MUMBAI HOCKEY ASSOCIATION LIMITED, MUMBAI V. INCOME TAX OFFICER (E)-1(1), MUMBAI

ITA 4993/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8328 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 20-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Depreciation; Charitable institution; Benefit of exemption
• Section: 12A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 4993 /MUM/ 2017 (ASSESSMENT YEAR 20 10 - 11 ) THE MUMBAI HOCKEY ASSOCIATION LTD. MAHINDRA STADIUM D - ROAD, CHURCHGATE MUMBAI - 400 020. PAN : AAACT3149E V S . THE I NCOME TAX OFFICER(E) - 1(1) ROOM NO. 508 5 TH FLOOR PIRAMAL CHAMBERS PAREL, MUMBAI - 400012. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI SATISH R. MODY DEPARTMENT BY MS. N. HEMALATHA DATE OF HEARING 6 .1 2 . 201 7 DATE OF PRONOUNCEMENT 6 . 1 2 . 201 7 O R D E R THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 13 - 07 - 2016 PASSED BY LD CIT(A) - I, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2010 - 11. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY LD CIT(A) ON THE FOLLOWING ISSUES: - (A) WHETHER THE ACCUMULATION OF 15% PROVIDED IN SEC. 11(1)(A) OF THE ACT IS ON GROSS INCOME OR ON NET INCOME. (B) WHETHER THE ASSESSEE IS ENTITLED TO SET OFF OF DEFICIT AMOUNT (EXCESS OF EXPENDITURE OVER THE INCOME) OF THE EARLIER YEARS AS APPLICATION OF INCOME OF CURRENT YEAR. (C) WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON ASSETS, THE COST OF WHICH HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME. 2. THE ASSESSEE IS A CHARITABLE INSTITUTION REGISTERED U/S 12A OF THE ACT. THE FIRST ISSUE RELATES TO THE QUANTUM THAT CAN BE ACCUMULATED U/S 11(1)(A) OF THE ACT. THE ASSESSEE CLAIMED ACCUMULATION DEDUCTION OF 15% ON THE GROSS INCOME OF THE ASSESSEE. THE AO RESTRICTED THE SAME ON THE NET INCOME AVAILABLE AFTER SETTING OFF OF VARIOUS DEDUCTIONS. THE L D CIT(A) ALSO CONFIRMED THE MU MBAI HOCKEY ASSOCIATION LTD. 2 THE SAME BY FOLLOWING THE DECISION RENDERED BY THE CO - ORDINATE BENCH IN THE CASE OF DAWAT INSTITUTE OF DAWOODI BOHRA COMMUNITY (22 SOT 359). 3. THE LD A.R SUBMITTED THAT THE ANOTHER DIVISION BENCH OF ITAT HAS CONSIDERED AN IDEN TICAL ISSUE IN THE CASE OF ADIT VS. SAYAJI UBAKHIN MEMORIAL TRUST (ITA NO.5646/MUM/2011 DATED 17 - 05 - 2013) AND HAS HELD THAT THE ACCUMULATION OF INCOME PROVIDED U/S 11(1)(A) IS AVAILABLE ON THE GROSS INCOME. IN SUPPORT OF THE SAID PROPOSITION, THE TRIBUNAL HAS PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRUSTEES OF BHAT FAMILY RESEARCH FOUNDATION AND THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. A.I.N. RAO CHARITABLE TRUST (1995)(129 C TR 205). HE SUBMITTED THAT THE DECISION RENDERED IN THE CASE OF SAYAJI UBAKHIN MEMORIAL TRUST (SUPRA) HAS BEEN FOLLOWED IN THE CASE OF SETH WALCHAND HIRACHAND MEMORIAL TRUST (ITA NO.4852/MUM/2016 DATED 29 - 03 - 2017). HE FURTHER SUBMITTED THAT THE MUMBAI SP ECIAL BENCH OF ITAT HAS ALSO CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST (93 ITD 70)(MUM - SB) AND HAS EXPRESSED THE VIEW THAT THE ACCUMULATION OF INCOME IS TO BE WORKED OUT ON THE INCOME DERIVED BY A TRUST FROM PROPERTY AND A NY EXPENDITURE, WHICH IS IN THE SHAPE OF APPLICATION OF INCOME IS NOT BE TAKEN INTO ACCOUNT. 4. ON THE CONTRARY, THE LD D.R PLACED RELIANCE ON THE ORDER PASSED BY LD CIT(A). 5. I HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. I NOTICE TH AT THE DIVISION BENCH OF MUMBAI ITAT HAS RENDERED ITS DECISION IN THE CASE OF SAYAJI UBAKHIN MEMORIAL TRUST (SUPRA) BY FOLLOWING THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRUSTEES OF BHAT FAMILY RESEARCH FOUNDATION AND THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. A.I.N. RAO CHARITABLE TRUST (1995)(129 CTR 205). FURTHER THE SPECIAL BENCH OF ITAT HAS ALSO TAKEN AN IDENTICAL VIEW IN THE CASE OF BAI SONABAI HIRJI THE MU MBAI HOCKEY ASSOCIATION LTD. 3 AGIARY TRUST (SUPRA). IN VIEW OF THE SP ECIAL BENCH DECISION, THE CLAIM OF THE ASSESSEE DESERVES ACCEPTANCE. 6. THE QUESTION THAT WAS URGED BEFORE THE SPECIAL BENCH HAS BEEN EXPLAINED AS UNDER BY THE SPECIAL BENCH: - THE RELEVANT FACTS MAY BE STATED IN BRIEF. THE ASSESSEE IS A PUBLIC CHARITAB LE TRUST ENJOYING EXEMPTION UNDER SECTION 11 OF THE IT ACT. ONE OF THE PRIME OBJECTS OF THE ASSESSEE - TRUST IS TO MEET THE REQUIREMENT OF HOUSING OF THE WEAKER SECTIONS OF THE SOCIETY. AS PER THE REQUIREME NT OF SECTION 11(1) OF THE IT ACT, THE ASSESSEE HAS TO APPLY 75% OF ITS INCOME FOR THE OBJECTS AND PURPOSES OF THE TRUST AND THE ASSESSEE IS PERMITTED TO ACCUMULATE OR SET APART UP TO 25% OF ITS INCOME, WH ICH IS SUBJECT TO FULFILLMENT OF OTHER CONDITIONS. WHILE CALCULATING THE AFORESAID 25%, THE IMPORTANT QUESTION WHICH ARISES IS 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% OF ONLY THE RE MAINING AMOUNT SHOULD BE ALLOWED TO BE ACCUMULATED OR SET APART. AFTER HEARING THE ARGUMENTS OF THE PARTIES, THE HONBLE SPECIAL BENCH DECIDED THE ISSUE AS UNDER: - 9. COMING TO THE MERITS OF THE ISSUE, WE ARE OF THE VIEW THAT THE SAME IS CLEARLY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. PROGRAMME FOR COMMUNITY ORGANIZATION (SUPRA), IN THE DECISION THEIR LORDSHIPS, AFTER TAKING NOTE OF PROVISIONS OF SECTION 11(1)(A) HAVE HERE 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 PERCENT 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 PERCENT 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 PERCENT WAS HELD TO BE ALLOWABLE NOT ON TOTAL INCOME AS COMPUTED U NDER THE INCOME - TAX ACT . THE MU MBAI HOCKEY ASSOCIATION LTD. 4 ANY AMOUNT OR EXPENDITURE, WHICH WAS APPLICATION OF INCOME, IS NOT TO BE CONSIDERED FOR DETERMINING TWENTY FIVE PERCENT TO BE ACCUMULATED. THEIR LORDSHIPS, AS NOTED EARLIER, AFFIRM ED THE DECISION OF KERALA HIGH COURT REPORTED IN 228 ITR 620 WHEREIN IT IS HELD AS UNDER. 'AT THE OUTSET, THE STATUTORY LANGUAGE OF SECTION 11(1)(A) OF THE INCOME - TAX ACT, 1961, RELATES TO THE INCOME DERIV ED 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 SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. IT IS THEREAFTER THE STATUTORY PROV ISION PROCEEDS FURTHER THAT SUCH INCOME IS NOT TO BE UNDERSTOOD TO BE IN EXCESS OF 25% OF THE INCOME FROM SUCH PROPERTIES. IN OTHER WORDS, THE VERY LANGUAGE OF THE STATUTORY PROVISION UNDER CONSIDERATION SETS APART 25% OF THE INCOME FROM THE SOURCE OF PROP ERTY WITH REFERENCE TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED FOR SUCH PURPOSES, CHARITABLE OR RELIGIOUS. IN OTHER WORDS, FOR THE PURPOSE OF THE SECTION 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELE VANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WHICH 25% 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 SECTION 11(1) , THE SAID TRUST IS TO GET THE BENEFIT OF TWENTY FIVE PERCENT AND THIS TWENTY FIVE PERCENT HAS TO BE UNDERSTOOD AS INCOME OF THE TRUST UNDER THE RELEVANT HEAD OF SE CTION 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 LANGUA GE OF SECTION 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 EXEMP TION UNDER SECTION 11(1) , WE ARE TO GO TO THE STAGE OF INCOME BEFORE APPLICATION THEREOF AND TAKE INTO ACCOUNT 25% 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 INCOME - TAX 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. THE MU MBAI HOCKEY ASSOCIATION LTD. 5 HAVING REGARD TO THE CLEAR PRONOUNCEMENT OF THEIR LORDSHIPS OF THE SUPREME COURT IT IS DIFFICULT TO ACCEPT THAT OUTGOINGS WHICH ARE IN THE NATU RE 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 PERCENT OF THE ABOVE INCOME IS TO BE ALLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HON'BLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRIAN ANJUMAN TRUST MHOW V. CIT 163 ITR 832. NO REASON WHATSOEVER HAS BEEN GIVEN BY THE REVENUE AUTHORITIES FOR DEDU CTING RS. 2,17,126/ - IN THIS CASE FOR PURPOSES OF SECTION 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 O F CBDT HAS ALSO BEEN CONSIDERED BY THE HON'BLE KERALA HIGH COURT IN ITS DECISION REFERRED TO ABOVE. ACCORDINGLY THE QUESTION REFERRED TO US IS ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 7. IN VIEW OF THE ABOVE, I SET ASIDE THE ORDER PAS SED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW DEDUCTION TOWARDS ACCUMULATION U/S 11(1)(A) OF THE ACT ON THE GROSS INCOME OF THE ASSESSEE. 8. THE SECOND ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE SET OFF OF DEFICIT BROUGHT FORWARD FROM E ARLIER YEAR AND THE THIRD ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE CLAIM OF DEPRECIATION ON THE ASSETS, THE COST OF WHICH HAS ALREADY BEEN ALLOWED AS DEDUCTION. BOTH THE ISSUES ARE COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION (264 ITR 110)(BOM). ACCORDINGLY I SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THESE TWO ISSUES AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORD ER HAS BE EN PRONOUNCED IN THE COURT ON 06 .1 2 . 201 7. SD/ - (B.R.BASKARAN) ACCOUNTANT MEMBER MUMBAI ; DATED : 06 / 1 2 / 20 1 7 COPY OF THE ORDER FORWARDED TO : THE MU MBAI HOCKEY ASSOCIATION LTD. 6 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSTT. REGISTRAR /SENIOR PS ) PS ITAT, MUMBAI