ITO EXEMPTION 2 4 MUMBAI, MUMBAI V. VAIBHAV MEDICAL AND EDUCATION FOUNDATION, MUMBAI

ITA 5494/MUM/2024

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the order of the learned Commissioner of Income Tax (Appeals) which had allowed certain exemptions and deductions to Vaibhav Medical and Education Foundation, a charitable trust. The primary issues revolved around the application of sections 11, 13, and 24 of the Income Tax Act, 1961, concerning the charitable activities and financial transactions of the trust. The Tribunal examined whether the trust's financial dealings, particularly with related parties and the application of income from house property, adhered to the statutory provisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33290 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Other Referred Cases: CIT vs Rao Bahadur Calavala Cunnan Chetty Charities, DIT(Exemption) vs. Girdhari Lal Shewnarain Tantia Trust, ADIT vs. Sri Sathya Sai Trust, Shantaram Bhatt Charitable Trust
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHISH HELIWAL
• Assessee Lawyers: S RONAL DOSHI AW DEEP CHOUHAN
• Keywords: Question of law; Charitable institution
• Section: 144; 143(3); 143(2); 250; 12A; 13; 145; 80G; 13(2)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.5494/MUM/2024 (Assessment Year : 2011–12) ITO (Exemption) – 2(4), Room No.609, 6th Floor, MTNL Building, Peddar Road, Mumbai – 400026 Maharashtra ……………. Appellant v/s Vaibhav Medical and Education Foundation, C-1, Aditya Birla Centre, S.K. Ahire Marg, Worli, Mumbai - 400030, Maharashtra PAN – AAATV3207A ……………. Respondent Assessee by : S/Shri Ronal Doshi a/w Deep Chouhan Revenue by : Shri Ashish Heliwal, CIT-DR Date of Hearing – 05/12/2024 Date of Order – 24/02/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The Revenue has filed the present appeal against the impugned order dated 23.08.2024 passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the Assessment Year 2011-12. 2. In this appeal, the Revenue has raised the following grounds: – “1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) is right in allowing exemption us 11 of the Act without appreciating the fact that the diversion of funds for the benefit of the related parties mentioned ITA No.5494 -Mum-2024 (A.Y. 2011-12) 2 in section 13(3) of the Act are not for charitable activities of the assessee and are not for the benefit of public at large and hence liable for disallowance? 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact where the funds of the trust were diverted and used for the benefit of excluded person are covered within the provision of section 13(2)(b) and 13(2)(g)? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CITIA) is correct in ignoring the fact where the rents paid for premise and was diverted and used for the benefit of excluded person are covered within the provision of section 13(2)(a)? 4. Without prejudice to the above substantial question of law, whether on facts and circumstances of the case and in law the Ld. CIT(A) was justified in not appreciating the fact that if a charitable entity provides any benefits to its members who are also substantial contributors, then it loses the benefit of section 11 and its charitable character as provisions of Section 13(1) (c) read with Section 13(3) (b) are clearly invoked? 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing standard deduction u/s. 24 of the Act while computing the Income from House Property as the said deduction is not available for charitable Trust/entity/institution as held in the assessee own case for AY 2012-13 on the basis of the decision of the co- ordinate Bench of the Hon'ble ITAT in ITA No. 106/Mum/2016 Nandlal Tolan? Charitable US. ITO(E)-2(1), Mumbai? 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief on account of addition made u/s 145 as the assessee has employed two types of accounting method one is Mercantile system in light of Companies Act being a section 25 Company and using 'Cash method of Accounting' for the purpose of Income tax Act when purpose of Section 145 deals having consistent method to minimise the possibility of unfair deductions or escaping chargeability under the Act?” 3. The issue arising in Grounds No.1 to 4 raised in Revenue’s appeal pertains to the deletion of disallowance of interest expenditure made under sections 13(2)(a), 13(2)(b) and 13(2)(g) of the Act. 4. The brief facts of the case pertaining to this issue as emanating from the record are: The assessee is registered as a charitable organization with DIT (Exemption), Mumbai under section 12A of the Act and was also issued a certificate under section 80G of the Act. Accordingly, the assessee claimed ITA No.5494 -Mum-2024 (A.Y. 2011-12) 3 exemption under section 11 of the Act. For the year under consideration, the assessee filed its return of income on 30.09.2011 along with income and expenditure account, balance sheet and audit report in Form No.10B declaring a total deficit of Rs.6,39,44,439/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) along with a questionnaire were issued and served on the assessee. During the assessment proceedings, it was noticed that the assessee has obtained a loan of Rs.36 crore from Grasim Industries Ltd. and Rs.30 crore from Aditya Birla Nuvo Ltd. at 9% interest. It was further observed that the assessee advanced a loan to another trust, viz. Aditya Birla Education Trust (“ABET”), without charging any interest. Accordingly, the assessee was asked to show cause why the interest paid to Grasim Industries Ltd. and Aditya Birla Nuvo Ltd. be not disallowed as it was not an Arms’ Length Transaction. In response, the assessee submitted that ABET decided to purchase “Vastushilp Annex Building” in April 2010. As ABET did not have sufficient funds, the assessee, as part of its object of promoting education agreed to provide interest-free financial assistance to ABET, which they could repay in a period of 2-3 years. The assessee further submitted that the loan taken from Grasim Industries Ltd. and Aditya Birla Nuvo Ltd. was fully repaid in the year under consideration along with interest. It was further submitted that one of the objects of the assessee is to promote education and in furtherance of its objective, financial assistance was provided to ABET, to enable them to purchase the building, in which they were running the school. Accordingly, the assessee submitted that the interest is fully and exclusively for the promotion of education and therefore, is an allowable charitable expenditure. ITA No.5494 -Mum-2024 (A.Y. 2011-12) 4 5. The Assessing Officer (“AO”) vide order dated 18.03.2014 passed under section 143(3) disagreed with the submission of the assessee and held that ABET is a related party of the assessee since the settlor of ABET is related to Key Management Personnel of the assessee, and accordingly, would fall within the category of “specified person” as per the provisions of section 13(3) of the Act. The AO further noted that ABET was formed by the settlor by remitting to the Trustees a sum of Rs.50,000/- towards the settlement of the Trust. Accordingly, the AO concluded that the interest-free loan advanced by the assessee to ABET is in violation of the provisions of sections 13(2)(a), 13(2)(b) and 13(2)(g) of the Act. Consequently, the interest expenditure on the term loan amounting to Rs.4,99,11,658/- was disallowed and added to the total income of the assessee. Further, on a similar basis, the AO disallowed the lease rental paid by the assessee in respect of the building taken on leave and licence basis by it and provided free of charge to ABET to enable them to start “Aditya Birla World Academy School”. 6. The learned CIT(A), vide impugned order, allowed the grounds raised by the assessee on this issue held that ABET is a charitable trust and is for the benefit of the Public, therefore, the question of substantial interest in ABET does not arise. The learned CIT(A) further held that the fact that the Key Management Personnel of the assessee exercises significant influence over the ABET does not mean that ABET would fall within the purview of the person specified under section 13(3) of the Act. Thus, it was held that the interest- free loan advanced to a Trust, where the wife of the lineal descendant of Key Management Personnel is a settlor, cannot be the reason for attracting the ITA No.5494 -Mum-2024 (A.Y. 2011-12) 5 provisions of section 13(2) r.w. section 13(3) of the Act. Accordingly, the learned CIT(A) deleted the addition amounting to Rs.4,99,11,658/- made under sections 13(2)(a), 13(2)(b), 13(2)(g) of the Act. Similarly, the learned CIT(A) also deleted the addition of Rs.22,86,000/- made by the AO on account of rental expenses. Being aggrieved, the Revenue is in appeal before us. 7. We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that the assessee is registered as a charitable trust under section 12A of the Act and also holds registration under section 80G of the Act. Further, there is no dispute regarding the fact that ABET is also registered as a charitable trust under section 12A of the Act. Since the loan obtained by the assessee from Grasim Industries Ltd. and Aditya Birla Nuva Ltd., at an interest of 9%, was advanced interest-free to ABET, the AO concluded that such an interest-free loan to ABET is covered with the provisions of section 13(2)(a), section 13(2)(b) and section 13(2)(g) of the Act, as ABET is a person specified in section 13(3) of the Act. On the contrary, it is the plea of the assessee that even though ABET was formed by the settlor, who is the wife of a lineal descendant of the Key Management Personnel of the assessee, the same by itself does not lead to the conclusion that ABET falls in any of the clauses of section 13(3) of the Act. 8. Therefore, in order to decide the issue at