Swami Satyanand Alternate Therapy Foundation, New Delhi V. ITO ward Exemp.-2(2), New Delhi

ITA 6232/DEL/2019

AI Insights

The case involves the Swami Satyanand Alternate Therapy Foundation appealing against the order of the CIT(A) which upheld the Assessing Officer's decision to restrict the accumulation of income under section 11(1)(a) to the surplus amount after the application of income for charitable purposes. The foundation argued that the accumulation should be calculated as 15% of the total income derived from trust property, as per the provisions of section 11(1)(a) and supported by various judicial precedents. The Tribunal, referencing decisions from the Rajasthan, Gujarat, and Madras High Courts, sided with the foundation, allowing the appeal and directing the Assessing Officer to adjust the excess application of income in subsequent years.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 113006 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-12-2022
• Assessment Year: misc
• Appeal Filed On: 22-05-2022
• Other Referred Cases: CIT Vs. Programme for Community Organisation, Additional CIT Vs. ALN Rao Charitable Trust, CIT Vs. Maharna of Mewar Charitable Foundation, CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal, CIT Vs. Metriseva Trust, CIT Vs. Institute of Banking, DIT Vs. Raghuvanshi Charitable Trust, CIT Vs. Gujarat Samaj, ACIT(Exemption) Vs. Subros Educational Society, Seth Walchand Hirachand Memorial Trust Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 12; 11; 143(3); 142(1); 264

Judgement Text

1 | Page IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.6232/Del/2019 [Assessment Year : 2016-17] Swami Satyanand Alternate Therapy Foundation, IE/15, Jhandewalan Extension, New Delhi-110055. PAN-AAMTS7904F vs ITO, Ward Exemp-2(2), New Delhi. APPELLANT RESPONDENT Appellant by None (Written Submission) Respondent by Shri Sumesh Swani, Sr.DR Date of Hearing 05.12.2022 Date of Pronouncement 05.12.2022 ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee for the assessment year 2016- 17 is directed against the order of Ld. CIT(A)-40, Delhi dated 29.05.2019. The assessee has raised following grounds of appeal:- 1. “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) is bad both in the eyes of law and on facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in not allowing 15% of income accumulated or set apart i.e.Rs.38,05,443/- as per provisions of section 11(1)(a) rather restricting the deduction to surplus i.e.Rs.20,34,215/- arbitrarily and without any justification. It is contended that 15% of income accumulated or set apart as per section 11(1 )(a) is the total income derived from property held in trust as per CBDT circular no. 5-P(LXX-6) of 1968 and as laid down by the Apex Court in 248 ITR l (SC) and not as surplus left after expenditure as wrongly contended by the lower authorities. 2 | Page 3. On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in not allowing the carry forward of net deficit amounting to Rs. 17,71,228/- arbitrarily and without any justification. 4. The appellant craves, leave, to add, alter, amend, and/or forego any of the grounds of appeal at the time of hearing.” 2. At the time of hearing, no one attended the proceedings on behalf of the assessee. However, vide letter dated 30.11.2022 by the Ld. Authorized Representative of the assessee (AR), a written submission has been filed and it is requested that the matter may be decided on the basis of written submissions. Therefore, the appeal is taken up for hearing in the absence of the assessee and is being disposed off on the basis of written submissions and material available on record. FACTS OF THE CASE 3. Facts giving rise to the present appeal are that the assessee filed return of income declaring income at NIL on 13.10.2016 for the year under consideration. The case was selected for complete scrutiny through Computer Aided Scrutiny Selection (“CASS”). A notice u/s 142(1) was issued calling upon the assessee to file certain details. Further, a notice u/s 142(1) of the Income Tax Act, 1961 (“the Act”) dated 05.11.2018 was issued to the assessee and called upon to explain as to why 15% claimed as accumulation of income u/s 11(1) of the Act, may be disallowed and restricted to surplus of income after application of income. In response thereto, the assessee filed its reply. However, the reply of the assessee was rejected by relying on the CBDT Circular by the AO and vide assessment order, he restricted the accumulation of income u/s 11(1) of the Act of Rs.20,34,215/-. 3 | Page 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, dismissed the appeal of the assessee. 5. Aggrieved against the order of Ld.CIT(A), the assessee preferred appeal before this Tribunal. 6. Apropos to grounds of appeal, written submission has been filed. For the sake of clarity, the relevant contents of the written submission are reproduced as under:- “Before the Income Tax Appellate Tribunal, Bench- SMC-1, New Delhi: - Date of Hearing 09.05.2022. Re: SWAMI SATYANAND ALTERNATE THERAPY FOUNDATION Vs. ITO Ward Exemp. 2(2), New Delhi Sub: Appeal No. ITA 6232/DEL/2019 u/s 143(3) of the Income-tax Act, 1961 - Assessment Year 2016-17 The captioned Appeal No. ITA 6232/DEL/2019 for Assessment Year 2016- 17 has been filed by the assessee against the order of the Ld. ITO Exemp. 2(2), New Delhi dated 08.12.2018. The only ground of appeal in the matter is regarding accumulation or set apart of income u/s 1 l(l)(a) to the extent of 1 5% of income derived from trust property and allowability of net deficit amounting to Rs. 17,71,728/- and carry forward the same for set off in subsequent years. During the year under appeal, the appellant trust derived income from trust property to the tune of Rs. 2,53,69,619/- and claimed 15% accumulation to the tune of Rs. 38,05,443/- u/s 11(1 )(a) of the Act. Further, after claiming application on income to the tune of Rs. 2,33,35.404/- the appellant trust had net deficit of Rs. 17.71,228/- which the trust claimed to be carried forward for set off in subsequent years. Lower authorities however restricted the claim of appellant trust u/s 11(1)(a) to the extent of surplus left after application of income for 4 | Page charitable purposes and not 15% of income derived from property held under trust. The Ld. AO while passing order u/s 143(3) did not accept the contention of the appellant trust and accumulation/set apart u/s 11(1 )(a) allowed to the tune of net surplus i.e. Rs. 20,34,215/- after application of income as per provisions of section 11 & 12 of the Act. The Ld. AO made reference to circular no.335 dt. 13.04.1982 which states that exemption u/s 1 1(1 )(a) will be available only if at least (75 per cent) now 85 % of the income is applied for charitable or religious purposes in India during the year and remaining amount is invested in the forms or modes specified under section 13(5) Thus, both the requirements will have to be fulfilled before the trust can claim and avail of the exemption under section u/s 11(1 )(a)Section 13(5) was deleted by finance Act, 1983 w.e.f. 01.04.1983. However, there is no such condition in section 11 (1)(a) as enumerated by Ld. AO. Provisions of section 11 (1 )(a) are reproduced herein below. Section 11(1)(a) “Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property;" From the plain reading of section, it is clear that 15% accumulation or set apart is of “income derived from property’1, held under trust and not of surplus remaining after application of income. Apex Court in the case of CIT Vs. Programme for Community Organisation 248 1TR1 (SC) has taken the same view and dismissed the appeal of the revenue. Learned CIT(A) while denying the claim of the appellant trust relied upon the case of Additional CIT Vs. ALN Rao Charitable Trust [(1995) 216 ITR 697(SC)] . 5 | Page Facts of the case relied upon by the Ld. CIT(A) are different from the present case. In the case relied upon by the Ld. C1T(A), question before the court was whether remaining 75% of the income of the trust after accumulation or set apart of 25% of the income of the trust will get exemption from tax if the same is deposited in specified securities as per provisions of Section 11 (2)(b) of the IT Act, 1961, whereas in the present case, question is whether appellant trust is entitled or for accumulation or set apart 15% of income derived from trust property as per provisions of Section 11(1 )(a) of the Act 15% of net surplus remaining after application of income as per provisions of Section 11& 12 of the Act. To support its contention, the appellant trust has relied upon the following judgements: 1. CIT Vs. Maharna of Mewar Charitable Foundation 164 ITR 439 (Rajasthan) 2. CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 (Guji) 3. CIT Vs. Metriseva Trust 242 ITR 20 and Govindu Naicker Estate 248 ITR 368(Madras) 4. CIT Vs. Institute of Banking 264 ITR 1 10(Bom.)2003. 5. DIT Vs. Raghuvanshi Cahritable Trust, 197 Taxman 170(Delhi) 6. CIT Vs. Gujarat Samaj,349 ITR 559(MP)2012 7. ACIT(Exemption) Vs. Subros Educational Society, ITA No. 7326/Del./2017(ITAT Delhi) 16.07.2021. 8. In Seth Walchand Hirachand Memorial Trust Vs. ITO (ITAT MUMBAI) ITA No. 4852/MUM/2016 order dated 29.03.2017, Hon’ble ITAT MUMBAI Bench applying the ratio in the case of ALN Rao Charitable Trust (1995) 216 ITR 697(SC) held that exemption available u/s 11(1 )(a) i.e. 15% of income is unfettered and not subject to any conditions. Your honour is requested to consider the submissions and allow appropriate relief as may be deemed fit as per law.” 6 | Page 7. On the other hand, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below. He contended that law is clear that there is no ambiguity under law. The assessee has not complied with the provision of section 11(1)(a) of the Act. Therefore, Ld. Sr. DR contended that the present appeal lacks merit and deserved to be dismissed. 8. I have heard Ld. Sr. DR and perused the written submissions and material available on record. Ld.CIT(A) has decided the issue by observing as under:- 4. Determination 4.1 “Grounds of appeal nos. 1 and 4 are general in nature and do not require separate adjudication. 4.2 Ground of appeal no. 2 challenges the restricting of accumulation of income under section 11(1)(a) to the surplus and not allowing accumulation to the extent of 15%. 4.2.1 The Assessing Officer noted that the assessee had applied more than 85% of income and had claimed accumulation of an amount which is more than the surplus available to the assessee. It was held that the assessee was allowed to accumulate income to the extent to which the income so accumulated or set apart is not an excess of 15% of the income from such property and accumulation of income to the extent of 15% is available only in those cases where the application of income falls short of 85% of income. The appellant has submitted that there is no such condition in section 11(1)(a) that accumulation has to be done to the extent of surplus available. Reliance has been placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). 4.2.2 I have considered the assessment order and the submissions of the appellant. Exemption under section 11 is available if 85% of the 7 | Page income derived from property held under trust is applied for religious or charitable purposes. Further, in cases where 85% of income of the trust could not be applied for religious or charitable purposes, the same has to be accumulated under section 11(2) or an option has to be exercised within the meaning of the Explanation to section 11(1). It is in such scenario where the application is less than 85% that the provisions pertaining to accumulation under section 11(2) or deemed application become operative and where accumulation beyond 15% is allowed. In the case under consideration, more than 85% of income derived from property held under been applied for charitable purposes leaving behind a surplus of Rs. 20,34,215/- and the Assessing Officer restricted the accumulation under section 11(1)(a) to the said amount as against the amount of Rs. 38,05,443/- claimed by the assessee. 4.2.3 The appellant has relied on the decision of the Hon'ble Supreme Court in the case of Programme for Community Organization (supra) in which the Hon'ble Supreme Court have held that the accumulation under section 11(1)(a) would be to the extent of 25% of income derived from property held under trust [the relevant provisions, at that particular time provided for 25% accumulation under section 11(1)(a)]. The operative part of the order is reproduced below: '3. The question that really requires consideration is whether, for the purposes of section 11(1)(a) of the Income-tax Act, 1961 ('the Act'), the amount for the grant of exemption of twenty-five per cent should be the income of the trust or it should be its total income determined for the purposes of assessment to income-tax. This question has to be answered in the light of these facts: the assessee-trust received donations in the aggregate sum of Rs.2,57,376. It applied thereout for its charitable purposes the aggregate sum of Rs.1,70,369 leaving a balance of Rs.87,010. The question is whether the assessee is entitled to accumulate twenty-five per cent of Rs.2,57,376, 8 | Page as it contends, or twenty-five per cent of Rs. 87,010, as the revenue appeared to Contend. Section 11(1) (a) reads thus : "11. Income from property held for charitable or religious purposes.-(1)(a) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;" 4. 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.” 4.2.4 From the above it is seen that in the case relied upon by the appellant also, the amount which was applied for religious or charitable purposes was less than 75% of the income derived from property held under trust and the question before the Court was whether the amount to be accumulated would be 25% of the balance or whether it would be 25% of the income. Since the application of income was less than 75%, the Hon'ble Court held that accumulation to the extent of income 25% is to be allowed. Similar finding has been given by Hon'ble Supreme Court in the case of Additional CIT vs. ALN Rao Charitable Trust [(1995) 216 ITR 697]. 4.2.5 In view of the discussion above, it is held that there is no infirmity in the order of the Assessing Officer in restricting the amount to be accumulated under section 11(1)(a) to the extent of the surplus 9 | Page available after application of income. Ground of appeal No. 2 is dismissed. 4.3 Ground of appeal no. 3 challenges the not allowing of carry forward of net deficit. 4.3.1 From the computation of income it is seen that the deficit in the case of the assessee is on account of claim of 15% set apart of income before computing the amount to be applied for charitable purposes. As held above, since the amount to be accumulated under section 11(1)(a) has been restricted to the surplus available, there being no deficit on account of excess application, nothing can be carried forward. In the cases referred to by the appellant while claiming carry forward of deficit in the computation of income, it is to be noted that in all the cases the deficit was due to excess application of income. Hence, ground of appeal No. 3 is dismissed. 4.4 Ground of appeal no. 5 states that the appellant craves, leave, to add, alter, amend, and /or forgo any of the grounds of appeal at the time of hearing. Since no such option has been exercised during the appellate proceedings, this ground of appeal is academic in nature and is considered to be a dismissed ground for statistical purposes.” 9. Now it is to be decided whether the findings of the authorities below are justified in holding that the AO is justified in restricting the amount to be accumulated under section 11(1)(a) of the Act to the extent of the surplus available after application of income. In the case in hand, undisputed facts are that during the year under consideration the assessee had applied income more than 85% of its total income however, it claimed accumulation of income u/s 11(1)(a) of the Act to the extent of 15% of total income that came to a sum of Rs.38,05,443/- however, the AO restricted the accumulation to the extent of surplus available of Rs.20,34,215/-. A bare reading of the section 11(1)(a) of the Act goes to prove that any income accumulated or set apart should not exceed 15% of total income. In the present case, the assessee had applied 10 | Page more than 85% of the income that does not mean that in excess of 85% of income, the assessee has accumulated or set apart for charitable purpose. Reliance is placed upon the judgment of Hon’ble Madras High Court rendered in the case of CIT vs Matriseva Trust 242 ITR 20 (Mad.) wherein Hon’ble High Court has followed the judgment of Hon’ble Rajasthan High Court rendered in the case of CIT vs Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 (Raj.) and Hon’ble Gujarat High Court rendered in the case of CIT vs Shri Plot Swetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 (Guj.) wherein the Hon’ble Rajasthan High Court and Hon’ble Gujarat High Court have answered the questions in favour of the assessee and against the Revenue. 10. In view of the above binding precedents, I hereby direct the AO to allow the claim of the assessee regarding set off of excess application of income for the subsequent years. Thus, grounds raised by the assessee are allowed in terms indicated above. 11. In the result, the appeal of the assessee is allowed in terms indicated above. Order pronounced in the open Court on 05 th December, 2022. Sd/- (KUL BHARAT) JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI