The ACIT, (Exemption) Circle-1, Ahmedabad V. Vyakti Vikas Kendra India, Ahmedabad

ITA 687/AHD/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0237 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Benefit of exemption; Revenue expenditure; Capital expenditure; Set aside
• Section: 11; 234B; 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH (Conducted Through Virtual Court) Before: Shri Rajpal Yadav, Vice President And Ms. Annapurna Gupta, Accountant Member The Asstt. Commissioner of Income-tax (Exemptions), Circle-1, Ahmedabad (Appellant) Vs Vyakti Vikas Kendra India, Plot No. 272, Sri Sri Gyan Mandir, B/h. Saligram Flat, Opp. Mayor Park, Satellite, Ahmedabad-380015 PAN: AAATV1617L (Respondent) Revenue by: Shri Alpesh Parmar, Sr. D.R. Assessee by: Shri S. N. Soparkar, Sr. Advocate with Shri Parin Shah Date of hearing : 22-12-2021 Date of pronouncement : 12-01-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:- The present appeal has been filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals)-4, Ahmedabad, (in short referred to as CIT(A)), dated 25-02-2019, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2008-09. 2. The solitary ground raised by the Revenue reads as under: ITA No. 687/Ahd/2019 Assessment Year 2008-09 I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 2 The Ld. CIT(A) has erred in law and on facts in holding that the assessee is eligible for deemed utilization of the income received as per provisions of section 11(1)(a) of the IT Act, on the Gross Income, without appreciating the findings of the AO. 3. It was pointed out that the solitary issue in the present appeal is whether, in the case of a charitable trust, the amount treated as exempt u/s 11(1)(a) of the Act ,on account of setting aside/accumulation of income to a specified percentage,15% in the present case,is to be calculated on the gross/net income of the trust/society. The assessee in the present case is a charitable trust carrying on charitable activities of education and medical relief and registered u/s. 12A of the Act vide order of the Commissioner of Income Tax Karnataka-2, Bangalore dated 18.04.1997.For the impugned year it had claimed exemption of 15% of its gross income u/s 11(1)(a) of the Act,the gross receipts being Rs. 51,05,58,582/-,while the AO calculated the same on the net surplus of the assessee of Rs. 17,33,05,882, thus reducing the claim of exemption to Rs. 2,59,95,882/- resulting in taxable income being assessed of Rs. 3,27,84,934/- as under;(as per assessment order): Income from other sources 16,89,70,375 Add: Depreciation 43,35,507 Net Surplus 17,33,05,882 Less: Capital Expenditure 3,45,25,066 Total 13, 87,80,816 Less: Less: Dedcuction u/s. 11(1)(a) @ 15% 2,59,95,882 Taxable surplus 11,27,84,934 Less: Deduction u/s. 11(2) 8,00,00,000 Balance Tax Payable 3,27,84,934 Tax on the above 97,84,479 Add: Surcharge 9,78,448 Add: EC @ 3% 3,22,888 I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 3 Total 1,10,85,815 Add: Int. u/s. 234B 99,77,220 Total Tax payable 2,10,63,935 4. The assessee carried the matter in appeal before the Ld. CIT(A) who allowed the claim of the assessee to deduction/exemption of 15% of its gross receipts relying on the decision of the ITAT Bangalore Bench in the case of M/s. Society of the Servants of the Holy Spirit Vs. DCIT (Exemption) dated 27.11.2015. The relevant findings of the Ld.CIT(A) at para 5.1 of his order are as under : “5.1 The Second issue is raised as per ground no.4 as under: "The Learned Assessing officer was not justified in considering the net income for computation of deemed utilization of the income received under section 11(1) (a) of the Income tax Act 1961, instead of the Gross receipts." This is an effective ground in this appeal. In the course of appellate proceedings the appellant made various submissions which are placed on record and are part of the proceedings. The AR also argued, that in a recent judgment, Hon'ble ITAT, Bangalore in order No. ITA No. 975/Bang/2015 Asst year 2011-12 in the case of M/s. Society of the Servants of the Holy Spirit Vs. Deputy Commissioner of Income Tax (Exemptions) dated 27.11.2015 has held that “the claim for accumulation under section 11(1)(a) of the Act , could not have been restricted and was eligible for accumulation of 15% of gross receipt from all streams of Its income". Also references in that order has been made of the Hon'ble Apex Court. Addl CIT V.A.L.N. Rao Charitable Trust (216 ITR 697) wherein it is held "Sec. 11, sub-s. (1)(a) operates on its own. By its operation two types of income earned by the trust during the previous year from its properties are given exemption from income-tax, (i) that part of the income of previous year which is actually spent for charitable or religious purposes in that year: and (ii) out of the unspent accumulated income of the