Kittur Rani Channamma Memoriel Committee, Belgaum V. Asst. Commissioner of Income tax Cir. 1, Belgaum

ITA 417/PAN/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1041 (ITAT-PANAJI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 19-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Application of stay; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI GEORGE MATHAN , HONBLE JUDICIAL MEMBER AND SHRI N.K. BILLAIYA , HONBLE ACCOUNTANT MEMBER ITA NO. 269 & 417 /PNJ/2013 AND S.A.NO . 13/PNJ/2014 (ASST. YEAR : 200 7 - 0 8 ) KITTUR RANI CHANNAMMA MEMORIAL COMMITTEE & KRCRS SCHOOL FOR GIRLS, KITTUR, TAL : BAILHONGAL, DIST. BELGAUM . VS. A CIT, CIRCLE - 1, BELGAUM . PAN NO. AAATK 8054 G (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY S. MUDNUR - CA DEPARTMENT BY : SHRI M.R. BANGARI - D.R. DATE OF HEARING : 12 / 0 6 /2015 . DATE OF PRONOUNCEMENT : 12 / 0 6 /201 5 . O R D E R PER N.K. BILLAIYA TH E S E BUNCH OF APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE CONVENIENCE AND BREVITY . 2. AT THE VERY OUTSET , THE COUNSEL FOR THE ASSESSEE STATED THAT THE APPEAL FILED ON 23/09/2013 IS BEING PRESSED. LEARNED DR DID NOT 2 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 OBJECT TO THIS. SO , WE HAVE DECIDED TO PROCEED WITH THE ORIGINAL GROUNDS O F APPEAL FILED ALONG WITH FORM NO. 36 ON 23/09/2013. 3. THE FIRST TWO GRIEVANCE OF THE ASSESSEE RELATES TO THE TREATMENT OF RECEIPTS FROM SALE OF WOMENS DAY FLAGS AND BOOKS OF EMINENT WOMEN AS REVENUE RECEIPTS . 4 . BRIEFLY STATED THE FACTS OF THE CASE A RE THAT THE ASSESSEE IS RUNNING A RESIDENTIAL SCHOOL AT KITTUR . ASSESSEE IS A CHARITABLE TRUST WITHIN THE MEANING OF SEC. 2(15) OF THE ACT CLAIMING EXEMPTION U/S.11 . 4.1 WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE TRUST HAS SHOWN RECEIPTS ON ACCOUNT OF SCHOOL FEES AND OTHER FEES AT RS. 2,89,45,292/ - OUT OF WHICH RS. 2,19,70,929/ - HAS BEEN CLAIMED AS REVENUE EXPENDITURE , T HEREBY SHOWING A SURPLUS OF RS. 69,74,363/ - . THE ASSESSEE TRUST IS ALSO RUNNING A MEMORIAL COMMITTEE WHEREIN IT HAS SHOWN RECEIPTS BY WAY OF INTEREST INCOME AND MISCELLANEOUS INCOME OF RS. 32,88,226/ - AND HAS SPENT A SUM OF RS. 13,35,910/ - AS REVENUE EXPENDITURE AND HAS SHOWN A SURPLUS OF RS. 19,52 ,316/ - . THE COMBINED SURPLUS WAS SHOWN AT RS. 89,26,679/ - . ON PERUSING THE STATEMENT OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN 3 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 ACCUMULATED INCOME AT RS. 1,99,33,333/ - FOR SPECIFIC PURPOSES . THE ASSESSEE WAS ASKED TO EXPLAIN THE DIFFERENCE. ASSESSEE FILED A REVISED STATEMENT WHICH WAS ACCEPTED. AS PER REVISED STATEMENT, THE ASSESSEE HAS STATED THAT IT HAS SPENT A SUM OF RS. 46,54,344/ - TOWARDS CAPITAL EXPENDITURE. THE BALANCE AFTER ACCUMULATION OF RS.42,72,335/ - H AS BEEN CLAIMED AS EXEMPT AS PER THE PROVISIONS OF SEC. 11(1) OF THE ACT. 4.2 ON PERUSING THE BALANCE SHEET OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS RECEIVED A SUM OF RS. 29,03,109/ - ON ACCOUNT OF SALE OF WOMENS DAY FLAGS AND THE SAME HAS BEEN CREDITED TO THE CAPITAL FUND . THE ASSESSEE WAS ASKED TO EXPLAIN WHY THIS AMOUNT RECEIVED ON ACCOUNT OF SALE OF FLAGS IS CAPITAL IN NATURE AND WHY THIS AMOUNT SHOULD NOT BE TREATED AS REVENUE RECEIPT. IT WAS EXPLAIN ED THAT THE COMMITTEE HAS BEEN SPECIFICALLY DIRECTED AND PERMITTED BY THE GOVT. OF KARNATAKA FOR DISTRIBUTING FLAGS OF KITTUR RANI CHANNAMMA WHICH IS COMMEMORATED AS WOMEN S DAY. NECESSARY DOCUMENTS/ORDERS FROM THE GOVT. OF KARNATAKA WERE SUPPLIED. IT WAS EXPLAINED THAT THE INTENTION OF THE GOVT. WAS CLEAR ABOUT CREATION OF SEPARATE CAPITAL FUND OUT OF SALE PROCEEDS RECEIVED ON ACCOUNT OF SALE OF FLAGS. 