Society of Saint Ursula, Pune V. Assistant Commissioner of Income-Tax -Exemption Circle, Pune

ITA 935/PUN/2022

AI Insights

The case involves the Society of Saint Ursula, a charitable trust engaged in educational activities, which appealed against the decision of the CIT(A) that upheld the Assessing Officer's addition of Rs.22,67,406/- to the income of the trust. This amount represented the TDS on interest income, which the trust argued should be deducted in computing the income available for application or accumulation, as it was accounted for on a gross basis. The Tribunal examined the interpretation of sections 11(1)(a) and 11(2) of the Income Tax Act, which pertain to the income derived from property held under trust for charitable purposes and its application or accumulation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137685 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 01-03-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 21-12-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; TDS
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “SMC”, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT आयकर अपील सं. /ITA No.935/PUN/2022 नधा रण वष / Assessment Year : 2016-17 Society of Saint Ursula, 1, Akurdi, Pune – 411 035 Maharashtra PAN : AAAAS4291C Vs. ACIT, Exemption Circle, Pune Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee, emanating from the order dated 22-11-2022 passed by ld. CIT(A) in National Faceless Appeal Centre (NFAC), Delhi u/s.250 of the Act in relation to the assessment year 2016-17, involves a short but interesting issue. 2. The only issue raised herein is against not allowing deduction of tax deducted at source amounting to Rs.22,67,406/- in the computation of income exempt u/s 11 of the Act. 3. Succinctly, the factual panorama of the case is that the assessee is a charitable trust engaged in educational activities. Assessee by Shri C.H. Naniwadekar Revenue by Shri Akhilesh Srivastava Date of hearing 02-03-2023 Date of pronouncement 02-03-2023 ITA No. 935/PUN/2022 Society of Saint Ursula 2 Return of income was filed declaring total income at Nil. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee claimed Rs.22,67,406/-, being the amount of TDS on interest income, as expenditure in its Income and expenditure account. On being called upon to justify its stand, the assessee submitted that deduction of tax at source was from the interest income, which was, in fact, accounted for on gross basis on the Income side. Not convinced, the AO held that the claim of TDS as application of income was wrong. He, therefore, made an addition of Rs.22,67,406/-. The ld. CIT(A) countenanced the assessment order on this score. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 4. I have heard both the sides and gone through the relevant material on record. The assessee is a charitable trust engaged in educational activities. The authorities below have held that TDS cannot be treated as application of income so as to qualify for deduction in computing the total income exempt under the Act. The issue involved is about the interpretation of sections 11(1)(a)/11(2) qua the amount of tax deducted at source claimed ITA No. 935/PUN/2022 Society of Saint Ursula 3 as application against the interest income, which was accounted for on gross basis in the Income and expenditure account. Section 11(1)(a) provides that the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied for such purposes in India and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property, shall be exempt from taxation. Section 11(2) provides that where 85% of the income referred to in section 11(1)(a) etc. is not applied or is not deemed to have been applied to charitable or religious purposes in India during the previous year but is accumulated or set apart, the income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income provided certain conditions are complied with. There is no doubt as to the fulfillment of such conditions. On a conjoint reading of sections 11(1)(a) and 11(2), it clearly transpires that the amount which is exempt from taxation is the income derived from property held under trust to the extent to which such ITA No. 935/PUN/2022 Society of Saint Ursula 4 income is either applied for such purposes in India or accumulated to the extent of 85% subject to certain conditions. The essence of the provisions is that there should, firstly, be the income available at the disposal of the trust capable of either application or accumulation for later application. Income available to a trust in such a scenario can only be its commercial income and not the income computed in accordance with the provisions of Chapter IV-D of the Act. Such income available can be computed after excluding the relevant outgoes, including not only the expenses incurred in connection with such income but also taxes paid in respect thereof. Unless the taxes paid are deducted, it cannot be said that the amount of income, to that extent, is available for application or accumulation. 5. The AO has made out a case that the amount of tax deducted at source would be refunded to the assessee because of non taxability of its income and hence deduction of such TDS should not be allowed in computing the amount of income exempt for the year . Here is a case in which the assessee earned interest income at gross level of, say, Rs.100/- and after deduction of tax at source amounting to, say, Rs.10/-, it received ITA No. 935/PUN/2022 Society of Saint Ursula 5 net amount of Rs.90/-. The gross interest income of Rs.100/- was reflected on the income side of the Income and expenditure account and deduction of TDS was claimed for Rs.10/- under the expenditure side. As it only the net amount of Rs.90/- which can be said to be available with the assessee for application or accumulation, the deduction on account of tax deducted at source has to be allowed in computing the amount of income available after entering such income at gross level. If suppose, in a later year, the amount of tax deducted at source in this year is refunded fully or partly, the amount of such refund shall fall for consideration on the income side of the Income and expenditure account. On a specific query, the ld. AR pointed out that income-tax refund was granted to the assessee in the succeeding year for a sum of Rs.1,55,39,950/-, which was duly included on the income side of the Income and expenditure account. I have gone through the Income and expenditure account for the succeeding year ending 31-03-2017, in which the last item on the Income side is ‘Income-tax refund” amounting to Rs.1,55,39,950/-. Computation of income for such later year has been done by including the amount of income-tax ITA No. 935/PUN/2022 Society of Saint Ursula 6 refund in the gross income available for application or accumulation. In view of the foregoing discussion, I am of the considered opinion that the authorities below were not justified in jettisoning the claim of allowing deduction of TDS amounting to Rs.22,67,406/- in the computation of income available for application or accumulation. The impugned order is overturned pro tanto. 6. In the result, the appeal is allowed. Order pronounced in the Open Court on 02 nd March, 2023. Sd/- (R.S.SYAL) उपा य / VICE PRESIDENT प ु णे Pune; दनांक Dated : 02 nd March, 2023 Satish ITA No. 935/PUN/2022 Society of Saint Ursula 7 आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. 3. थ / The Respondent The Pr.CIT concerned 4. 5. DR, ITAT, ‘SMC’ Bench, Pune गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 02-03-2023 Sr.PS 2. Draft placed before author 02-03-2023 Sr.PS 3. Draft proposed & placed before the second member - JM 4. Draft discussed/approved by Second Member. - JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *