Jyothy Charitable Trust, Bangalore V. Deputy Commissioner Of Income Tax, (Exemptions) Circle- 1, Bangalore

ITA 389/BANG/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4637 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-02-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 15-05-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KANNAN NARAYANAN J
• Assessee Lawyers: B S BALACHANDRAN
• Keywords: Depreciation; Charitable institution; Benefit of exemption; Revenue expenditure
• Section: 13; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A, BANGALORE BEFORE SHRI CHANDRA POOJARI, AM & SHRI GEORGE GEORGE K, JM ITA NO.389/BANG/2020 : ASST.YEAR 2013-2014 M/S.JYOTHY CHARITABLE TRUST NO.31, PAMPAMAHAKAVI ROAD SHANKARAPURAM BANGALORE 560 004. PAN : AAATJ2585R. V. THE DY.COMMISSIONER OF INCOME-TAX (EXEMPTION) BANGALORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI.B.S.BALACHANDRAN, ADVOCATE RESPONDENT BY : SRI.KANNAN NARAYANAN, JCIT-DR DATE OF HEARING : 11.02.2021 DATE OF PRONOUNCEMENT : 11.02.2021 O R D E R PER GEORGE GEORGE K, JM: THIS APPEAL INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), DATED 16.03.2020. THE RELEVANT ASSESSMENT YEAR IS 2013-2014. 2. THE GROUNDS RAISED READ AS FOLLOWS:- 1. THE ORDER OF THE LOWER AUTHORITIES IS NOT MAINTAINABLE IN LAW AND LIABLE TO BE REVERSED ON FACTS AND LAW APPLIABLE IN SO FAR AS NON-ALLOWABLE OF 15% OF TOTAL INCOME U/S 11(1)(A) OF THE ACT IS CONCERNED. 2. THE LEARNED AUTHORITIES ERRED IN NOT ALLOWING STATUTORY 15% ALLOWANCE U/S 11(1)(A) ON THE PREMISE THAT THERE IS NO SURPLUS LEFT AFTER ALLOWANCE OF APPLICATION OF INCOME FOR THE OBJECTS OF THE TRUST. 3. THE LEARNED AUTHORITIES FAILED TO CONSIDER AND APPRECIATE THAT STATUTORY ALLOWANCE OF 15% OF TOTAL INCOME U/S 11(1)(A) HAS TO BE ALLOWED BEFORE DEDUCTION OF THE ACTUAL APPLICATION OF INCOME FOR THE OBJECTS OF THE TRUST AND THIS SETTLED VIEW IS SUPPORTED BY THE DECISION OF THE LOCAL ITAT WHICH IS BINDING ON ITA NO.389/BANG/2020 M/S.JYOTHY CHARITABLE TRUST. 2 THE LOCAL AUTHORITIES AND AS SUCH SHOULD HAVE ALLOWED THE DEDUCTION OF 15% OF GROSS INCOME U/S 11(1)(A) OF THE ACT. FOR THESE AND ANY OTHER GROUND THAT MAY BE URGED DURING THE HEARING, IT IS PRAYED THAT THIS APPEAL MAY BE ALLOWED IN THE INTERESTS OF EQUITY AND JUSTICE. 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOW: FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSING OFFICER DID NOT ALLOW STATUTORY ALLOWANCE OF 15% U/S 11(1)(A) OF THE I.T.ACT ON THE GROUND THAT THERE WAS NO SURPLUS LEFT AFTER DEDUCTING THE APPLICATION OF INCOME. THE RELEVANT OBSERVATION OF THE A.O. READS AS FOLLOW:- 6. IT HAS BEEN NOTED THAT THE ASSESSEE HAS SHOWN EXCESS EXPENDITURE OF RS.1,28,15,154/- APPLIED DURING THE YEAR. THE EXCESS EXPENDITURE IS NOT ALLOWED TO BE CARRIED FORWARD BECAUSE AS PER THE PROVISIONS OF SECTION 11, THE APPLICATION OF CURRENT YEARS INCOME IS ALLOWABLE. THEREFORE AS THE EXCESS APPLICATION DOES NOT PERTAIN TO THE INCOME OF THE CURRENT YEAR, IT CANNOT BE ALLOWED AS PER THE PROVISIONS OF SECTION 11. ALSO, THE ASSESSMENTS OF TRUSTS HAVE TO FOLLOW THE PROVISIONS AS PER SECTIONS 11 AND 13 OF THE INCOME TAX ACT, 1961. ALTHOUGH THESE SECTIONS EXPRESSLY ALLOW FOR ACCUMULATION OF SURPLUS UNDER SEC.11(1)(A) AND 11(2), IT IS TO BE NOTED THAT THERE IS NO PROVISION AVAILABLE TO THE ASSESSEE FOR CARRY FORWARD OF LOSSES ARISING DUE TO EXCESS APPLICATION IN A SINGLE YEAR. HENCE THE CARRY FORWARD OF CURRENT YEARS EXCESS EXPENDITURE IS NOT ALLOWED. THE ASSESSEE ALSO HAS TO FOLLOW THE PROVISIONS OF THE ACT IN ACCUMULATION U/S 11(1)(A) AND 11(2), ONLY WHEN THERE IS SURPLUS. 7. ASSESSEE HAS RELIED ON THE DECISION OF JURISDICTIONAL TRIBUNAL ORDER IN THE CASE OF JYOTHI CHARITABLE TRUST IN IT NO.662/BNG/2015 DATED 14.08.2015 AND OTHER JUDICIAL DECISION. HOWEVER THE ORDER OF HONBLE ITAT HAS NOT BEEN ACCEPTED BY DEPARTMENT AND FURTHER APPEAL IS FILED AND NOT REACHED FINALITY. THEREFORE DEPRECIATION IS DISALLOWED. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE LEARNED CIT(A) UPHELD THE VIEW TAKEN BY THE A.O. ITA NO.389/BANG/2020 M/S.JYOTHY CHARITABLE TRUST. 3 5. THE ASSESSEE BEING AGGRIEVED, HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED AR SUBMITTED THAT IT IS SETTLED LAW THAT 15% ALLOWANCE U/S 11(1)(A) OF THE I.T. ACT HAS TO BE ALLOWED ON THE TOTAL INCOME BEFORE ALLOWING DEDUCTION FOR APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND DEDUCTION IN RESPECT OF APPLICATION OF INCOME HAS TO BE ALLOWED THEREAFTER TO ARRIVE AT THE SURPLUS OR DEFICIT. IN THIS CONTEXT, THE LEARNED AR RELIED ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-2012 IN ITA NO.662/BANG/2015 (ORDER DATED 14.08.2015). 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE INCOME TAX AUTHORITIES. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SETTLED LAW THAT 15% ALLOWANCE U/S 11(1)(A) OF THE I.T.ACT HAS TO BE ALLOWED ON THE GROSS RECEIPTS. THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011- 2012 (SUPRA) HAD DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-2012, READS AS FOLLOW:- 15. THE THIRD ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER 15% ACCUMULATION FOR APPLICATION IN FUTURE HAS TO BE CALCULATED ON GROSS RECEIPTS OR NET RECEIPTS AFTER DEDUCTION OF REVENUE EXPENDITURE. THE ASSESSEE CLAIMED ACCUMULATION OF INCOME FOR APPLICATION FOR CHARITABLE PURPOSE AT 15% OF THE GROSS RECEIPTS. THE AO WAS OF THE VIEW THAT ACCUMULATION WILL BE ALLOWED ONLY TO THE EXTENT OF 15% OF THE INCOME AFTER REVENUE EXPENDITURE. IN OTHER WORDS INCOME TO BE SET APART U/S.11(1)(A) OF THE ACT HAS TO BE COMPUTED AT 15% OF THE NET INCOME I.E., GROSS RECEIPTS MINUS REVENUE EXPENDITURE AND NOT ON THE GROSS RECEIPTS AS CLAIMED BY THE ASSESSEE. SINCE IN THE CASE OF THE ASSESSEE, THE GROSS RECEIPTS AFTER REVENUE EXPENDITURE WAS NIL, THE AO DENIED THE BENEFIT OF ACCUMULATION TO THE ASSESSEE. 16. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO. HENCE GROUND NO.4 RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL. ITA NO.389/BANG/2020 M/S.JYOTHY CHARITABLE TRUST. 4 17. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHETHER FOR THE PURPOSE OF COMPUTING ACCUMULATION OF INCOME OF 15% UNDER SEC.11(1)((A) OF THE ACT, ONE HAS TO TAKE THE GROSS RECEIPTS OR GROSS RECEIPTS AFTER EXPENDITURE FOR CHARITABLE PURPOSE I.E., THE NET RECEIPTS. THIS IS ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE SPECIAL BENCH MUMBAI IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST VS. ITO 93 ITD 0070 (SB). THE FACTS IN THE AFORESAID CASE WERE THAT THE ASSESSEE WAS A PUBLIC CHARITABLE TRUST ENJOYING EXEMPTION UNDER S. 11 OF THE IT ACT. AS PER THE REQUIREMENT OF S. 11(1) OF THE IT ACT, AS IT PREVAILED AT THAT POINT OF TIME, THE ASSESSEE HAD TO APPLY 75 PER CENT OF ITS INCOME FOR THE OBJECTS AND PURPOSES OF THE TRUST AND THE ASSESSEE WAS PERMITTED TO ACCUMULATE OR SET APART UP TO 25 PER CENT OF ITS INCOME, WHICH WAS SUBJECT TO FULFILLMENT OF OTHER CONDITIONS. WHILE CALCULATING THE AFORESAID 25 PER CENT, THE IMPORTANT QUESTION WHICH AROSE WAS AS TO WHETHER FOR THIS PURPOSE, THE GROSS INCOME EARNED BY THE ASSESSEE IS RELEVANT OR THE INCOME AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF IT ACT. IN OTHER WORDS, WHETHER OUTGOINGS FROM OUT OF GROSS INCOME WHICH ARE IN THE NATURE OF APPLICATION OF INCOME, SHOULD BE FIRST DEDUCTED FROM THE GROSS INCOME AND 25 PER CENT OF ONLY THE REMAINING AMOUNT SHOULD BE ALLOWED TO BE ACCUMULATED OR SET APART. THE SPECIAL BENCH OF THE ITAT ON THE ISSUE HELD AS FOLLOWS:- 9. COMING TO THE MERITS OF THE ISSUE, WE ARE OF THE VIEW THAT THE SAME IS CLEARLY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PROGRAMME FOR COMMUNITY ORGANIZATION (SUPRA). IN THE DECISION, THEIR LORDSHIPS, AFTER TAKING NOTE OF PROVISIONS OF S. 11(1)(A), HAVE HELD AS UNDER : 'HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISION, IT IS CLEAR THAT A CHARITABLE OR RELIGIOUS TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRESENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN THE SUM OF RS. 2,57,376, WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THEREOUT. IT IS UNCLEAR ON WHAT BASIS THE REVENUE CONTENDED THAT IT WAS ENTITLED TO ACCUMULATE ONLY TWENTY FIVE PER CENT OF RS. 87,010. FOR THE AFORESAID REASONS, THE CIVIL APPEAL IS DISMISSED.' IT IS CLEAR FROM THE ABOVE THAT DEDUCTION OF TWENTY-FIVE PER CENT WAS HELD TO BE ALLOWABLE NOT ON TOTAL INCOME AS COMPUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITURE, WHICH WAS APPLICATION OF INCOME, IS NOT TO BE CONSIDERED FOR DETERMINING TWENTY FIVE PER CENT TO BE ACCUMULATED. THEIR LORDSHIPS, AS NOTED EARLIER, AFFIRMED THE DECISION OF KERALA HIGH COURT IN (1997) 141 CTR (KER) 502 : (1997) 228 ITR 620 (KER) (SUPRA) WHEREIN IT IS HELD AS UNDER : 'AT THE OUTSET, THE STATUTORY LANGUAGE OF S. 11(1)(A) OF THE IT ACT, 1961, RELATES TO THE INCOME DERIVED BY THE TRUST FROM PROPERTY. THE TRUST IS REQUIRED TO BE WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO HAVE RELATION TO THE EXTENT TO WHICH ITA NO.389/BANG/2020 M/S.JYOTHY CHARITABLE TRUST. 5 SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. IT IS THEREAFTER THE STATUTORY PROVISION PROCEEDS 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 CONSIDERATION SETS APART 25 PER CENT OF THE INCOME FROM THE SOURCE OF PROPERTY WITH REFERENCE TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED FOR SUCH PURPOSES, CHARITABLE OR RELIGIOUS. IN OTHER WORDS, FOR THE PURPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELEVANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WHICH 25 PER CENT IS SET APART IN ACCORDANCE WITH THE SPIRIT OF THE STATUTORY PROVISION.' THIS MEANS THAT, WHEN IT IS ESTABLISHED THAT TRUST IS ENTITLED TO FULL BENEFIT OF EXEMPTION UNDER S. 11(1), THE SAID TRUST IS TO GET THE BENEFIT OF TWENTY-FIVE PER CENT AND THIS TWENTY-FIVE PER CENT HAS TO BE UNDERSTOOD AS INCOME OF THE TRUST UNDER THE RELEVANT HEAD OF S. 11(1). IN OTHER WORDS, INCOME THAT IS NOT TO BE INCLUDED FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME WOULD BE THE AMOUNT EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LORDSHIPS IN THE ABOVE CASE HAVE EMPHASIZED ON THE CLEAR AND UNAMBIGUOUS LANGUAGE OF S. 11(1)(A) AND DECIDED THE MATTER ON THE BASIS OF THE SAME. IT HAS BEEN HELD THAT AS PER THE STATUTORY LANGUAGE OF THE ABOVE SECTION THE INCOME WHICH IS TO BE TAKEN FOR PURPOSE OF ACCUMULATION IS THE INCOME DERIVED BY THE TRUST FROM PROPERTY. IF BOTH THE DECISIONS ARE CAREFULLY READ, IT BECOMES EVIDENT THAT ANY EXPENDITURE WHICH IS IN THE SHAPE OF APPLICATION OF INCOME IS NOT TO BE TAKEN INTO ACCOUNT. HAVING FOUND THAT TRUST IS ENTITLED TO EXEMPTION UNDER S. 11(1), WE ARE TO GO TO THE STAGE OF INCOME BEFORE APPLICATION THEREOF AND TAKE INTO ACCOUNT 25 PER CENT OF SUCH INCOME. THEIR LORDSHIPS HAVE POINTED THAT THE SAME HAS TO BE TAKEN ON 'COMMERCIAL' BASIS AND NOT 'TOTAL INCOME' AS COMPUTED UNDER THE IT ACT. THEIR LORDSHIPS IN THE DECIDED CASE REJECTED THE CONTENTION OF THE REVENUE THAT THE SUM OF RS 1,70,369 WHICH WAS SPENT AND APPLIED BY THE ASSESSEE FOR CHARITABLE PURPOSES WAS REQUIRED TO BE EXCLUDED FOR PURPOSE OF TAKING AMOUNT TO BE ACCUMULATED. HAVING REGARD TO THE CLEAR PRONOUNCEMENT OF THEIR LORDSHIPS OF THE SUPREME COURT, IT IS DIFFICULT TO ACCEPT THAT OUTGOINGS WHICH ARE IN THE NATURE OF APPLICATION OF INCOME ARE TO BE EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEFORE IT WAS APPLIED IS DIRECTED TO BE TAKEN AND THE SAME IN THE PRESENT CASE IS RS. 3,42,174. TWENTY FIVE PER CENT OF THE ABOVE INCOME IS TO BE ALLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRIAN ANJUMAN TRUST VS. CIT (SUPRA). NO REASON WHATSOEVER HAS BEEN GIVEN BY THE REVENUE AUTHORITIES FOR DEDUCTING RS. 2,17,126 IN THIS CASE FOR PURPOSES OF S. 11(1)(A). THE DECISION CITED ON BEHALF OF THE REVENUE DID NOT TAKE INTO ACCOUNT THE DECISION OF THE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF CBDT HAS ALSO BEEN CONSIDERED BY THE HONBLE KERALA HIGH COURT IN ITS ITA NO.389/BANG/2020 M/S.JYOTHY CHARITABLE TRUST. 6 DECISION REFERRED TO ABOVE. ACCORDINGLY THE QUESTION REFERRED TO IS ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 18. THE AFORESAID DECISION CLEARLY SUPPORTS THE PLEA OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ACCUMULATION U/S.11(1)(A) OF THE ACT SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. GROUND NO.4 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 8. IN VIEW OF THE CO-ORDINATE BENCH ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE HOLD THAT ACCUMULATION U/S 11(1)(A) OF THE I.T.ACT SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 11 TH DAY OF FEBRUARY, 2021 . SD/- SD/- ( CHANDRA POOJARI ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE; DATED : 11 TH FEBRUARY, 2021. DEVADAS G* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A)-14, BANGALORE 4. THE CIT (EXEMPTION), BANGALORE. 5. THE DR, ITAT, BENGALURU. 6. GUARD FILE. ASST.REGISTRAR/ITAT, BANGALORE