previous year 25% of such total property income or Rs. 10,000 whichever is higher can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such 25% of the income or Rs. 10,000 whichever is higher will also get exempted from income-tax. That exhausts the operation of s.11(1)(a). Then follows sub-s. (2) which naturally deals with the question of investment of the balance of accumulated income which has still not earned exemption under sub-s. (1)(a). So far as that balance of accumulated income is concerned, that also can earn exemption from income-tax meaning thereby the ceiling or the limit of exemption of accumulated income from. income-tax as imposed by sub-s. (1)(a) of s.11 would get lifted if additional accumulated income beyond 25% or Rs. 10,000, whichever is higher, as the case may be: is invested as laid down by s. 11(2) after following the procedure laid down therein. I have carefully considered the impugned assessment order, the submissions made by the appellant through the AR. The AO has relied on Hon'ble Supreme Court judgment in the case of Escorts Ltd.(199 ITR 043). However the impugned judgment is pertaining to deduction u/s. 35(2)(iv) in respect of capital expenditure. The AO has further relied on the judgment of Kerala High Court confirming ITAT, Cochin judgment in the case of Lissie Medical Institutions. The AO in this case is stationed at Bangalore and the AR has filed a copy of the judgment from ITAT, Bangalore dated 27.11.2015 in the case pr M/s. Society of the Servants of the Holy Spirit(Appellant) Vs. DCIT(Exemption). It is brought to my notice that there I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 4 are number of ITAT, Bangalore judgments reversing the stand of the AO, Bangalore for A.Y. 2008-09. Hon’ble ITAT, Bangalore(Supra) has considered the issue as covered in the case of Addl. CIT Vs. A L N Rao Charitable Trust [216 ITR 697] (SC) and concluded as per para 7 as under: “Accordingly we are of the opinion that assessee’s claim for accumulation under section 11(1)(a) of the Act, could not have been restricted and was eligible for accumulation of 15% of gross receipt from all streams of its income. Ordered accordingly.” In view of the very clear findings from ITAT, Bangalore and the undersigned not made aware about any adverse judgment against appellant either from ITAT, Ahmedabad or Hon’ble Gujarat High Court, in my opinion the appellant has raised the ground as per law. The ground no.4 is therefore, allowed.” 5. Aggrieved by the same, the revenue has come up in appeal before us. 6. Before us the Ld. D.R. supported the order of the AO relying on the decision of the Hon’ble Apex Court in the case of Escorts Ltd. ( 199 ITR 043.The Ld. Counsel for the assessee on the other hand stated that the issue is no longer res integra having been decided by the Hon’ble Apex Court in favour of the assessee in the case of CIT vs. Programme for Community Organization reported in 248 ITR 1 (SC). He further pointed out that the said decision was followed by the ITAT Kolkata Bench in the case of Kanehialall Lohia Trust vs. ITO (Exemption) Ward-1(4), Kolkata reported in [2020] 120 taxmann.com 208. He also drew out attention to the decision of the ITAT Pune Bench in the case of Maharshi Karve Stree Shikshan Samstha Karvenagar vs. ITO, Ward11(1), (Pune) reported in [2019] 101 taxmann.com 175,in this regard .Copies of all the above orders were placed before us. 7. We have heard both the parties and have also gone through the orders of the authorities below and the decisions relied upon by both the counsels. 7.1 The issue before us relates to section 11(1)(a) of the Act which is reproduced hereunder for clarity: “Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (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;” I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 5 7.2 As is evident from a bare perusal of the above the said section deals with exemption of income from property held for charitable purposes and provides exemption to all such income actually applied to charitable purposes and also to a specified percentage of such income which is set aside/accumulated for application to such purposes. Thus incomes from property held under charitable trusts are exempt from tax to the extent: a) Actually applied to charitable purposes and, b) Accumulated /set aside for such application upto limit specified. 7.3 Before us the issue relates to the second limb of the exemption ,the limited point being whether the specified limit for setting aside/accumulation applies to gross receipts/net surplus.In short it is the question of interpretation of the term “income” used in the section ,specified percentage of which is allowed to be accumulated/setaside. 8. As rightly pointed out by the Ld.Counsel for the assessee,this issue stands settled in favour of the assessee by the Hon’ble apex court in the case of Programme for Community Organisation (supra),wherein the question before the Hon’ble court was whether exemption on account of accumulation/setting aside was to be allowed on the gross donations received or on the net remaining after application.The hon’ble apex court held that as per the plain reading of the section it is the” income derived from property held under trust” (italics provided by us) which the assessee is entitled to accumulate to a specified extent , which is its gross donation receipts. That there was no basis for interpreting the term to refer to net receipts. The relevant findings of the Hon’ble apex court in this regard at para 2-3 of the order is as under: “ 2.The question that really requires consideration is whether, for the purpose of s. 11(1)(a) of the IT Act, 1961, 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 as 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 I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 6 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 as it contends, or twenty-five per cent of Rs. 87,010, as the Revenue appeared to contend. Sec. 11(1)(a) reads thus : "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 twenty-five per cent of the income from such property." 3. Having regard to the plain language of the above provisions 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. For the aforesaid reasons, the civil appeal is dismissed.” 9. In the case of Kanehialall Lohia Trust (supra), cited by the Ld. Counsel for the assessee before us, the ITAT Kolkata Bench, took note of the decision of the Special Bench of the ITAT in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO [2005] 93 ITD 70 (SB) for laying down the afore-stated proposition that it is the gross receipts which are to be considered for the purposes of accumulation of income for charitable purposes. We have gone through the relevant portion of the order of the special bench of the ITAT reproduced in the said decision. We find that the special bench was seized with the identical issue whether for the purposes of computing accumulation of income upto specified limit the gross income or net income is to be considered. Relying on the decision of the Hon’ble apex court in the case of Programme for community organization(supra), it was held that the issue was no longer reintegra and that it was the gross receipts on which the accumulation was to be calculated. It went on to refer to the discussion of the Hon’ble Karnataka high Court in the said case, which had travelled upto the Hon’ble apex court as referred above, noting that the high court interpreted the section as providing that setting I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 7 apart of income to the extent specified relates to income before application for charitable purposes, since it is set apart to be applied for the said purposes. That therefore it refers to the gross receipts prior to application for charitable purposes. The relevant findings of the ITAT at para 5 of its order is as under: 5.I have heard rival submissions and have considered the material available on record. It is noted that assessee is enjoying registration u/s. 12A of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). It is noted that the issue that arises for consideration is as to whether 15% accumulation for application in future has to be calculated on gross receipt or net receipt after deduction of revenue expenditure. The assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure. In other words, income to be set apart u/s. 11(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") has to be computed at 15% of the net income i.e. gross receipts minus revenue expenditure and not on the gross receipts as claimed by the assessee. The Ld. CIT(A) upheld the view of the AO. I find that the issue is no longer res integra as held by the Special Bench of the Mumbai in the case of Bai Sonabai Hirji Agency Trust Vs. ITO 93 ITD 0070 (SB). I note that this precise issue came up before this Tribunal of Bangalore Bench in ACIT (Exemption) Vs. Bhagwan Mahaveer Memorial Jain Educational & Cultural Trust, ITA Nos. 1514 & 1515/Bang/2016 for AYs 2020-11 and 2011-12 and ITA No. 137/Bang/2017 for AY 2012-13 dated 21.08.2019, wherein it was held as under: "16. The third issue that arises for consideration in ITA No.1515/Bang/2016 for AY 2011-12 is as to whether 15% accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure. The Assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure. In other words income to be set apart u/s.11(1)(a) of the Act has to be computed at 15% of the net income i.e., gross receipts minus revenue expenditure and not on the gross receipts as claimed by the Assessee. Since in the case of the Assessee, the gross receipts after revenue expenditure was nil, the AO denied the benefit of accumulation to the Assessee. 