M/s Green Wood High Trust , Bangalore V. Assistant Commissioner of Income Tax (E) Circle-1, Bangalore

ITA 800/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5670 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 06-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B R SUDHEENDRA
• Keywords: Depreciation; Charitable institution; Benefit of exemption; Revenue expenditure
• Section: 143(3); 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.800/BANG/2017 (ASST. YEAR 2012-13) M/S GREEN WOOD HIGH TRUST, NO.377, 3 RD BLOCK, SARJAPUR ROAD, KORAMANGALA, BANGALORE. . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX, (EXEMPTION), CIRCLE-1, BANGALORE. . RESPONDENT APPELLANT BY : SHRI B.R SUDHEENDRA, C.A RESPONDENT BY : MS. NEERA MALHOTRA, CIT DATE OF HEARING : 16-1-2018 DATE OF PRONOUNCEMENT : 19-1-2018 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-14, LTU, BANGALORE DATED 29.12.2016 FOR ASSE SSMENT YEAR 2012-13. 2. BRIEFLY STATED, THE FACTS OF THE CASE RELEVANT F OR DISPOSAL OF THIS APPEAL ARE AS UNDER:- ITA NO.800/B/201 7 2 2.1 THE ASSESSEE IS A TRUST, REGISTERED U/S. 12A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) VIDE ORDER DATED 24. 11.2011 FORMED WITH, INTER ALIA, THE OBJECT OF RUNNING AN EDUCATIO NAL INSTITUTION. FOR ASSESSMENT YEAR 2012-13, THE ASSESSEE FILED ITS RET URN OF INCOME ON 24.09.2012 DECLARING NIL INCOME AFTER CLAIMING EXCE PTION U/S 11 OF THE ACT. THE CASE WAS TAKEN UP FOR SCRUTINY AND TH E ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT VIDE ORDER DATED 2 6.03.2015; RESTRICTING THE ACCUMULATION UPTO THE EXTENT OF 15% OF NET RECEIPTS ONLY AND DISALLOWING DEPRECIATION CLAIMED. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESS MENT YEAR 2012-13 DATED 26.03.2015, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A)-14, LTU, BANGALORE ON BOTH ISSUES; I.E. (1) DISALLOWANCE OF DEPRECIATION AND (II) SEEKING ACCUMULATION U/S. 11( 1)(A) OF THE ACT ON GROSS INSTEAD OF NET RECEIPTS. THE LD. CIT(A) VIDE ORDER DATED 29/12/2016 ALLOWED THE ASSESSEES APPEAL ON THE ISS UE OF DEPRECIATION; BUT UPHELD THE AOS ORDER IN RESPECT OF ALLOWING AC CUMULATION U/S 11(1)(A) OF THE ACT OF ALLOWING ACCUMULATION U/S 11 (1(A) OF THE ACT @15% OF NET RECEIPTS. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A)-14, LTU, B ANGALORE DATED 29.12.2016 FOR ASSESSMENT YEAR 2012-13, THE A SSESSEE HAS PREFERRED THIS APPEAL, RAISING THE FOLLOWING GROUND S:- 1. THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER AND CIT(A) - 14 (LTU), BANGALORE TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS BAD IN LAW A ND LIABLE TO BE QUASHED. ITA NO.800/B/201 7 3 2.1 DENIAL OF 15% OF GROSS INCOME FOR ACCUMULATION U/S 11(1)(A):- THE LEARNED ASSESSING OFFICER HAS ERRED IN DENYING 15% OF GROSS INCOME FOR ACCUMULATION U/S 1 1(1)(A) AND THE LEARNED CIT(A)-14 (LTU) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER. 2.2 THE LEARNED CIT(A)-14 (LTU), BANGALORE HAS ERRED IN CONCLUDING THAT INCOME FOR THE PURPOSES OF SECTION 11(1 )(A) IS TO BE ARRIVED AT AFTER DEDUCTI NG EXPENDITURE FROM RECEIPTS (OR NET SURPLUS). THE IMPUGNED CONCLUSION OF THE LEARNED CIT(A) AND THE BASIS / RATIONALE IN SUPPORT OF THE SAME IS CONTRAR Y TO LAW AND LIABLE TO BE QUASHED. 2.3 ON FACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, ACCUMULATION U/S 11(L)(A) AT 15% SHOULD BE ALLOWED IN RESPECT OF GROSS INCOME OF THE APPELLANT TRUST. 3.1 PRAYER:- IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE ORDER PASSED UNDER SECTION 143(3) BE QUASHED (I) ACCUMULATION U/S 1 1(1)(A) BE ALLOWED AT 15% OF GROSS INCOME OF THE APPELLANT; ITA NO.800/B/201 7 4 3.2 THE LD. AR FOR THE ASSESSEE CONTENDED THAT THE IMPUGNED ORDER OF THE LD. CIT(A) WAS ERRONEOUS IN HOLDING THAT ACC UMULATION / SET APART OF INCOME U/S. 11(1)(A) OF THE ACT IS TO BE A LLOWED AT 15% ON NET RECEIPTS AS HELD BY THE AO AND NOT ON GROSS RECEIP TS AS CLAIMED BY THE ASSESSEE. IT IS SUBMITTED THAT THIS VERY ISSUE HAS BEEN CONSIDERED BY A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MARY IMMACULATE SOCIETY V DDIT(EXEMPTIONS), BANGALORE AN D IN ITS ORDER IN ITA NOS. 240 & 241/BANG/2015 DATED 23.06.2015, THE DECISION RENDERED ON THIS ISSUE IS SQUARELY COVERED IN FAVOU R OF ASSESSEE AND AGAINST REVENUE. 3.3 PER CONTRA, THE LD DR SUPPORTED THE IMPUGNED OR DER OF THE AUTHORITIES BELOW ON THIS ISSUE. 3.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS REFERRED TO. THE ISSUE FOR ADJUDICA TION BEFORE US IS WHETHER THE LD. CIT(A) WAS RIGHT IN UPHOLDING THE A OS VIEW TO RESTRICT THE ASSESSEES ACCUMULATION OF INCOME FOR APPLICATION TO THE EXTENT OF 15% OF NET RECEIPTS U/S. 11(1)(A) OF THE ACT. 3.4.2 THE ASSESSEE CLAIMED ACCUMULATION OF INCOME F OR APPLICATION FOR CHARITABLE PURPOSES U/S. 11(1)(A) OF THE ACT AT 15% OF GROSS RECEIPTS FOR THE YEAR UNDER CONSIDERATION. THE ASS ESSING OFFICER (AO) HOWEVER, WAS OF THE VIEW THAT ACCUMULATION W ILL BE ALLOWED ONLY TO THE EXTENT OF 15% OF THE NET RECEIPTS I.E.; GROSS RECEIPTS LESS REVENUE EXPENDITURE AND NOT ON THE GROSS RECEIPTS A S CLAIMED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A) UPHELD THE AO S VIEW THAT THE ITA NO.800/B/201 7 5 ASSESSEE IS TO BE ALLOWED ACCUMULATION OF INCOME FO R APPLICATION FOR CHARITABLE PURPOSES ONLY TO THE EXTENT OF 15% OF NE T RECEIPTS U/S. 11(1)(A) OF THE ACT AND NOT 15% OF GROSS RECEIPTS A S CLAIMED BY THE ASSESSEE. 3.4.3 THE ISSUE TO BE DECIDED BY US IS AS TO WHETHE R FOR THE PURPOSE OF ACCUMULATION OF INCOME FOR APPLICATION FOR CHARITAB LE PURPOSES U/S. 11(1)(A) OF THE ACT IS TO BE ALLOWED AT 15% OF GROS S RECEIPTS OR NET RECEIPTS I.E.; GROSS RECEIPTS LESS REVENUE EXPENDIT URE. WE FIND THAT THE ISSUE IN QUESTION WAS CONSIDERED AND ADJUDICATED BY A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MARY IMMACULAT E SOCIETY AND IN ITS ORDER IN ITA NOS. 240 & 241/BANG/2015 DATED 23. 06.2015 HELD THAT THE ASSESSEE IS TO BE ALLOWED ACCUMULATION OF INCOME FOR APPLICATION FOR CHARITABLE PURPOSES U/S. 11(1)(A) O F THE ACT AT 15% OF GROSS RECEIPTS FOLLOWING THE DECISION OF THE ITAT S PECIAL BENCH IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST V ITO, 93 IT D 0070 (SB). IN ITS ORDER (SUPRA), THE CO-ORDINATE BENCH HAS HELD A S UNDER AT PARAS 15 AND 16 THEREOF:- 15. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHET HER 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 CH ARITABLE 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 TRUS T VS. ITO, 93 ITD 0070 (SB). THE FACTS IN THE AFORESAID C ASE WERE THAT THE ASSESSEE WAS A PUBLIC CHARITABLE TRUS T ENJOYING EXEMPTION UNDER S. 11 OF THE IT ACT. AS PE R THE ITA NO.800/B/201 7 6 REQUIREMENT OF S. 11(1) OF THE IT ACT, AS IT PREVAI LED AT THAT POINT OF TIME, THE ASSESSEE HAD TO APPLY 75 PER CEN T OF ITS INCOME FOR THE OBJECTS AND PURPOSES OF THE TRUST AN D THE ASSESSEE WAS PERMITTED TO ACCUMULATE OR SET APART U P TO 25 PER CENT OF ITS INCOME, WHICH WAS SUBJECT TO FUL FILLMENT OF OTHER CONDITIONS. WHILE CALCULATING THE AFORESAI D 25 PER CENT, THE IMPORTANT QUESTION WHICH AROSE WAS AS TO WHETHER FOR THIS PURPOSE, THE GROSS INCOME EARNED B Y 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 AR E IN THE NATURE OF APPLICATION OF INCOME, SHOULD BE FIRS T DEDUCTED FROM THE GROSS INCOME AND 25 PER CENT OF O NLY 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 TH E VIEW THAT THE SAME IS CLEARLY COVERED BY THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PROGRAMME FOR COMMUNITY ORGANIZATION (SUPRA). IN T HE DECISION, THEIR LORDSHIPS, AFTER TAKING NOTE OF PRO VISIONS 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 RELIGIO US TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PR ESENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN T HE SUM OF RS. 2,57,346/- WOULD CONSTITUTE ITS PROPERTY AND IT ITA NO.800/B/201 7 7 IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THER EOUT. IT IS UNCLEAR ON WHAT BASIS THE REVENUE CONTENDED THAT IT WAS ENTITLED TO ACCUMULATE ONLY TWENTY FIVE PER CEN T 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 A S COMPUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITU RE, WHICH WAS APPLICATION OF INCOME, IS NOT TO BE CONSI DERED FOR DETERMINING TWENTY FIVE PER CENT TO BE ACCUMULA TED. THEIR LORDSHIPS, AS NOTED EARLIER AFFIRMED THE DECI SION OF KERALA HIGH COURT IN (1997) 141 CTR (KER) 502: (199 7) 228 ITR 620 (KER) (SUPRA) WHEREIN IT IS HELD AS UND ER: 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 SU CH 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. IT OT HER 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 ITA NO.800/B/201 7 8 WHICH SUCH INCOME IS APPLIED FOR SUCH PURPOSES, CHARITABLE OR RELIGIOUS, IN OTHER WORDS, FOR THE PU RPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELEVAN CE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WH ICH 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 SA ID 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 O F COMPUTING THE TOTAL INCOME WOULD BE THE AMOUNT EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LOR DSHIPS 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 ACCUMULA TION IS THE INCOME DERIVED BY THE TRUST FROM PROPERTY. IF BOTH THE DECISIONS ARE CAREFULLY READ, IT BECOME S EVIDENT THAT ANY EXPENDITURE WHICH IS IN THE SHAPE OF APPLI CATION 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 THEREO F AND TAKEN INTO ACCOUNT 25 PER CENT OF SUCH INCOME. THE IR LORDSHIPS HAVE POINTED THAT THE SAME HAS TO BE TAKE N ON ITA NO.800/B/201 7 9 COMMERCIAL BASIS AND NOT TOTAL INCOME AS COMPUT ED UNDER THE IT ACT. THEIR LORDSHIPS IN THE DECIDED C ASE REJECTED THE CONTENTION OF THE REVENUE THAT THE SUM OF RS. 1,70,369 WHICH WAS SPENT AND APPLIED BY THE ASSESSE E 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 APPLICATI ON OF INCOME ARE TO BE EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEFORE IT WAS APPLIED IS DIRECTED TO BE TA KEN AND THE SAME IN THE PRESENT CASE IS RS. 3,42,174. TWEN TY FIVE PER CENT OF THE ABOVE INCOME IS TO BE ALLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRI AN ANJUMAN TRUST VS. CIT (SUPRA). NO REASON WHATSOEVE R HAS BEEN GIVEN BY THE REVENUE AUTHORITIES FOR DEDUC TING RS. 2,17,126 IN THIS CASE FOR PURPOSES OF S. 11(1)( A). THE DECISION CITED ON BEHALF OF THE REVENUE DID NOT TAK E INTO ACCOUNT THE DECISION OF THE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF CBDT HAS ALSO BEEN CONSIDER ED BY THE HONBLE KERALA HIGH COURT IN ITS DECISION RE FERRED TO ABOVE. ACCORDINGLY THE QUESTION REFERRED TO IS ANS WERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 16. THE AFORESAID DECISION CLEARLY SUPPORTS THE PL EA OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ITA NO.800/B/201 7 10 ACCUMULATION U/S. 11(1)(A) OF THE ACT SHOULD BE ALL OWED AS CLAIMED BY THE ASSESSEE . 3.4.4 RESPECTFULLY FOLLOWING THE DECISION OF THE C O-ORDINATE BENCH IN THE CASE OF MARY IMMACULATE SOCIETY (SUPRA ), WE HOLD AND DIRECT THE AO THAT THE ACCUMULATION U/S. 11(1)(A) O F THE ACT IS TO BE ALLOWED AT 15% OF GROSS RECEIPTS, AS CLAIMED BY THE ASSESSEE. CONSEQUENTLY, GROUNDS RAISED BY THE ASSESSEE ARE AL LOWED. 4. IN THE RESULT, THE ASSESSEES APPEAL FOR ASST. Y EAR 2012-13 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY, 2017 . SD/- SD/- (LALIET KUMAR) (JA SON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE DATED : 19/1/2018 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVA TE SECRETARY, ITAT, BANGALORE