length, i.e., whether ABET is a person specified in section 13(3), and therefore, the interest-free loan advanced by the assessee to ABET is covered within the provisions of section 13(2), it is necessary to analyse the provision of section 13 of the Act. Section ITA No.5494 -Mum-2024 (A.Y. 2011-12) 6 13 of the Act deals with circumstances in which the exemption granted under section 11 shall not be applicable. Sub-section (2) to section 13 of the Act, more particularly clauses (a), (b) and (g), invoked by the AO for disallowing the interest paid by the assessee, reads as follows: - “(2) Without prejudice to the generality of the provisions of clause (c) [and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),— (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; ******** (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): …………………….” 9. Thus, as per the aforesaid provisions of section 13 of the Act, if any part of the income, land, building or property of the Trust or institution is lent, made available, or diverted without adequate security or adequate interest or adequate rent or compensation to any person referred to in sub-section (3) to section 13, then such income, land, building or property of the Trust shall be deemed to have been used or applied for the benefit of the person referred to in sub-section (13) to section 13, and accordingly shall not be excluded from the total income of the previous year of the person in receipt thereof under section 11 of the Act. Further, section 13(3) of the Act reads as follows:- “(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :— ITA No.5494 -Mum-2024 (A.Y. 2011-12) 7 (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds [fifty thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c) (cc) and (d) has a substantial interest.” 10. In the present case, as per the AO, since the assessee advanced the interest-bearing loans availed by it to ABET without charging any interest, such a transaction falls within the ambit of provisions of section 13(2) of the Act. In this regard, the AO has laid emphasis on the fact that even though the assessee is a company registered under section 25 of the Companies Act, 1956 and is thus limited by guarantee, however, the Key Management Personnel of the assessee includes - (i) Smt. Rajashree Birla, (ii) Shri Ashwin K. Kothari, (iii) Shri A.K. Agarwala. Further, the AO also took note of the fact that Smt. Neerja Birla, the settlor of ABET and Shri Kumar Mangalam Birla are the son and daughter-in-law of Smt. Rajashree Birla, the Key Management Personnel of the assessee. Since ABET was formed by the settlor, Smt. Neerja Biral by remitting on to the Trustees a sum of Rs.50,000/- towards settlement of the trust, as per the AO, under section 13(3)(b) of the Act, she is considered to be a person who has made a substantial contribution to the trust. ITA No.5494 -Mum-2024 (A.Y. 2011-12) 8 11. However, it is pertinent to note that for the purpose of section 13(3)(b) of the Act, a person shall be considered as a specified person if it has made a substantial contribution to the trust or institution and such contribution exceeds Rs.50,000/-. In the present case, ostensibly, Smt. Neerja Birla, the settlor of ABET, has made the contribution while creating the trust of Rs.50,000/- to the Trustees of ABET and such a contribution was not made to the assessee. Thus, we are of the considered view that the first requirement for considering a person as a specified person under section 13(3)(b) is not satisfied in the present case, as the substantial contribution was not made to the assessee and the same was rather made to the Trustees of the ABET. Further, it is pertinent to note that the loan was granted by the assessee to the trust, i.e., ABET, and the same was not granted to the settlor of ABET. Thus, we are of the considered view that the fact that Smt. Neerja Birla remitted on to the Trustees of ABET a sum of Rs.50,000/- towards the settlement of the trust has no significance to decide the issue of whether ABET, to whom the interest-free loan was granted by the assessee, falls within the category of “specified person” under section 13(3) of the Act. In this regard, it is also pertinent to note that the contribution did not exceed Rs.50,000/-. Thus, in the present case, none of the conditions as laid down in section 13(3)(b) of the Act are satisfied. 12. Further, it is undisputed that the assessee is a company registered under section 25 of the Companies Act, 1956, and therefore, there is no author or founder of the assessee. Further, neither the assessee nor its subscriber is a Hindu Undivided Family (“HUF”). Further, the interest-free advance was also ITA No.5494 -Mum-2024 (A.Y. 2011-12) 9 not given to HUF or any member of HUF . Thus, the provisions of clause (a) and clause (b) of section 13(3) of the Act can also not be applied in the present case. Even if for an argument’s sake, Smt. Rajashree Birla, being the Key Management Personnel of the assessee, is considered as manager of the assessee, it is pertinent to note that in the present case, the loan was not granted to Smt. Rajashree Birla or any of her relatives. Thus, we are of the considered view that the provisions of clause (cc) and clause (d) of section 13(3) of the Act cannot also be applied in the present case. 13. Insofar as the provisions of Section 13(3)(e) of the Act, we find that the same considers any concern, in which any person referred to any clause (a), clause (b), clause (c), clause (cc) and clause (d) held substantial interest, as a person specified under section 13(3) of the Act. Extending the aforementioned argument that Smt. Rajashree Birla is a manager of the assessee and Smt. Neerja Birla, being her daughter-in-law and also as the settlor of ABET made contributions while creating the ABET, it is pertinent to examine whether Smt. Neeraj Birla can be said to have a substantial interest in ABET, as she satisfies the condition of being the relative of the manager of the assessee. In this regard, it is relevant to note that the provisions of Explanation – 3 of Section 13 of the Act which reads as follows: “Explanation 3.—For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,— (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in sub-section (3); ITA No.5494 -Mum-2024 (A.Y. 2011-12) 10 (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern.” 14. Clause (i) of Explanation 3 to section 13 of the Act deals with the case where the concern is a company, and since ABET is a Trust, therefore, the same is not applicable to the present case. Insofar the provisions of clause (ii) of Explanation 3 to section 13 of the Act, same deal with the case of any other concern and require that for a person to be considered to have a substantial interest in the concern, it is necessary that such person is entitled to not less than 20% of the profit of such concern. However, in the present case, undisputedly ABET is a charitable trust registered under section 12A of the Act, and there is no material available on the record to infer that it exists for the purpose of profit. Therefore, the question of entitlement to any profit of ABET does not arise in the present case. Thus, we are of the considered view that even though for an argument's sake, Smt. Rajashree Birla is considered to be a manager of the assessee and Smt. Neerja Birla, being the settlor of ABET and also a daughter-in-law of Shri Rajshree Birla, and thus a relative, however, the same does not lead to the conclusion that Smt. Neerja Birla has a substantial interest in ABET. Hence, the provisions of section 13(3)(e) of the Act are also not applicable to the facts of the present case. 15. Therefore, from a detailed analysis of various clauses of section 13(3) of the Act vis-à-vis the facts of the present case, we of the considered view that ABET does not fall within the purview of the “specified person” under section 13(3) of the Act. Accordingly, we are of the view that the AO erred in ITA No.5494 -Mum-2024 (A.Y. 2011-12) 11 invoking the provisions of section 13(2) r.w. section 13(3) of the Act for disallowing the interest expenditure on the term loan amounting to Rs.4,99,11,658/- under sections 13(2)(a), 13(2)(b) and 13(2)(g) of the Act. Accordingly, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue, and therefore, the same is upheld. Similarly, we also do not find any merit in the disallowance of lease rent paid by the assessee for a building which was provided free of charge to ABET to enable them to start “Aditya Birla World Academy School”. Accordingly, the impugned order passed by the learned CIT(A) on this issue is also upheld. As a result, Grounds No.1 to 4 raised in Revenue’s appeal are dismissed. 16. Ground No.5 raised in Revenue’s appeal pertains to allowance of standard deduction under section 24 of the Act while computing the income under the head “income from house property”. 17. We have considered the submission of both sides and perused the material available on record. The brief facts of the case are that during the assessment proceedings, the AO observed that the assessee has entered into a lease agreement with New Era Education Trust and earned rental income amounting to Rs.8,38,000/-, which was offered to tax under the head “income from house property”. The AO further noted that while computing its income, the assessee has claimed 30% as a Standard Deduction under section 24 of the Act. Disagreeing with the submission of the assessee, vide assessment order, the AO held that the computation of income from property held under trust is distinct from the provisions of section 14, and therefore, denied the deduction claimed under section 24 of the Act. The learned CIT(A), vide ITA No.5494 -Mum-2024 (A.Y. 2011-12) 12 impugned order allowed the ground raised by the assessee on this issue, and held that there is no provision in the Act that if the property of the trust is held for charitable purpose, no deduction under section 24 of the Act would be available. Thus, the learned CIT(A) held that the provisions of section 24 of the Act will also apply to income from house property earned by a charitable trust. Being aggrieved the Revenue is in appeal before us. 18. Thus, the issue arises whether the assessee, claiming exemption under section 11, is entitled to claim a deduction of a sum equal to 30% of the annual value under section 24(a) of the Act. We find that the Hon’ble Madras High Court in CIT vs Rao Bahadur Calavala Cunnan Chetty Charities, reported in [1982] 135 ITR 485 (Mad.), held that the income from property held under trust would have to be arrived at in a normal commercial manner without reference to the provisions which are attracted by section 14. The relevant findings rendered by the Hon’ble Madras High Court, in the aforesaid decision, are as follows: - “The Tribunal has in a way mixed up the notion of total income in understanding the expression \"income from property held under trust\". Section 14 occurs in the chapter \"Computation of total income\". It provides that all income for the purposes of charge of income-tax and computation of total income be classified under certain heads. Therefore, the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chap. III. There is one further error in the order of the Tribunal. The Tribunal has proceeded on the basis that the receipts from rents amounting to Rs. 1,31,412 during the year ending with 31st of March, 1965, would have to be considered under the head \"Income from house property\" and the net income arrived at under that head. In the view that we have explained above, the determination of the income as if the sum of Rs. 1,31,412 relates to house property and would, therefore, have to be considered in the context of the provisions of ss. ITA No.5494 -Mum-2024 (A.Y. 2011-12) 13 22 to 27, would not be correct. Those provisions enact certain technical rules for the purpose of the ascertainment of income for the particular head for purposes of charge and as seen already that cannot be imported into the determination of the income of the property held in trust for the purpose of s. 11 which excludes that income from the computation of total income. The view that we have taken above is also consistent with the circular of the Central Board of Direct Taxes dated 19th June, 1968, reproduced in V.S. Sundaram's Law of Income Tax in India, 11th Edn., p. 798.” 19. We further find that the Hon’ble Calcutta High Court in DIT(Exemption) vs. Girdhari Lal Shewnarain Tantia Trust, reported in (1993) 199 ITR 215 (Kol), rendered similar findings and held that the income from the property held under trust has to be arrived at in a normal commercial manner and when the income from property held under trust as such is excluded, there is no scope for computing the income from house property by applying the provision of section 14 of the Act. The relevant findings of the Hon’ble Calcutta High Court, in the aforesaid decision, are reproduced as follows: - “8. In our view, therefore, it is the real income which is to be taken into account. The question of deduction which is otherwise allowable in computing the income in a case not covered by section 11 cannot arise while deciding the percentage of application or accumulation. The question of deduction comes only when the income is otherwise chargeable to tax under the provisions of the Act. It cannot be disputed that section 11 has given benefit to an assessee-trust, which applies its income to charitable or religious purposes. If the entire income is applied to charitable purpose, the question of payment of any tax would not arise. If a trust desires to accumulate income in excess of the limits laid down in section 11(1), the conditions specified in section 11(2) have to be fulfilled in respect of the entire accumulation and not merely in respect of the accumulation in excess of 25 per cent of the income. Further, if the trust does not comply with the conditions laid down in section 11(2), the amount which becomes liable to assessment under section 11(3) is the entire income accumulated and not merely the income accumulated in excess of the limits specified in section 11(1). In other words, such an assessee loses the benefit of the accumulation permitted under section 11(1). The question of chargeability of a part of income to tax which is not exempt arises only when the accumulation is more than the permissible limit. While making assessment of that part of the income which is in excess of the specified percentage, such taxable income of a trust cannot be classified under different heads. It is only when any income is assessed under a particular head that the question of allowing deduction under that head arises for consideration. In a case where an assessee-trust has income from different sources and has applied such income and a part of such income ITA No.5494 -Mum-2024 (A.Y. 2011-12) 14 comes within the ambit of taxation, it will not be possible for earmarking any part of such an income to a particular head. The head of income is irrelevant unless the entire income comes from one specific head. Since the income from property held under trust has to be arrived at in a normal commercial manner and when the income from property held under trust as such is excluded, there is no scope for computing the income from property by applying the provision of section 14 of the Act. The provision of section 14 cannot be pressed into service in such a case. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the Act dealing with different heads of income in computing the income accumulated does not arise when the trust loses the benefit of accumulation.” 20. During the hearing, in support the submission that the deduction under section 24 of the Act is available to the assessee, the learned Authorized Representative (“learned AR”) placed reliance upon the decisions of the Co- ordinate Bench of the Tribunal in ADIT vs. Sri Sathya Sai Trust, in ITA No.7350/Mum/2011 and in Shantaram Bhatt Charitable Trust, reported in (2020) 180 ITD 735 (Mum-Trib). From the perusal of both the decisions, relied upon by the learned AR we find that there is no reference to the decision of the Hon’ble Madras High Court in Rao Bahadur Calavala Cunnan Chetty Charities (supra), which has been considered by the Hon’ble Calcutta High Court in the decision cited (supra) and was also followed by the AO in disallowing the deduction claimed under section 24 of the Act by the assessee. Thus, respectfully following the aforesaid decision of the Hon’ble Madras High Court and the Hon’ble Calcutta High Court, we direct the AO to disallow the deduction of 30% claimed by the assessee on income declared under the head “income from house property”. Accordingly, we do not concur with the findings of the learned CIT(A) on this issue. As a result, Ground No.5 raised in Revenue’s appeal is allowed. ITA No.5494 -Mum-2024 (A.Y. 2011-12) 15 21. The issue arising in Ground No.6 raised in Revenue’s appeal pertains to the addition on account of interest accrued but not received. 22. We have considered the submissions of both sides and perused the material available on record. During the assessment proceedings, it was observed that the assessee has followed mercantile system of accounting. However, while computing its income, the assessee has not offered interest income on an accrual basis but has offered interest on a cash basis. As the income was not computed in accordance with the accounting principles of the assessee, the assessee was asked why the interest accrued but not received should not be taken as income in the income statement. In response, the assessee submitted that for the purpose of income tax returns, it has followed a cash basis of accounting since inception which is a method for computing the income. The assessee further submitted that since its amounts are prepared on an accrual basis, the same is adjusted for non-receipt of income accrued but not received and effectively the income received in cash is shown as income. The AO, vide impugned order, disagreed with the submissions of the assessee and held that the system of hybrid accounting or mixed accounting has been done away with. Thus, the taxpayers have to follow either the cash or mercantile system consistently. Accordingly, the interest income was worked out by invoking the provisions of section 144 in accordance with the provisions of section 145 and added to the total income of the assessee. The learned CIT(A) vide impugned order, allowed the grounds raised by the assessee on this issue and deleted the addition of Rs.5,51,16,611/- made by the AO. ITA No.5494 -Mum-2024 (A.Y. 2011-12) 16 23. We find that a similar issue pertaining to following the hybrid system of accounting came up for consideration before the co-ordinate bench of the Tribunal in assessee’s own case in ITO vs. M/s. Vaibhav Medical and Education Foundation, in ITA No.2916/Mum/2023, for the assessment year 2012-13. While deciding the issue in favour of the assessee, the co-ordinate bench of the Tribunal vide order dated 04.03.2024, observed as follows: - “9. We have heard the parties and perused the material on record. The main reason that the AO to make the addition towards interest is that the assessee is following hybrid system of accounting. The AO also did not accept the submissions of the assessee that only the real income can be applied towards the objects of the trust for the purpose of claiming exemption under section 11. The CIT(A) has given relief to the assessee on the ground that the AO failed to rebut the assessee's contention that the assessee being a Trust was free to follow hybrid system of accounting and that all Trust are not bound to follow mercantile system of accounting. The main contention of the is that the emphasis should be given to the words used in section 145 that \"the system of accounting regularly employed by the assessee\" and that the assessee has been consistently following the cash system of accounting since inception in the year 1988 which has been accepted by the Revenue until AY2010-11. It is also contented that the assessee is not following hybrid system as claimed by the AO as in violation of section 145 of the Act. Before proceeding further we will look at the relevant provisions of Section 145 of the Act which reads as under – Section 145 Method of accounting. 145. (1) Income chargeable under the head \"Profits and gains of business or profession\" or \"Income from other sources\" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144. (emphasis supplied) 10. From the plain reading of the above section it is clear that income chargeable under the head \"Profits & Gains from Business or Profession or ITA No.5494 -Mum-2024 (A.Y. 2011-12) 17 Income from Other Sources\" should be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. In the given case, we notice that the assessee has been offering Income from Other Sources by following cash system of accounting i.e. on receipt basis consistently from inception. Therefore, in our view there is merit in the contention there is no violation of section 145 since for the purpose computing income from Other Sources the assessee is not following hybrid system of accounting but has been consistently following cash system of accounting. In the case law relied on by the Revenue in the case of Delhi International Airport Ltd (supra), the findings of Hon'ble Karnataka High Court which is extracted in the earlier part of this order is with regard to assessee offering income on cash basis and expenditure on the mercantile method which the Court held to be not in accordance with the standard accounting practice and that there should be proper matching between income and expenditure. However the facts in assessee's case are clearly distinguishable for the reason that the assessee while offering income under the head \"Income from Other Sources\" has done so following cash system of accounting and therefore the decision of the Hon'ble High Court is not applicable in assessee's case. 11. The alternate contention of the Id AR is that there is no real loss to the revenue since the interest income reduced in the earlier year is offered in the subsequent year on receipt basis. From the perusal of the below table as submitted by the Id. AR during the course of hearing it is clear that the assessee is adding the interest income which was deducted in the previous AY to the income of the current AY on receipt basis and the amount of interest not received during the year under consideration is reduced (Amount in Rupees) Particulars AY 2011-12 AY 2012-13 AY 2013-14 AY 2014-15 Interest income as per Financial Statement 2,78,54,824 6,60,47,102 6,99,96,295 6,47,56,485 Add: Accrued interest of previous year and received in current year 2,81,42,396 5,51,16,611 3,82,40,749 67,98,483 Sub Total 5,59,97,220 12,11,63,713 10,82,37,044 7,15,54,968 Less : Accrued interest of current year and not received in current year 5,51,16,611 3,82,40,749 67,98,483 Interest income offered to tax in Return of Income 8,80,609 8,29,22,964 10,14,38,561 7,15,54,968 12. The above table also substantiates the fact that the assessee for the purpose of computation of income under head income from Other Sources is following cash system of accounting. It is noticed that for the purpose of maintenance of books of accounts, the asessee is following mercantile system of accounting since the assessee is mandatorily required to do so under the Companies Act. Therefore in our view the contention of the AO is that the assessee is following hybrid system of accounting which is not accordance with section 145 is factually incorrect and not sustainable. Therefore, in our considered view the addition made by the AO on the basis that the assessee is following hybrid system of accounting is not correct and therefore, we hold that the addition made towards interest income be deleted.” ITA No.5494 -Mum-2024 (A.Y. 2011-12) 18 24. Since the issue under consideration has already been decided in assessee’s own case by the co-ordinate bench of the Tribunal in the preceding year, in the absence of any change in facts or law, respectfully following the same findings of the learned CIT(A) on this issue are upheld and Ground No.6 raised in Revenue’s appeal is dismissed. 25. In the result, the appeal by the Revenue is partly allowed. Order pronounced in the open Court on 24/02/2025 Sd/- -AMARJIT SINGH ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 24/02/2025 prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Assistant Registrar ITAT, Mumbai "