ITO, Mangalore V. Academy of Liberal Education, Sullia

ITA 687/BANG/2014

• Counselvise Citation: 68721114 RSA 2014
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-02-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Keywords: Depreciation; Charitable institution
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.687/BANG/2014 ASSESSMENT YEAR : 2011-12 THE INCOME TAX OFFICER, WARD 1(3), MANGALORE. VS. ACADEMY OF LIBERAL EDUCATION, KURANJIBAGH, SULLIA 574 327. PAN : AAATA 2239B APPELLANT RESPONDENT APPELLANT BY : SHRI P. DHIVAHAR, JT. CIT(DR) RESPONDENT BY : SMT. SHEETAL BORKAR, ADVOCATE DATE OF HEARING : 12.02.2015 DATE OF PRONOUNCEMENT : 20.02.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 4.3.2014 OF CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEAR 20 11-12. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING T HAT ASSESSEE, A TRUST, IS ITA NO.687/BANG/2014 PAGE 2 OF 6 ENTITLED TO CARRY FORWARD EXPENDITURE INCURRED IN E XCESS OF ITS INCOME FOR SETTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS? 3. THE ASSESSEE IS A TRUST REGISTERED U/S. 12A OF THE ACT. FOR THE A.Y. 2011-12, THE ASSESSEE FILED A RETURN OF INCOME SHOW ING APPLICATION OF INCOME BY MORE THAN RS.3,08,66,139 OF ITS RECEIPTS. THE ASSESSEE ALSO HAD A CARRY FORWARD UNABSORBED DEFICIT OF RS.25,78,08,5 75 FROM A.YS. 2005-06 TO 2010-11. THE UNABSORBED CURRENT DEFICIT AND UNA BSORBED DEFICIT FOR THE A.YS. 2005-06 TO 2010-11 WERE SOUGHT TO BE CARRIED FORWARD FOR SETTING OFF AND ON TREATMENT AS APPLICATION OF INCOME IN THE SU BSEQUENT ASSESSMENT YEARS. THE INCOME DECLARED IN THE RETURN OF INCOME WAS NIL. 4. THE ISSUE IS WITH REGARD TO CLAIM OF ASSESSEE F OR CARRY FORWARD OF DEFICIT OF CURRENT YEAR AND UNABSORBED DEFICIT OF E ARLIER ASSESSMENT YEARS. THE AO REJECTED THE CLAIM OF ASSESSEE OBSERVING AS FOLLOWS:- THE ASSESSEE TRUST HAS CLAIMED CARRY FORWARD OF EX CESS AMOUNT APPLIED DURING THE YEAR FOR CHARITABLE PURPOSES. TH E ASSESSEE HAS RELIED ON VARIOUS JUDICIAL DECISIONS INCLUDING THE DECISION OF THE HON,BLE ITAT, BANGALORE IN THE CASE OF MEDICAL RELI EF SOCIETY OF SOUTH KANARA. IT IS OBSERVED THAT IN THE CASE OF MEDICAL RELIEF SOCIETY OF SOUTH KANARA, THE DEPARTMENT HAS FILED A N APPEAL BEFORE THE HONBLE HIGH COURT OF KARNATAKA VIDE ITA 1034 OF 2008 ON THE SIMILAR ISSUE AGAINST THE ORDER OF THE HONBLE ITAT ALLOWING EXCESS APPLICATION TO BE CARRIED FORWARD A ND SET OFF. THE SAME IS PENDING BEFORE THE JURISDICTIONAL HIGH COUR T AS ON DATE. SINCE THE MATTER IS PENDING BEFORE THE JURISDICTION AL HIGH COURT, THE LOSS DECLARED OF RS.3,08,66,139/- FOR THE A.Y. 2011-12 IS NOT ALLOWED TO BE CARRIED FORWARD TO THE A.Y 2012-13 IN ORDER TO KEEP THE ISSUE ALIVE. ITA NO.687/BANG/2014 PAGE 3 OF 6 5. ON APPEAL BY THE ASSESSEE, THE CIT(A) DIRECTED THE AO TO ALLOW CLAIM OF THE ASSESSEE AND IN DOING SO, HELD AS FOLL OWS:- THIS ISSUE WAS ALSO BEFORE ME IN THE FOLLOWING TRU STS CASES, WHEREIN I HAVE DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE TRUSTS. I) MANIPAL HOTEL & RESTAURANT MANAGEMENT COLLEGE T RUST, (MANIPAL IN ITA NOS. 187/UDP/CTI(A)MNG/10-11, DATED 14.3.2013. II) MANIPAL ACADEMY OF HIGHER EDUCATION, MANIPAL I N ITA NO. 43/UDP/CIT(A) MNG/13-14, DATED 21.1.2014. III) ACADEMY OF GENERAL EDUCATION, MANIPAL, IN ITA NO. 75/UDP/CIT(A)MNG/10- 11, DATED 14.3.2013.. IV) DR.T.M.A. PAL FOUNDATION, MANIPAL IN ITA NO. 76/UDP/CIT(A)MNG/12-13, DATED 14.3.2013. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDI CTIONAL ITAT, WHICH IS BINDING AND FOLLOWING MY OWN DECISIO NS IN THE ABOVE CASES, I HOLD THAT, THE APPELLANTS CURRENT Y EARS UNABSORBED DEFICIT AMOUNTING TO RS.3,08,66,139/- ALONG WITH BR OUGHT FORWARD UNABSORBED DEFICIT OF RS.25,78,08,575/- TO BE CARRI ED FORWARD TO THE SUBSEQUENT ASSESSMENT YEARS TO SET OFF THE SAME AS APPLICATION OF INCOME. HENCE, THE FIRST GROUNDS OF APPEAL IS AL LOWED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE H AS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. IN THE GROUNDS OF APPEAL, THE REVENUE ACCEPTS THE FACT THAT THE ISSUE RAISED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISIONS REFERRED TO BY THE CIT(A), BUT HAS ONLY CONTENDED THAT THE DEPA RTMENT HAS NOT ACCEPTED THE DECISIONS OF THE TRIBUNAL AND AN APPEA L IS PENDING BEFORE THE ITA NO.687/BANG/2014 PAGE 4 OF 6 HON'BLE HIGH COURT OF KARNATAKA ON THE ISSUE. THE LD. DR REITERATED THE STAND OF THE REVENUE AS CONTAINED IN THE GROUNDS OF APPEAL. 8. WE ARE OF THE VIEW THAT PENDENCY OF AN APPEAL B EFORE THE HON'BLE HIGH COURT OF KARNATAKA CANNOT BE THE BASIS NOT TO FOLLOW THE DECISION ON THE ISSUE ALREADY RENDERED IN IDENTICAL CASES. SEC TION 11(1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ON LY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITAB LE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET THE EXPENSES INCURRED FO R CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURP OSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUB SEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURP OSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SE T-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEA RS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME O F SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ) CIT V S. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ. ). IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 264 ITR 110 (BOM) , IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AG AINST INCOME OF ITA NO.687/BANG/2014 PAGE 5 OF 6 SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLI CATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF I NCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD) , THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF T HE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRIN CIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCU RRED ON RELIGIOUS OR CHARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT T HE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FRO M THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED WAS F OR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE O F LOSS OF AN EARLIER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUE NT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST S HOULD HAVE AN INCOME. SO LONG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF WHICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LI ABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJU STED AGAINST THE INCOME OF A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FROM THE INCOME O F THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLI ER YEARS, IF IN THE BOOKS ITA NO.687/BANG/2014 PAGE 6 OF 6 OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HA D BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE O F CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR) . 9. WE ARE THEREFORE OF THE VIEW THAT THERE IS NO M ERIT IN THIS APPEAL BY THE REVENUE. ACCORDINGLY, THE SAME IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF FEBRUARY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 20 TH FEBRUARY, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.