4 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 4.3 THIS EXPLANATION OF THE ASSESSEE WAS DISMISSED BY THE ASSESSING OFFICER, WHO WAS OF THE FIRM BELIEF THAT THERE IS NO SPECIFIC DIRECTION TO TREAT THE SALE OF FLAGS AS CAPITAL RECEIPTS. DRAWING SUPPORT FROM THE PROVISIONS OF SEC. 2(24)(IIA) , THE ASSESSING OFFICER WAS OF THE OPINION THAT ALL VOLUNTARY CONTRIBUTIONS RECEIVED BY THE TR UST IN WHATEVER MANNER IS INCOME OF SUCH TRUST. THE ASSESSING OFFICER OBSERVED TH A T IN THE CASE IN HAND, THE INCOME IS FROM THE SALE OF FLAGS AND, THEREFORE, CANNOT BE TERMED AS CONTRIBUTION TOWARDS CORPUS OF THE TRUST. THE ASSESSING OFFICER P ROCEEDED BY TREATING THE ENTIRE AMOUNT OF RS. 29,03,109/ - AS REVENUE RECEIPT. AFTER ALLOWING THE DEDUCTION OF RS. 46,582/ - TOWARDS PRINTING OF THESE FLAGS , RS. 28,56,527/ - IS TREATED AS REVENUE RECEIPT. 4.4 THE ASSESSING OFFICER FURTHER FOUND THA T THE ASSESSEE HAS COLLECTED RS. 5,134/ - ON ACCOUNT OF SALE OF BOOKS OF EMINENT WOMEN AND THE SAME WAS ALSO TREATED AS CAPITAL RECEIPT. THE ASSESSEE WAS ASKED TO JUSTIFY THE SAME. THE ASSESSEE EXPLAINED THAT SALE PROCEEDS ARE TOWARDS RECOVERY OF COST OF BOOKS AND NO ELEMENT OF PROFIT IS INVOLV ED. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER, WHO TREATED THE NET AMOUNT OF RS. 4,679/ - AS REVENUE RECEIPT. 5 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 4.5 PROCEEDING FURTHER , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AMOUNTING TO RS. 21,52,373/ - . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ENTIRE COST OF CAPITAL ASSETS AMOUNTING TO RS. 2,33,06,839/ - HAVE ALREADY BEEN CLAIMED TOWARDS APPLICATION OF INCOME. THE CLAIM OF DEPRECIATION IS NOT ALLOWABLE AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF INDIA & OTHERS (199 ITR 43 ) . THE CLAIM OF DEPRECIATION WAS, ACCORDINGLY, DISALLOWED. 4.6 THE ASSESSING OFFICER FURTHER DENIED THE CLAIM OF SET OFF OF THE EXCESS UTILIZATION TOWARDS OBJECTS OF THE TRUST OF THE EARLIER YEARS AGAINST THE RECEIPT OF THE CURRENT YEAR. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS . 5. AGGRIEVED BY THIS, ASSESSEE IS BEFORE US. 6. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE ORDER OF THE GOVT. OF MYSORE . IT IS THE SAY OF THE COUNSEL THAT PURSUANT TO THIS ORDER OF THE GOVT., THE ASSESSEE TRUST PROCEEDED BY SELLING FLAGS ON WOMENS DAY. COUNSEL FURTHER POINTED OUT THAT THIS FUND SHALL BE UTILIZED MAINLY FOR INCURRING RECURRING AND NON - RECURRING EXPENDITURE CONNECTED WITH 6 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 THE KITTUR RANI CHANNAMMA MEMORIAL PRIMARY & HIGH SCHOOL FOR GIRLS AT KITTUR IN BELGAUM. THEREFORE, THE SALE RECEIPTS FROM THE FLAGS HAVE BEEN TREATED AS CAPITAL RECEIPTS . INSOFAR AS THE RECEIPT FROM SALE OF BOOKS IS CONCERNED, THE COUNSEL STATED THAT THE SAME HAS BEEN REDUCED FROM THE STOCK OF BOOKS , THEREBY TREATING THE SAME AS REVENUE RE CEIPT. 7 . PER CONTRA , LEARNED DR STRONGLY SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES . 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. A CAREFUL READING OF THE ASSESSMENT ORDER SHOWS THAT THE A.OS DECISION IS SIMPLY BASED ON THE FACT THAT NO DIRECTION LETTERS WERE GIVEN BY THE DON O R S BY WHICH RECEIPTS FROM SALE OF FLAGS CAN BE TREATED AS CAPITAL RECEIPT. THE REVENUE AUTHORITIES HAVE IGNORED THE APPLICATION OF SALE PROCEEDS OF FLAGS OF WOMENS DAY WHEN THE GOVT. HAS SPECIFICALLY ORDERED FOR UTILIZATION OF THE FUNDS FOR THE PURPOSES OF MAINTENANCE OF SCHOOL BUILDINGS . THUS, IT CAN BE SAFELY CONCLUDED THAT THE INTENTIONS WERE CLEAR THAT THE SALE PROCEEDS HAVE TO BE TREATED AS CAPITAL RECEIPTS. A SIMILAR VIEW WAS TAKEN BY THE C OORDINATE B ENCHES OF THE TRIBUNAL MUMBAI IN THE CASE OF DDIT(E)1(2) VS. SWATI EDUCATION TRUST IN I.T.A.NO. 2981/MUM/ 2009 . IT IS NOT THE CASE OF THE REVENUE THAT 7 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 THE SALE PROCEEDS HAVE NOT BEEN FULLY UTILIZED FOR THE SPECIFIC PURPOSE , FOR WHICH IT WAS PERM ITTED BY THE GOVT. OF KARNATAKA. 8.1 ON THE OTHER HAND , WE FIND THAT THE SALE PROCEEDS HAVE BEEN UTILIZED FOR SPECIFIC PURPOSE OF MAINTENANCE OF SCHOOL BUILDING AND OTHER INFRASTRUCTURE, THEREBY FULFILLING THE REQUIREMENT OF SEC. 11(1)(D) OF THE ACT. SINCE IN THE CASE OF THE ASSESSEE, NO SUCH VIOLATION OF CORPUS BEING UTILIZED FOR OBJECTS OF THE TRUST HAS BEEN NOTICED OR ESTABLISHED BY THE ASSESSING OFFICER , I T CANNOT BE HELD THAT THE SALE PROCEEDS OF FLAGS ON WOMENS DAY ARE NOT IN THE NATURE OF CAPIT AL RECEIPTS. WE, THEREFORE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO TREAT THE SALE PROCEEDS AS A CAPITAL RECEIPT . 8.2 INSOFAR AS THE TREATMENT OF SALE PROCEEDS OF BOOKS AS CAPITAL RECEIPT IS CONCERNED, WE FIND TH A T THE REVENUE AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE FACTS . T HE SURPLUS HAS BEEN REDUCED FROM THE STOCK, TH E REBY TREATING THE SAME AS REVENUE RECEIPT. THEREFORE , NO SEPARATE ADDITION IS CALLED FOR AND THE SAME IS DIRECTED TO BE DELETED. 8.3 INSOFAR AS THE DIS ALLOWANCE OF DEPRECIATION IS CONCERNED, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE 8 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 R E VENUE BY THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (264 ITR 110) . THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT, THE CLAIM OF DEPRECIATION IS ALLOWED. 9. THE LAST GRIEVANCE OF THE ASSESSEE RELATES TO WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLICATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES. 10 . IN OUR CONSIDERED OPINION, INCOME DERIVED FROM THE TRUS T PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED, THEN ADJUSTMENT OF EXPENDITURE INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEARS IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PR OVISIONS CONTAINED IN SEC. 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST U/S. 11(1) ( A) OF THE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE HONBLE GUJARAT HIGH 9 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 COURT IN THE CASE OF CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (211 ITR 293). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SET OFF OF EARLIER YEARS EXCESS EXPENDITURE TO THE INCOME OF THE ASSESSEE FOR THE CURRENT YEAR. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLO WED, THEREBY MAKING GROUND N O .7 OF THE APPEAL AS OF ACADEMIC INTEREST. I.T.A.NO. 417/PNJ/2013 12. AS WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE IN I .T.A.NO. 269/PNJ/2013, THIS APPEAL OF THE ASSESSEE BECOMES INFRUCTUOUS. S.A.NO. 13/PNJ/2014 13. SINCE WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE VIDE I.T.A.NO. 269/PNJ/2013, THE STAY APPLICATION OF THE ASSESSEE BECOMES INFRUCTUOUS. 14. IN THE RESULT, APPEAL IN I.T.A.NO. 269/ PNJ/2013 IS ALLOWED AND I.TA.NO. 417/PNJ/2013 & S.A.NO. 13/PNJ/2014 ARE DISMISSED AS INFRUCTUOUS. ( ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE , 201 5 ). S D / - S D / - ( GEORGE MATHAN ) ( N.K. BILLA I YA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 1 5 T H J UNE , 201 5 . 10 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 11 ITA NO. 269 & 417/PNJ/2013 S.A.NO. 13/PNJ/2014 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 1 2 .06.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 2 .06.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 1 2 /06/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 1 5 /06/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 5 /06/2015 SR.PS 6. DATE OF PRONOUNCEMENT 1 2 /06/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 5 /06/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER