ITAT - MUMBAI
DY. CIT (E) -I(1), MUMBAI VS HIS HOLINESS DR. SYEDNA TAHER ... ON
1 MARCH, 2019
Summarised
Judgement (Scroll for Complete Judgement)
Introduction:
This
appeal, filed by Revenue, being ITA No. 7131/Mum/2017, is directed against
appellate order dated 13.09.2017 in appeal no. CIT(A)-I/IT/E(1)/(139)/2015-16,
passed by learned Commissioner of Income Tax (Appeals)-1, Mumbai (hereinafter
called "the CIT(A)"), for assessment year 2010-11, the appellate
proceedings had arisen before learned CIT(A) from the assessment order dated
31.03.2010 passed by learned Assessing Officer (hereinafter called "the
AO") u/s 144 r.w.s. of 2014) in which leave
has been granted and the issue is pending for adjudication before the Hon'ble
Supreme Court and the case has not reached finality.
Facts
of the Case:
The brief facts of the
case are that the assessee trust is registered as a Charitable Organisations
with CIT(Exemption),Mumbai u/s. 12A of the 1961 Act and has accordingly claimed
exemption u/s. 11 of the 1961 Act . The short question which has arisen in this
appeal before us is that the assessee's expenditure has exceeded its income by
Rs. 14,30,11,390/- for impugned assessment year and we have to adjudicate
whether said deficit being excess of expenditure over income for impugned
assessment can be allowed to be carry forward to the subsequent years to be set
off against the income/surplus of subsequent years.
The assessee initially
additionally claimed deduction/accumulation of 15% of the income u/s. 11(1)(a)
of the 1961 Act to the tune of Rs. 1,26,43,953/- despite already having deficit
of excess of expenditure over income, the AO disallowed not only the
accumulation/deduction of 15% of the income u/s. 11(1)(a) of the 1961 Act to
the tune of Rs. 1,26,43,953/- but also disallowed the deficit of
Rs.15,56,55,343/- computed after taking into account excess of expenditure over
income as also accumulation of 15% of income u/s 11(1)(a) of the 1961 Act,
which was claimed to be carried forward by the assessee to the subsequent years
to be adjusted against income/surplus of the subsequent years , vide assessment
order dated 30.10.2015 passed by the AO u/s. 144 r.w.s. 147 of the 1961 Act.
Judgement:
Thus keeping in view
our detailed discussion as above and the consistent view taken by Hon'ble
Courts and co-ordinate Benches of the tribunal in favour of the tax-payer on
this issue of carry forward of excess of expenditure incurred towards the
object of the trust over income of the tax-payer trust from property held for
charitable purposes to the subsequent years to be set off against
income/surplus of the subsequent years, we dismiss the appeal of the Revenue by
adjudicating this issue in favour of the assessee.
Thus, we have no
hesitation in holding that the assessee would be entitled to carry forward
excess of expenditure incurred towards objects of the trust over income
from I.T.A. No.7131/Mum/2017 property held for charitable purposes being
deficit to the tune of Rs. 14,30,11,390/- for the impugned year to be carried
forward to subsequent years to be set off against income of the subsequent
years.
The Revenue fails in
its appeal. We order accordingly.
In the result, appeal
of the Revenue in ITA no. 7131/Mum/2017 for AY 2010-11 stand dismissed.
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Complete Judgement
INCOME TAX APPELLATE TRIBUNAL - MUMBAI
DY. CIT (E) -I(1), MUMBAI VS HIS HOLINESS DR. SYEDNA TAHER ... ON
1 MARCH, 2019
IN
THE INCOME TAX APPELLATE TRIBUNAL "H"
BENCH, MUMBAI
BEFORE
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
AND
SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
I.T.A.
No.7131/Mum/2017
Assessment Year : 2010 -11)
DCIT(E)-1(1) His Holiness Dr. Sydena
Room
No. 506, 5 t h Floor, Taher Saifuddin
Piramal
Chamber, vs. Memorial F oundation,
65,
Bora Bazar Gate
Street,
Fort,
Mumbai-400001
PAN: AAATH0335D
Appellant Respondent
Revenue
by: B. Shriniwas (CIT-DR)
Assessee
by: Jayesh R.
Chugh
Date of Hearing : 27.02.2019
Date of Pronouncement :
01.03.2019
O R D E R
PER
RAMIT KOCHAR, Accountant Member:
This appeal, filed by
Revenue, being ITA No. 7131/Mum/2017, is directed against appellate order dated
13.09.2017 in appeal no. CIT(A)-I/IT/E(1)/(139)/2015-16, passed by learned
Commissioner of Income Tax (Appeals)-1, Mumbai (hereinafter called "the
CIT(A)"), for assessment year 2010-11, the appellate proceedings had
arisen before learned CIT(A) from the assessment order dated 31.03.2010 passed
by learned Assessing Officer (hereinafter called "the AO") u/s 144
r.w.s.
2. The grounds of appeal
raised by Revenue in memo of appeal filed with the Income-Tax Appellate
Tribunal, Mumbai (hereinafter called "the tribunal") read as under:-
―1. Whether, on the
facts of the case and in law, the Ld. CIT(A) erred in allowing the carry
forward of deficit of Rs. 14,30,11,390/-, and directing the Assessing Officer
to allow carry forward of deficit on account of excess expenditure without
appreciating the fact that this would have the effect of granting double
benefit to the assessee, first as 'accumulation' of income u/s.11(1)(a) or as
corpus donation u/s 11(1)(d) in earlier years/current year and then as
'application' of income u/s 11(1)(a) in the subsequent years which was legally
not permissible.?
1.2 Whether, on the
facts of the case and in the circumstances of the case and in law, the Ld.
CIT(A) erred in allowing the claim of the assessee for carry forward of the
said deficit by relying upon the judgment of Hon'ble Bombay High Court in the
case of Institute of Banking Personnel Selection, ignoring the fact that the
Department has not accepted the said decision of the jurisdictional High Court
on merit of the case, but due to smallness of tax effect appeal was not filed
before Hon'ble Supreme Court, However, on this issue the department has filed
SLPs in other cases before the Apex Court inclusive the case of MIDC ( SLP
(Civil) 9891 of 2014) in which leave has been granted and the issue is pending
for adjudication before the Hon'ble Supreme Court and the case has not reached
finality.
1.3 Whether, on the
facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in
allowing the claim of the assessee for carry forward of the said deficit,
ignoring the fact that there was no express provision in the I T Act, 1961
permitting allowance of such claim.
2 The appellant prays
that the order of the Commissioner of Income Tax (Appeals)-I, Mumbai be set
aside and that of the Assessing Officer be restored.
3 The Appellant craves
leave to amend or alter any ground or add a new ground which may be necessary.
3. The brief facts of
the case are that the assessee trust is registered as a Charitable
Organisations with Commissioner of Income-tax(Exemption),Mumbai u/s. 12A of the
1961 Act and has accordingly claimed exemption u/s. 11 of the 1961 Act . The
short question which has arisen in this appeal before us is that the assessee's
expenditure has exceeded its income by Rs. 14,30,11,390/- for impugned
assessment year and we have to adjudicate whether said deficit being excess of
expenditure over income for impugned assessment can be allowed to be carry
forward to the subsequent years to be set off against the income/surplus of
subsequent years. The assessee initially additionally claimed
deduction/accumulation of 15% of the income u/s. 11(1)(a) of the 1961 Act to
the tune of Rs. 1,26,43,953/- despite already having deficit of excess of
expenditure over income, the AO disallowed not only the accumulation/deduction
of 15% of the income u/s. 11(1)(a) of the 1961 Act to the tune of Rs. 1,26,43,953/-
but also disallowed the deficit of Rs.15,56,55,343/- computed after taking into
account excess of expenditure over income as also accumulation of 15% of income
u/s 11(1)(a) of the 1961 Act, which was claimed to be carried forward by the
assessee to the subsequent years to be adjusted against income/surplus of the
subsequent years , vide assessment order dated 30.10.2015 passed by the AO u/s.
144 r.w.s. 147 of the 1961 Act.
4. Aggrieved by the
assessment framed by the AO vide assessment order dated 30.10.2015 passed by
the AO u/s. 144 r.w.s. 147 of the 1961 Act , the assessee filed first appeal
before learned CIT(A) , wherein the assessee conceded before Ld. CIT(A) that
assessee is not entitled to deduction/accumulation of 15% of the income u/s. 11(1)(a)
of the Act to the tune of Rs. 1,26,43,953/- owing to the fact that assessee's
expenditure has already exceeded its income by Rs. 14,30,11,390/- and this
claim was foregone by the assessee itself before learned CIT(A). Thus, this
claim of the assessee as to accumulation/ deduction of 15% of income u/s
11(1)(a) of the 1961 I.T.A. No.7131/Mum/2017 Act despite having deficit was
rejected by learned CIT(A) as the assessee itself conceded by withdrawing this
claim on the grounds that its expenditure had already exceeded its income by
Rs. 14,30,11,390/-. Thus, learned CIT(A) was then required to adjudicate only
one grievances of the assessee which is concerning carry forward of deficit
being excess of expenditure over income of Rs. 14,30,11,390/- of the impugned
assessment year to be carried forward to subsequent years to be set off against
income/surplus of subsequent years which stood allowed by Ld. CIT(A) , vide
appellate order dated 13.09.2017 , by holding as under:-
― 5.1 I have considered
the facts the case and the submissions made by the assesses. I find that this
issue is covered in favour of the assessee by the decision of the Hon'ble
jurisdictional Bombay High Court in the case of CIT vs. Institute of Banking
and Personnel Selection (supra). In the said judgement the question before the
Hon'ble Court was "3. Whether, on the facts and in the circumstances of
the case, the Tribunal was justified in law the forward the deficit of earlier
year and set it off against the surplus of subsequent years when the same was
not allowable in the case of assessee trust in whose case income exempted under
section 11 of the Income Tax Act, 1961 ?".... "
5.1.1 In Para 5 of
their judgement, the Hon. Jurisdictional Bombay High Court held as follows -
"5. Now coming to
question No. 3, the point which arises for consideration is : whether excess of
expenditure in the earlier years can be adjusted against the income of the
subsequent year and whether such adjustment should be treated as application of
income in subsequent year for charitable purposes? It was argued on behalf of
the department that expenditure incurred in the earlier years cannot be met out
of the income of the subsequent year and that utilization of such income for
meeting the expenditure of earlier years would not amount to application of
income for charitable or religious purposes. In the present case, the assessing
officer did not allow carry forward of the excess of expenditure to be set off
against the surplus of the subsequent years on the ground that in the I.T.A.
No.7131/Mum/2017 case of a Charitable Trust, their income was assessable under
self-contained code mentioned in section 11 to section 13 of the Income Tax Act
and that the income of the Charitable Trust was not assessable under the head "profits
and gains of business" under section 28 in which the provision for carry
forward of losses was relevant. That, in the case of a Charitable Trust, there
was no provision for carry forward of the excess of expenditure of earlier
years to be adjusted against income of subsequent years.
We do not find any
merit in this argument of the department. Income derived from the trust
property has also got to be computed on commercial principles and if commercial
principles are applied then adjustment of expenses incurred by the Trust for
charitable and religious purposes in the earlier years against the income
earned by the Trust in the subsequent year will have to be regarded as
application of income of the Trust for charitable and religious purposes in the
subsequent year in which adjustment has been made having regard to the
benevolent provisions contained in section 11 of the Act and that such
adjustment will have to be excluded from the Income of the Trust under section
11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat
High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal
(1995) 211 ITR 293 (Guj). Accordingly, we answer Question No, 3 in the
affirmative i.e., in favour of the assesses and against the department."
5.1.2 In the Director
of Income-tax (Exemption) vs. M/s, Gem & Jewellery Exports Promotion
Council, Income Tax Appeal (LOD) No. 1113 of 2010 dated 15th February 2011, one
of the two questions raised by the Department before the Hon. Bombay High Court
was "Whether on the facts and circumstances of the case and in law the
Tribunal was right in directing the A.O. to set off the deficit of earlier
years to the surplus of this year and consider such adjustment as application
of income for charitable purpose". The Hon. High Court held as follows:-
"4. As regards
second question is concerned, counsel on both sides agree that the said
question is covered against the revenue by the decision of this Court in the
case of Commissioner of Income Tax vs. Institute of I.T.A. No.7131/Mum/2017
Banking reported in [2003] 264 I.T.R 110. In this view of the matter, we see no
merit in the appeal and the same is dismissed with no order as to costs. "
5.1.3 Similarly, in a
recent decision of the Hon. ITAT, Mumbai .Bench "J", Mumbai in ITA
No. 5143/Mum/2016 for the A.Y. 2011-12 dated 12.5.2017 in the case of
ITO(Exemption)-1(1) Mumbai vs Bombay Natural History Society, the grounds of
appeal filed by the revenue read as under:
"i. Whether on the
facts on the case and in law the Ld. CIT(A) erred in allowing the carry forward
of deficit of Rs. 52,98,149/- and allowing set off against the income of the
subsequent years.
ii. Whether on the
facts and in the circumstances of the case and in law, the ld. CIT(A) erred in
allowing the claim of the assesses for carry forward of the said deficit,
ignoring the fact that there was no express provision in the I.T. Act, 1961
permitting allowance of such claim.
iii. Whether on the
facts and in the circumstances of the cases and in law,the ld. CIT(A) erred in
allowing the claim of the assessee for carry forward of the said deficit by
relying upon the judgement of Hon'ble High Court in the case of Institute of
Banking Personnel Selection, ignoring the fact that the Department has not
accepted the said decision of the jurisdictions/ High Court on merit of the
case. "
5.1.4 The Hon. ITAT,
held that the ld. CIT(A) has rightly followed the judgement of the Hon'ble
Bombay High Court in the case of Institute of Banking Personnel and directed
the A.O. to allow the carry forward and set off of deficit after due
verification of facts. The Hon. ITAT upheld the order of learned CIT(A).