17. On appeal by the Assessee, the CIT(A) allowed the claim of the Assessee. Aggrieved by the order of the CIT(A), the Revenue has raised the aforesaid ground of appeal before the Tribunal. 18. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15% under Sec.11(1)((a) of the Act, one has to take the gross receipts or gross receipts after expenditure for chartiable purpose i.e., the net receipts. This is issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO 93 ITD 0070 (SB). The facts in the aforesaid case were that the assessee was a public charitable trust enjoying exemption under s. 11 of the IT Act. As per the requirement of s. 11(1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 8 income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfilment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was 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 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows: "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 vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held 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 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. For the aforesaid reasons, the civil appeal is dismissed." It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier, affirmed the decision of Kerala High Court in (1997) 141 CTR (Ker) 502: (1997) 228 ITR 620 (Ker)(supra) wherein it is held as under: "At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived 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 provision proceeds further that such income is not to be understood to be in excess of 25 per cent of the income from such properties. In other words, the very language of the statutory provision under consideration sets apart 25 per cent of the income from the source of property with reference to the extent to which such income is applied for such purposes, charitable or religious. In other words, for the purpose of s. 11(1)(a) of the Act, the income in terms of relevance would be the income of the trust I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 9 from and out of which 25 per cent 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 s. 11(1), the said trust is to get the benefit of twenty-five per cent and this twenty-five per cent has to be understood as income of the trust under the relevant head of s. 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 language of s. 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 exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent 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 IT 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. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature 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 per cent 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 vs. CIT (supra). No reason whatsoever has been given by the Revenue authorities for deducting Rs. 2,17,126 in this case for purposes of s. 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 of CBDT has also been considered by the Hon'ble Kerala High Court in its decision referred to above. Accordingly the question referred to is answered in the affirmative and in favour of the assessee." 19. The aforesaid decision clearly supports the plea of the Assessee. Following the same, we hold that the accumulation u/s.11(1)(a) of the Act should be allowed as claimed by the Assessee. The relevant ground of appeal of the revenue is accordingly dismissed." 6. Therefore, respectfully following the aforesaid Tribunal's decision in Bhagwan Mahaveer Memorial Jain Educational & Cultural Trust (supra) hold that the I.T.A No. 687/Ahd/2019 A.Y. 2008-09 Page No ACIT (Exemption) vs. Vyakti Vikas Kendra India 10 accumulation u/s. 11(1)(a) of the Act should be allowed as claimed by the assessee. This ground of appeal of assessee is allowed. 10. It is settled law therefore that the accumulation of income to the extent of 15% of the income is to be calculated on the gross receipts. We therefore see no reason to interfere in the order passed by the Ld. CIT(A) holding so. The decision referred to by the Ld.DR in the case of Escorts Ltd.(supra),we find has been dealt with by the Ld.CIT(A) pointing out that it pertained to a different issue relating to deduction u/s 35(2)(iv) of the Act. Ld.DR did not controvert this finding of the Ld.CIT(A) before us. Therefore the case law relied upon by the Ld.DR merits no consideration. 10.1 The grounds of appeal raised by the Revenue are therefore dismissed 11. In effect the appeal of the Revenue is dismissed. Order pronounced in the open court on 12 -01-2022 Sd/- Sd/- (RAJPAL YADAV) (ANNAPURNA GUPTA) VICE PRESIDENT True Copy ACCOUNTANT MEMBER Ahmedabad : Dated 12/01/2022 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद