The Society for Social Education & Research, CHENNAI V. ADIT, CHENNAI

ITA 838/CHNY/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5882 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution
• Section: 10; 11

Judgement Text

, D/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL D/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.838 /MDS./2015 ( ASSESSMENT YEAR : 2010-11) THE SOCIETY FOR SOCIAL EDUCATION & RESEARCH, NO.32,CASA MAJOR ROAD, EGMORE, CHENNAI 600 008. VS. THE ASSISTANT DIRECTOR OF INCOME TAX EXEMPTION IV, CHENNAI. PAN AAAAS 0149 K ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.N.DEVANATHAN, ADVOCATE / RESPONDENT BY : MR.B.SAGADEVAN, JCIT, D.R ! ' / DATE OF HEARING : 06.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 06.11.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-17, CHENN AI DATED 29.01.2015 PERTAINING TO ASSESSMENT YEAR 2010-11. 2. THE FIRST ISSUE IS WITH REGARD TO ALLOWABILITY OF DEPRECIATION AS APPLICATION OF INCOME WHILE GRANTING EXEMPTION U/S. 11 OF THE ACT. ITA NO. 838/MDS/2015 2 3. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IT IS NOTICED THAT SIMILAR ISSUE CAME FOR C ONSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT IN THE CASE OF DIT(EX EMPTION)-III, CHENNAI VS. M/S.MEDICAL TRUST OF THE SEVENTH DAY AD VENTISTS, CHENNAI IN TCA NO.949 OF 2015 AND 771 OF 2016 ASSE SSEES APPEAL & TAX CASE (APPEAL) NO.844 OF 2010 DEPARTMENTAL AP PEAL VIDE ORDER DATED 08.08.2017 WHEREIN IT WAS HELD THAT:- 34.THE SHORT POINT THAT ARISES FOR DECISION IS WHE THER THE PROVISIONS OF SECTION 11(6) INSERTED BY FINANCE (NO.2) ACT, 2014 W.E.F. 1.4.2015, OPERATE PROSPECTIVELY WITH EFFECT FROM ASSESSMENT Y EAR 2015-16 OR RETROSPECTIVELY WITH RESPECT TO EARLIER YEARS AS WE LL. IN THIS REGARD, M/S.PUSHYA SITARAMAN, LEARNED SENIOR COUNSEL AND OT HER LEARNED COUNSELS APPEARING FOR THE ASSESSES REFER TO THE PR OVISIONS OF CIRCULAR 1 OF 2015 DATED 21.1.2015 (371 ITR (ST) 0022) CONTAIN ING EXPLANATORY NOTES TO THE PROVISIONS OF FINANCE (NO 2) ACT, 2014 THE RELEVANT PORTION OF THE CIRCULAR READS AS FOLLOWS: 7 3. SEVERAL ISSUES HAD ARISEN IN RESPECT OF THE AP PLICATION OF EXEMPTION REGIME TO TRUSTS OR INSTITUTIONS IN RESPE CT OF WHICH CLARITY IN LAW WAS REQUIRED. 7.4 THE FIRST ISSUE WAS REGARDING THE INTERPLAY OF THE GENERAL PROVISION OF EXEMPTIONS WHICH ARE CONTAINED IN SECT ION 10 OF THE INCOME-TAX ACT VIS-A-VIS THE SPECIFIC AND SPECIAL E XEMPTION REGIME PROVIDED IN SECTIONS 11 TO 13 OF THE SAID ACT. AS I NDICATED ABOVE, ITA NO. 838/MDS/2015 3 THE PRIMARY OBJECTIVE OF PROVIDING EXEMPTION IN CAS E OF CHARITABLE INSTITUTION IS THAT INCOME DERIVED FROM THE PROPERT Y HELD UNDER TRUST SHOULD BE APPLIED AND UTILIZED FOR THE OBJECT OR PU RPOSE FOR WHICH THE INSTITUTION OR TRUST HAS BEEN ESTABLISHED. IN M ANY CASES IT HAD BEEN NOTED THAT TRUSTS OR INSTITUTIONS WHICH ARE RE GISTERED AND HAVE BEEN AVAILING BENEFITS OF THE EXEMPTION REGIME TO N OT APPLY THEIR INCOME, WHICH IS DERIVED FROM PROPERTY HELD UNDER T RUST, FOR CHARITABLE PURPOSES. IN SUCH CIRCUMSTANCES, WHEN TH E INCOME BECOMES TAXABLE, A CLAIM OF EXEMPTION UNDER GENERAL PROVISIONS OF SECTION 10 IN RESPECT OF SUCH INCOME IS PREFERRE D AND TAX ON SUCH INCOME IS AVOIDED. THIS DEFEATS THE VERY OBJEC TIVE AND PURPOSE OF PLACING THE CONDITIONS OF APPLICATION OF INCOME, ETC., IN RESPECT OF INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN THE FIRST PLACE. 7.4.1 SECTIONS 11,12 AND 13 OF THE INCOME-TAX ACT ARE SPECIAL PROVISIONS GOVERNING INSTITUTIONS WHICH ARE BEING G IVEN BENEFIT OF TAX EXEMPTION. IT IS THEREFORE IMPERATIVE THAT ONCE A PERSON VOLUNTARILY OPTS FOR THE SPECIAL DISPENSATION IT SH OULD BE GOVERNED BY THESE SPECIFIC PROVISIONS AND SHOULD NOT BE ALLO WED FLEXIBILITY OF BEING GOVERNED BY OTHER GENERAL PROVISIONS OR SPECI FIC PROVISIONS AT WILL. ALLOWING SUCH FLEXIBILITY HAS UNDESIRABLE EFFECTS ON THE OBJECTS OF THE REGULATIONS AND LEADS TO LITIGATION. 7.6 APPLICABILITY. THESE AMENDMENTS TAKE EFFECT FROM 1 ST APRIL, 2015 AND WILL, ACCORDINGLY, APPLY IN RELATION TO TH E ASSESSMENT YEAR 2015-2016 AND SUBSEQUENT ASSESSMENT YEARS. 35. PARA 7.6 OF THE CIRCULAR STATES THAT THE AMENDM ENT WOULD APPLY TO ASSESSMENT YEAR 2015-16 AND SUBSEQUENT ASSESSMENT YEARS. ITA NO. 838/MDS/2015 4 RELIANCE WAS PLACED ONTHEJUDGMENT OF THE SUPREME CO URT IN CIT VS.ALOMEXTRUSIONS LTD., (2009) AND CIT VS. VATIKA T OWNSHIPS (367 1TR 466) FOR THE PROPOSITION THAT AN AMENDMENT THAT INC REASES THE LIABILITY OF AN ASSESSEE IS LIABLE TO BE APPLIED ONLY PROSPECTIV ELY. MR. NARAYANASWAMY WOULD OBJECT STATING THAT THE AMENDME NT HAD BEEN INSERTED TO A CORRECT AN EXISTING ANOMALY AND THUS WAS CLEARLY CLARIFICATORY, AND CONSEQUENTLY RETROSPECTIVE IN OP ERATION. 36. WE DO NOT AGREE WITH THE REVENUE. THE AMENDMENT , INSERTED SPECIFICALLY WITH EFFECT FROM ASSESSMENT YEAR 2015- 2016 SEEKS TO DISTURB A VESTED RIGHT THAT HAS ACCRUED TO THE ASSE SSEE. THE AMENDMENT DOES NOT PURPORT TO BE CLARIFICATORY, ON THE OTHER HAND THE EXPLANATORY MEMORANDUM MAKES IT APPLICABLE ONLY W. E.F. A Y 2015-16 AND APPLICATION OF THE AMENDMENT RETROSPECTIVELY WO ULDCERTAINLY LEAD TO A GREAT DEAL OF HARDSHIP TO THE ASSESSEE. WE AR E THUS OF THE VIEW THAT THE PROVISIONS OF SECTION 11(6) OF THE ACT IN SERTED WITH EFFECT FROM 1.4.2015 SHALL OPERATE PROSPECTIVELY WITH RESPECT T O ASSESSMENT YEAR 2015-2016 ONLY. 4. IN VIEW OF THE ABOVE JUDGEMENT OF JURISDICTIONA L HIGH COURT, I AM OF THE OPINION THAT THE LOWER AUTHORITIES IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF DEPRECIATION AS APPLICATIO N OF INCOME WHILE GRANTING EXEMPTION U/S.11 OF THE ACT AND IT CANNOT BE SAID THAT WHEN THE EXPENDITURE IS ALLOWED IN ITS EN TIRETY ON THE ACQUISITION OF THE FIXED ASSETS AS APPLICATION, THE REAFTER GRANTING OF DEPRECIATION AS AN APPLICATION WHILE ALLOWING EXEMP TION U/S.11 OF THE ITA NO. 838/MDS/2015 5 ACT, WILL NOT AMOUNT TO DOUBLE DEDUCTION. HENCE, TH IS GROUND OF THE APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 5. THE SECOND ISSUE IS THAT THE LD.CIT(A) ERRED IN NOT ALLOWING THE GROUND THAT EXCESS EXPENDITURE OF EARLIER YEARS SHO ULD BE TREATED AS APPLICATION FOR THE CURRENT YEAR ESPECIALLY WHEN TH E MATTER HAD BEEN CLARIFIED IN FAVOUR OF ASSESSEE BY THE HIGH COURT IN THE CASE OF CIT VS. PROGRAM FOR COMMUNITY ORGANIZATION REPORTED IN 228 ITR 620 (KERALA). 6. THE CLAIM OF ASSESSEE IS THAT CARRY FORWARD OF EXCESS EXPENDITURE OF EARLIER YEARS TO BE CONSIDERED WHILE COMPUTING THE PRESENT YEAR OF APPLICATION OF INCOME. IN THE COMP UTATION OF INCOME, THE ASSESSEE HAD CLAIMED AN AMOUNT OF ` 22,93,219/- AS EXCESS APPLICATION SET OFF FOR THE A.Y 2002-03, A.Y 2003-0 4 & AY 20044-05. THE DETAILS FOR THE ABOVE WERE CALLED FOR BY A.O. T HE AUTHORISED REPRESENTATIVE SUBMITTED WORKING FOR THE ABOVE SET OFF OF EXCESS APPLICATION BEFORE A.O. ON VERIFICATION OF DETAILS FILED, IT WAS FOUND BY A.O THAT THE ASSESSEE CALCULATED THE EXCESS APPLICA TION AFTER REDUCING 25% / 15% OF THE PERMISSIBLE ACCUMULATION AND THEREAFTER DEDUCTING THE OTHER APPLICATIONS. AS THE EXCESS APP LICATION ONLY ITA NO. 838/MDS/2015 6 MEANS APPLICATION IN EXCESS OF INCOME AND NOT IN EX CESS OF INCOME AFTER ACCUMULATION, THE AUTHORISED REPRESENTATIVE W AS AT THE TIME OF HEARING BEFORE A.O, REQUIRED TO SUBSTANTIATE THE CL AIM. THE AR OF THE ASSESSEE CONTENDED THAT THE ACCUMULATION OF 25% / 1 5% IS MANDATORY AND EXCESS APPLICATION SHOULD BE ON THE R EDUCED AMOUNT OF INCOME. THE CONTENTION OF THE AUTHORISED REPRESE NTATIVE WAS NOT ACCEPTED BY A.O AS EXCESS APPLICATION ONLY MEANS A PPLICATION IN EXCESS OF THE INCOME AND NOT APPLICATION IN EXCESS OF INCOME AFTER ACCUMULATION OF 15% / 25%. THE EXCESS APPLICATIONS OF INCOME OF THE ASSESSEE W ERE REWORKED AS UNDER BY A.O: SL.NO. A.Y GROSS RECEIPTS APPLICATION EXCESS APPLIC ATION AVILABLE 1 2002-03 11152368 10459733 NO EXCESS APPLICATION 2 2003-04 15217192 13596985 NO EXCESS APPLICATION 3 2004-05 12867200 16195767 RS. 33,28,567/- (AN AMOUNT OF RS.1,91,1851- WAS SET OFF AGAINST THE SHORT FALL FOR THE ASST.YEAR 2006-07 & AN AMOUNT OF RS. 32,10,421/- WAS SET OFF AGAINST THE SHORTFALL FOR THE AY 2009- 10) LEAVING A BALANCE OF RS.8,60,841/- AVAILABLE FOR SET OFF FOR FUTURE 4 2005-06 15629047 14629178 NO EXCESS APPLICATION 5 2006-07 14972112 12535110 NO EXCESS APPLICATION 6 2007-08 17853787 17470535 NO EXCESS APPLICATION 7 2008-09 21196602 199919125 NO EXCESS APPLICATION 8 2009-10 25018411 18055229 NO EXCESS APPLICATION ITA NO. 838/MDS/2015 7 IT IS EVIDENT FROM THE ABOVE WORKING THAT THERE IS AN EXCESS APPLICATION OF INCOME ONLY IN THE A.Y 2004-05. THE CLAIM OF THE ASSESSEE TO SET OFF OF EXCESS APPLICATION OF INCOME OF THE A.Y 2002- 03 IS NOT CORRECT AND HENCE REJECTED BY AO. THE ASS ESSEE FILED A REVISED STATEMENT RESTRICTING THE CLAIM OF EXCESS A PPLICATION TO ` 8,60,841/. AS THE ASSESSEE IS HAVING EXCESS APPLICA TION OF INCOME FOR THE A.Y 2004-05 TO THE TUNE OF ` 8,60,841/- ONLY AND THE SAME IS CONSIDERED IN THIS ASSESSMENT BY AO. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) CONFIRMED THE ACT ION OF THE LD. ASSESSING OFFICER. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN MY OPINION, AS HELD BY THE MADRAS HIGH COURT IN THE CASE OF CIT VS. MATRISEVA TRUST IN [2000] 242 ITR 20 (MAD) THAT TH E ASSESSEE-TRUST IS ENTITLED TO SET OFF THE AMOUNT OF EXCESS APPLICATION OF THE LAST YEAR AGAINST THE DEFICIENCY OF THE PRES ENT YEAR. FURTHER, IN MY OPINION, THE ASSESSEE HAS TO APPLY 85% OF THE IN COME TOWARDS ITA NO. 838/MDS/2015 8 CHARITABLE OBJECTS SUBJECT TO ACCUMULATION OF INCOM E U/S.11(2) OF THE ACT. ACCORDINGLY, I DIRECT THE AO TO RE-COMPUTE THE EXCESS APPLICATION IN THE ABOVE ASSESSMENT YEARS MENTIONED IN THE TABL E AT PARA-6 AND GIVE BENEFIT OF SET OFF, IF THERE IS EXCESS APPLICA TION IN EARLIER ASSESSMENT YEARS AGAINST THE DEFICIENCY OF PRESENT ASSESSMENT YEAR. WITH THIS OBSERVATION, THIS GROUND IS REMITTED BACK TO THE FILE OF LD. ASSESSING OFFICER FOR FRESH CONSIDERATION. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 06 TH NOVEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMB ER CHENNAI, DATED THE 06 TH NOVEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF