Joint Commissioner Of Income Tax (OSD) (Exemptions), Circle- 1, Bengaluru V. M/s. Infosys Science Foundation, Bangalore

ITA 590/BANG/2020

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7279 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 24-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Charitable institution
• Section: 11; 80G; 12A; 10B; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B” BENCH: BANGALORE BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT BEENA PILLAI, JUDICIAL MEMBER ITA. No. 590/Bang/2020 Assessment Year: 2016-17 The Joint Commissioner of Income-Tax (OSD)(E), Circle – 1, Bangalore. vs. M/s. Infosys Science Foundation, #44/97A, C/o Infosys Ltd., Hosur Road, Electronics City, Bangalore – 560100. PAN: AAATI7155G (Appellant) (Respondent) Assessee by : Shri Padamchand Khincha, CA Revenue by : Shri Muzaffar Hussain, CIT (DR) Date of Hearing : 07.10.2021 Date of Pronouncement : 30.11.2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by revenue against order dated 20/03/2020 passed by the Ld.CIT(A), Bangalore-14 for assessment year 2016-17 on following grounds of appeal: “1. The Order of the Ld. CIT(A) is erroneous on the facts of the case and the law governing the principle of taxation of charitable institutions, as well. 2. The learned CIT(A) erred in allowing the appeal of the assessee when the purpose for accumulation is general, not specific and does not undertake to set apart to accomplish a concrete or definite purpose involving a heavy outlay. Page 2 of 12 ITA No. 590/Bang/2020 3. The learned CIT(A) by granting relief that the objects of the trust do not restrict itself to the 'prize money' but all other expenditure connected to main activity. 4.1 The learned CIT(A) erred in making no distinction between section 11(1)(a) and 11(2), while section 11(2) has been incorprated for accumulating for specific purpose, if there is no distinction then there would not be any purpose for the incorporation of the provisions of Sec. 11(2) if the same is allowed for general purpose of the Trust. 4.2 The Learned CIT(A) failed to appreciate the fact that the prepondence of a condition u/s. 11(2), in case of under-utilization of income as per the provisions of Sec. 11(1)(a) and the absence of a corresponding provision in Sec. 10(23C). 4.3 The Learned CIT(A) erred in failing to appreciate that in respect of an Institution governed u/s. 10(23C)(iv), 10(23C)(v), 10(23C)(vi), 10(23C)(via), the objects are solitary and hence the shortfall in application of income is automatically accumulated without undergoing the rigors of procedure laid down in Sec. 11(2) and Rule 17(2). On the contrary, in respect of a charitable Institution governed under the provisions of Sec. 11 & 12, the objects are not isolated or lone but multifarious in nature. Therefore, one of the objects has to be identified for the purposes of accumulation and amount would have been spent for that purpose only 5.1 The Learned CIT(A) failed to take into consideration the significance of the provisions of Sec. 11(3A) wherein general purpose accumulation and spending cannot be allowed. If it were to be allowed in the manner claimed by the assessee, then there would not be any purpose for the incorporation of the provisions of Sec. 11(3A) in the statute. 5.2 The Learned CIT(A) erred in failing to note that the contents of the provisions of Sec. 11(3A) by implication indicate that the purpose of accumulation has to be specific. If the purpose for which the accumulation made u/s. 11(2) could not be accomplished, the assessee can modify the purpose by approaching the Assessing Officer through an application to such effect u/s. 11(3A). 5.3 If, as in the case of the assessee, the accumulation is towards the objects as per the MOA of the Trust, there would not be any purpose in the enactment and conditions laid down u/s. 11(3A). 6. The learned CIT(A) erred in failing to distinguish the usage of the word "Purposes" in Section 11(1)(a) and that of the word "purpose" in Section 11(2) to mean generality is not acceptable. Page 3 of 12 ITA No. 590/Bang/2020 7. For the above grounds and those of which may be adduced at the time of hearing, the Hon'ble ITAT may thus be pleased to restore the order of the AO and thus render justice.” Brief facts of the case are as under: 2. The assessee is a charitable trust registered under section 12A and recognized under section 80G of the Income tax Act, 1961 (Act for short hereafter). It is submitted that the assessee institutes prizes which are meant to achievers in various fields and endeavors to elevate the prestige of scientific research in India and inspire young Indians to choose a vocation in scientific research. It is also submitted that since its inception, the assessee focused solely on the governance and running of Infosys Prize, annual award to honor outstanding achievements to scholars / scientists. 2.1 During the year, the Trust awarded Rs. 3.90 crores in aggregate to various persons who have contributed immensely in the field of Engineering, Computer Sciences, Life Sciences, Mathematical Science, Physical Sciences, Social Sciences & Humanities. 2.2 Winners of the Infosys Prize 2015 Total 3,90,00,000 Sr no. Name of the awardees Amount in Rs. Category 1 Dr. Amit Sharma 6,500,000 Life Science 2 Prof. Jonardon Ganeri 6,500,000 Humanities 3 Prof. Mahan 6,500,000 Mathematical Science 4 Prof. G Ravindra Kumar 6,500,000 Physical Science 5 Prof Umesh Waghmare 6,500,000 Computer Science 6 Dr. Srinath Raghavan 6,500,000 Social Science Page 4 of 12 ITA No. 590/Bang/2020 2.3 The Ld.AO observed that gross income as per Income and expenditure account for the year amounted to Rs. 11,96,49,077. Total expenditure as per Income and expenditure account for the year amounted to Rs.9,21,43,622. Break up of the said expenditure as per the Income and expenditure account was as under. Expenditure Prize money 39,000,000 Honorarium to jury 17,703,295 Event management expenses 3,918,646 Travelling and conveyance 8,700,040 Memento and souvenir expenses 1,607,553 Service tax payment 2,151,945 Professional charges 14,264,792 Employee benefits 4,081,787 Conference expenses - Other expenses 715,564 --------------------------- 92,143,622 ---------------------------- 2.4 The expenditure considered in the Balance sheet amounted to Rs. 38,48,948. The Ld.AO noted that the total expenditure of Rs. 9,59,92,570 [9,21,43,622 + 38,48,948] was shown as application of income out of income accumulated under section 11(2) for the AY 2014-15 and AY 2015-16. Break up of income applied during the year out of earlier years' application is as under. Year of Accumulation (FY) Amount applied during the previous year Balance amount available for application 2013-14 1,53,39,483 - 2014-15 8,06,53,087 1,09,59,438 Total 9,59,92,570 Page 5 of 12 ITA No. 590/Bang/2020 2.5 The Ld.AO noted that, out of current gross income of Rs.11,96,49,077, 15% amounting to Rs. 1,79,47,361 was accumulated/ set apart under section 11(1)(a) and the balance 85% amounting to Rs. 10,17,01,715 was accumulated under section 11(2) by filing Form No. 10 on 30.9.2016. The Audit report in Form No. 10B and the return of income for AY 2016-17 was also filed on 30.9.2016 declaring NIL income after claiming exemption u/s.11. 2.6 The Ld.AO disallowed income accumulated under section 11(1)(A)/11(1)(B) and 11(2) amounting to Rs. 1,79,47,361 and Rs.10,17,01,716 and total income at Rs.11,96,49,077. The Ld.AO observed from the Form 10 filed in the earlier years that the purpose of accumulation was mentioned as "For the Objects of the Trust". On perusal of the financial statements submitted by the assessee, the Ld.AO held that the item of expenditure was prize money awarded amounting to Rs.3,90,00,000. The difference between the total expenditure (i.e Rs. 9,21,43,622) and the prize money of Rs. 3.9 crores amounted to Rs.5,31,43,622. This was also incurred and applied towards the objects of the Trust. The Ld.AO also held that the expenses amounting to Rs.5,31,43,622 are routine expenses incurred for the day to day activities of the Trust. It was held that expenses incurred towards the routine activities of the trust and hence the same cannot be considered as utilised from the amounts accumulated u/s 11(2) towards a specific activity. 3. Aggrieved by the order of the Ld.AO, assessee filed appeal before the Ld.CIT(A). Page 6 of 12 ITA No. 590/Bang/2020 3.1 The Ld.CIT(A) was of the opinion that as Ld.AO admitted that accumulation is for the objects of the trust, it cannot be restricted to “prize money alone”. The Ld.CIT(A) opined that all other expenditure are connected to the main activity. He thus deleted the disallowance made by assessee. The Ld.CIT(A) held as under. “4.1 The grounds, submissions and contentions of the assessee are carefully considered. The assessee is a charitable trust engaged in charitable activities. The assessee trust is registered under Sec.12A and also recognized under Sec.80G of the Income Tax Act. While completing the assessment under scrutiny, the AO noted that the assessee had accumulated funds of earlier year which are applied to the objects of the trust this year. The AO observed that the major item of expenditure in the income and expenditure statement is prize money to the extent of 3.9 Crore. The assessee's expenditure also includes other items to the tune of 5.31 Crore. According to the AO, the accumulated amounts of the earlier year could not be applied to any other activities other than the prize money. However, the AO concedes that the current year income can be applied for various other activities part of 5.31 Crore. With this opinion the AO denied/restricted application of income from the accumulated income of F.Y. 2014-15 (AY 2015-16). Aggrieved by the Assessment Order, the assessee is in appeal. The objects of the trusts are to provide education to the public, relief to the poor. medical relief and other objects of general public utility. The appellant institutes prizes for achievers in various fields with a view to elevate the prestige and scope of scientific research in India and also inspires young Indians choose a vocation in scientific research. Coming to the issue, the assessee strongly protested the stand taken by the AO and denial of application of accumulated income. I have carefully examined the facts of the case. Sec.11(2) the Act allows the assessee to accumulate or set apart the income part of 85% of the income subject to certain conditions. There is no dispute with regard to the filing of Form-10 within the stipulated period and investing in specified modes. The only issue that is for consideration is whether the income so accumulated U/S 11(2) is available for any of the charitable objects of the assessee or not. Sec.11(2)(a) requires the trust to furnish a statement in prescribed Form-10 and state the purpose for which the income is being accumulated or set apart. Sec.11(3)(c) given the power to the AO to tax, if the accumulated income is not utilized for the purpose for which it is accumulated/set- apart. However in the instant case the AO himself admitted that the Page 7 of 12 ITA No. 590/Bang/2020 I purpose of accumulation is "For the objects of the trust". The objects of the trust do not restrict itself to the "prize money" but all other expenditure connected to the main activity. As seen from the income and expenditure statement, the expenses include the following items: As seen from above expenses other than prize money are connected and incidental to the main activity of the assessee and they are clearly within the ambit of fulfilling the stated objectives of the trust. Further, when the AO has allowed these expenditure from the current year income, there is no reason why the income accumulated for the very same objectives cannot be applied for such expenses. Accordingly, I hold that the assessee can apply accumulated income of earlier years for the objectives as specified in Form-10 and the stand taken by the AO in denying the same cannot be justified. It is also noted that for A.Y. 2012-13 Hon'ble ITAT gave its verdict in favour of the assessee on the issue. Hence, the grounds of the assessee are allowed.” 4. Aggrieved by the order of Ld.CIT(A), revenue is in appeal before us. 4.1 Ld.CIT.DR relied on order passed by Ld.AO whereas the Ld.AR relied on order passed by Ld.CIT(A). 4.2 We have perused the submissions advanced by both sides in light of records placed before us. 4.2.1 It is accepted by the Ld.AO that the purpose of accumulation u/s 11(2) is "for the objects of the Trust". The Expenditure Amount (Rs.) Prize Money 3,90,00.000 Honorarium to jury 1,77,03,295 Event management expenses 39,18,646 Travelling and conveyance 87,00,040 Memento and souvenir expenses 16,07,553 Service tax payment 21,51,945 Professional charges 1,42,64,792 Employee benefits 40.81,787 Conference expenses - Other expenses 7,15,564 Total 9,21,43,622 Page 8 of 12 ITA No. 590/Bang/2020 objects of the Trust has also been accepted by the Ld.AO which is to institute prizes which are meant to achievers in various fields and endeavors to elevate the prestige of scientific research in India and inspire young Indians to choose a vocation in scientific research. Since its inception, the assessee focused solely on the governance and running of Infosys Prize, annual award to honor outstanding achievements to scholars / scientists. 4.2.2 The contention of the Ld.AO that the expenses amounting to Rs.5,31,43,622 are routine expenses incurred for the day to day activities of the Trust is not correct. The break up of expenses of Rs.5,31,43,622 reproduced hereinabove. The expenditure of Rs.5,31,43,622 comprised of Honorarium to Juries for selection of prize winners, event management expenses incurred for Infosys Prize ceremony, travelling and conveyance expenses, memento and souvenir expenses, professional charges and service tax thereon, employee benefits and other expenses. These expenses were incurred in connection with the Infosys Prize ceremony held during the year. During the previous year 2015-16 relevant to AY 2016-17, the Infosys Prize was announced on 16.11.2015 and the awards ceremony was held at New Delhi on 13.2.2016. Thus, there is no merit in the contention of the Ld.AO that the expenditure of Rs. 5,31,43,622 was held towards the routine activities of the trust and hence the same cannot be considered as utilised from the amounts accumulated u/s 11(2) towards a specific activity. 4.2.3 The application of income for charitable purpose includes any expenditure incurred directly or indirectly in connection with the objects of the Trust. To treat only direct expenditure incurred Page 9 of 12 ITA No. 590/Bang/2020 as application for objects of the Trust would be too narrow a view. In the present case, the sole objective of the Trust is the running of Infosys Prize annual award to honor outstanding achievements to scholars / scientists. There is no other objectives for which the Trust carried on its activities. Thus, the entire expenditure incurred during the year amounting to Rs. 9,59,92,570 was towards the purpose of carrying on the aforesaid charitable activity. 4.2.4 Ld.AR placed reliance on the order passed by the co- ordinate bench of the Tribunal for A.Y. 2012-13 placed at pages 138 to 153 of the paper book. For the AY 2012-13, total receipts of the assessee amounted to Rs.9,28,05,186. After reducing 15% accumulation u/s 11(1)(a), amount required to be applied amounted to Rs.7,88,84,408. Total application of income during the previous year 2011-12 amounted to Rs.5,34,67,009. The nature of expenditure was similar to expenditure incurred in the year under appeal. The assessee treated the application of Rs.3,45,65,489 as having been spent out of income accumulated u/s 11(2) in the FY 2011- 12 relevant to AY 2012-13 and the balance amount of Rs.1,89,01,520 as application from current year's income. The unutilized income of current year amounting to Rs.5,99,82,888 [7,88,84,408 - 1,89,01,520] was accumulated u/s 11(2) of the Act. The Ld.AO treated the entire application of income amounting to Rs.5,34,67,009/- as spent out of current year's income of Rs.9,28,05,186/- and reduced the accumulation of income u/s 11(2) from Rs.5,99,82,888/- to Rs.2,54,17,400/-. Page 10 of 12 ITA No. 590/Bang/2020 4.2.5 On appeal, the Tribunal held that; “accumulation of unutilized income of AY 2011-12 u/s. 11(2) as well as income of AY 2012-13 are deployed in the form of fixed deposits in bank accounts. The fixed deposits as and when they mature are again renewed and reinvested in fixed deposits. Therefore, the identification of funds of the assessee as identifiable to accumulation of unutilized income of AY 2011-12 or that of receipt as income of AY 2012-13 is not possible in the present case. In such circumstances, we are of the view that the plea of the assessee ought to have been accepted by the Ld.C1T(A). The Ld.CIT(A) opined that under the provisions of section 11(1) income derived from property during the previous year is not equated with accumulated income u/s 11(2). The provisions require that the income earned from the property held under trust must be first applied to the objects of the Trust and if any income is remaining then accumulation to the extent of 15% of such income is permitted and if the total income could not be utilized towards the objects of the trust then the assessee can resort to further accumulation u/s 11(2) over and above the amount of 15%. The Ld.CIT(A) used the word 'first" in his order whereas the expression 'first" is not found in section 11(1)(a) or section 11(2) of the Act" The Tribunal held that; "The above claim of the assessee for accumulation is in order in the given facts and circumstances of the case where the identity of the monies as accumulation of AY 2011-12 or the income of AY 2012-13 is not possible. We therefore direct the AO to accept the claim of the Assessee as made by the Assessee.” We note that the ratio of the ITAT, Bangalore bench in assessee’s own case for the AY 2012-13 is squarely applicable to the year under consideration as the facts remain same and there is no change as compared to earlier year. For the year under consideration, the income of the current year and income accumulated u/s 11(2) are parked in deposits and Page 11 of 12 ITA No. 590/Bang/2020 SB account with scheduled banks which are permitted as per section 11(5). The maturity proceeds are again reinvested in deposits. Thus, the identity of monies as current year's income and income accumulated u/s 11(2) is not possible. Consequently, the expenditure of Rs.5,31,43,622 incurred towards the objectives of the Trust should be treated as application of income out of earlier years’ accumulation of income as declared by the assessee. We are of the opinion that when the expenditure of Rs.5,31,43,622 can be treated as application of amount from current year's income, there is no reason as to why the same should not be treated as spent out of earlier years’ accumulation. There is no justifiable reason for separating and treating expenditure of Rs.5,31,43,622 differently from the Prize Money expenditure of Rs. 3.9 crores. We, therefore do not find any infirmity in the view taken by the Ld.CIT(A). Accordingly grounds raised by revenue stands dismissed. In the result, the appeal filed by revenue stands dismissed. Order pronounced in open court on 30 th November, 2021. Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30 th November, 2021. /MS/ Page 12 of 12 ITA No. 590/Bang/2020 Copy to 1. The Appellant 2. The Respondent 3. CIT(A) 4. Pr. CIT 5. DR, ITAT, Bangalore. 6. Guard File By order Assistant Registrar Income-tax Appellate Tribunal Bangalore