ACIT(E), Circle-2(1), New Delhi V. The British School Society, New Delhi

ITA 4579/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2556 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 11-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIH K CHOUDHARY
• Keywords: Depreciation; Charitable institution
• Section: 12A; 264; 13; 119; 12; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI G BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO. 4579 /DEL/2017 [A.Y 2014-15] THE A.C.I.T.[E] VS. THE BRITISH SCHOOL SOCIET Y CIRCLE - 2(1) SAN MARTIN MARG, CHANAKYAPURI NEW DELHI NEW DELHI PAN: AAATT 0271 C [APPELLANT] [RESPONDENT] ASSESSEE BY : SHRI HIMANSHU AGARWAL, ADV SHRI GAURAV JAIN, ADV SHRI DEEPESH JAIN, ADV REVENUE BY : SHRIH.K. CHOUDHARY , CIT-DR DATE OF HEARING : 21.06.2021 DATE OF PRONOUNCEMENT : 21.06.2021 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE CIT[A] - 40, DELHI DATED 29.05.2017 PERTAINING TO A .Y 201415. 2 2. THE GRIEVANCES OF THE REVENUE READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LD. CIT(A) HAS ERRED IN LAW IN ALLOWING THE CLAIM OF CARRY FORWARD OF LOSSES DISREGARDING THE FACT THAT SET OFF AND CARRY FORWAR D OF LOSSES ARE DEALT WITH BY THE PROVISIONS OF SECTION 70 TO 74 OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN LAW IN ALLOWING THE ASSESSEES CLAIM O F CARRY FORWARD OF CURRENT YEAR LOSS AND SET-OFF OF EXCESS DEFICIT PER TAINING TO EARLIER YEARS WITHOUT APPRECIATING THE FACT THAT U/S 11, 12 AND 13 OF THE ACT THERE IS NO PROVISION FOR COMPUTING LOSS FROM PROPE RTY HELD UNDER TRUST/INSTITUTION ON ACCOUNT OF EXCESS APPLICATION OF INCOME/FUNDS OF THE TRUST. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN ALLOWING THE ASSESSEES CLAIM O F CARRY FORWARD OF CURRENT YEAR LOSS AND SET OFF OF EXCESS DEFICIT PER TAINING TO EARLIER YEARS WITHOUT APPRECIATING THE FACT THAT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S 15 T O 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PURPOSE OF CLAIMING EXEMP TION UNDER SECTION 11,12 AND 13 AND THEREFORE THE PROVISIONS RELATING TO SET OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOU RCE, SET OFF OF LOSS FROM ONE HEAD AGAINST ANOTHER INCOME DERIVED F ROM ANOTHER HEAD AND CARRY FORWARD AND SET OFF OF LOSS AGAINST THE I NCOME OF SUBSEQUENT YEARS AS ENVISAGED U/S 70 TO 79 OF THE A CT ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/INSTITUTIONS. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE SOCIETY IS REGISTERED U/S 12A OF THE INCOME TAX ACT, 1961 [HE REINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] AND IS ALSO NOTIFIED U/S 80G( 5)(VI) OF THE ACT. THE ASSESSEE SOCIETY IS ALSO NOTIFIED U/S 10(23C)(VI) O F THE ACT. THE OBJECTS OF THE ASSESSEE SOCIETY ARE AS UNDER: 1. TO PROVIDE INSTRUCTION ACCORDING TO BRITISH STANDAR DS AND PRACTICE FOR BRITISH CHILDREN IN INDIA AND AT THE DISCRETION OF THE BOARD OF GOVERNORS FOR THE CHILDREN OF OTHER COMMONWEALTH AND FOREIGN COUNTRIES IN INDIA. 2. TO RECEIVE AND ACCEPT DONATIONS, ENDOWMENTS AND GI FTS OF MONEY, LAND, BUILDINGS, STOCKS FUNDS, SHARES, SECURITIES AND ANY OTHER PROPERTY WHATSOEVER WHETHER SUBJECT TO ANY SPECIAL TRUSTS OR CONDITIONS OR NOT. 3. TO INVEST MONEY OF THE SOCIETY NOT IMMEDIATELY REQ UIRED, IN SUCH MANNER AND UPON SUCH SECURITIES AS MAY BE DETERMINE D BY THE BOARD OF GOVERNORS FROM TIME TO TIME. THE ACTIVITIES OF THE ASSESSEE SOCIETY/ARE APPARENT LY CHARITABLE IN NATURE AND WITHIN THE MEANING OF SECTION 2(15) OF T HE INCOME TAX ACT, 1961. 4 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED AN AMOUNT OF RS. 9.92 CRORES AS DEFICIT ON ACCOUNT OF EXPENDITURE OV ER INCOME. THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF DEFICIT AN D THE SOURCE FROM WHICH IT HAS BEEN FINANCED. THE ASSESSEE EXPLAINED AS UN DER: ' PLEASE FIND BELOW A NOTE ON DEFICIT IN COMPUTATION OF INCOME AND SOURCE O MEETING THE DEFICIT. THE DEFICIT REFLECTED IN THE TAX COMPUTATION FOR TH E ASSESSMENT YEAR 2014-15 IS ON ACCOUNT OF EXCESS OF EXPENDITURE OVER INCOME BY RS. 9.92 CRORES. THE MAJOR EXPENDITURE, LEADING TO THE DEFICIT, IS T HE AMOUNT SPENT ON CONSTRUCTION OF NEW SCHOOL BUILDING REFLECTED IN BO OKS OF ACCOUNTS AS ADDITION IN CAPITAL WORK IN PROGRESS OF RS. 26.47 C RORES DURING THE FINANCIAL YEAR 2013-14. THE SCHOOL IS IN THE PROCES S OF CONSTRUCTION OF NEW SCHOOL BUILDING WHICH WILL BE COMPLETED IN THE F,Y. 2016-17. THE DEFICIT IS BEING FUNDED THROUGH RESERVES ACCUMU LATED OVER THE PAST MANY YEARS SINCE FOUNDING OF THE SCHOOL. THE R ESERVES HAD BEEN INVESTED IN FIXED DEPOSITS AND ARE NOW BEING LIQUID ATED, AS REQUIRED AS REFLECTED IN THE FINANCIAL STATEMENTS. 5 5. THE ASSESSING OFFICER DISMISSED THE CLAIM OF THE AS SESSEE OBSERVING THAT IF THE TRUST SPENDS MORE THAN THE INCOME, IT S HOULD BE EITHER FROM CORPUS OR FROM LOAN OBTAINED. THE APPLICATION SHOU LD ALWAYS BE FROM INCOME DERIVED OR INCOME SET APART OR ACCUMULATED I NCOME. THEREFORE, THE QUESTION OF CARRY FORWARD OF EXCESS EXPENDITURE /DEFICIT DOES NOT ARISE AT ALL IN THE CASE OF TRUSTS. ACCORDINGLY, ASSESSIN G OFFICER DENIED THE CLAIM OF CARRY FORWARD OF THE EXCESS OF EXPENDITURE/DEFIC IT OF RS. 9.92 CRORES. 6. THE ASSESSEE CARRIED THE MATTER BEFORE THE L D. CIT(A) AND ASSAILED THE ASSESSMENT CLAIMING THAT INCOME DERIVED FROM TH E TRUST SHOULD BE COMPUTED FROM SOUND COMMERCIAL PRINCIPLES AND THERE FORE, CARRY FORWARD AND SET OFF OF DEFICIT SHOULD BE ALLOWED. RELIANCE WAS PLACED ON SEVERAL JUDICIAL DECISIONS. 7. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCE S OF THE CASE AND RELYING ON VARIOUS DECISIONS OF THE HON'BLE HIGH COURTS, TH E LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW CARRY FORWARD OF NET DEF ICIT OF THE CURRENT YEAR. 8. BEFORE US, THE LD. DR VEHEMENTLY STATED THAT THE LD. CIT(A) OUGHT TO HAVE GONE INTO THE FACTS OF THE CASE AND SHOULD HAV E ANALYSED THE SOURCE OF INCOME FROM WHICH THE ASSESSEE HAS MET THE EXPEN DITURE. REFERRING TO 6 EXPLANATION 2 TO SECTION 11 , THE LD. DR STATED THAT THE FINDINGS OF THE LD. CIT(A) ARE AGAINST THE RELEVANT PROVISIONS OF THE ACT. 9. PRE CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LD. CIT(A) AND ONCE AGAIN RELIED UPON SEVERAL JUDICIAL DECISIONS. 10. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THE BONE OF CONTENTION IS CARRY FORWARD OF DEFICIT OF RS. 9,91,758/-. THE DEFICIT HAS BEEN COMPUTED AS UNDER: TOTAL INCOME AS PER INCOME & EXPENDITURE ACCOUNT 53,42,10,185/- EXPENDITURE AS PER INCOME & EXPENDITURE ACCOUNT 37,69,26,957/- LESS : DEPRECIATION 1 5591524/- PROVISION FOR LEAVE ENCASHMENT 1,62, 841/- PROVISION FOR GRATUITY 7 185475/- 2,29,39,840/- 35,39,87,117/- ADD : FIXED ASSETS ADDITIONS 1,23,1 8,625/- ADDITION IN CAPITAL WORK IN PROGRESS 26,46,65,18 2/- LEAVE ENCASHMENT PAID 14,483/- GRATUITY PAID 24,16,536/- 27,94,14,826/- 63 ,34,01,943/- ( 9,91,91,758) 7 11. THE HON'BLE BOMBAY HIGH COURT IN THE CASE O F INSTI TUTE OF BANKING PERSONNEL SELECTION 264 ITR 110 HAS HELD THAT INCOM E DERIVED FROM TRUST PROPERTY SHOULD BE COMPUTED ON SOUND COMMERCIAL PRI NCIPLES AND THIS INCLUDED CARRY FORWARD AND SET OFF OF DEFICIT IN TH E EARLIER YEAR. THE RELEVANT FINDINGS OF THE HON'BLE HIGH COURT READ AS UNDER: ' INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPL ES ARE APPLIED, THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CH ARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE RE GARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE A ND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINE D IN SECTION 11 AND SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE I NCOME OF THE TRUST UNDER SECTION LL(L)(A). ACCORDINGLY, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE INSTANT CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN ALLOWING CARRYING FORWARD OF THE DEFICIT OF EARLIER YEAR AND SET IT OFF AGAINST THE SURPLUS OF SUBSEQUENT YEARS .' 8 12. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 119 CTR 144 [GUJ] HAD THE OCCASION TO CONSIDER THE CBDT NO. 100 DATED 24.01.1973 WHICH AL LOWED REPAYMENT OF LOAN TAKEN IN EARLIER YEARS FOR FULFILMENT OF CHARI TABLE OBJECTS AS APPLICATION. 13. THE HON'BLE HIGH COURT WAS OF THE VIEW THAT THE SAME PRINCIPLE SHOULD APPLY IF INSTEAD OF TAKING THE LOAN THE ORGA NIZATION SPENT MORE OUT OF ITS CORPUS AND IT IS REIMBURSED IN SUBSEQUENT YE ARS. THE RELEVANT FINDINGS OF THE HON'BLE HIGH COURT READ AS UNDER: ACCORDING TO THE CIRCULAR NO. 100, IF A TRUST WANT S TO SPEND MORE MONEY FOR CHARITABLE AND RELIGIOUS PURPOSES IN A PA RTICULAR YEAR, IT CAN TAKE A LOAN AND THE SAID LOAN CAN BE REPAID OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND THE REPAYMENT OF THE SAID L OAN OUT OF THE INCOME OF THE SUBSEQUENT YEAR WOULD AMOUNT TO APPLI CATION OF INCOME FOR CHARITABLE AND RELIGIOUS PURPOSES UNDER SECTION 11(1)(A.). IF THE TRUST TAKES A LOAN FOR THE PURPOSES OF INCURRING EX PENSES FOR CHARITABLE AND RELIGIOUS PURPOSES IN A PARTICULAR Y EAR AND THE SAID LOAN IS REPAID OUT OF THE INCOME OF THE SUBSEQUENT YEAR, THE SAID REPAYMENT WOULD BE ENTITLED TO EXEMPTION FROM TAX U NDER SECTION LL(L)(A) IN VIEW OF THE CIRCULAR ABOVE REFERRED TO. BUT, IF THE TRUST INSTEAD OF TAKING A LOAN INAIRS EXPENSES FOR CHARIT ABLE AND RELIGIOUS PURPOSES OUT OF THE CORPUS OF THE TRUST AND SEEKS T O REIMBURSE THE 9 SAID AMOUNT OUT OF THE INCOME OF THE SUBSEQUENT YEA R, THE TRUST WOULD NOT BE ENTITLED TO CLAIM EXEMPTION IN RESPECT OF SUCH REIMBURSEMENT UNDER SECTION LL(L)(A) IF THE CONTENTION ADVANCED BY THE REVENUE WAS ACCEPTED. THE CONSTRUCTION WHICH LE ADS TO SUCH AN ANOMALY HAS GOT TO BE AVOIDED. THERE IS NOTHING IN THE LANGUAGE OF SECTION LL(L)(A) TO INDICATE THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR OR THAT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF THE EARLIER YEAR, WOULD NOT AMOUNT TO SUCH INCOME B EING APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES.' 14. THE ISSUES RAISED BY THE LD. DR HAVE BEEN A NSWERED BY THE HON'BLE HIGH COURT OF GUJARAT [SUPRA]. SIMILARLY, THE HON' BLE HIGH COURT OF DELHI IN THE CASE OF RAGHUVANSHI CHARITABLE TRUST 197 TAXMAN 170 HAS HELD THAT THE ASSESSEE TRUST CAN BE ALLOWED TO CARRY FORWARD DEFICIT OF CURRENT YEAR AND TO SET OFF THE SAME AGAINST THE INCOME OF SUBSE QUENT YEARS. 15. CONSIDERING THE FACTS OF THE CASE IN TOTALI TY, IN LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HEREINABOVE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). 10 16. IN THE RESULT THE APPEAL OF THE REVENUE IN IT A NO. 4579/DEL/2017IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT IN THE PR ESENCE OF BOTH THE REPRESENTATIVES ON 21.06.2021. SD/- SD/- [ KULDIP SINGH ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21 ST JUNE, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 11 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE DATE ON WHICH THE APPROVED DRAFT COMES TO DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE DATE ON WHICH THE FAIR ORDER COMES BACK TO DATE ON WHICH THE FINAL ORDER IS UPLOADED ON DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE DATE OF DISPATCH OF THE ORDER