M/s Society of The Servants of the Holy Spirit, Bangalore V. DDIT, Bangalore

ITA 975/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95381 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 17-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 12

Judgement Text

ITA.975/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER I.T.A NO.975/BANG/2015 (ASSESSMENT YEAR : 2011-12) M/S. SOCIETY OF THE SERVANTS OF THE HOLY SPIRIT, CONVENT OF THE HOLY SPIRIT, MOUNT ST. JOSEPH P.O, BANGALORE 560 083 .. APPELLANT PAN : AABTS1501R V. DEPUTY COMMISSIONER OF INCOME-TAX (EXEMPTION), CIRCLE -17(2), BANGALORE .. RESPONDENT ASSESSEE BY : SHRI. SURESH MUTHUKRISHNAN, CA REVENUE BY : SHRI. SUNIL KUMAR AGARWALA, JCIT HEARD ON : 17.11.2015 PRONOUNCED ON : 27.11.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE IT IS AGGRIEVED T HAT ACCUMULATION OF INCOME U/S.11(1)(A) OF THE INCOME-TAX ACT, 1961 [T HE ACT IN SHORT] WAS COMPUTED AT 15% OF THE NET INCOME FROM PROPERTY HEL D UNDER TRUST AND NOT FROM THE GROSS INCOME FROM PROPERTY HELD UNDER TRUS T. ITA.975/BANG/2015 PAGE - 2 02. FACTS APROPOS ARE THAT ASSESSEE RUNNING CONVENT S, HOSPITALS AND REHABILITATION CENTER FOR MENTALLY CHALLENGED, HAD FILED RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING NIL INCOME AFTER CLAIMING EXEMPTION U/SS.11 & 12 OF THE ACT. AO WHILE ALLOWING SUCH EX EMPTION WAS OF THE OPINION THAT ACCUMULATION U/S.11(1)(A) OF THE ACT, HAD TO BE WORKED OUT ONLY ON THE GROSS RECEIPTS AND NOT ON THE NET RECEI PTS. THE NET SURPLUS AFTER MEETING THE EXPENDITURE AND APPLICATION FOR THE OBJ ECTS OF THE ASSESSEE TRUST CAME TO RS.1,95,63,110/-. GROSS RECEIPTS OF THE AS SESSEE CAME TO RS.4,07,69,705/-. ASSESSEE HAD CLAIMED BENEFIT OF ACCUMULATION U/S.11(1)(A) OF THE ACT, ON THE GROSS RECEIPTS OF R S.4,07,69,705/- WHEREAS THE AO HAD RESTRICTED SUCH ACCUMULATION TO 15% OF T HE NET SURPLUS, VIZ., RS.1,95,63,110/-. 03. ASSESSEES APPEAL BEFORE THE CIT (A) WAS PARTLY SUCCESSFUL. ACCORDING TO THE CIT (A), 15% ACCUMULATION ON NET D ONATION AND MEDICAL INCOME WAS APPLIED BY THE AO WITHOUT APPLICATION OF MIND. RELYING ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF C IT V. PROGRAMME FOR COMMUNITY ORGANIZATION [248 ITR 1], CIT (A) HELD T HAT APPLICATION OF INCOME FOR CHARITABLE PURPOSES SHOULD BE CALCULATED WITH REFERENCE TO GROSS INCOME AND NOT NET INCOME. HE DIRECTED THE AO TO B IFURCATE THE RECEIPTS OF ITA.975/BANG/2015 PAGE - 3 THE ASSESSEE INTO TWO HEADS, NAMELY DONATION AND IN COME FROM CHARITABLE ACTIVITIES. ACCORDING TO HIM IN RESPECT OF THE FOR MER, GROSS RECEIPTS AND IN RESPECT OF THE LATTER NET RECEIPTS HAD TO BE RECKON ED WHILE APPLYING 15% TO WORK OUT THE ACCUMULATION AVAILABLE TO THE ASSESSEE U/S.11(1)(A) OF THE ACT. 04. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DER OF THE CIT (A) SUBMITTED THAT ACCUMULATION CAN BE APPLIED ONLY ON THE GROSS INCOME IRRESPECTIVE OF THE SOURCE AND CANNOT BE RESTRICTED TO THE NET AMOUNT. 05. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF CIT (A), 06. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE ISSUE RAISED BEFORE US IS SQUARELY COVERED BY THE JUDGMENT OF HONBLE APEX HIGH COURT IN THE CASE OF ADDL.CIT V. A. L. N. RAO CHARITABLE TRUST [216 ITR 697]. SAME VIEW HAS BEEN TAKEN BY US IN THE CASE OF DCIT V. M/S. RASHTROTHANA PARISHAT [ITA NOS .896 & 897/BANG/2014, DT.14.08.2015]. IN PARAS 10 & 11 OF THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF A. L. N. RAO CHAR ITABLE TRUST (SUPRA), IT WAS HELD AS UNDER : 10. A MERE LOOK AT S. 11(1)(A), AS IT STOOD AT THE RELE VANT TIME, CLEARLY SHOWS THAT OUT OF TOTAL INCOME ACCRUI NG TO A TRUST IN THE PREVIOUS YEAR FROM PROPERTY HELD BY IT WHOLL Y FOR ITA.975/BANG/2015 PAGE - 4 CHARITABLE OR RELIGIOUS PURPOSE, TO THE EXTENT THE INCOME IS APPLIED FOR SUCH RELIGIOUS OR CHARITABLE PURPOSE, T HE SAME WILL GET OUT OF THE TAX NET BUT SO FAR AS THE INCOM E WHICH IS NOT SO APPLIED DURING THE PREVIOUS YEAR IS CONCERNED AT LEAST 25% OF SUCH INCOME OR RS. 10,000 WHICHEVER IS HIGHER, W ILL BE PERMITTED TO BE ACCUMULATED FOR CHARITABLE OR RELIG IOUS PURPOSE AND IT WILL ALSO GET EXEMPTED FROM THE TAX NET. THEN FOLLOWS SUB-S. (2) WHICH SEEKS TO LIFT THE RESTRICT ION OR THE CEILING IMPOSED ON SUCH EXEMPTED ACCUMULATED INCOME DURING THE PREVIOUS YEAR AND ALSO BRINGS SUCH FURTH ER ACCUMULATED INCOME OUT OF THE TAX NET IF THE CONDIT IONS LAID DOWN BY SUB-S. (2) OF S. 11 ARE FULFILLED MEANING T HEREBY THE MONEY SO ACCUMULATED IS SET APART TO BE INVESTED IN THE GOVERNMENT SECURITIES, ETC., AS LAID DOWN BY CL. (B ) OF SUB-S. (2) OF S. 11 APART FROM THE PROCEDURE LAID DOWN BY CL. (A) OF S. 11(2) BEING FOLLOWED BY THE ASSESSEE-TRUST. TO HIGH LIGHT THIS POINT WE MAY TAKE AN ILLUSTRATION. IF RS. 1,00,000 ARE EARNED AS THE TOTAL INCOME OF THE PREVIOUS YEAR BY THE TRU ST FROM PROPERTY HELD BY IT WHOLLY FOR CHARITABLE AND RELIG IOUS PURPOSES AND IF RS. 20,000 ARE ACTUALLY APPLIED DUR ING THE PREVIOUS YEAR BY THE SAID TRUST TO SUCH CHARITABLE OR RELIGIOUS PURPOSES THE INCOME OF RS. 20,000 WILL GET EXEMPTED FROM BEING CONSIDERED FOR THE PURPOSE OF INCOME-TAX UNDE R FIRST PART OF S. 11(1). SO FAR AS THE REMAINING RS. 80,00 0 ARE CONCERNED IF THEY COULD NOT BE ACTUALLY APPLIED FOR SUCH RELIGIOUS OR CHARITABLE PURPOSES DURING THE PREVIOU S YEAR THEN AS PER S. 11(1)(A) AT LEAST 25% OF SUCH TOTAL INCOME FROM PROPERTY OR RS. 10,000 WHICHEVER IS HIGHER WILL ALS O EARN EXEMPTION FROM BEING CONSIDERED AS INCOME FOR THE P URPOSE OF INCOME-TAX, THAT IS, RS. 25,000 WILL THUS GET EX CLUDED FROM THE TAX NET. THUS OUT OF THE TOTAL INCOME OF RS. 1, 00,000 WHICH HAS ACCRUED TO THE TRUST RS. 25,000 WILL EARN EXEMP TION FROM PAYMENT OF INCOME-TAX AS PER S. 11(1)(A) SECOND PAR T. THEN FOLLOWS SUB-S. (2) WHICH STATES THAT THE CEILING OR THE LIMIT OR THE RESTRICTION OF ACCUMULATION OF INCOME TO THE EX TENT OF 25% OF THE INCOME OR RS. 10,000, WHICHEVER IS HIGHER FO R EARNING IT EXEMPTION AS ENGRAFTED UNDER S. 11(1)(A) WILL GE T LIFTED IF THE MONEY SO ACCUMULATED IS INVESTED AS LAID DOWN B Y S. 11(2)(B) MEANING THEREBY OUT OF THE TOTAL ACCUMULAT ED INCOME ITA.975/BANG/2015 PAGE - 5 OF RS. 80,000 ACCRUING DURING THE PREVIOUS YEAR AND WHICH COULD NOT BE SPENT FOR CHARITABLE OR RELIGIOUS PURP OSES BY THE TRUST BALANCE OF RS. 55,000 IF INVESTED AS LAID DOW N BY SUB-S. (2) OF S. 11 WILL ALSO GET EXCLUDED FROM THE TAX NE T. BUT FOR SUCH INVESTMENT AND IF S. 11(1) ALONE HAD APPLIED R S. 55,000 BEING THE BALANCE OF ACCUMULATED INCOME WOULD HAVE BEEN COVERED BY THE TAX NET. LEARNED COUNSEL FOR THE REV ENUE SUBMITTED THAT THE INVESTMENT AS CONTEMPLATED BY SU B-S. (2)(B) OF S. 11 MUST BE INVESTMENT OF ALL ACCUMULATED INCO ME IN GOVERNMENT SECURITIES, ETC., NAMELY, 100% OF THE ACCUMULATED INCOME AND NOT ONLY 75% THEREOF. AND IF THAT IS NOT DONE THEN ONLY THE INVESTED ACCUMULATED INCOME TO THE EXTENT OF 75% WILL GET EXCLUDED FROM IT ASSESSMENT. BUT SO FAR THE REMAINING 25% OF THE ACCUMULATED INCOME IS CONC ERNED IT WILL NOT EARN SUCH EXEMPTION. IT IS DIFFICULT TO AP PRECIATE THIS CONTENTION. THE REASON IS OBVIOUS. SEC. 11, SUB-S. (1)(A) OPERATES ON ITS OWN. BY ITS OPERATION TWO TYPES OF INCOME EARNED BY THE TRUST DURING THE PREV IOUS YEAR FROM ITS PROPERTIES ARE GIVEN EXEMPTION FROM INCOME -TAX, (I) THAT PART OF THE INCOME OF PREVIOUS YEAR WHICH IS A CTUALLY SPENT FOR CHARITABLE OR RELIGIOUS PURPOSES IN THAT YEAR; AND (II) OUT OF THE UNSPENT ACCUMULATED INCOME OF THE P REVIOUS YEAR 25% OF SUCH TOTAL PROPERTY INCOME OR RS. 10,00 0 WHICHEVER IS HIGHER CAN BE PERMITTED TO BE ACCUMULA TED BY THE TRUST, EARMARKED FOR SUCH CHARITABLE OR RELIGIO US PURPOSES. SUCH 25% OF THE INCOME OR RS. 10,000 WHIC HEVER IS HIGHER WILL ALSO GET EXEMPTED FROM INCOME-TAX. THAT EXHAUSTS THE OPERATION OF S. 11(1)(A). THEN FOLLOWS SUB-S. ( 2) WHICH NATURALLY DEALS WITH THE QUESTION OF INVESTMENT OF THE BALANCE OF ACCUMULATED INCOME WHICH HAS STILL NOT EARNED EX EMPTION UNDER SUB-S. (1)(A). SO FAR AS THAT BALANCE OF ACCU MULATED INCOME IS CONCERNED, THAT ALSO CAN EARN EXEMPTION F ROM INCOME-TAX MEANING THEREBY THE CEILING OR THE LIMIT OF EXEMPTION OF ACCUMULATED INCOME FROM INCOME-TAX AS IMPOSED BY SUB-S. (1)(A) OF S. 11 WOULD GET LIFTED IF ADDITIONAL ACCUMULATED INCOME BEYOND 25% OR RS. 10,000, WHICHE VER IS HIGHER, AS THE CASE MAY BE, IS INVESTED AS LAID DOW N BY S. 11(2) AFTER FOLLOWING THE PROCEDURE LAID DOWN THERE IN. ITA.975/BANG/2015 PAGE - 6 THEREFORE, SUB-S. (2) ONLY WILL HAVE TO OPERATE QUA THE BALANCE OF 75% OF THE TOTAL INCOME OF THE PREVIOUS YEAR OR INCOME BEYOND RS. 10,000 WHICHEVER IS HIGHER WHICH HAS NOT GOT THE BENEFIT OF TAX EXEMPTION UNDER SUB-S. (1)(A ) OF S. 11. IF LEARNED COUNSEL FOR THE REVENUE IS RIGHT AND IF 100 % OF THE ACCUMULATED INCOME OF THE PREVIOUS YEAR IS TO BE IN VESTED UNDER SUB-S. (2) OF S. 11 TO GET EXEMPTION FROM INC OME-TAX THEN THE CEILING OF 25% OR RS. 10,000 WHICHEVER IS HIGHER, WHICH IS AVAILABLE FOR ACCUMULATION OF INCOME OF TH E PREVIOUS YEAR FOR THE TRUST TO EARN EXEMPTION FROM INCOME-TA X AS LAID DOWN BY S. 11(1)(A) WOULD BE RENDERED REDUNDANT AND THE SAID EXEMPTION PROVISIONS WOULD BECOME OTIOSE. IT H AS TO BE KEPT IN VIEW THAT OUT OF THE ACCUMULATED INCOME OF THE PREVIOUS YEAR AN AMOUNT OF RS. 10,000 OR 25% OF THE TOTAL INCOME FROM PROPERTY, WHICHEVER IS HIGHER, IS GIVEN EXEMPTION FROM INCOME-TAX BY S. 11(1)(A) ITSELF. TH AT EXEMPTION IS UNFETTERED AND NOT SUBJECT TO ANY COND ITIONS. IN OTHER WORDS, IT IS AN ABSOLUTE EXEMPTION. IF SUB-S. (2) IS SO READ AS SUGGESTED BY THE LEARNED COUNSEL FOR THE RE VENUE, WHAT IS AN ABSOLUTE AND UNFETTERED EXEMPTION OF ACC UMULATED INCOME AS GUARANTEED BY S. 11(1)(A) WOULD BECOME A RESTRICTED EXEMPTION AS LAID DOWN BY S. 11(2). SEC. 11(2) DOES NOT OPERATE TO WHITTLE DOWN OR TO CUT ACROSS THE EX EMPTION PROVISIONS CONTAINED IN S. 11(1)(A) SO FAR AS SUCH ACCUMULATED INCOME OF THE PREVIOUS YEAR IS CONCERNE D. IT HAS ALSO TO BE APPRECIATED THAT SUB-S. (2) OF S. 11 DOE S NOT CONTAIN ANY NON OBSTANTE CLAUSE LIKE 'NOTWITHSTANDING THE P ROVISIONS OF SUB-S. (1)'. CONSEQUENTLY, IT MUST BE HELD THAT AFTER S. 11(1)(A) HAS FULL PLAY AND IF STILL ANY ACCUMULATED INCOME OF THE PREVIOUS YEAR IS LEFT TO BE DEALT WITH AND TO B E CONSIDERED FOR THE PURPOSE OF IT EXEMPTION, SUB-S. (2) OF S. 1 1 CAN BE PRESSED IN SERVICE AND IF IT IS COMPLIED THEN SUCH ADDITIONAL ACCUMULATED INCOME BEYOND 25% OR RS. 10,000, WHICHE VER IS HIGHER, CAN ALSO EARN EXEMPTION FROM INCOME-TAX ON COMPLIANCE WITH THE CONDITIONS LAID DOWN BY SUB-S. (2) OF S. 11. IT IS TRUE THAT SUB-S. (2) OF S. 11 HAS NOT CLE ARLY MENTIONED THE EXTENT OF THE ACCUMULATED INCOME WHICH IS TO BE INVESTED. BUT ON A CONJOINT READING OF THE AFORESAID TWO PROV ISIONS OF SS. 11(1) AND 11(2) THIS IS THE ONLY RESULT WHICH C AN FOLLOW. IT ITA.975/BANG/2015 PAGE - 7 IS ALSO TO BE KEPT IN VIEW THAT UNDER THE EARLIER I T ACT OF 1922 EXEMPTION WAS AVAILABLE TO CHARITABLE TRUST WITHOUT ANY RESTRICTION UPON THE ACCUMULATED INCOME. THERE WAS A CHANGE IN THIS RESPECT UNDER THE PRESENT ACT OF 1961. UNDE R THE PRESENT ACT, ANY INCOME ACCUMULATED IN EXCESS OF 25 % OR RS. 10,000, WHICHEVER IS HIGHER, IS TAXABLE UNDER S. 11 (1)(A) OF THE ACT, UNLESS THE SPECIAL CONDITIONS REGARDING AC CUMULATION AS LAID DOWN IN S. 11(2) ARE COMPLIED WITH. IT IS C LEAR, THEREFORE, THAT IF THE ENTIRE INCOME RECEIVED BY A TRUST IS SPENT FOR CHARITABLE PURPOSES IN INDIA, THEN IT WILL NOT BE TAXABLE BUT IF THERE IS A SAVING, I.E., TO SAY AN ACCUMULAT ION OF 25% OR RS. 10,000 WHICHEVER IS HIGHER, IT WILL NOT BE INCL UDED IN THE TAXABLE INCOME. SEC. 11(2) QUOTED ABOVE FURTHER LIB ERALIZES AND ENLARGES THE EXEMPTION. A COMBINED READING OF B OTH THE PROVISIONS QUOTED ABOVE WOULD CLEARLY SHOW THAT S. 11(2) WHILE ENLARGING THE SCOPE OF EXEMPTION REMOVES THE RESTRICTION IMPOSED BY S. 11(1)(A) BUT IT DOES NOT TAKE AWAY THE EXEMPTION ALLOWED BY S. 11(1)(A). ON THE EXPRES S LANGUAGE OF S. 11(1) AND 11(2) AS THEY STOOD ON THE STATUTE BOOK AT THE RELEVANT TIME NO OTHER VIEW IS POSSIBLE . 11. IN THE LIGHT OF THE AFORESAID DISCUSSION AND KEEPIN G IN VIEW THE ILLUSTRATION WHICH WE HAVE GIVEN EARLIER T HE COMBINED OPERATION OF S. 11(1)(A) AND S. 11(2) AS A PPLICABLE AT THE RELEVANT TIME WOULD YIELD THE FOLLOWING RESU LT : (I) IF THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES DURING THE PREVIOUS YEAR IS RS. 1,00,000 AND IF RS. 20,000 THE REFROM ARE ACTUALLY APPLIED TO SUCH PURPOSES IN INDIA THEN THO SE RS. 20,000 WILL GET EXEMPTED FROM PAYMENT OF INCOME-TAX AS PER THE FIRST PART OF S. 11(1)(A). (II) OUT OF THE REMAINING ACCUMULATED INCOME OF RS. 80,000 FOR THE PREVIOUS YEAR, A FURTHER SUM OF RS. 25,000 WILL GET EXEMPTED FROM PAYMENT OF INCOME-TAX AS PER SECOND P ART OF S. 11(1)(A). THUS OUT OF THE TOTAL INCOME DERIVED FROM PROPERTY AS AFORESAID DURING THE PREVIOUS YEAR, THAT IS, RS. 1,00,000, ITA.975/BANG/2015 PAGE - 8 RS. 45,000 IN ALL WILL GET EXCLUDED FROM THE TAX NE T ON A COMBINED OPERATION OF FIRST AND SECOND PART OF S. 1 1(1)(A). (III) THE AFORESAID CEILING OF RS. 25,000 OF ACCUMU LATED INCOME FROM PROPERTY OF PREVIOUS YEAR, WILL GET LIF TED UNDER S. 11(2) TO THE EXTENT THE BALANCE OF SUCH ACCUMULATED INCOME IS INVESTED AS LAID DOWN BY S. 11(2). TO TAKE AN ILLUS TRATION IF, SAY, AN ADDITIONAL AMOUNT OF RS. 20,000 OUT OF THE BALANCE ACCUMULATED INCOME OF RS. 55,000 IS INVESTED AS PER S. 11(2) THEN THIS ADDITIONAL AMOUNT OF RS. 20,000 OF ACCUMU LATED INCOME WILL GET EXCLUDED FROM THE TAX NET AS PER S. 11(2). (IV) THE REMAINING BALANCE OF THE ACCUMULATED INCOM E OUT OF RS. 55,000, THAT IS, RS. 35,000 IF NOT INVESTED AS PER SUB-S. (2) OF S. 11 WILL BE ADDED TO THE TAXABLE INCOME OF THE TRUST AND WILL NOT GET EXEMPTED FROM THE TAX NET. (V) IF ON THE OTHER HAND THE ENTIRE REMAINING ACCUM ULATED INCOME OF RS. 55,000 IS WHOLLY INVESTED AS PER S. 1 1(2) THE SAID ENTIRE AMOUNT OF RS. 55,000 WILL GET EXEMPTED FROM THE TAX NET. 07. ACCORDINGLY WE ARE OF THE OPINION THAT ASSESSEE S CLAIM FOR ACCUMULATION UNDER SECTION 11(1)(A)OF THE ACT, COUL D NOT HAVE BEEN RESTRICTED AND WAS ELIGIBLE FOR ACCUMULATION OF 15% OF GROSS RECEIPT FROM ALL STREAMS OF ITS INCOME. ORDERED ACCORDINGLY. 08. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH DAY OF N OVEMBER, 2015. SD/- SD/- (VIJAYPAL RAO) (ABRAH AM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA.975/BANG/2015 PAGE - 9