Assistant Commissioner of Income Tax, (Exemptions), Circle-1, Mangaluru V. M/s. Alvas Education Foundation, Moodabidri

ITA 782/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3046 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 13-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SIDDAPPAJI R N BENGALURU
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 12A; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K. GARODIA , ACCOUNTANT MEMBER I TA NO. 782/BANG/2018 ASSESSMENT YEAR : 2014 - 15 THE ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS), CIRCLE 1, MANGALURU. VS. M/S. ALVAS EDUCATION FOUNDATION, MAIN ROAD, MOODABIDRI 574 220. PAN: AAATA 8260G APPELLANT RESPONDENT APPELLANT BY : SHRI SIDDAPPAJI R.N., ADDL.CIT(DR)(ITAT), BENGALURU . RE SPONDENT BY : NONE DATE OF HEARING : 03 .0 9 .201 8 DATE OF PRONOUNCEMENT : 24 .09.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE AGAINST THE ORDER DATE D 26.12.2017 OF CIT(APPEALS), MANGALURU, RELATING TO ASSESSMENT YEA R 2014-15. 2. THE ASSESSEE IS A CHARITABLE TRUST WITH OBJECTS TO PROVIDE EDUCATION BY RUNNING SEVERAL EDUCATIONAL INSTITUTIONS. THE O NLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL WHICH IS PROJECTED BY THE REVENUE IN GROUNDS OF APPEAL, IS AS TO WHETHER THE CIT(APPEALS) WAS JU STIFIED IN HOLDING THAT ASSESSEE, A TRUST, IS ENTITLED TO CARRY FORWARD EXP ENDITURE INCURRED IN EXCESS OF ITS INCOME FOR SETTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS? THE ASSESSEE IS A TRUST REGISTERED U/S. 12A OF THE ACT. FOR THE A.Y. 2014-15, THE ASSESSEE FILED A RETURN OF INCOME CLAIMING CARR Y FORWARD OF EXCESS ITA NO. 782/BANG/2018 PAGE 2 OF 5 EXPENDITURE OF RS.5,98,38,366/- FOR SET OFF IN SUBS EQUENT ASSESSMENT YEARS. ACCORDING TO THE AO THERE WAS NO PROVISION IN THE ACT FOR CARRY FORWARD OF EXCESS EXPENDITURE OF EARLIER YEAR TO BE ADJUSTED AGAINST INCOME OF THE SUBSEQUENT YEAR AND HE THEREFORE DENIED THE CLAIM OF THE ASSESSEE. 3. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED TH E CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE RE VENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL, RAISING THE FOL LOWING GROUNDS OF APPEAL:- I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE 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, THEREFORE, THE PROVISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS FRO M ONE HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS E NVISAGED U/S70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRU STS/INSTITUTIONS. II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FACT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE INCOME COMPUTED DOES NOT ARISE EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCURRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF B ORROWED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME? (EXPENDITURE INCURRED OUT OF THE ABOVE SOURCE S HOWEVER CANNOT BE TERMED ASS APPLICATION OF FUNDS OUT OF TH E INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR INASMUCH AS LOAN BORROWED DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED B Y THE ASSESSEE, CORPUS FUND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INCOME SET APART IN EAR LIER ASSESSMENT YEAR CANNOT BE CONSTRUED AS INCOME OF TH E CURRENT YEAR AND 15% SET APART OUT OF THE CURRENT YEAR INCO ME IS ALSO EXCLUDED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE ITA NO. 782/BANG/2018 PAGE 3 OF 5 CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INC OME IS FULLY UTILIZED RATHER THAN CLAIMING EXCESS EXPENDITURE EI THER REVENUE OR CAPITAL OVER AND ABOVE THE INCOME SO AS TO CLAIM EX CESS APPLICATION OR DEFICIT/LOSS TO BE CARRIED FORWARD T O SUBSEQUENT ASSESSMENT YEARS. EVEN IN THE CASE OF EXCESS APPLIC ATION BY VIRTUE OF BORROWED FUNDS/CORPUS FUND DONATIONS/ 15% SET AP ART OF EARLIER YEARS, THE INCOME OF THE ASSESSEE CANNOT BE CONVERT ED TO LOSS BUT AT BEST IT CAN BE MADE NIL. HENCE, THE CARRY FORWAR D OF EXCESS APPLICATION OF INCOME AS CLAIMED BY THE ASSESSEE CA NNOT BE ALLOWED)? 4. THE LEARNED DR REITERATED THE STAND OF THE AO TH AT THERE IS NO PROVISION IN THE ACT TO ALLOW CARRY FORWARD OF EXCE SS APPLICATION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE HOWEVER FIND THAT IT AT BANGALORE BENCH IN THE CASE OF ACIT, UDIPI VS. DR.TMA PAI FOUNDATION, MANIPAL ITA NO.1140/BANG/2013 FOR AY 2010-11 DATED 21.3.2014 HAS ACCEPTED THE CLAIM OF AN ASSESSEE WHICH WAS A CHARITABLE TRUST O N IDENTICAL ISSUE ON IDENTICAL FACTS. IT WAS HELD THAT SECTION 11(1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME S HOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ONLY IN THE YEA R IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITABLE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOM E IS ADJUSTED TO MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS PURPO SES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURPOSES HAVE BEEN INCURRED IN TH E EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME O F A SUBSEQUENT YEAR, THE INCOME OF SUCH SUBSEQUENT YEAR CAN BE SAID TO B E APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES IN THE YEAR IN WHI CH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SET-OFF OF EXCESS OF EXP ENDITURE INCURRED OVER THE INCOME OF EARLIER YEARS AGAINST THE INCOME OF A LAT ER YEAR WILL AMOUNT TO APPLICATION OF INCOME OF SUCH LATER YEAR. THE ABOV E IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION ITA NO. 782/BANG/2018 PAGE 4 OF 5 164 ITR 439 (RAJ) CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ.) . IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 26 4 ITR 110 (BOM) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EA RLIER YEARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUC H ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSEQUENT YEARS AND T HAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER S. 11 IN PAST YEARS. I N GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD) , THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THAT S. 11 IS A BENEVOLENT P ROVISION, AND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR CHARITABLE PUR POSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUB SEQUENT YEAR. THE PRINCIPLE THAT THE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM THE SAME HEAD IS NOT OF ANY RELEVAN CE, IF THE EXPENDITURE INCURRED WAS FOR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSE QUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE OF LOSS OF AN EARLIER YEAR B EING SET OFF AGAINST THE PROFIT OF A SUBSEQUENT YEAR. THE OBJECT OF THE RELI GIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND I N ORDER TO INCUR THAT EXPENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LO NG 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 W HICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LIABLE TO TAX. THE EXPENDITU RE, IF INCURRED IN AN EARLIER YEAR IS ADJUSTED AGAINST THE INCOME OF A LATER YEAR , IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHA RITABLE PURPOSES FROM THE INCOME OF THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUN T OF THE TRUST SUCH EARLIER EXPENDITURE HAD BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. ITA NO. 782/BANG/2018 PAGE 5 OF 5 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 OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.) . 5. RESPECTFULLY FOLLOWING THE DECISIONS REFERRED TO ABOVE, WE HOLD THAT THERE IS NO MERIT IN THIS APPEAL BY THE REVENUE AND THE SAME IS DISMISSED. 6. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 24 TH SEPTEMBER, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APP ELL ANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.