5.1.5 I find that this
issue is also covered in favour of the assessee by the decision of the
Honourable ITAT in assessee's own case for the assessment year 2008-09 in ITA
no. 3775/M/2015 dated 30.09.2015. The CIT(A) is bound to follow the order of
the Hon. jurisdictional High Court and Hon. ITAT. Respectfully following the
decisions of the Hon. Bombay High Court and the Honourable ITAT, I hold that
the claim for carry forward of deficit of the current year is required to be
allowed. However, such I.T.A. No.7131/Mum/2017 claim is restricted to only
Rs.14,30,11,390/-. The Ground of appeal filed by the assessee is partly
allowed.
6**** 6.1 In his
written submission, the learned AR has further stated that if the appellant
trust succeeds on alternate grounds of appeal, the ground relating to reopening
of assessment may become inconsequential. Since, the assessee has not pressed
the ground relating to the statutory deduction of 15% u/s 11(1)(a) of the IT.
Act, 1961 and has succeeded in respect of the ground relating to the carry
forward of the deficit of the current year to subsequent years, the ground
relating to the reopening of the assessment has become inconsequential. The
same is, therefore, treated as dismissed.
5. The Revenue is now
aggrieved by the relief granted by Ld. CIT(A) to the assessee and has now come
in appeal before the tribunal. The Ld. CIT-DR fairly relied upon assessment
order passed by the AO and grounds of appeal raised by Revenue before the
tribunal , while on the other hand Ld. AR vehemently argued that the deficit of
Rs. 14,30,11,390/- being excess of expenditure over income be allowed to be
carried forward to the subsequent assessment years to be set off against
income/surplus of the subsequent assessment years u/s. 11(1)(a) of the Act,
keeping in view decision of Hon'ble Bombay High Court in the case of Indian
Institute of Banking Personnel Selection (2003) 131 Taxman 386(Bom.) . The
other case laws as relied upon by the assessee to support its contentions are
as under :
a) Mumbai ITAT
order(SMC) dated 30.09.2015 in ACIT v. His Holiness Dr. Syedna Taher Saifuddin
Memorial Foundation in ITA no. 3775/Mum/2015(SMC-Mumbai-tribunal)- i.e.
assessee's own case for AY 2008-09
b) Hon'ble Supreme
Court judgment in CIT v. Rajasthan and Gujarati Charitable Foundation Poona in
Civil Appeal No. 7186 of 2014, vide judgment dated 13.12.2017.
c) Hon'ble Bombay High
Court judgment in the case of CIT(E), Mumbai v. Dawat E.Hadiyah in ITA No. 741
of 2016 along with ITA No. 755 of 2016, vide judgment dated 03.12.2018 I.T.A.
No.7131/Mum/2017 However, so far as claim of accumulation/deduction of 15% of
the income u/s. 11(1)(a) of the Act to the tune of Rs. 1,26,43,953/- is
concerned, it was fairly admitted/conceded by the learned counsel for the
assessee that this claim is already conceded by the assessee before the Ld.
CIT(A) as not allowable to the assessee in view of already having deficit i.e.
excess of expenditure over income which issue is decided against the tax-payer
vide several decisions of the tribunal and it is also submitted that consequently
the assessee has not filed any appeal against the said disallowance towards
accumulation/deduction of 15% of income u/s 11(1)(a) of the 1961 Act, keeping
in view the several decisions against the assessee.
6. We have considered
rival contentions and perused the material on record including cited case laws.
We have observed that the assessee trust is registered as a Charitable
Organisation with Commissioner of Income Tax (Exemption), Mumbai u/s 12A of the
1961 Act and accordingly claimed exemption u/s 11 of the 1961 Act. The assessee
has incurred expenditure in excess of income during the impugned assessment
year and the assessee sought to carry forward such deficit to the subsequent
years to be set off against income of subsequent years. The AO has disallowed
the carry forward of such deficit to the subsequent years to be set off against
income of the subsequent years. The assessee also claimed while filing return
of income , an accumulation /deduction of 15% of its income u/s 11(1)(a)
despite the fact of having excess of expenditure over income in the impugned
assessment year, which claim was also rejected by the AO . The assessee however
itself withdrew this claim of accumulation/deduction of 15% of income u/s
11(1)(a) despite having deficit before learned CIT(A) keeping in view several
judicial decisions I.T.A. No.7131/Mum/2017 against the tax-payers on this
issue. The learned CIT(A) was however pleased to allow carry forward of excess
of expenditure over income being deficit of Rs. 14,30,11,390/- for the impugned
assessment year to be carried forward to subsequent years to be set off against
income of subsequent years. We have observed that the short question which has
arisen in this appeal filed by the Revenue before the tribunal is whether the
assessee is entitled for carried forward of excess of expenditure over income
being deficit of Rs. 14,30,11,319/-to the subsequent years to be set off
against income/surplus of subsequent years. In our considered view , the said
deficit of Rs. 14,30,11,319/- being excess of expenditure over income for the
impugned assessment year has to be allowed to the assessee to be carried
forward to subsequent years to be set off against income/surplus of the
subsequent years, keeping in view of decision of the Hon'ble Bombay High Court
in the case of CIT v. Institute of Banking Personnel Selection (2003) 131
Taxman 386(Bom.) , wherein Hon'ble Bombay High Court held in favour of the
tax-payer by holding as under :
―5. Now coming to
question No. 3, the point which arises for consideration is : whether excess of
expenditure in the earlier years can be adjusted against the income of the
subsequent year and whether such adjustment should be treated as application of
income in subsequent year for charitable purposes? It was argued on behalf of
the Department that expenditure incurred in the earlier years cannot be met out
of the income of the subsequent year and that utilization of such income for
meeting the expenditure of earlier years would not amount to application of
income for charitable or religious purposes. In the present case, the Assessing
Officer did not allow carry forward of the excess of expenditure to be set off
against the surplus of the subsequent years on the ground that in the case of a
Charitable Trust, their income was assessable under self-contained code
mentioned in section 11 to section 13 of the Income-tax Act and that the income
of the Charitable Trust was not assessable under the head "profits and
gains of business" under section 28 in which the provision for carry
forward of losses was relevant. That, in the case of a Charitable Trust, there
was no provision for carry forward of the excess of expenditure of earlier
years to be adjusted against income of subsequent I.T.A. No.7131/Mum/2017
years. We do not find any merit in this argument of the Department. Income
derived from the trust property has also got to be computed on commercial
principles and if commercial principles are applied then adjustment of expenses
incurred by the Trust for charitable and religious purposes in the earlier
years against the income earned by the Trust in the subsequent year will have
to be regarded as application of income of the Trust for charitable and
religious purposes in the subsequent year in which adjustment has been made
having regard to the benevolent provisions contained in section 11 of the Act
and that such adjustment will have to be excluded from the income of the Trust
under section 11 (1){a) of the Act.
Our view is also
supported by the Judgment of the Gujarat High Court in the case of CIT v. Shri
Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 293 . Accordingly, we
answer question No. 3 in the affirmative i.e., in favour of the assessee and
against the Department.‖ 6.2 We have also observed that Mumbai-tribunal in the
case of The Executive Board of the Methodist Church in India in ITA no.
6544/Mum/2017 vide order dated 13.02.2019 ( wherein Accountant Member was part
of the Division Bench pronouncing the order) has elaborately discussed this
issue and held in favour of the assessee so far as carry forward of excess of
expenditure over income i.e. deficit to be carried forward to subsequent years
and to be set off against income/surplus of subsequent years, by holding as
under:-
― 10. We have
considered rival contentions and perused the material on record including cited
case laws and orders of the authorities below. The brief facts of the case are
that the assessee is trust registered as a Charitable Organization with DIT(E),
Mumbai u/s. 12A vide Registration no. 2362 and is also registered with Charity
Commissioner, Mumbai vide Registration No. F-405(Bom).
The
assessee-trust claims to be engaged in charitable activities in the field of
advancement of the Methodist Church in India by means of Evangelistic, Educational
Literary, Medical, Industrial, Charitable, Social and other activities. The
trust claim to be engaged in charitable activities in the field of advancement
of the Methodist Church in India by means of Evangelistic, Educational
Literacy, Medical, Industrial, Charitable, Social and other activities. We have
observed that the assessee has an income of Rs. 18,77,28,122/- and the
expenditure incurred by the assessee on the objects and I.T.A. No.7131/Mum/2017
application of income was to the tune of Rs. 24,01,21,742/- and thus
the excess of expenditure over income being deficit/loss works out of Rs.
5,23,93,620/- .
The assessee has however also claimed Rs. 2,81,59,218/- being
15% of income towards accumulation of income within provisions of Section
11(1)(a) of the 1961 Act to be carried forward for setting off against
income/surplus of subsequent years, despite the fact that its expenditure on
the objects of the trust was already higher than income for the impugned
assessment year and there was deficit/losses left in the hands of the assessee
with no surplus left for accumulation . The AO has rejected its entire claim
for carry forward to the tune of Rs. 8,05,52,838/- , both u/s 11(1)(a) towards
accumulation of income being 15% of total income to the tune of Rs.
2,81,59,218/- and also carry forward of excess of expenditure over income to
the tune of Rs. 5,23,93,620/- as was claimed by the assessee. The learned
CIT(A) however allowed the claim of carry forward of Rs. 5,23,93,620/- towards
excess of expenditure over income to be carried forward to subsequent years to
be set off against surplus/income of subsequent years , keeping in view
decision of Hon'ble Bombay High Court in the case of Institute of Banking
Personnel Selection(IBPS) (supra). Revenue is aggrieved by the decision of
learned CIT(A) in allowing this part relief to the assessee. We have considered
the entire factual matrix of the case and we are of the considered view, that
excess of expenditure over income of the assessee for the impugned assessment
year to the tune of Rs. 5,23,93,620/- is to be allowed to be carried forward to
subsequent years to be set off against surplus of subsequent years, keeping in
view decision of Hon'ble Bombay High Court in the case of Institute of Banking
Personnel Selection(IBPS)(supra) , wherein in the issue was decided in favour
of tax-payer , by holding as under:
― 5. Now coming to
question No. 3, the point which arises for consideration is : whether excess of
expenditure in the earlier years can be adjusted against the income of the
subsequent year and whether such adjustment should be treated as application of
income in subsequent year for charitable purposes? It was argued on behalf of
the Department that expenditure incurred in the earlier years cannot be met out
of the income of the subsequent year and that utilization of such income for
meeting the expenditure of earlier years would not amount to application of
income for charitable or religious purposes. In the present case, the Assessing
Officer did not allow I.T.A. No.7131/Mum/2017 carry forward of the excess of
expenditure to be set off against the surplus of the subsequent years on the
ground that in the case of a Charitable Trust, their income was assessable
under self-contained code mentioned in section 11 to section 13 of the
Income-tax Act and that the income of the Charitable Trust was not assessable
under the head "profits and gains of business" under section 28 in
which the provision for carry forward of losses was relevant. That, in the case
of a Charitable Trust, there was no provision for carry forward of the excess
of expenditure of earlier years to be adjusted against income of subsequent
years. We do not find any merit in this argument of the Department Income
derived from the trust property has also got to be computed on commercial
principles and if commercial principles are applied then adjustment of expenses
incurred by the Trust for charitable and religious purposes in the earlier
years against the income earned by the Trust in the subsequent year will have
to be regarded as application of income of the Trust for charitable and
religious purposes in the subsequent year in which adjustment has been made
having regard to the benevolent provisions contained in section 11 of the Act
and that such adjustment will have to be excluded from the income of the Trust
under section 11 (1){a) of the Act. Our view is also supported by the Judgment
of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak
Jain Mandal [1995] 211 ITR 293 . Accordingly, we answer question No. 3 in the
affirmative i.e., in favour of the assessee and against the Department.‖ It is
also observed that in a decision passed recently by ITAT-Mumbai wherein one of
us ( Accountant Member) was part of the Division Bench has allowed the
tax-payer carry forward of the excess of expenditure over income being
deficit/loss to subsequent years to be adjusted against surplus/income of
subsequent years in the case of ITO v.
Kaivalya Education
Foundation in ITA No. 5575/Mum/2017 vide orders dated 08 February 2019, th by
holding as under:
―6. We have considered
rival contentions and perused the material on record including cited case laws.
We have observed that the assessee is a Charitable Trust which is registered
with the Director of Income Tax (Exemption), Mumbai u/s. 12A and u/s. 80G of
the Act. The assessee had claimed an amount of Rs. 2,33,03,449/- as excess
expenditure over income being deficit to be carried forward for setting it off
in subsequent years. The AO has denied the said carry forward of the excess of
expenditure of income which has been later allowed by the Ld. CIT(A) based upon
the decision of Hon'ble Bombay High Court in the case of I.T.A.
No.7131/Mum/2017 CIT v. Institute of Banking Personnel Selection(IBPS)(supra),
wherein following substantial question of law was admitted by Hon'ble High
Court, as under:-
― 3. Whether, on the
facts and in the circumstances of the case, the tribunal was justified in law
forward the deficit of earlier year and set it off against the surplus of
subsequent years when the same was not allowable in the case of assessee trust
in whose case income exempted under section 11 of the Income Tax Act, 1961.‖
The Hon'ble Bombay High Court decided the aforesaid substantial question of law
in favour of the assessee in Institute of Banking Personnel Selection (IBPS)
(supra) , by holding as under:-
― 5. Now coming to
question No. 3, the point which arises for consideration is : whether excess of
expenditure in the earlier years can be adjusted against the income of the
subsequent year and whether such adjustment should be treated as application of
income in subsequent year for charitable purposes? It was argued on behalf of
the Department that expenditure incurred in the earlier years cannot be met out
of the income of the subsequent year and that utilization of such income for
meeting the expenditure of earlier years would not amount to application of
income for charitable or religious purposes. In the present case, the Assessing
Officer did not allow carry forward of the excess of expenditure to be set off
against the surplus of the subsequent years on the ground that in the case of a
Charitable Trust, their income was assessable under self-contained code
mentioned in section 11 to section 13 of the Income-tax Act and that the income
of the Charitable Trust was not assessable under the head "profits and
gains of business" under section 28 in which the provision for carry
forward of losses was relevant. That, in the case of a Charitable Trust, there was
no provision for carry forward of the excess of expenditure of earlier years to
be adjusted against income of subsequent years. We do not find any merit in
this argument of the Department Income derived from the trust property has also
got to be computed on commercial principles and if commercial principles are
applied then adjustment of expenses incurred by the Trust for charitable and
religious purposes in the earlier years against the income earned by the I.T.A.
No.7131/Mum/2017 Trust in the subsequent year will have to be regarded as
application of income of the Trust for charitable and religious purposes in the
subsequent year in which adjustment has been made having regard to the
benevolent provisions contained in section 11 of the Act and that such
adjustment will have to be excluded from the income of the Trust under section
11 (1){a) of the Act. Our view is also supported by the Judgment of the Gujarat
High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal
[1995] 211 ITR 293 .
Accordingly, we answer
question No. 3 in the affirmative i.e., in favour of the assessee and against
the Department.‖ Further , we have also observed that Hon'ble Bombay High Court
in ITA no.1087 of 2014 vide judgment dated 16.12.2016 in DIT (Exemptions) v.
M/s. Aditya Vikram Memorial Trust has decided the issue by relying on the
decision of Hon'ble Bombay High Court in the case of CIT v. Institute of
Banking Personnel Selection(IBPS) (2003) 264 ITR 110(SC) that no substantial
question of law arises as the issue is settled by decision of Hon'ble Bombay
High Court in 264 ITR 110, by holding as under:
―This Appeal under
Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated
27th November, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal).
The impugned order dated 27th November,2013 relates to the Assessment Year
2009-10.
2. The Revenue urges
the following questions of law for our consideration:
―(a) Whether on the
facts and in the circumstance of the case and in law, the Tribunal was right in
allowing the claim of the assessee for carry forward of the deficit, amounting
to Rs.3,71,99,050/- ignoring the fact that there was no express provision in
the Income Tax Act, 1961 for permitting allowance of such claims?
(b) Whether on the
facts and in the circumstances of the case and in law, the Tribunal was
justified in upholding the decision of the CIT(A) which allowed carry forward
of deficit on account of excess expenditure and directed the assessing officer
to allow carry forward of deficit on account of excess I.T.A. No.7131/Mum/2017
expenditure without appreciating the fact that this would have the effect of
granting double benefit to the assessee, first as 'accumulation' of income u/s.
11 1(a) or as corpus donation u/s. 11(1)(d) in earlier years/current year and
then as 'application' of income u/s. 11(1)(a) in the subsequent years which
were legally not permissible?.
3 Mrs. Bharucha,
learned Counsel appearing for the Revenue very fairly states that the issues
arising herein stands concluded against the Revenue and in favour of the
Respondent-Assessee by the decision of this Court in CIT v/s. Institute of
Banking 264 ITR 110.
4 In view of the above,
the questions as proposed do not give rise to any substantial questions of law.
Thus, not entertained.
5 Accordingly, Appeal
dismissed. No order as to costs.‖ Further , we have also observed that Hon'ble
Bombay High Court in the case of DIT (Exemptions) v. Aditya Birla Foundation in
ITA no. 1497 of 2014 vide judgment dated 06.03.2017 has again decided the issue
concerning carried forward of deficit in favour of the assessee. The
substantial question of law before the Hon'ble Bombay High Court was, as under:
―(ii) Whether on the
facts and in the circumstances of the case and in law, the Tribunal was right
in allowing the claim of the assessee for carry forward of the said deficit,
ignoring the fact that there was no express provision in the Act permitting
allowance of such claim?‖ The Hon'ble Bombay High Court decided the issue by
holding as under:-
―4. Regarding question
no.(ii):
(a) Mr. Kotangale, the
learned counsel for the Revenue very fairly states that the issue arise herein
stands concluded by the decision of this Court in CIT v/s. Institute of Banking
264 ITR 110 and the order of this Court in Director of Income Tax (Exemption)
v/s. M/s. Gem & Jewellery Exports Promotion Council (Income Tax Appeal
No.610 of 2011) decided on 15th February, 2011.
(b) In view of the
above submission, question no.(ii) as proposed also does not give rise to any
substantial question of law. Thus not entertained.‖ Further , we have also
observed that Hon'ble Bombay High Court in the case of DIT (Exemption) v.
Mumbai Education Trust in ITA no. 11 of 2014 vide judgment dated 03.05.2016
wherein Revenue raised following substantial question of law, as under:-
― (b) Whether on the
facts and in the circumstance of the case and in law, the Tribunal was
justified in confirming the order of the CIT(A) to allow to carry forward of deficit
of earlier years relying on the decision of this Court in the case of CIT v/s.
Institute of Banking Personnel Services reported in 264 ITR 110 (Bom)while the
revenue did not file SLP against the case of CIT v/s. Institute of Banking
Personnel Services reported in 264 ITR 110 (Bom)due to low tax effect?
The Hon'ble Bombay High
Court decided the issue in favour of the assessee , by holding as under:-
― 3. We find that the
impugned order of the Tribunal has dismissed the Revenue's appeal on both the issues
namely - allowability of depreciation on capital assets acquired for the
purposes of carrying out charitable activities and set off of deficit of
earlier years against income of the current year. The impugned order in fact
followed decision of this Court in CIT v/s. Institute of Banking Personnel
Services reported in 264 ITR 110 while holding in favour of the
Respondent-Assessee.
4. Mr. Malhotra,
learned Counsel appearing for the Revenue very fairly states that the issue as
raised by the Revenue stands concluded against Revenue by decision of this
Court in Institute of Banking Personnel Services (supra).
5. In view of the
above, the questions as framed do not give rise to any substantial question of
law.‖ The Mumbai-tribunal in ITO(Exemptions) vs. Vaibhav Medical &
Education Foundation in ITA no. 6998/Mum/2016 for AY 2008-09, vide order dated
31.08.2017 has also decided this issue in favour of the assessee , by holding
as under:-
― 6. We find that the
Hon'ble Bombay High Court subsequent to the decision in the case of Institute
of Banking Personnel Selection (supra) considered a similar I.T.A.
No.7131/Mum/2017 argument of the Revenue in the case of M/s. Mumbai Education
Trust, ITA No. 11/2014 dated 3.5.2016 and allowed the claim of the assessee. In
fact, the Grounds of appeal urged by the Revenue before the Hon'ble High Court,
which read as under :-
―(a) Whether on the
facts and in the circumstance of the case and in law, the Tribunal was
justified in confirming the order of the CIT(A) to allow the claim of
depreciation relying on the decision of this Court in the case of CIT v/s.
Institute of Banking Personnel Services reported in 264 ITR 110 (Bom) ignoring
the ratio of Hon'ble Supreme Court judgment in the case of Escorts Ltd. V/s.
Union of India (199 ITR 43) wherein Hon'ble Supreme Court has held that double
deduction cannot be presumed if the same is not specifically provided by law,
in addition to normal deduction?
(b) Whether on the
facts and in the circumstance of the case and in law, the Tribunal was
justified in confirming the order of the CIT(A) to allow to carry forward of
deficit of earlier years relying on the decision of this Court in the case of
CIT v/s. Institute of Banking
Personnel Services reported in 264 ITR 110 (Bom) while the revenue did not file
SLP against the case of CIT v/s. Institute of Banking Personnel Services
reported in 264 ITR110 (Bom) due to low tax effect?‖ stand on the same footing
as are being canvassed before us in the instant case. Thus, there is no error
on the part of the CIT(A) in following the decision of the Hon'ble Bombay High
Court in the case of Institute of Banking Personnel Selection (supra) as well
as the decision of the Tribunal dated 10.09.2013 (supra) in assessee's own case
and allowing the stand of the assessee. The other argument taken by the Revenue
that its SLP filed before the Hon'ble Supreme Court is pending on a similar
issue is of no consequence inasmuch as the binding judgments of the Hon'ble
Bombay High Court in the case of Institute of Banking Personnel Selection
(supra) as well as in the case of M/s. Mumbai Education Trust (supra) continue
to subsist. Apart from the aforesaid, the Ld. Representative for the assessee
also pointed out that the Hon'ble Bombay High Court has approved the stand of
the assessee in the case of DIT (Exemption) vs. M/s. Gem & Jewellery
Exports Promotion Council (ITA (LOD) No. 1133 of 2010) dated I.T.A.
No.7131/Mum/2017 15.02.2011 also, and the SLP of the Department has also been
dismissed by the Hon'ble Supreme Court in CC 13512/2011 dated 09.09.2011.
Therefore, in this background, we find no merit in the Ground raised by the
Revenue and the same is accordingly dismissed.
7. In the result,
appeal of the Revenue is dismissed. Further we have also observed that Mumbai
Tribunal in DDIT v. Maharashtra Samaj Ghatkoper in ITA no. 3654/Mum2013 , vide
order dated 22.06.2016 to which one of us being Judicial Member was part of the
Division Bench who adjudicated the appeal in ITA no. 3654/Mum/2012 , has again
decided the issue of carried forward of losses in favour of the tax-payer , by
holding as under:-
― 3. We have heard
Departmental Representative (DR) for Revenue and Authorised Representative (AR)
for assessee and perused the material available on record. Ld. DR argued that
Ld DIT wrongly given the relief to the assessee and prayed that order of the AO
may be restored. Ld AR for assessee argued that this case is squarely covered
by the decision of Bombay High Court in CIT vs. Institute of Banking Personnel
Selection (IBPS)(supra). We have seen that Ld. CIT(A) while allowing the appeal
of the assessee made the followed observations:
―I have carefully
considered the submissions of the appellant, assessment order and facts of the
case. I find that the appellant's claim of setting off the excess of income
over expenditure against the deficit of earlier year is correct in view of the
decision of Hon'ble Rajasthan High Court in the case of CIT v/s Maharashtra of
Mewar Charitable Foundation (1987) 60 CTR (Raj) 40 : (1987) 164 ITR 439 (Raj)
which was followed in CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal 211
ITR 293 (Guj.). Therefore, this ground of appeal is allowed.
4. We have gone through
the decision of Hon'ble jurisdictional High Court in CIT vs. Institute of
Banking Personnel Selection (IBPS), wherein on identical ground, the Hon'ble
Bombay High Court held as under:
―5. Now coming to
question No.3, the point which arises for consideration is: whether excess of
expenditure in the earlier years can be adjusted against the income of the
subsequent year and whether such adjustment should be treated as application of
income in subsequent year for charitable purposes? It was argued on behalf of
the Department that expenditure incurred in the I.T.A. No.7131/Mum/2017 earlier
years cannot be met out of the income of the subsequent year and that
utilization of such income for meeting the expenditure of earlier yeas would
not amount to application of income for charitable or religious purposes. In
the present case, the Assessing Officer did not allow carry forward of the
excess of expenditure to be set off against the surplus of the subsequent years
on the ground that in the case of a Charitable Trust, their income was
assessable under self-contained code mentioned in section 11 to section 13.of
the Income-tax Act and that the income of the Charitable Trust was not
assessable under the head "profits and gains of business" under
section 28 in which the provision for carry forward of losses was relevant.
That, in the case of a Charitable Trust, there was no provision for carry
forward of the excess of expenditure of earlier years to be adjusted against
income of subsequent years. We do not find any merit in this argument of the
Department. Income derived from the trust property has also got to be computed
on commercial principles and if commercial principles are applied then
adjustment of expenses incurred by the Trust for charitable and religious
purposes in the earlier years against the income earned by the Trust in the
subsequent year will have to be regarded as application of income of the Trust
for charitable and religious purposes in the subsequent year in which
adjustment has been made having regard to the benevolent provisions contained
in section 11 of the Act and that such adjustment will have to be excluded from
the income of the Trust under section 11(1)(a) of the Act. Our view is also
supported by the Judgment of the Gujarat High Court in the case of CIT v. Shri
Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 293.‖ Further the Hon'ble
jurisdictional High Court in case of DIT vs. Mumbai Education Trust in ITA No.
11/2014 dated 3rd May 2016 given the similar relief in respect of allowability
of depreciation of capital asset acquired for the purpose of carrying out
charitable activities and set off of deficit of earlier years against the
income of current year.
5. By respectfully
following the judgment of Hon'ble jurisdictional High Court, we hold that the
assessee is claimed for setting off of excess income over expenditure against
the deficit of earlier years is correct. In view of the above observation, we
do not find any illegality or infirmity in the order passed by DIT.‖ I.T.A.
No.7131/Mum/2017 We have also observed that Hon'ble Bombay High court has
dismissed the appeal of the Revenue in DIT(E) v. Gem & Jewellery Exports
Promotion Council in ITA(LOD) No. 1113 of 2010 vide judgment dated 15.02.2011
by following the decision of Hon'ble Bombay High Court in the case of CIT v.
Institute of Banking Personnel Selection(IBPS) (supra) on the issue of set off
of deficit of earlier years against surplus of the impugned assessment year.
The Revenue filed an SLP with Hon'ble Supreme Court which was dismissed by
Hon'ble Apex Court vide orders dated 09.09.2011 in SLP(Civil) CC 13512/2011.
The AO has referred to in his assessment orders in the instant case before us
that SLP is filed by the Revenue against Hon'ble Bombay High Court judgment but
as is observed , the said SLP also stood dismissed by Hon'ble Apex Court. Thus
we have observed that the Hon'ble Courts/Tribunal had taken consistent stand
that in case of Charitable Trust excess expenditure over income is to be
allowed to be carried forward for setting off against income of subsequent
years . We do not find any reason to deviate from the consistent stand taken by
the Hon'ble Courts/ Tribunal and Respectfully following aforesaid decision(s)
as enumerated in preceding para's of this order, we allow the carry forward of
excess expenditure over income of Rs. 2,33,03,449/- to be carried forward to
subsequent years . Thus, we confirm/affirm decision of learned CIT(A) and
dismiss the appeal of the Revenue. We order accordingly.‖ We have also observed
that the AO has relied upon the decision of Hon'ble Bombay High Court in the
case of DIT(E) v. MIDC in ITA no. 2652/Mum/2011 wherein the Hon'ble Bombay High
Court granted relief to the tax-payer by following the decision of Hon'ble
Bombay High Court in the case of Institute of Banking Personnel
Selection(IBPS)(supra) wherein the AO noted that the Revenue has filed an SLP
with Hon'ble Apex Court against decision of Hon'ble Bombay High Court. We have
observed that the SLP filed by Revenue has been dismissed by Hon'ble Supreme
Court vide orders dated 13.12.2017, in CA No. 009813/2014 registered on
13.10.2014 in SLP(C) no. 009891/2014 in DIT v. MIDC. It is also noted that the
tribunal in assesse's own case for AY 2010-11 in ITA no. 5442/Mum/2015 in
DCIT(E) v. The Executive Board of the Methodist Church in India vide orders
dated 24.10.2017 has decided the issue of allowability of excess of expenditure
over income being deficit to be carried forward to subsequent year to be set
off against surplus of subsequent years in favour of the assessee , by holding
as under:-
― 7. We have heard the
rival submissions and perused the material on record and also gone through the
cases relied upon I.T.A. No.7131/Mum/2017 by the authorities below. The only
issue involved in this case is whether the Ld CIT(A) has erred in allowing
carry forward of deficit in question and allowing set off against the income of
the subsequent years? The AO has answered the said question in affirmative by
following the ratio of law laid down by the Hon'ble jurisdictional High Court
in CIT vs Institute of banking (supra). The operative part of the impugned
order reads as under:
―I have considered the
facts and circumstances of the case, gone through the assessment order of the
AO and the submissions of the appellant and also discussed the case with the AR
of the appellant. The contentions and submissions of the appellant being
discussed and decided here in under:
i. During the appellate
proceedings it was submitted that the issue is squarely covered by the judgment
of Hon'ble Bombay High Court in the case of CIT Vs. Institute of banking
personnel (supra). It was also stated that the judgment of Hon'ble Bombay Court
is binding on all authorities under its jurisdiction. The other objections
raised by the AO have also been dealt with by the appellant in its submissions
as referred above.
ii. I agree with the
contention of the appellant that the issue is covered by the judgment of
Hon'ble Bombay High Court in the case of CIT Vs. Institute of Banking
Personnel, 264 ITR 110. Respectfully following the judgment of Hon'ble
jurisdictional High Court, the AO is directed to allow the carry forward of
deficit in the subsequent years.
iii. This ground of appeal
is allowed.
8. In CIT Vs. Institute
of Banking Personnel, (supra), the Hon'ble Bombay High Court has decided the
identical issue holding as under:
―Now coming to question
No. 3, the point which arises for consideration is: whether excess of expenditure
in the earlier years can be adjusted against the income of the subsequent year
and whether such adjustment should be treated as application of income in the
subsequent year for charitable purposes? It was argued on behalf of the
Department that expenditure incurred in the earlier years cannot be met out of
the income of the subsequent year and that utilisation of such income for
meeting the expenditure of earlier years would not amount to application of
income for charitable or religious purposes. In the present case, the Assessing
Officer did not allow carry forward of the excess of expenditure to be set off
against the surplus of the subsequent years on the ground that in the case of a
charitable trust, there income I.T.A. No.7131/Mum/2017 was assessable under
self-contained code mentioned in section 11 to section 13 of the Income Tax Act
and that the income of the charitable trust was not assessable under the head
―Profits and Gains of Business‖ under section 28 in which the provision for
carry forward of losses was relevant. That, in the case of a charitable trust,
there was no provision for carry forward of the excess of expenditure of
earlier years to be adjusted against income of the subsequent years. We do not
find any merit in this argument of the Department. Income derived from the
trust property has also bought to be computed on commercial principles and if
commercial principles are applied then adjustment of expenses incurred by the
trust for charitable and religious purposes in the earlier years against the
income earned by the trust in the subsequent year will have to be regarded as
application of income of the trust for charitable religious purposes in the
subsequent years in which adjustment has been made having regard to the
benevolent provisions in section 11 of the Act and that such adjustment will
have to be excluded from the income of the trust under section 11 (1) (a) of
the Act. Our view is also supported by the judgment of the Gujarat High Court
in the case of CIT versus Sri Plot Swetamber Murti Pujak Jain Mandal [1995]
211ITR 293. Accordingly, we answer question number 3 in the affirmative, i.e.,
in favour of the assessee and against the Department.
9. Since the issue
involved in this case is squarely covered by the judgment of the Hon'ble
jurisdictional High Court and since the Ld. CIT(A) has passed the impugned
order following the judgment of the Hon'ble High Court rendered in CIT Vs.
Institute of Banking Personnel (supra) we do not find any infirmity in the
order passed by the Ld. CIT(A). We, therefore, uphold the findings of the Ld.
CIT(A) and dismiss all the grounds of appeal of the revenue.
In the result, appeal
filed by the revenue for assessment year 2010-2011 is dismissed‖ Thus,
Respectfully following the decision of Hon'ble Bombay High Court in the case of
Institute of Banking Personal Services(IBPS) and decision of tribunal in
assessee's own case, we allow carry forward of excess of expenditure over
income of the assessee trust of Rs. 5,23,93,620/- being deficit/loss of the impugned
assessment year to be carried forward to subsequent years to be allowed to be
set off against surplus of subsequent years . We donot find any infirmity in
the order of learned CIT(A) to that effect on this issue before us , which
appellate order of learned CIT(A) dated 28.08.2017 stood confirmed/affirmed.
The appeal of the Revenue in ITA no.
