DCIT (Exemptions), Circle-2, Ahmedabad V. Padma Education & Welfare Society, Gandhidham

ITA 665/AHD/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6109 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 16-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Charitable institution; Set aside
• Section: 143(3); 201; 264; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO. 665/AHD/2018 & / ASSTT. YEAR: 2014 - 201 5 D.C.I.T , (EXEMPTION) CIRCLE - 2 , AHMEDABAD. VS . PADMA EDUCATION & WELFARE SOCIETY , PLOT NO.12, RAIN BASERA , AYACHI ROAD , WARD - 12/B, GANDHIDHAM - KUTCH PAN: AABTP0729N (APPLICANT) (RESPONENT) REVENUE BY : SHRI MUDIT NAGPAL, SR.D.R ASSESSEE BY : NONE / DATE OF HEARING : 12 / 07 / 201 9 / DATE OF PRONOUNCEMENT: 06 / 08 /201 9 / O R D E R PER MS MADHUMITA ROY, JUDICIAL MEMBER : THE INSTANT APPEA L PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 12.02.2018 , PASSED BY THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) - 4 , AHMEDABAD ( IN SHORT LD.CIT(A) ) , A RISING OUT OF THE ORDER DATED 23.12 .2016 PASSED BY THE D.C.I.T (EXEMPTION) , CIRCLE - 2 , AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( HEREIN AFTER REFERRED TO AS THE ACT ) FOR THE ASSESSMENT YEAR 2014 - 15 , WHEREBY AND WHEREUNDER THE REVENUE HAS CHALLENGED THE ORDER PASSED BY THE ''LD.CIT (A)'' IN ALLOWING THE BENEFIT OF THE DEFICIT OF RS.3,52,63,944/ - FOR EARLIER YEAR AGAINST THE INCOME OF SUBSEQUENT YEAR IN ABSENCE OF ANY EXPRESS PROVISION IN THE ACT AS ALLEGED . ITA NO. 665/AHD/2018 A.Y. 2014 - 2015 2 3. AT THE VERY OUTSET OF THE HEARING OF THE INS TANT APPEAL THE LD.COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT PASSED BY THE CO - ORDINATE BENCH IN THE MATTER OF DCIT( EXEMPTION) VS. CHARUTAR AROGYA MANDAL IN ITA NO.731/AHD/2017 FOR ASSESSMENT YEAR 20 12 - 13.; C OPY WHEREOF HAS ALSO BEEN SUBMITTED BEFORE US. 4. HOWEVER, LD.DR FAILED TO CONTROVERT SUCH CONTENTION S MADE BY THE ASSESSEE. 5. WE HAVE HEARD THE RESPECTIVE PARTIES AND PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORDS. WE FIND THAT WHI LE ALLOWING THE APPEAL PREFERRED BY THE ASSESSEE , THE ''LD.CIT(A) OBSERVED AS FOLLOWS: 6. VIDE GROUND NO.4 APPELLANT CONTESTED FOR NOT GRANTING THE BENEFIT OF CARRIED FORWARD OF LOSS TO THE TUNE OF RS.3.52,63,944/ - . THE A.O.'S OBSERVATIONS IN THE MATTER ARE AS UNDER - '6. NO CARRY FORWARD OF DEFICIT IS ALLOWED AS THERE IS NO PROVISION U/S, 11 UNDER WHICH THE ASSESSEE CAN CLAIM SET OFF EXCESS EXPENDITURE INCURRED IN EARLIER YEARS AGAINST THE INCOME OF THE RELEVANT ASSESSMENT YEAR. THE INCOME OF THE TRUST IS NOT COMPUTED ON THE PRINCIPLE OF BUSINESS INCOME WHICH CONTAINS THE PROVISION OF CARRY FORWARD OF LOSS OF EARLIER YEARS AND SET - OFF SUCH LOSSES AGAINST INCOME OF THE CU RRENT YEAR. THIS IS HELD BY THE HON'BLE DELHI ITAT IN CASE OF PUSHPAWATI SINGHANIA RESEARCH INSTITUTE FOR LIVER, RENAL & DIGESTIVE DISEASES VS. DEPUTY DIRECTOR OF INCOME - TAX (EXEMPTION) 2009 29 SOT 316 (DELHI). IT WAS HELD THAT WHEN INCOME ACCUMULATED IN EARLIER YEAR CANNOT QUALIFY FOR EXEMPTION UNDER SECTION 11 (2). THE EXCESS INCOME APPLIED IN EARLIER ASSESSMENT YEAR WOULD ALSO NOT QUALIFY FOR EXEMPTION. RELIANCE ALSO PLACED IN THE CASE OF BHARTIYA VIDYA MANDIR V/S. THE INCOME - TAX OFFICER. WARD VL(L),, LUDHIANA ITA NO. 1093/CHD/2013 (A . Y.2010 - 11) DID. 04/04/2015 AND ANJUMAN - E - HIMAYAT - E - LSLAM V/S.ASSISTANT DIRECTOR (EXE MPTION) - IV, CHENNAI 12015) 59 T AXMAN 379 (CHENNAI TRIB) IT WAS HELD MAT EXCESS APPLICATION OF FUNDS OVER AND ABOVE INCOME OF THE TRUST CAN ARISE ONLY WHEN FUND ARE APPLIE D FROM THE CORPUS OF THE TRUST, ACCUMULATED FUNDS, LOANS OR GOODS AND SERVICES RECEIVED FROM THE CREDITORS. WHEN FUNDS ARE APPLIED FROM BORROWED FUNDS OR BY WAY OF SUNDRY CREDITORS THE SAME CAN BE TREATED AS APPLICATION OF FUNDS IN THE YEAR WHICH SUCH LOA N/SUNDRY CREDITORS ARE RE - PAID FROM THE INCOME OF THE TRUST. HOWEVER, WHEN AMOUNT IS APPLIED FROM THE CORPUS FUND OR ACCUMULATED FUND THE SAME CANNOT BE ITA NO. 665/AHD/2018 A.Y. 2014 - 2015 3 TREATED AS APPLICATION OF FUNDS UNDER SECTION 11 .BECAUSE SUCH FUNDS HAVE ALREADY BEEN EXEMPTED FROM TH E INCOME OF TRUST IN THE YEAR IN WHICH THEY ARE RECEIVED OR SUCH AMOUNTS IS SET ASIDE. THUS, TRUST CANNOT CARRY FORWARD EXCESS APPLICATION OF FUNDS.' 6.1 I HAVE CAREFULLY GONE THROUGH THE OBSERVATIONS MADE BY THE A.O. IN THE ASSESSMENT ORDER. IN THE ASSE SSMENT ORDER THE A.O. HAS NOT ALLOWED CARRY FORWARD OF DEFICIT TO THE APPELLANT. THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHRI PLOT SHWETAMBAR MURTIPUJAK JAIN MANDAL 211 ITR 293(GUJ.) WHEREIN HON'BLE COURT HELD AS UNDER : - 'A BARE PERUSAL OF SECTION 11 OF THE INCOME - TAX ACT, 1961, SHOWS THAT THE INCOME DERIVED FROM PROPERLY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA I S TO BE EXCLUDED FOR THE PURPOSES OF COMPUTING THE INCOME OF THE TRUST FOR THE PURPOSE OF ASSESSMENT. THERE ARE NO WORDS OF LIMITATION IN THIS SECTION PROVIDING THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES ONLY IN THE YEAR IN WHICH THE INCOME HAD ARISEN. THE WORD 'APPLY' MEANS 'TO PUT TO USE' OR 'TO TURN TO USE' OR 'TO MAKE USE' OR 'TO PUT TO PRACTICAL USE'. HAVING REGARD THE PROVISIONS OF SECTION 11 OF THE ACT, IT IS CLEAR THAT WHEN THE INCOME OF A TRUST IS USED OR PUT TO U SE TO MEET THE EXPENSES INCURRED FOR RELIGIOUS OR CHARITABLE PURPOSES, IT IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. THE APPLICATION OF THE INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET TH E EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS CAN BE SAID TO HAVE BEEN APPLIED FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE YEAR IN WHICH THE EXPENSES INCURRED FOR CHARITABLE AND RELIGIOUS PURPOSES HAD BEEN ADJUSTED. THERE IS NOTHING IN THE LANGUAGE OF S ECTION 11(1)(A) OF THE ACT TO INDICATE THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF THE EARLIER YEAR, WOULD NOT AMOUNT TO SUCH INCOME BEING APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. INCOME DERIVED FROM TRUST PROPERTY HAS TO BE DETERMINED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES FOR DETERMINING THE INCOME ARE APPLIED, IT IS BUT NATURAL THAT THE ADJUSTMENT OF THE EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEAR AGAINST 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 YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A).' RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTI ONAL GUJARAT HIGH COURT IN THE CASE OF SHRI PLOT SHWETAMBAR MURTIPUJAK JAIN MANDAL (SUPRA) I HEREBY DIRECT THE A,O TO ALLOW THE BENEFIT OF DEFICIT OF CURRENT A.Y. 2014 - 15 FOR RS.3,52,62,944/ - AGAINST THE FUTURE INCOMES. ACCORDINGLY, GROUND OF APPEAL NO.4 R AISED BY THE APPELLANT IS ALLOWED 5.1 WE HAVE ALSO GONE THROUGH THE JUDGMENT PASSED BY THE CO - ORDINATE BENCH IN ITA NO. 731/AHD/2017 FOR A.Y. 2012 - 13; T HE RELEVANT PORTION WHEREOF IS AS FOLLOWS: ITA NO. 665/AHD/2018 A.Y. 2014 - 2015 4 6. WE HAVE HEARD THE RESPECTIVE PARTIES, WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT APPEARS FROM THE RECORDS THAT THE LEARNED CIT(A) WHILE ALLOWING THE CARRY FORWARD DEFICIT OF RS.6,49,06,986/ - RELIED UPON THE JUDGMENT PASSED BY THE JURISDICTIONAL HIGH COURT AS MENTIONED HEREINABOVE. THE RELEVANT PORTION WHEREOF IS AS FOLLOWS: 4.2 I HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS, CASE LAW RELIED UPON AND THE ORDER PASSED BY THE A.O. U/S.154 OF THE ACT. THE MAIN ISSUE IS ALLOW ABILITY OF EXCESS EXPENDITURE OF RS.6,49,06,986/ - TO BE ALLO WED TO BE SET OFF AGAINST FURTHER INCOME OF THE APPELLANT. THE APPELLANT HAS RELIED UPON THE ORDER OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHRI PLOT SHWETAMBAR MURTIPUJAK JAIN MANDAL 211 ITR 293 (GUJ.) AND CIT VS INSTITUTE OF BANKING PERSONNEL SECTION (IBPS) (2003) 264 ITR 110 (BOM.). HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHRI PLOT SHWETAMBAR MURTIPUJAK MANDAL HAS HELD AS FOLLOWS : - A BARE PERUSAL OF SECTION 11 OF THE - INCOME - TAX ACT, 1961, SHOWS THAT THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSE IN INDIA IS TO BE EXCLUDED FO R THE PURPOSES OF COMPUTING THE INCOME OF THE TRUST FOR THE PURPOSE OF ASSESSMENT. THERE ARE NO WORDS OF LIMITATION IN THIS SECTION PROVIDING THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES ONLY IN THE YEAR IN WHICH THE INCOME HAD ARISEN. THE WORD 'APPLY MEANS 'TO PUT TO USE' OR 'TO TURN TO USE' OR 'TO MAKE USE' OR 'TO PUT TO PRACTICAL USE'. HAVING REGARD THE PROVISIONS OF SECTION 11 OF THE ACT, IT IS CLEAR THAT WHEN THE INCOME OF A TRUST IS USED OR PUT TO USE TO MEET THE EXPENSES INCURRED FOR RELIGIOUS OR CHARITABLE PURPOSES, IT IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. THE APPLICATION OF THE INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET THE EXPENSES IN CURRED FOR CHARITABLE OR RELIGIOUS PURPOSES. IN OTHER WORDS, EVEN IF EXPENSES FOR CHARITABLE AND RELIGIOUS PURPOSES HAVE BEEN INCURRED FOR THE EARLIER YEAR AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF THAT YEAR CAN BE SAID TO HAVE BEEN APPLIED FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE YEAR IN WHICH THE EXPENSES INCURRED FOR CHARITABLE AND RELIGIOUS PURPOSES HAD BEEN ADJUSTED. THERE IS NOTHING IN THE LANGUAGE OF SECTION 11(1)(A) OF THE ACT TO INDICATE THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF THE EARLIER YEAR, WOULD NOT AMOUNT TO SUCH INCOME BEING APPLIED FOR CHARITABLE OR RELIGIOUS PURPO SES. INCOME DERIVED FROM TRUST PROPERTY HAS TO BE DETERMINED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES FOR DETERMINING THE INCOME ARE APPLIED, IT IS BUT NATURAL THAT THE ADJUSTMENT OF THE EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND ITA NO. 665/AHD/2018 A.Y. 2014 - 2015 5 RELIGI OUS PURPOSES IN THE EARLIER YEAR AGAINST 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 YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN MADE HA VING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A). 4.3 I AGREE WITH THE CONTENTION OF THE APPELLANT AS WELL AS THE RELIANCE PLACED ON THE DECISION OF JURISDICTIONAL GUJARAT HIGH COURT AND HEREBY DIRECT THE AO TO ALLOW CARRY FORWARD DEFICIT OF RS.6,49,06,986/ - AGAINST ITS FUTURE INCOME. ACCORDINGLY, GROUND OF APPEAL NO.2 IS ALLOWED. THE AO WOULD RECHECK THE QUANTUM OF DEFICIT BEFORE GIVING THE APPEAL EFFECT. 7. THIS IS THE WELL SETTLED POSITION THAT INCOME DERIVED FROM TRUST PROPERTY HAS TO BE DETERMINED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES FOR DETERMINING THE INCOME ARE APPLIED, IT IS BUT NATURAL THAT THE ADJUSTMENT OF THE EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEAR AGAINST 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 YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A). SUCH RATIO HAS BEEN LAID BY THE JURISDICTIONAL HIGH COURT IN THE MATTER OF SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (SUPRA). THE ORDER PASSED BY THE LEARNED CIT(A) APPLYING SUCH RATIO WHILE ALLOWING CARRY FORWARD DEFICIT OF RS.6,49,06,986/ - DOES NOT CALL FOR ANY INTERFERENCE. HENCE, REVENUE S APPEAL IS DISMISSED. WE FIND THAT THE ASSESSEE S CASE IS SQUARELY COVERED BY THE JUDGMENT PASSED BY THE CO - ORDINATE BENCH AS MENTIONED HEREIN ABOVE WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY ALLOWING CARRY FORWARD DEFICIT AND CAREFULLY FOLLOWING THE SAME WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE ITA NO. 665/AHD/2018 A.Y. 2014 - 2015 6 ''LD.CIT(A) IN ALLOWING THE APP EAL PREFERRED BY THE ASSESSEE SO AS TO WARRANT INTERFERENCE. HENCE, THE REVENUE S APPEAL FAILS AND THUS DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMI SSED ORDER PRONOUNCED IN THE COURT ON 06 /08 /2019 AT AHMEDABAD. - SD - - SD - ( WASEEM AHMED ) ACCOUNTANT MEMBER ( MS MADHUMITA ROY ) JUDICIAL MEMBER (TRUE COPY) AHMEDABAD; DATED 06 / 0 8 /201 9 MANISH