Assistant Commissioner of Income-tax, V. Shriram Pratishthan Mandal, Solapur

ITA 709/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9339 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKHESH JHA
• Keywords: Charitable institution; Earning of tax free income
• Section: 143(3); 12; 28; 154; 11

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.709/PUN/2015 / ASSESSMENT YEAR : 2009-10 THE ASST. COMMISSIONER OF INCOME TAX, (EXEMPTION) CIRCLE, PUNE. 2 ND FLOOR, B.O. BHAVAN, SECTOR NO.47, PLOT NO.1, PUNE SATARA ROAD, PUNE 411 009. . / APPELLANT V/S SHRIRAM PRATISHTHAN MANDAL, A/P WADALA, TAL. NORTH SOLAPUR, DISTRICT SOLAPUR. PAN : AADTS8337H. . / RESPONDENT / APPELLANT BY : SHRI MUKHESH JHA / RESPONDENT BY : SHRI PRAMOD SHINGTE / ORDER PER ANIL CHATURVEDI, AM : THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 10 PUNE, DT.2 6.02.2015 FOR THE ASSESSMENT YEAR 2009-10. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS AN EDUCATIONAL TRUST STATED TO HAVE BEE N ESTABLISHED IN 1997 AND RUNNING VARIOUS EDUCATIONAL INSTITU TES. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 02.0 9.2009 / DATE OF HEARING : 14.06.2017 / DATE OF PRONOUNCEMENT: 23.06.2017 2 DECLARING TOTAL INCOME OF RS.NIL. THE CASE WAS SELECTED FOR S CRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE A CT VIDE ORDER DT.19.12.2011 AND THE TOTAL INCOME WAS DETERMINED AT RS.69,84,900/-. THEREAFTER AO PASSED AN ORDER U/S 154 O F THE ACT VIDE ORDER DT.26.07.2013, WHEREIN HE REVISED THE TOTAL INCOM E AT RS.19,17,770/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.26.06.2015 IN (APPE AL NO.PN/CIT(A)-10/ACIT, CIR.2, SOL./938/11-12) GRANTED SUBSTAN TIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE INTEREST E XPENSES EVEN WHEN THE ASSESSEE IS NOT IN A POSITION TO ESTABLISH THAT IT WERE FOR THE OBJECTS OF THE TRUST AND SECTION 40(A)(IA) WAS COMPLIED. 3. AO ON PERUSING THE PROFIT AND LOSS ACCOUNT NOTICED TH AT ASSESSEE HAD OBTAINED LOANS FROM LOKMANGAL KARMACHARI PATHSANSTHA, LOKMANGAL NAGARI SAHAKARI PATSANSTHA, LOKMA NGAL BANK AND VYAPARI BANK AND PAID AGGRIEVED INTEREST OF RS.65,84,008/-. IT WAS SUBMITTED THAT TRUST HAD TAKEN LO AN IN THE NAME OF VARIOUS EMPLOYEES FROM LOKMANGAL BANK AND THUS EMPLOYEES HAD GIVEN LOANS TO THE ASSESSEE. FURTHER THE ASSESSEE HAD PAID INTEREST AND INSTALLMENTS DIRECTLY FROM CURRENT A CCOUNT OF THE TRUST TO THE LOAN ACCOUNT OF THE RESPECTIVE EMPLOYE ES. AO WAS OF THE VIEW THAT SINCE ASSESSEE HAD DEBITED INTEREST AMO UNT RS.36,66,103/- ASSESSEE WAS REQUIRED TO DEDUCT TDS U/S 194A OF THE ACT BUT SINCE THE ASSESSEE HAD NOT DEDUCTED TDS, PROVISIONS OF SEC.40(A)(IA) OF THE ACT WERE ATTRACTED. HE ALSO NOTICED THA T ASSESSEE HAD MADE PAYMENT OF RS.33,18,801/- TO LOKMANG AL 3 DEVELOPERS TOWARDS CONTRACT PAYMENT AND HAD NOT DEDU CTED TDS. AO WAS OF THE VIEW THAT ASSESSEE WAS LIABLE TO DEDUCT T DS ON THE AFORESAID PAYMENTS. SINCE TDS WAS NOT DEDUCTED, PROVISION S OF SEC.40(A)(IA) WERE ATTRACTED. HE ACCORDINGLY DISALLOWED TOTAL AMOUNT OF RS.69,84,900/- U/S 40(A)(IA) OF THE ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.C IT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 6. I HAVE CAREFULLY CONSIDERED THE FACTS 'OF THE CASE AS WELL AS REPLY OF THE APPELLANT. THE ISSUE CAN BE UNDERSTOOD IN THE LIGHT OF PROVISIONS PERTAINING TO COMPUTATION OF INCOME OF T HE TRUST. UNDER SECTION 11 OF INCOME-TAX ACT, A CHARITABLE OR .RELI GIOUS TRUST SUBJECT TO CERTAIN CONDITIONS IS ENTITLED TO EXEMPTION IN R ESPECT OF INCOME FROM PROPERTY HELD UNDER TRUST FOR CHARITABLE OR R ELIGIOUS PURPOSES, TO THE EXTENT SUCH INCOME IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES, OR ACCUMULATED FOR CHARITABLE OR RELIGIOU S PURPOSE. THE CBDT HAS CLARIFIED VIDE IT'S CIRCULAR NO.5 P(LXX-6) DATED 19TH JUNE 1968 THAT FOR THE PURPOSE OF SUCH EXEMPTION U/S. 11 , THE INCOME OF THE TRUST IS TO BE TAKEN IN THE COMMERCIAL SENSE AN D NOT AS COMPUTED UNDER THE PROVISIONS OF THE INCOME-TAX ACT . IN OTHER WORDS, THE INCOME THAT IS ELIGIBLE FOR EXEMPTION IS THE ONE WHICH IS DETERMINED AS PER BOOKS OF ACCOUNT AND NOT AS PER T HE PROVISIONS OF INCOME TAX. THIS BEING SO, THE METHOD OF COMPUTING INCOME OF A CHARITABLE TRUST IS DIFFERENT FROM THAT FOLLOWED IN THE CASE OF OTHER ASSESSES IN THE SENSE THAT, IT IS THE COMMERCIAL CO NCEPT OF INCOME WHICH IS TO BE CONSIDERED AND NOT THE INCOME AS COM PUTED UNDER THE VARIOUS HEADS OF INCOME AS PER INCOME-TAX ACT. THEREFORE, WHEN THE INCOME OF THE TRUST HAS NOT BEEN COMPUTED AS PE R PROVISIONS OF INCOMETAX ACT, QUESTION OF DISALLOWING THE SAME U/S . 40(A)(IA) OF INCOME-TAX ACT DOES NOT ARISE. I FIND THAT THE ISSU E IS DECIDED IN FAVOUR OF THE APPELLANT BY HON'BLE ITAT MUMBAI BENC H IN THE CASE OF MAHATMA GANDHI SEVA MANDIR VS. DDIT(EXEMP) REPO RTED IN 21 TAXMANN.COM 321. FOR THE SAKE OF CLARITY THE OPERAT IVE PORTION OF THE ORDER IS REPRODUCED AS UNDER: 7.1 NOW, LET US EXAMINE SECTION 11 AND SECTION 40 T O DECIDE THIS CONTROVERSY. SECTION 11 TO 13 IS A PART OF CH APTER 3 UNDER THE HEADING 'INCOME WHICH DOES NOT FORM THE PART OF THE TOTAL INCOME'. SECTION 1191) PROVIDES THAT 'SU BJECT TO THE PROVISIONS OF SECTION. 60 TO 63, THE FOLLOWING INCO ME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEA R OF THE PERSON IN RECEIPT OF THE INCOME'. THEREAFTER IT IS PROVIDED AS TO HOW THE INCOME AND TO WHAT EXTENT IT CAN BE APPL IED FOR CHARITABLE PURPOSES. THE MANNER IN WHICH THE INCOME CAN BE APPLIED HAS BEEN LAID DOWN IN SECTION 11(1) TO .SEC TION 11(5). SECTION 13 PROVIDES EXCEPTION TO .SECTION 11 WHEREI N SUCH AN INCOME CAN BE EXCLUDED FROM THE EXEMPT INCOME OF TH E TRUST. THUS, SECTION 11 TO 13 PROVIDES FOR APPLICATION OF INCOME BY. A TRUST FOR CHARITABLE PURPOSES AND TO THAT EXTENT, SUBJECT OF CERTAIN CONDITIONS, INCOME OF THE TRUST IS TREATED TO BE EXEMPTED FOR TAXATION. THE INCOMES WHICH ARE COMPUT ED 4 UNDER THE VARIOUS HEADS OF INCOME, THE MODE OF COMP UTATION HAS BEEN PROVIDED UNDER RESPECTIVE SECTIONS. 7. HERE WE ARE CONCERNED WITH SECTION 40, WHICH IS PART OF COMPUTATION OF PROFIT AND GAINS FROM BUSINESS OR PR OFESSION. THE PROFITS AND GAINS FROM BUSINESS OR PROFESSION A RE COMPUTED UNDER SECTION 28 AND SECTION 29 STATES THA T THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION , 30 TO 43D. THUS, SECTION 30 TO 43 PROVIDES VARIOUS KINDS OF DEDUCTIONS WHICH ARE TO BE MADE WHILE COMPUTING THE PROFIT OF THE ASSESSEE FROM THE BUSINESS OR PROFESSION. SE CTION 40 PROVIDES AN EXCEPTION TO SUCH DEDUCTIONS WHICH HAVE BEEN PROVIDED IN SECTION 30 TO 38 AND STARTS WITH A NON OBSTANTE CLAUSE READING AS UNDER .. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION'. THUS, SECTION 40 IS APPLICABLE ONLY WHEN DEDUCTIONS UNDER SECTIONS 30 TO 38 ARE BEING MADE IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD ''PROFITS AND GAINS OF BU SINESS OR PROFESSION' UNDER SECTION 28. THE EXCEPTION IN SEC TION 40 IS CARVED OUT, ONLY FOR THE PURPOSE OF SECTION 28 AND NOT FOR COMPUTING THE EXEMPTION OF INCOME OF A CHARITABLE TRUST UNDER SECTION 11. THE DISALLOWANCE MADE UNDER SECT ION 40(A) WILL ONLY GO TO ENHANCE THE BUSINESS PROFIT, OR AN ASSESSEE WHOSE INCOME IS ASSESSABLE UNDER SECTION 28 AND NOT OTHERWISE. HENCE, PROVISIONS OF SECTION 40(A) ARE NOT APPLICABLE IN CASE OF CHARITABLE TRUST OR INSTITUTI ON WHERE INCOME AND EXPENDITURE IS COMPUTED IN TERMS OF SECTION 11. 8. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE OR DERS PASSED BY THE ASSESSING OFFICER AS WELL AS BY THE C IT(A) AND DELETE THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA ) ON ACCOUNT OF NON-DEDUCTION OF TDS FOR SUM OF RS. 3,06 ,457/- AND THE GROUND NO.1 AS RAISED BY THE ASSESSEE STAND S ALLOWED. ' 7. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RELYING UPON THE ABOVE DECISION OF HON'BLE MUM BAI TRIBUNAL, THE ASSESSING OFFICER IS DIRECTED TO DELE TE THE DISALLOWANCE OF RS.33,66,103/- AND RS.33,18,801/- U/S.40(A)(IA) RESPECTIVELY. THUS, GROUND NO.1 & 2 A RE ALLOWED. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APP EAL BEFORE US. 5 4. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE AO AN D LD.CIT(A) AND FURTHER SUBMITTED THAT SEC.40 OF THE ACT IS APPLICABLE ONLY WHEN DEDUCTIONS U/S 30 TO 38 OF THE ACT ARE MAD E WHILE COMPUTING THE INCOME CHARGABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION U/S 28 OF THE ACT. LD.A.R. FURTHE R SUBMITTED THAT IN THE CASE OF THE ASSESSEE SINCE THE INC OME WAS EXEMPT U/S 11 OF THE ACT, THE PROVISIONS OF SEC.40(A)(IA) AR E NOT APPLICABLE. HE FURTHER SUBMITTED THAT LD.CIT(A) HAD RIGHTLY RELIED ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF MAHATM A GANDHI SEVA MANDIR VS. DDIT (EXEMPTION) IN ITA NO.4138/MUM/2011. HE FURTHER SUBMITTED THAT OTHER BENC HES OF TRIBUNAL HAVE TAKEN SIMILAR VIEW. HE SUBMITTED THAT IN THE CASE OF ITO VS. MOTHER THERESA EDUCATIONAL SOCIETY [2016] 68 TAXMANN.COM 320 (VISAKHAPATNAM TRIB), ITO VS. HARYANA S TATE COUNSELING SOCIETY [2016] 71 TAXMANN.COM 274 (CHANDIGARH TRIB) AND ITO VS. KALINGA CULTURAL TRUST [2015] 62 TAXMANN.CO M 171 (HYDERABAD - TRIB), THE TRIBUNAL HAS TAKEN A CONSISTEN T VIEW THAT WHEN INCOME IS COMPUTED U/S 11 OF THE ACT, PROVISIO NS U/S 40(A)(IA) ARE NOT APPLICABLE. HE THUS, SUPPORTED THE ORDER OF LD.CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT T O DISALLOWANCE OF EXPENSES U/S 40(A)(IA) OF THE ACT. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS A TRUST AND ITS INCOME COMPUTED U/S 11 AND 12 OF THE ACT AND NOT UNDER THE HEAD OF INCOME FROM BUSINESS OR PROFESSION. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN 6 THE CASE OF MAHTMA GANDHI SEVA MANDIR (SUPRA) HAS HELD TH AT PROVISIONS OF SEC.40(A)(IA) ARE NOT APPLICABLE IN THE CASE OF CHARITABLE TRUST OR INSTITUTION, WHERE INCOME AND EXPEND ITURE IS COMPUTED IN TERMS OF SEC.11 OF THE ACT. BEFORE US, REVEN UE HAS NOT PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT NO R HAS PLACED ANY MATERIAL ON RECORD TO SHOW THAT THE AFORESAID DECISION RELIED UPON BY LD.CIT(A) HAS BEEN SET ASIDE OR STAYED BY THE HONBLE HIGH COURT. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS, T HE GROUND OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 23 RD DAY OF JUNE, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER . PUNE; ! DATED : 23 RD JUNE, 2017. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5. 6. CIT(A), PUNE-10. CIT(EXEMPTIONS), PUNE RANGE. #$% &&'(,* '(, / DR, ITAT, A PUNE; %-.// GUARD FILE. / BY ORDER, // TRUE COPY // // 0 1234 / ASSISTANT REGISTRAR, * '( , / ITAT, PUNE.