Income Tax Officer (Exemptions) Ward-1 , Gulbarga V. M/s Catholic Diocesan Society , Bidar

ITA 814/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7748 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 16-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DASS JT BENGALURU
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 143(3); 12A; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 814/BANG/2018 ASSESSMENT YEAR : 2014 - 15 THE INCOME TAX OFFICER (EXEMPTIONS), WARD 1, GULBARGA. VS. M/S CATHOLIC DIOCESAN SOCIETY, SACRED HEART CHURCH, OPP. KSRTC BUS STAND, VIJAYANGAR COLONY, BIDAR 585 401. PAN: AAAAC 0515D APPELLANT RESPONDENT APPELLANT BY : SMT. SWAPNA DASS , JT.CIT(DR)(ITAT), BENGALURU. RE SPONDENT BY : NONE DATE OF HEARING : 27 .06 .201 8 DATE OF PRONOUNCEMENT : 06 .07.2018 O R D E R PER JASON P. BOAZ, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) - 10, BANGALOR E DATED 26.12.2017 FOR ASST. YEAR 2014-15. WHEN THE CASE WAS CALLED F OR HEARING, NONE APPEARED OR WAS PRESENT FOR THE ASSESSEE AND THEREF ORE THIS APPEAL IS DISPOSED OF WITH THE ASSISTANCE OF THE LD. DR FOR T HE REVENUE AND THE MATERIAL ON RECORD 2. BRIEFLY STATED, THE FACTS OF THE CASE RELEVANT F OR DISPOSAL OF THE PRESENT APPEAL ARE AS UNDER:- ITA NO. 814/BANG/2018 PAGE 2 OF 6 2.1 THE ASSESSEE, A TRUST REGISTERED U/S 12A OF TH E INCOME-TAX ACT 1961 (IN SHORT THE ACT) VIDE ORDER IN F.NO: TRUST /718/10A/VOL. A1 C 365 DATED 31.7.1984, FILED ITS RETURN FOR ASST. YEAR 20 14-15 ON 29.8.2014 DECLARING NIL INCOME. IN THE COMPUTATION OF INCOME , THE ASSESSEE CLAIMED A DEFICIT OF RS.1,14,57,401/- OF THE CURRENT YEAR A ND RS.4,90,50,532/- OF EARLIER YEARS TO BE CARRIED FORWARD AND SET OFF AS APPLICATION AGAINST INCOME OF THE ASSESSEE FOR FUTURE YEARS. THE ASSESSING OF FICER (AO) DENIED THE AFORESAID CLAIM OF THE ASSESSEE, HOLDING THAT SECTI ONS 11 TO 13 OF THE ACT, WHICH ARE RELEVANT FOR THE ASSESSMENT OF TRUSTS DO NOT EXPRESSLY ALLOW FOR CARRY FORWARD OF DEFICIT ARISING DUE TO EXCESS APPL ICATION OF ANY YEAR FOR SET OFF AS APPLICATION AGAINST THE ASSESSEES INCOME FO R FUTURE YEARS. THE ASSESSMENT WAS ACCORDINGLY COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 15.12.2016. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 15.1 2.2016 FOR ASST. YEAR 2014-15, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A)-10, BANGALORE . THE LD CIT(A) VIDE THE IMPUGNED ORDER DATED 26.12.2017 ALLOWED THE ASSESSEES APPEAL ON THIS ISSUE, FOLLOW ING THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASES O F ACIT VS. CITY HOSPITAL CHARITABLE TRUST (2015) 42 ITR (TRIB) 583 (BANGALOR E); ACIT V. DR. T.M.A. PAI FOUNDATION IN ITA NO.1140/BANG/2013 DATED 21.3. 2014; ACIT V. MEDICAL RELIEF SOCIETY OF SOUTH CANARA IN ITA NO.17 13/BANG/2013 DATED 10.12.2014 AND DCIT VS. MANIPAL ACADEMY OF HIGHER E DUCATION (2015) 44 ITR (TRIB) 18 (BANGALORE). 3.1 REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CI T(A)-10, BANGALORE DATED 26.12.2017 FOR ASST. YEAR 2014-15 HAS PREFER RED THIS APPEAL RAISING THE FOLLOWING GROUNDS:- I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FA CT THAT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ITA NO. 814/BANG/2018 PAGE 3 OF 6 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 FA CT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE INCOME COMPU TED DOES NOT ARISE EXCEPT IN A CASE WHERE THE ASSESSEE HAS I NCURRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF BORROW ED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME? (EXPENDITURE INCURRED OUT OF THE ABOVE SOURCES HOWE VER CANNOT BE TERMED ASS APPLICATION OF FUNDS OUT OF THE INCOM E EARNED IN A PARTICULAR ASSESSMENT YEAR INASMUCH AS LOAN BORROWE D DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED BY THE ASS ESSEE, CORPUS FUND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INCOME SET APART IN EARLIER ASS ESSMENT YEAR CANNOT BE CONSTRUED AS INCOME OF THE CURRENT YEAR A ND 15% SET APART OUT OF THE CURRENT YEAR INCOME IS ALSO EXCLUD ED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS FULLY UTILIZED RATH ER THAN CLAIMING EXCESS EXPENDITURE EITHER REVENUE OR CAPITAL OVER A ND ABOVE THE INCOME SO AS TO CLAIM EXCESS APPLICATION OR DEFICIT /LOSS TO BE CARRIED FORWARD TO SUBSEQUENT ASSESSMENT YEARS. EVE N IN THE CASE OF EXCESS APPLICATION BY VIRTUE OF BORROWED FUNDS/C ORPUS FUND DONATIONS/ 15% SET APART OF EARLIER YEARS, THE INCO ME OF THE ASSESSEE CANNOT BE CONVERTED TO LOSS BUT AT BEST IT CAN BE MADE NIL. HENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED)? 3.2.1 WE HAVE HEARD THE LD. DR FOR REVENUE AND PER USED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED (SUPRA). THE SOLE ISSUE FOR A DJUDICATION BEFORE US IS WHETHER A DEFICIT ARISING ON ACCOUNT OF SURPLUS AP PLICATION OF FUNDS CAN BE CARRIED FORWARD AND SET OFF AS APPLICATION AGAINST THE ASSESSEES INCOME OF SUBSEQUENT YEARS. WE FIND THAT A COORDINATE BENCH OF THIS TRIBUNAL IN THE ITA NO. 814/BANG/2018 PAGE 4 OF 6 CASE OF SHRADDHA TRUST IN ITA NO.899/BANG/2016 DATE D 7/4/2017 HAD CONSIDERED THE IDENTICAL ISSUE AND FOLLOWING THE DE CISION OF ANOTHER CO- ORDINATE BENCH IN THE CASE OF JYOTHY CHARITABLE TRU ST (60 TAXMAN.COM 165) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST REVENUE HOLDING AS UNDER AT PARA 8 OF ITS ORDER:- 8. THE FINAL GROUNDS OF APPEAL RELATES TO CARRY FO RWARD OF EXCESS APPLICATION OF INCOME TO SUBSEQUENT YEARS. THIS ISS UE IS COVERED AGAINST THE REVENUE BY CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF DEPUTY DIRECTOR OF INCOME-TAX VS. JYOTHY CHARITABLE TRUST (60 TAXMANN.COM 165). THE RELEVANT PART OF THE ORDER IS REPRODUCED BELOW: '14. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11( 1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT T HAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOU S PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APP LICATION FOR CHARITABLE PURPOSES AS CONTEMPLATED IN SECTION 11(L )(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED T O MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS PURPO SES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURPOSES HAVE BEEN IN CURRED IN THE EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AG AINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUB SEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIO US PURPOSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN O THER WORDS, THE SET-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEARS AGAINST THE INCOME OF A LATER YEAR WI LL AMOUNT TO APPLICATION OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT V. MAHAR ANA OF MEWAR CHARITABLE FOUNDATION [1987] 164 ITR 439/[1986] 29 TAXMAN 476 (RAJ) AND CIT VS. PLOT SWETAMBER MURTI PUJAK JA IN MANDAL [1995] 211 ITR 293 (GUJ.). IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION [2003] 264 ITR 110/131 TAXMAN 3 86 (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 SUCH ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSE QUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS TH E COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UND ER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE V. ASSTT. DIT [2001] 248 ITA NO. 814/BANG/2018 PAGE 5 OF 6 ITR 368/[1999] 105 TAXMAN 719 (MAD.), THE HON'BLE M ADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THA T 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 THE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE S ET OFF AGAINST THE INCOME FROM THE SAME HEAD IS NOT OF ANY RELEVAN CE, IF THE EXPENDITURE INCURRED WAS FOR RELIGIOUS OR CHARITABL E 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 SUBSEQUENT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CA N ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO I NCUR 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 WHICH THAT EXPENDITURE IS INCURRED, WOU LD NOT BE LIABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN E ARLIER YEAR IS ADJUSTED 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 OF THE SUBSEQUENT YEAR, EV EN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HAD B EEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPE NDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIG IOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RE LIED ON THE DECISION IN THE CASE OF SOCIETY OF SISTERS OF ST. A NNE (SUPRA ).' RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE A BOVE DECISION WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 3.2.2 RESPECTFULLY FOLLOWING THE DECISION OF THE C O-ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASES OF JYOTHI CHARITABLE TRUST (SUPRA) AND SHRADDHA TRUST (SUPRA), WHICH IN OUR VIEW SQUARELY COVERS THE ISSUE IN FAVOUR OF THE ASSESSEE, WE UPHOLD THE FINDING OF TH E LD CI(A) IN THE IMPUGNED ORDER ALLOWING THE ASSESSEES CLAIM OF CAR RY FORWARD OF EXCESS APPLICATION/DEFICIT FOR SET OFF AS APPLICATION AGAI NST INCOME OF THE ASSESSEE ITA NO. 814/BANG/2018 PAGE 6 OF 6 FOR SUBSEQUENT YEARS. CONSEQUENTLY, THE GROUNDS RA ISED BY REVENUE (SUPRA) ARE DISMISSED. 4. IN THE RESULT, REVENUES APPEAL FOR ASST. YEAR 2 014-15 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 6TH DAY O F JULY, 2018. SD/- SD/- ( N.V. VASUDEVAN ) ( JASON P. BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 6 TH JULY, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.