ACIT (Exemption), CIRCLE-2 (1), New Delhi V. Subros Educational Society, New Delhi

ITA 7326/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0386 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 07-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IN CIRCUMSTANCES OF CA SE; CARRY FORWARD OF
• Keywords: Charitable institution
• Section: 143(3); 12AA; 201; 264; 64; 13; 119; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: G NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.7326/DEL/2017 ASSESSMENT YEAR: 2013-14 ACIT(EXEMPTION), CIRCLE-2(1), NEW DELHI VS. SUBROS EDUCATIONAL SOCIETY, G-71, WORLD TRADE CENTRE, BARAKHAMBA LANE, NEW DELHI PAN :AADTS2161F (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE REVENUE HAS BEEN FILED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -40, DELHI [IN SHORT THE LEARNED CIT(A)] FOR ASSESSMENT YEAR 201 3-14 RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF CARRY FORWARD OF LOSSES DISREGARDING THE FACTS THAT THE SET-OFF AND CARRY FORWARD OF APPELLANT BY SH. H.K. CHOUDHARY, CIT(DR) RESPONDENT BY NONE DATE OF HEARING 07.07.2021 DATE OF PRONOUNCEMENT 16.07.2021 2 ITA NO.7326/DEL/2017 LOSSES ARE DEALT WITH BY THE PROVISIONS OF SECTION 70,71,72,73&74 OF INCOME TAX ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LD. CIT(A) HAS ERRED IN LAW IN ALLOWING THE ASSESSEES CLAIM OF CARRY FORWARD OF CURRENT YEARS LOSS AND SET-OFF OF EXCES S DEFICIT PERTAINING TO EARLIER YEARS WITHOUT APPRECIATING TH E FACT THAT THE SCHEME OF TAXATION OF CHARITABLE OR RELIGIOUS TRUST /INSTITUTION AS CODIFIED U/S 11,12 AND 13 THERE IS NO PROVISION FOR COMPUTING LOSS FROM PROPERTY HELD UNDER TRUST/INSTITUTION ON ACCOU NT OF EXCESS APPLICATION OF INCOME/FUNDS OF THE TRUST. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LD. CIT(A) HAS ERRED IN LAW IN ALLOWING THE ASSESSEES CLAIM OF CARRY FORWARD OF CURRENT YEARS LOSS AND SET OFF OF EXCES S DEFICIT PERTAINING TO EARLIER YEARS WITHOUT APPRECIATING TH E FACT THAT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE CO MPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION F OR THE PURPOSE OF CLAIMING EXEMPTION UNDER SECTION 11,12 AND 13 AND T HEREFORE THE PROVISIONS RELATING TO SET OFF OF LOSS FROM ONE SOU RCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET OFF OF LOSS FROM ON E HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS ENVISAGED U/S 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS /INSTITUTIONS. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE SOCIETY REGISTERED UNDER SOCIETIES REGISTRATION ACT, 1860. THE SOCIETY IS ENGAGED IN RUNNING TWO SCHOOLS UNDER THE NAME AND T ITLE OF STEP-BY-STEP NURSERY SCHOOL AT PANCHSHEEL PARK, N EW DELHI AND NOIDA. THE ASSESSING OFFICER IN ASSESSMENT ORDER PA SSED ON 23/03/2016 UNDER SECTION 143(3) OF THE ACT FOR YEAR UNDER CONSIDERATION, UPHELD THE CHARITABLE NATURE OF THE SOCIETY, HOWEVER, DENIED CARRY FORWARD OF THE DEFICIT/LOSS A MOUNTING TO 104,623,086/-. ON FURTHER APPEAL, THE LD. CIT(A), H OWEVER, ALLOWED THE CLAIM FOLLOWING VARIOUS JUDICIAL DECISI ONS AND DECISION 3 ITA NO.7326/DEL/2017 OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASS ESSMENT YEAR 2008-09. AGGRIEVED, THE REVENUE IS IN APPEAL BEFOR E THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE BEFORE US. WE HAVE HEARD THE LEARNED DEPARTMENT REPRESENTATIVE AND PER USED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE LD. C IT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE OF CLAIM OF CARR Y FORWARD OF DEFICIT/LOSSES OBSERVING AS UNDER: 4.2.1 I HAVE CONSIDERED THE ORDER OF THE ASSESSI NG OFFICER AND SUBMISSIONS OF THE APPELLANT. ASSESSING OFFICER HAS DENIED CARRY FORWARD OF DEFICIT. CHARITABLE TRUSTS OR INSTITUTIO NS ARE GOVERNED BY THE PROVISIONS OF SECTIONS 11, 12, 12A, 12AA AND 13 UNDER CHAPTER III OF THE INCOME-TAX ACT. THESE SECTIONS CONSTITUT E A COMPLETE CODE GOVERNING THE GRANT, CANCELLATION OR WITHDRAWAL OF REGISTRATION, PROVIDING EXEMPTION OF INCOME AND ALSO CONDITIONS S UBJECT TO WHICH A CHARITABLE TRUST OR INSTITUTION IS REQUIRED TO FU NCTION IN ORDER TO BE ELIGIBLE FOR EXEMPTION. IN THESE SECTIONS, THERE IS NO PROVISION FOR ADJUSTMENT OF BROUGHT FORWARD LOSS OR CARRY FORWARD OF LOSS OF CURRENT YEAR TO BE ADJUSTED AGAINST THE INCOME OF S UBSEQUENT YEAR. HOWEVER, VARIOUS HON'BLE HIGH COURTS HAVE TAKEN A V IEW THAT INCOME IS TO BE COMPUTED IN ACCORDANCE WITH COMMERC IAL PRINCIPLES AND AS SUCH ADJUSTMENT OF BROUGHT FORWARD LOSS/DEFI CIT AND CARRY FORWARD LOSS/DEFICIT IS TO BE ALLOWED. 4.2.2 IN THE CASE OF DIT V. RAGHUVANSHI CHARITABLE TRUST [(2011) 197 TAXMAN 170 (DELHI)], THE HON'BLE DELHI HIGH COU RT HELD THAT A TRUST CAN BE ALLOWED TO CARRY FORWARD DEFICIT OF CU RRENT YEAR AND TO SET OF SAME AGAINST INCOME OF SUBSEQUENT YEARS. IT WAS FURTHER HELD THAT ADJUSTMENT OF DEFICIT OF CURRENT YEAR AGAINST INCOME OF SUBSEQUENT YEAR WOULD AMOUNT OF APPLICATION OF INCO ME OF TRUST FOR CHARITABLE PURPOSES IN SUBSEQUENT YEAR WITHIN MEANI NG OF SECTION LL(L)(A). IT HAS BEEN HELD THAT EXCESS OF EXPENDITU RE OVER INCOME OF CHARITABLE OR RELIGIOUS NATURE INCURRED IN EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE CURRENT YEAR. TH IS ISSUE WAS DEBATED IN CIT V. MAHARANA OF MEWAR CHARITABLE FOUN DATION [(1981) 164 ITR 439 (RAJ.)] AND IT WAS OPINED THAT APPLICAT ION COULD BE CONSIDERED TO HAVE TAKEN PLACE IN THE YEAR OF ADJUS TMENT, WHERE THE EARLIER YEAR'S INCOME WAS NOT ADEQUATE TO ABSORB TH E ACTUAL EXPENDITURE MADE. THE HON'BLE COURT HELD THAT IT WO ULD BE INCORRECT 4 ITA NO.7326/DEL/2017 TO VIEW THE TERM 'APPLICATION' FROM A NARROW PERSPE CTIVE SO AS RELATE IT WITH THE ACTUAL MOVEMENT OF FUNDS AND HELD AS UN DER: '...THERE IS NOTHING IN THE LANGUAGE OF SECTION 11( 1) (A) WHICH LENDS SUPPORT TO THE CONTENTION OF... THAT THE EXPENDITUR E INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND UTILIZATION OF SUCH INCOME FOR MEETING THE EXPE NDITURE OF EARLIER YEAR WOULD NOT AMOUNT TO SUCH INCOME BEING APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. IN OUR OPINION THE WORDS USE D IN SECTION LL(L)(A) MUST BE GIVEN THEIR NATURAL MEANING. THE WORD 'APPL IED' AS DEFINED IN THE CHAMBERS DICTIONARY MEANS 'TO PUT TO USE' OR 'TO TURN TO USE'. ACCORDING TO OXFORD DICTIONARY THE WORD 'APPLIED' M EANS 'TO MAKE USE, OR 'TO PUT TO PRACTICAL USE'. WHEN THE INCOME OF TRUST IS USED OR PUT TO USE TO MEET THE EXPENSES INCURRED FOR THE RE LIGIOUS OR CHARITABLE PURPOSES IT IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. THE SAID APPLICATION OF THE INCOME FOR CHARITABLE O R RELIGIOUS PURPOSES TAKES PLACE IN THE YEAR IN WHICH THE INCOM E IS ADJUSTED TO MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGI OUS PURPOSES. IN OTHER WORDS IF THE EXPENSES FOR CHARITABLE AND RELI GIOUS PURPOSES HAVE BEEN INCURRED IN THE EARLIER YEAR AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, T HE INCOME OF THAT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE YEAR IN WHICH THE EXPENSES INCURRED FOR CHARITABLE AND RELIGIOUS PURPOSES HAD BEEN ADJUSTED. 10. WE ARE, THEREFORE, OF THE OPINION THAT THE ADJU STMENT OF THE EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND R ELIGIOUS PURPOSES IN THE EARLIER YEAR AGAINST THE INCOME EARNED BY TH E TRUST IN THE SUB- SEQUENT YEAR WOULD AMOUNT TO APPLYING THE INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN MADE AND WILL HAVE TO BE E XCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A).' 4.2.3 IN CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAI N MANDAL [(1994) 119 CTR 144 (GUJ.)], THE HON'BLE GUJARAT HIGH COURT REFERRED TO CBDT CIRCULAR NO. 100, DATED 24.01.1973 WHICH ALLOW ED REPAYMENT OF LOAN TAKEN IN EARLIER YEARS FOR FULFILLMENT OF C HARITABLE OBJECTS AS APPLICATION. THE HON'BLE COURT HELD THAT THE SAME P RINCIPLE SHOULD APPLY IF INSTEAD OF TAKING LOAN THE ORGANIZATION SP ENT MORE OUT OF ITS CORPUS AND IT IS REIMBURSED IN SUBSEQUENT YEARS. IT WAS ALSO HELD THAT THERE IS NOTHING IN SECTION 11(L)(A) WHICH IND ICATES THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF SUBSEQUENT YEARS. RELEVANT EXTRACTS OF TH E DECISION ARE AS UNDER: ' ACCORDING TO THE CIRCULAR NO. 100, IF A TRUST WAN TS TO SPEND MORE MONEY FOR CHARITABLE AND RELIGIOUS PURPOSES IN A PA RTICULAR YEAR, IT CAN TAKE A LOAN AND THE SAID LOAN CAN HE REPAID OUT OF THE INCOME OF 5 ITA NO.7326/DEL/2017 THE SUBSEQUENT YEAR AND THE REPAYMENT OF THE SAID L OAN OUT OF THE INCOME OF THE SUBSEQUENT YEAR WOULD AMOUNT TO APPLI CATION OF INCOME FOR CHARITABLE AND RELIGIOUS PURPOSES UNDER SECTION 11(1)(A). IF THE TRUST TAKES A LOAN FOR THE PURPOSES OF INCUR RING EXPENSES FOR CHARITABLE AND RELIGIOUS PURPOSES IN A PARTICULAR Y EAR AND THE SAID LOAN IS REPAID OUT OF THE INCOME OF THE SUBSEQUENT YEAR, THE SAID REPAYMENT WOULD BE ENTITLED TO EXEMPTION FROM TAX U NDER SECTION 11(1)(A) IN VIEW OF THE CIRCULAR ABOVE REFERRED TO. BUT, IF THE TRUST INSTEAD OF TAKING A LOAN INCURS EXPENSES FOR CHARIT ABLE AND RELIGIOUS PURPOSES OUT OF THE CORPUS OF THE TRUST AND SEEKS T O REIMBURSE THE SAID AMOUNT OUT OF THE INCOME OF THE SUBSEQUENT YEA R, THE TRUST WOULD NOT BE ENTITLED TO CLAIM EXEMPTION IN RESPECT OF SUCH REIMBURSEMENT UNDER SECTION 11(1)(A) IF THE CONTENT ION ADVANCED BY THE REVENUE WAS ACCEPTED. THE CONSTRUCTION WHICH LE ADS TO SUCH AN ANOMALY HAS GOT TO BE AVOIDED. THERE IS NOTHING IN THE LANGUAGE OF SECTION 11(1)(A) TO INDICATE THAT THE EXPENDITURE I NCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR OR THAT 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.' 4.2.4 THE HON'BLE BOMBAY HIGH COURT IN CIT V. INSTI TUTE OF BANKING PERSONNEL SELECTION [(2003) 264 ITR 110], HELD THAT INCOME DERIVED FROM A TRUST PROPERTY SHOULD BE COMPUTED ON SOUND C OMMERCIAL PRINCIPLES AND THIS INCLUDED CARRYING FORWARD AND S ET-OFF OF DEFICIT IN THE EARLIER YEARS. THE RELEVANT EXTRACTS ARE AS UND ER: 'INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GO T TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPL ES ARE APPLIED, THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST F OR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE RE GARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE A ND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CON TAINED IN SECTION 11 AND SUCH ADJUSTMENT WILL HAVE TO BE EXCL UDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A). ACCORDI NGLY, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE INSTANT CASE, THE T RIBUNAL WAS JUSTIFIED IN LAW IN ALLOWING CARRYING FORWARD OF TH E DEFICIT OF EARLIER YEAR AND SET IT OFF AGAINST THE SURPLUS OF SUBSEQUE NT YEARS.' 4.2.5 IN THE CASE OF CIT V. SHRI GUJRATI SAMAJ (REG D.) [(2011) 64 DTR 76 (MP)] IT WAS HELD THAT UNDER SECTION 11(1)(A), E XPENDITURE INCURRED EARLIER YEAR, CAN BE MET OUT OF THE INCOME OF THE S UBSEQUENT YEAR AND UTILIZATION OF SUCH INCOME FOR MEETING THE EXPE NDITURE OF EARLIER YEAR WOULD AMOUNT TO SUCH INCOME BEING APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE. THEREFORE, ASSESSEE IS ENTITLED FOR CARRY FORWARD 6 ITA NO.7326/DEL/2017 AND SET OFF EXCESS OF EXPENDITURE INCURRED DURING T HE YEAR OVER ITS INCOME. 4.2.6 SOME OTHER DECISIONS ON THE ISSUE ARE CIT VS. MATRISEWA TRUST, 242 ITR 20 (MAD) 2000 AND GOVINDU NAICKER ES TATE VS. ADIT, 248 ITR 110 (BOM) 2003. .2.7 IN AN APPEAL FILED BY THE DEPARTMENT IN APPELL ANT'S OWN CASE ON THE ISSUE OF CARRY FORWARD OF DEFICIT, THE HON'BLE ITAT BENCH 'G' IN ITA NO. 1566/DEL/2012, VIDE ORDER DATED 10.12.2014 FOR THE ASSESSMENT YEAR 2008-09 HELD AS UNDER: 'GROUND NO. 2: ON THE ISSUE RAISED IN THIS GROUND, THE LEARNED CIT(APPEALS) HAS FOLLOWED THE RATIOS LAID DOWN BY T HE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. MAHARAN A OF ME WAR CHARITABLE FOUNDATION -164 ITR 439 (RAJ.). IN THAT CASE, IT WAS HELD BY THE HON'BLE RAJASTHAN HIGH COURT THAT EXCESS OF EXPENDITURE IN EARLIER YEARS SHOULD BE TREATED AS APPLICATION FOR CHARITABLE PURPOSE AGAINST INCOME OF SUBSEQUENT YEAR SO, THE NET DEFIC IT OF THE YEAR UNDER CONSIDERATION SHOULD BE ALLOWED TO BE CARRIED FORWARD FOR ADJUSTMENT IN SUBSEQUENT YEAR AS CLAIMED BY THE APP ELLANT IN ITS RETURN OF INCOME. IN VIEW OF THE RATIOS LAID DOWN I N THIS DECISION, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN NOT ALLOWING THE CARRY FORWARD OF NET DEFICIT IN THE PR ESENT CASE. THE LEARNED CIT (APPEALS) WAS THUS JUSTIFIED IN DIRECTI NG THE ASSESSING OFFICER TO ALLOW CARRY FORWARD OF DEFICIT. THE SAME IS UPHELD. THE GROUND NO. 2 IS ACCORDINGLY REJECTED.' 5. KEEPING INTO CONSIDERATION ALL THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISIONS OF THE VARIOUS HON'BLE HIGH COURTS IN FAVOUR OF THE APPELLANT ASSESSEE AND THE DECISION OF THE HON'BLE ITAT IN APPELLANT'S OWN CASE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE BENEFIT OF CARRY FORWARD OF T HE DEFICIT/LOSS. THIS GROUND OF APPEAL IS ALLOWED. 4. WE FIND THAT THE LD. CIT(A) HAS FOLLOWED ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR ASS ESSMENT YEAR 2008-09, WHICH IS A BINDING PRECEDENT. IN OUR OPINI ON, THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THE ISS UE IN DISPUTE IN FOLLOWING BINDING JUDGMENTS OF HONBLE HIGH COURT A ND JUDGMENT OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THE ISSUE IN DISPUTE AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED . 7 ITA NO.7326/DEL/2017 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JULY, 2021. SD/- SD/- (KULDIP SINGH) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 TH JULY, 2021. RK/- (DTDC) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI