SRIMATHI LAXMI CHARITIES, CHENNAI V. ACIT(E), CHENNAI

MA 79/CHNY/2023

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The case involves M/s. Srimathi Laxmi Charities, a charitable trust, which filed a Miscellaneous Application under section 254(2) of the Income Tax Act, seeking recall of a Tribunal order that rejected their claim for a donation deduction. The donation of Rs. 24 Lakhs was made to another registered trust, which was initially disallowed on the grounds that the recipient had different objects. The appellant argued that the Tribunal did not consider several legal propositions and facts during the original hearing, leading to a decision that was claimed to be a mistake of law and fact. The Tribunal agreed that the non-consideration of these aspects violated the principles of natural justice and required rectification.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134403 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-06-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 28-03-2023
• Other Referred Cases: 295 ITR 466, 238 ITR SOS, 305 ITR 227
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 2; 11; 80G; 12A; 254(2); 13

Judgement Text

आयकर अपीलीय अिधकरण “सी” ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा01 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम1। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM M.A. No.79/Chny/2023 [In ITA No.587/Chny/2022] (िनधाCरण वषC / Assessment Year: 2018-19) M/s. Srimathi Laxmi Charities 5 th Main Road, Dr. Subbarayan Nagar, Kodambakkam, Chennai -600 024. बनाम/ Vs . ACIT (Exemptions) Ward-3, Chennai. थायीलेखासं./जीआइआरसं./PAN/GIR No. AAN T S -4 0 0 7 -N (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Appellant by : Shri S. Sridhar (Advocate) – Ld.AR थ कीओरसे/Respondent by : Shri P. Sajit Kumar (JCIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 02-06-2023 घोषणाकीतारीख/Date of Pronouncement : 12-06-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this Miscellaneous Application u/s. 254(2), the assessee seeks recall of Tribunal order passed in ITA No.587/Chny/2022 on 23-02-2023. 2. Drawing our attention to the petition, the Ld. AR submitted that claim of application of Rs.24 Lacs representing donation to another registered trust was rejected on the ground of recipient entity having different objects. The Ld. AR submitted that during the course of hearing as well as by way of written submissions, the assessee put forward four legal propositions. The first legal proposition was that the M.A. No.79/Chny/2023 2 prohibition contemplated in Explanation 2 to section 11(1) of the Act was only for corpus donation to another 12A registered entity. The second legal proposition was that there was no condition either explicit or implied by restricting such donation to another 12A registered entity having similar objects. The third proposition was that objects of receiving 12A registered entity was similar to certain extent to that of objects of the assessee. The last legal proposition was that assessee trust could not have taxable total income once 85% of gross receipts were utilized for the objects of the trust. It was further submitted that donation for religious objects would be permissible, if such donations have not exceeded 5% of total receipts which are as per section 80G of the Act. The Ld. AR submitted that all these aspects have not been considered while adjudicating the appeal which constitute mistake apparent from record u/s 254(2). The Ld. AR pointed out that following mistakes have incurred in the order: - The first mistake pertains to the issue decided in para 5 of the impugned order and the Bench proceeded on the wrong premise of the Petitioner / Appellant pleaded for 15% of the gross receipts as accumulation of income and on the contrary, the law is very clear that the 85% of the gross receipts is necessarily to be spent for the approved objects, inasmuch as if there is shortfall in spending / incurring the gross receipts for the approved objects at 85%, the assessee is statutorily mandated to file application in the prescribed form in Form No. 10 for accumulation including the shortfall by stating the reasons for such accumulation. In the event of shortfall in applying the gross receipts for the approved objects and further in the event of pleading through the statutorily prescribed method of the accumulation of such shortfall, the law envisages the accumulated portion has to be reckoned as deemed application to the extent of prescribed percentage of 85%. In the event of any failure on the part of the tax payer/ eligible entity in not pleading for accumulation of such shortfall, the consequences would automatically follow in taxing such shortfall within the scope of tax exemption computation under Section 11 of the Act. However, on the facts of the case as noticed by the bench at para 4, the Petitioner/ Assessee has spent Rs.440.83 Lacs, which far exceeds 85% of the income / gross receipts of Rs. 483.17 Lacs inasmuch as even excluding the disputed donation of Rs. 24 Lakhs, the compulsory application of 85% stood established undisputedly. M.A. No.79/Chny/2023 3 The 15% of the gross receipts / income as a consequence should be considered as deemed application, having no direct impact in the tax exemption computation under Section 11 of the Act and in this regard, the Petitioner/ Assessee / the eligible entity is empowered to deal with the 15% of the income / gross receipts which is statutorily prescribed as deemed application without the stringent conditions prescribed for the other component, namely 85% of the income / gross receipts as discussed in the preceding paragraphs. In other words, the taxable total income of a charitable trust registered u/s 12A of the Act shall be computed after granting flat deduction / basic exemption to the tune of 15% of the gross receipts. In the present case, the taxable total income after grant of such basic exemption is NIL in view of undisputed factual position of the application of more than 85% of the gross receipts during the assessment year under consideration. In para 5, the bench proceeded that the deemed application component of 15% component of gross receipts as deemed accumulation, which is clear mistake of law permeates into the decision rendered thereafter by the bench. The second mistake committed by the bench in the impugned order is on the non - consideration of the consequence of deemed application of 15% component in the tax exemption computation under Section 11 of the Act and as already pointed out, the component of the shortfall of application of 85% component would alone impact consequently the tax exemption computation under Section 11 of the Act. The important legal issue of the deemed application of 15% component and its treatment in the tax exemption computation under Section 11 of the Act even though argued elaborately by both the sides by placing on record the computation sheets, being not adjudicated upon in the impugned order would constitute mistake apparent from record within the scope of Section 254(2) of the Act, requiring appropriate order from the Bench. The third mistake committed by the bench is on the donation given to another 12A registered entity, not being a corpus donation from the 15% component of the gross receipts / income which is considered to be not eligible as application on two counts. According to the bench, the recipient entity's main object being religious objects, the application of the said donation needs to be disallowed and added back in the tax exemption computation under Section 11 of the Act for imposing tax. In this regard, the Petitioner / Assessee, there is no prescription of law in the provisions in Section 11 to 13 of the Act, mandating for giving donations to another eligible entity having same objects. Moreover, the said donation of Rs. 24 Lakhs was given to the said other entity out of the component of 15% and hence the consequence of such donation as already explained in the preceding paragraphs would not impact the tax exemption computation u/s 11 of the Act. This mistake of law committed by the bench in para 5 is amendable to the present rectification proceedings under Section 254(2) of the Act inasmuch as in the absence of the prohibition in the statute for making donations, not being corpus donations to another entity having mixed objects, the rejection of the Petitioner / Assessee's case without adjudicating the main argument raised by them as legal proposition no. 1 forming part of gist of submissions filed dated M.A. No.79/Chny/2023 4 09.02.2023, fortifies the present rectification proceedings initiated on the ground of mistake of law committed by the bench in their order dated 23.02.2023. Another facet to third mistake pointed out by the Petitioner/ Assessee is on the impact of tax exemption computation envisaged under Section 11 of the Act for the said disputed donation made out of 15% component from the gross receipts / income and according to the Petitioner /Assessee, it has no computation impact as the said component of 15% should be reckoned as deemed application. This said aspect is also not adjudicated by them bench in the order under consideration. The distinction between the similar objects and identical objects, while considering the donation, not being corpus donation to another eligible entity is not noticed and considered by the bench in the impugned order. If the objects of the recipient entity to be reckoned as identical objects, there can be no dispute arising therefrom and however, the expression 'similar objects' used by the JAO presupposes commonality of certain charitable objects between the two entities. In this regard, the Petitioner/ Assessee and the other entity had certain common objects, which is completely missed and not adjudicated, constituting the fourth mistake amendable to the provisions of Section 254(2) of the Act. The fifth mistake committed by the Bench at Para 6 of the impugned order is on their presumption of the deemed application component of 1.5% component of gross receipts/income as deemed accumulation, which is clearly a mistake of law permeates into the decision rendered thereafter by the bench. As a consequence to the said legal mistake in understanding the scheme of Section 11 of the Act, the Bench had concluded that the said amount having already been spent cannot be treated as deemed accumulation for spending in the subsequent assessment years while the plea of the Petitioner / Assessee during the course of hearing was to treat the same as deemed application for this year since the same would fall within the 15% basic exemption limit and hence to be treated as deemed application for the current year. Further, the Bench in treating the plea as deemed accumulation had rendered findings that the accumulation cannot exceed the amount specified in Form No. 10B vis-a-vis the plea of the Petitioner / Assessee that the recomputation of tax exemption computation u/s 11 of the Act by the Assessing Officer would alter the basic exemption limit @ 15% of the gross receipts/income as tabulated in the computation sheets forming part of the paper-book. The component of 15% of the gross receipts / income being deemed application / basic exemption is wrongly understood and mixed up with the component of 85% of the gross receipts and income which component would be necessarily/ statutorily applied for the approved objects while in the event of any shortfall, the question of plea for accumulation would kick-in by filing Form No. 10 so as to get the permission of the Assessing Officer for accumulation for the stated purposes. Moreover, in the present case, the Petitioner / Assessee had established the deployment of such deemed application to the tune of 15% of the gross receipts/income by placing on record the cash flow statement for the assessment year under consideration during the course of hearing. The fundamental aspects of the tax exemption computation u/ s 11 of the Act being completely mis-read, the mistake of law is apparent from the record / order under consideration as well requires appropriates intervention. M.A. No.79/Chny/2023 5 The sixth mistake in the decision rendered by the Bench is on the non consideration of the statutory recognition of any public charitable entity in contra distinction to religious entity for spending 5% of their total income towards religious purposes, the same is considered to be application of gross receipts/income of the public charitable entity as part of their tax exemption computation u/s 11 of the Act. The said statutory prescription is incorporated in Section 80G(SB) of the Act and the statutory prescription having impact in the tax exemption computation u/ s 11 of the Act for a public charitable entity/ the Petitioner herein is not adjudicated upon inasmuch as even in the context of the disputed donation to a religious entity, it has not exceeded 5% of the gross total income. Moreover, the donation under consideration being not in excess of 5% of the total income in contra distinction to the expression of gross receipts, which is prescribed in Section 80G of the Act, the eligible entity namely, the Petitioner / Assessee is entitled and empowered to justify the disputed donation, even if it is reckoned as a donation to religious entity, which fact even though disputed vehemently in the preceding paragraphs. This crucial legal aspect is not adjudicated, which led to the wrong decision rendered, as amendable to provisions of Section 254(2) of the Act as the sixth mistake committed. LEGAL POSITION The Supreme Court declared law on the scope of section 254(2) of the Act in the case reported in 295 ITR 466 and according to the Apex Court, one of the important reasons for giving the power of rectification is to see that no prejudice is cost to either of the parties appearing before it. The Jurisdictional High Court in the case reported in 238 ITR SOS has ruled on the scope of section 254(2) of the Act as follows: "Rectification should be of a mistake in the original order. The mistake can occur on account of omission to notice relevant facts or stating facts wrongly or omitting to take into account the law or applying the law in a manner contrary to the binding decision of the Supreme Court. Section 254(2) advisedly uses the word, 'may'. It confers a discretion on the Tribunal in the matter of rectifying a mistake in its order. Primary consideration should be the justice of the case. If an assessee had failed to challenge an order made by the Tribunal because it was in accordance with the decision of the Supreme Court then holding the field and within a period of four years the Supreme Court modified its view and the modified view became the law of the land, under article 141 of the Constitution, justice would require that when a person who had not preferred appeal and sought not to continue proceedings in the belief that such proceedings would be futile, such a person is not to be penalised by denying him an opportunity to have the order rectified by the Tribunal itself; in case where the Tribunal is satisfied that the law declared by the Supreme Court with regard to the matters dealt with in the order, which the Tribunal had been called upon to examine, had been altered as for or prior to the date of the original order, it would be open to the Tribunal to exercise its jurisdiction under section 254(2). Though the section merely refers to rectification of a mistake, the nature of the mistake and the purpose for which the jurisdiction is invoked which can also be regarded as relevant factors for the purpose of deciding the question as to whether the application is required to be allowed or refused. If the result of allowing the application is to bring about a result which is manifestly unjust or contrary to the M.A. No.79/Chny/2023 6 substantive provisions of the Act, the Tribunal can, in its discretion, decline to allow such an application for rectification of mistake. If, on the other hand, by allowing such an application, the Tribunal brings about the result which would be in accordance with the substantive charging provisions of the Act, such an exercise will have to be regarded as one which is a permissible exercise of power to rectify the mistake under section 254(2)." The Supreme- Court in the case reported in 305 ITR 227 declared law again on the scope of section 254(2) of the Act and in the process it was held as follows: - "A patent, manifest and self-evident error which does not require elaborate discussion of evidence or arguments to establish it, can be said to be an error apparent on the face of the record and can be corrected while exercising certiorari jurisdiction. An error cannot be said to be on the face of the record if one has to travel beyond the record to see whether the judgment is correct or not. An error apparent from the record means an error which strikes one on mere looking and does not need a long-drawn-out process of reasoning on points on which there may be conceivably two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently it should be so manifest and clear that no court would permit it to remain on record ..." PRAYER On the cumulative consideration, the Petitioner / Assessee prays for appropriate directions/ decision/ order within the scope of Section 254(2) of the Act to deal with the following issues raised in the present petition (six mistakes), which are admittedly not dealt with/ mistake of law committed in dealing with the disputed issues while passing the impugned order dated 23.02.2023 and thus render justice: Mistake No. 1: Deemed accumulation vs Deemed application (Being 15% of gross receipts) . Mistake No. 2: Basic Exemption to the tune of 15% of gross receipts and its impact on tax exemption computation u/s 11 Mistake No. 3: No prohibition in the statute for making non-corpus donation to another eligible entity Mistake No. 4: Distinction between similar objects and identical objects Mistake No. 5: Concept accumulation for 15% component is mistakenly imposed even though such component should be considered as deemed application Mistake No. 6: Non consideration statutory provision u/s 80G(5B). 3. The Ld. Sr. DR, on the other hand, submitted that it was vehemently argued during the course of hearing that the objects of the donee trust were altogether different and therefore, the assessment order was perfect in all respect. The Ld. Sr. DR opposed interference in the order, in any manner. 4. Having heard rival submissions and after perusal of contents of petitions, we are convinced with the arguments of Ld. AR that certain aspects of the matter as enumerated in the application have remained to be considered while adjudicating the appeal. All these aspects were also submitted by Ld. AR in the written submissions upon conclusion of hearing. The non-consideration of all the aspects would violate the principle of natural justice and therefore, this would constitute mistake apparent from record. Therefore, in the interest of justice and for proper adjudication of the appeal, we recall order dated 23.02.2023 and restore the appeal to its original status. The registry is directed to fix the appeal for fresh hearing before regular bench in due course after intimating both the sides. 5. The application stands allowed. Order pronounced on 12 th June, 2023. Sd/- (MAHAVIR SINGH) उपा01 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखासद9 /ACCOUNTANT MEMBER चे3ई Chennai; िदनांक Dated : 12.06.2023 DS आदेश की Wितिलिप अ6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3 आयकर आय ु त/CIT 4. वभागीय त न ध/DR 5. गाड फाईल/GF