY BRIEF AND IT DOES NOT DISCUSS MUCH FACTS AND CIRCUMSTANCES EXCEPT NARRATI ON OF ACTIVITIES. THE LAST TWO PARAGRAPHS OF THE ASSTT. ORDER READ AS UNDER :- THERE HAS BEEN INCREASE IN SALARIES ETC. AND IT IS SAID TOBE ON ACCOUNT OF REGULAR SCALES BEING GIVEN NOW AS PER INSTRUCTIONS OF THE AICTE. HENCE THE SALARIES HAVE INCREASED. THIS FACT WAS VERIFIED FROM THE BOOKS OF ACCOUNTS AS WELL AND THE CORRESPONDENCE FROM THE AICTE. THE ASSESSEES MAIN OBJECTS ARE RUNNING OF EDUCATIONAL INSTITUTIONS AND IT IS SEEN THAT THE AC TIVITIES OF THE ASSESSEE HAVE BEEN IN THAT DIRECTION ONLY. INCOME OF THE SOCIETY THIS YEAR HAS BEEN AT RS. 1,7 7,58,272/- AGAINST WHICH FUNDS HAVE BEEN DEPLOYED BY WAY OF ADDITION IN FIXED ASSE TS AT RS. 1,56,281,591/-. FURTHER, LOANS, ETC. HAVE ALSO BEEN INCREASED. HENCE I FIND THAT THE ASSESSEE HAS FULFILLED THE REQUIREMENTS FOR DEDUCTION U/S 11 AND SO THE BENEFI T OF CHAPTER III IN RESPECT OF SECTION 11-13 IS ALLOWED TO THE ASSESSEE. ACCORDINGLY INCOME IS ASSESSED AT RS. NIL. NO BROUG HT FORWARD LOSS/LOSSES OF THE EARLIER YEARS ARE TO BE ADJUSTED AS THE INCOME IS EXEMPT U/S 11 & 12 OF THE I.T. ACT. ISSUE NECESSARY FORMS. 3. THE ASSESSEE HAS FILED AN APPEAL BEFORE LD. CIT (A) CONTENDED THEREIN THAT AO HAS ERRED IN DISALLOWING CLAIM TO CARRY FORWARD THE BRO UGHT FORWARD LOSSES OF EARLIER YEARS AT RS. 1,41,32,428/-. LD. CIT (A) AGAIN DID NOT MAKE MUCH DISCUSSION ON THE ISSUE RATHER HE OBSERVED THAT HIS PREDECESSOR IN THE CASE OF M/S. C ITY EDUCATIONAL & SOCIAL WELFARE SOCIETY HAS CONSIDERED AN ISSUE IN HIS ORDER DATED 24 TH AUGUST, 2004 PASSED IN APPEAL NO. AN 85/2003-04 TO THE EFFECT THAT INCOME SHALL BE FIRST COMPUTED BY APPLYING THE COMMERCIAL PRINCIPLE. IN CASE THERE IS A LOSS IT HAS TO BE CAR RIED FORWARD AND ADJUSTED AGAINST THE INCOME IN THE SUBSEQUENT YEARS AND AFTER THAT IF THERE IS AN INCOME AND SO MUCH OF IT HAS BEEN APPLIED TO CHARITABLE PURPOSE WILL QUALIFY FOR EXEM PTION U/S 11. LD. CIT (A) FOLLOWING THAT ORDER HAS ALLOWED THE APPEAL FOR ASSESSEE BY RECORD ING THE FOLLOWING FINDINGS:- 4. FOLLOWING THE DECISIONS OF MY LEARNED PREDECESS ORS AS ABOVE AND THE DECISIONS OF VARIOUS COURTS AS NOTED BELOW, I HOLD THAT CONSIDERING THE FACTS IN TOTALITY AND A CATEGORICAL FINDING THAT IN THE CASES OF TRUS T ETC. CLAIMING EXEMPTION U/S 11, LOSSES MUST BE BROUGHT FORWARD AND ALLOWED, I AM OF THE VIEW THAT THE ASSESEES CLAIM IS ALLOWABLE. THE SAME IS ALLOWED. (I) CIT VS. AMRITA BEN & SODHAN SLP 4916-21 OF 2000 243-ITR (ST.) 150 150 (LAST PARA) (II) 247-ITR-(ST.) 3 (LAST PARA) ITA NO. 3726/DEL/09 3 (III) CIT VS. MATRI SEWA TRUST, 242-ITR-20 (MAD.) (IV) CIT VS. INSTITUTE OF BANKING, 264-ITR-110 (BOM .) (V) CIT VS. MAHARANA OF MEWAR CHARITABLE FOUDATION, 164-ITR-439 (VI) GOVINDU NAICKER ESATE VS. ADIT, 248-ITR-368 4. LD. DR HAS SUBMITTED THAT THIS ISSUE HAS BEEN CO NSIDERED BY THE ITAT AT DELHI IN THE CASE OF PUSHPAWATI SINGTHANIA RESEARCH INSTITUTE VS .. DDI (EXEMPTION) REPORTED IN 29 SOT 316. THE TRIBUNAL AFTER PUTTING RELIANCE UPON THE J UDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INDIAN NATIONAL THEATRE TRUST R EPORTED IN 305 ITR 149 HAS HELD THAT INCOME OF THE TRUST IS NOT TO BE COMPUTED ON PRINCI PAL OF BUSINESS INCOME WHICH CONTAINS PROVISION OF CARRY FORWARD OF LOSSES OF EARLIER YE AR AND SET UP SUCH LOSSES AGAINST INCOME OF CURRENT YEAR. HE SUBMITTED THAT IN VIEW OF HONBLE DELHI HIGH COURTS DECISION FOLLOWED BY THE ITAT DELHI THE APPEAL OF THE REVENUE DESERVES T O BE ALLOWED AND THE ORDER OF THE LD. CIT (A) DESERVES TO BE SET ASIDE. LD. COUNSEL FOR T HE ASSESSEE ON THE OTHER HAND PLACED ON RECORD COPIES OF LD. CIT(A)S ORDER IN THE CASE OF M/S. CITY EDUCATIONAL & SOCIAL WELFARE SOCIETY WHICH HAS BEEN FOLLOWED BY LD. CIT(A) HEREI N . HE CONCEDED THAT JUDGMENT OF HONBLE DELHI HIGH COURT IS AGAINST THE ASSESSEE BU T HE POINTED OUT THAT THERE ARE FOUR JUDGMENTS OF DIFFERENT HIGH COURTS WHICH ARE IN FAV OUR OF THE ASSESSEE. HE RELIED UPON THE FOLLOWING DECISIONS:-. 1. CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MAN DAL REPORTED IN 211 ITR 293 (GUJARAT ) 2. CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION REPORTED IN 164 ITR 439 (RAJ.) 3. CIT VS. INSTITUTE OF BANKING REPORTED IN 264 ITR 110 (BOMBAY) 4. GONVINDU NAICKER ESTATE V. ASSTT. DIRECTOR OF IN COME TAX & OTHERS REPORTED IN 248 ITR 368 5. ON THE STRENGTH OF THESE DECISIONS HE CONTENDED THAT CONSISTENTLY IT HAS BEEN HELD THAT INCOME OF THE TRUST HAS TO BE DETERMINED BY APPLYING THE COMMERCIAL PRINCIPLES. TAKING US THROUGH THE DECISION OF HONB LE GUJARAT HIGH COURT HE POINTED OUT THAT HONBLE COURT HAS OBSERVED THAT IF EXPENSE S FOR CHARITABLE AND RELIGIOUS ITA NO. 3726/DEL/09 4 PURPOSE HAVE BEEN INCURRED FOR THE EARLIER YEAR AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR, THE INCO ME OF THAT YEAR CAN BE SAID TO HAVE BEEN APPLIED FOR CHARITABLE AND RELIGIOUS PURP OSE IN THE YEAR IN WHICH THE EXPENSES INCURRED FOR CHARITABLE AND RELIGIOUS PURP OSE HAD BEEN ADJUSTED. THERE IS NOTHING IN THE LANGUAGE OF SECTION 11 (1) (A) OF T HE ACT TO INDICATE THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF THE EARLIER YEAR, WOULD NOT AMOUNT TO SUCH INCOME BEING APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE. INCOME DERIVED FROM TRUST PROPER TY HAS TO BE DETERMINED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIP LES FOR DETERMINING THE INCOME APPLIED IT IS BUT NATURAL THAT THE ADJUSTMENT OF TH E EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YE AR AGAINST INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARD ED AS APPLICATION OF THE INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN MADE. HE FURTHER POINTED OUT TH AT THIS CASE IS FROM MEERUT AND UNDER THE JURISDICTION OF ALLAHABAD HIGH COURT, THE DECISION OF HONBLE DELHI HIGH COURT AND OF ITAT WILL NOT BE APPLICABLE. THE JUDGM ENTS WHICH ARE IN FAVOUR OF ASSESSEE ARE REQUIRED TO BE FOLLOWED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. FROM THE PERUSAL OF THE ORDERS IT REVEAL S THAT NONE OF THE AUTHORITY HAS DISCUSSED THE COMPLETE FACT REGARDING TO THE DISPUT E. THE ORDER OF THE LD. CIT(A) IS RUNNING ONLY INTO ONE PARAGRAPH PROPOUNDING THE RAT IO ON THE ISSUE . TO OUR MIND THE QUESTION OF LAW WOULD COME LATER ON, FIRST THERE SH OULD BE THE DISCUSSION OF FACT. THE AO IS TOTALLY SILENT ABOUT THE CLAIM OF ASSESSEE. H E HAS JUST ASSESSED THE INCOME AS NIL AND NOT OBSERVED A SINGLE WORD WHAT TREATMENT H E IS GIVING WITH REGARD TO THE ITA NO. 3726/DEL/09 5 CLAIM OF RS. 1,41,32,428/- WHICH HAS BEEN CLAIMED A S CARRY FORWARD FOR EARLIER YEARS. IF IT WAS ALLOWED AS A CARRY FORWARD FROM EARLIER Y EARS IT HAS TO BE SET OFF FOR THIS YEAR OR AO OUGHT TO HAVE STATED THE REASON FOR NOT PERMI TTING ITS FURTHER CARRY FORWARD. IN OUR OPINION ALL THESE FACTS ARE REQUIRED TO BE LOOK ED INTO. AS FAR AS THE PROPOSITION OF LAW PROPOUNDED BEFORE US IS CONCERNED IT WILL BE AP PLIED ON THE GIVEN SET OF FACTS. WE, THEREFORE, DEEM IT APPROPRIATE TO SET ASIDE THI S ISSUE TO THE FILE OF AO FOR READJUDICATION. IT IS NEEDLESS TO SAY THAT OBSERVAT ION MADE BY US WHILE RECORDING THE ARGUMENT OF BOTH REPRESENTATIVE WOULD NOT IMPAIR OR INJURE THE CASE OF AO OR WILL CAUSE ANY PREJUDICE TO THE EXPLANATION / DEFENCE OF ASSESSEE IN CLAIMING THE CARRY FORWARD OF LOSSES. 7. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31.12.2009. [DEEPAK R SHAH] [RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R VEENA DATED : COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY R EGISTRAR, ITAT