I.T.A. No.7131/Mum/2017
6544/Mum/2017 stood dismissed. Revenue fails in its appeal. We order
accordingly 10.2 So far as Cross objections filed by the assessee is concerned,
the main grievance of the assessee in its CO is with respect to not allowing by
learned CIT(A) of the accumulation of income to the tune of 15% of income
keeping in view second limb of Section 11(1)(a) of the 1961 Act despite the
fact that the assessee had infact incurred expenditure towards the objects of
the trust in excess of its income and there being deficit/losses for the
impugned assessment year. The main thrust of reliance of the assessee in this
grievance is the order passed by tribunal in ITA no. 5322 & 5323 /Mum/2016
, dated 28.02.2018 in the case of Lalji Velji Charitable Trust v. ITO . We have
observed that tribunal in this order in the case of Lalji Velji Charitable
Trust had held that the tax-payer will be entitled for accumulation of income
to the tune of 15% of income despite the fact that there has been deficit and
it was held that there is no bar in law and there is no specific provision in
the 1961 Act which stipulates that such deduction of 15% of income as
accumulation will not be allowed in case of deficit/losses wherein expenditure
incurred towards the objects of the trust has already exceeded income of the
turst. The tribunal while adjudicating appeal in the case of Lalji Velji
Charitable Trust(supra) held as under:
―4.We have heard the
rival contentions and gone through the facts and circumstances of the case. The
admitted facts are that the assessee has applied its income towards charitable
purposes an amount of ₹ 4,78,14,884/-as against the assessee' income of ₹ 4,41,63,870/-thereby
leaving the deficit of ₹ 36,51,014/-. The assessee claimed accumulation under
section 11(1)a of the Act of ₹ 66,24,580/-being 15% of the gross income of ₹
4,41,63,870/-. The assessee claimed the same to be carried forward and set off
of this accumulation against the income of the subsequent years as the entire
income has been spent on the object of the trust. We have gone through the
provisions of section 11(1)(a)which reads as under: -
―(a) income derived
from property held under trust wholly for charitable or religious purposes, to
the extent to which such income is applied to 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 twenty-five per cent of the income from such
property.
5.From the plain
reading of section 11(1)(a)of the Act it is clear that in case of wholly
charitable religious Trust, if the income is to be accumulated for application
to the Trust purposes in India, it may be accumulated to the extent of 15% of
the income of the Trust. The income contemplated by this provision is the real
income and not the income as assessed or as assessable.In view of this
provision, we are of the view that if the accounts of the assessee trust are
properly maintained according to the principle of accountancy, the accumulation
shall be up to 15% of the gross income as per accounts and not appearing as
assessment order. We find that even CBDT has recognized this position in view
of statutory language of section 11(1)(a)of the Act and also circular issued
No. 5-P dated 19-06-1968, wherein it is held that the assessee is entitled to
exemption at the rate of 25% (now after amendment 15%) on the gross receipts
and not on the total income as determined by the AO under the Act. We also find
that the issue is confirmed by Hon'ble Supreme Court in CIT Vs. Programme for
Community Organisation(2001) 248 ITR 1 (SC),wherein it is held that as the
assessee trust has received donation in aggregate a sum of ₹2,57,376 and it has
applied throughout for its charitable purposes the amount of Rs. 1,70,369/-
levying a balance of Rs. 87,010/-and on this the Hon'ble Supreme Court said as
per section 11(1)(a)that the assessee trust was entitled to accumulate 25% of
the gross income of Rs.
2,57,376/-and not
merely 25% of the balance of Rs. 87,000/-.
6.We are of the view
that even though the entire income has been applied on the object of the Trust
as application of income and there is no income left to be accumulated rather
there is deficit even though assessee is entitled for accumulation or setting
apart under section 11(1)(a)of the Act at the rate of 15% of the gross income.
We are of the view that exemption available under section 11(1)(a)i.e. 15% of
income is invested and not subject to any condition. According to us, there is
no bar in law and there is no specific provision in the act which says that
such deduction of 15% for accumulation will not be allowed in case of deficit
but such 15% accumulation is allowable irrespective of whether 15% of income
have been applied or not. Similar is the position in the case of ACIT vs.
A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC) here the meaning of applied
in this context means that the income is actually applied for the charitable or
religious purposes of the trust but the word applied need not necessarily imply
spent. Even if the income is irretrievably earmarked and allocated I.T.A.
No.7131/Mum/2017 for the charitable or religious purposes or purposes it may be
under section 11 (1)(a) of the Act. A sum of ₹66,24,580/-being 15% of the gross
income even though the entire income has been applied on the object of the
trust as an application of income and there left no income for accumulation.
However, as requested by the learned Sr. DR that the facts are not cleared, the
same can be verified by the AO but only verification of figures. Accordingly,
we set aside the orders of the lower authorities and allow the appeal of the
assessee. Consequently, the appeal for AY 2011-12 is exactly identical and
hence, taking a consistent view, we allow this appeal also.‖ The tribunal while
deciding the issue in the case of Lalji Velji Charitable Trust(supra) had
referred to CBDT circular 5-P dated 19.06.1968 and to the judgment(s) of
Hon'ble Supreme Court in the case of CIT v Programme for Community
Organisation(2001) 248 ITR 1(SC) and ACIT v. A.L.N. Rao Charitable Trust (1995)
216 ITR 697(SC). Perusal of CBDT Circular No. 5-P dated 19.06.1968 reveals that
it stipulates that the deduction u/s 11(1)(a) will be computed with reference
to income of charitable organisation and not in context of total income as
defined u/s 2(45) of the 1961 Act as is computed under the 1961 Act. The said
circular is reproduced hereunder:
"CIRCULAR : NO.
5-P(LXX-6) of 1968, DATED 19-6-1968
1. In Board's Circular
No. 2-P(LXX-5), dated 15-5-1963, it was explained that a religious or
charitable trust, claiming exemption under section 11(1), must spend at least
75 per cent of its total income for religious or charitable purposes. In other
words, it was not permitted to accumulate more than 25 per cent of its total
income. The question has been reconsidered by the Board and the correct legal
position is explained below.
2. Section 11(1)
provides that subject to the provisions of sections 60 to 63, "the
following income shall not be included in the total income of the previous
year. . . ." The reference in clause (a) is invariably to
"Income" and not to "total income". The expression
"total income" has been specifically defined in section 2(45) as
"the total amount of income computed in the manner laid down in this
Act". It would, accordingly, be incorrect to assign to the word
"income", used in section 11(1)(a), the same meaning as has been
specifically assigned to the expression "total income" vide section
2(45).
3. In the case of a
business undertaking, held under trust, its "income" will be the
income as shown in the accounts of the undertaking. Under section 11(4), any
income of the business undertaking determined by the ITO, in accordance with
the I.T.A. No.7131/Mum/2017 provisions of the Act, which is in excess of the
income as shown in its accounts, is to be deemed to have been applied to
purposes other than charitable or religious, and hence it will be charged to
tax under sub-section (3). As only the income disclosed in the account will be
eligible for exemption under section 11(1), the permitted accumulation of 25
per cent will also be calculated with reference to this income.
4. Where the trust
derives income from house property interest on securities, capital gains, or
other sources, the word "income" should be understood in its
commercial sense, i.e., book income, after adding back any appropriations or
applications thereof towards the purposes of the trust or otherwise, and also
after adding back any debits made for capital expenditure incurred for the
purposes of the trust or otherwise. It should be noted, in this connection,
that the amounts so added back will become chargeable to tax under section
11(3) to the extent that they represent outgoings for purposes other than those
of the trust. The amounts spent or applied for the purposes of the trust from
out of the income, computed in the aforesaid manner, should be not less than 75
per cent of the latter, if the trust is to get the full benefit of the
exemption under section 11(1).
5. To sum up the
business income of the trust, as disclosed by the accounts plus its other
income computed as above, will be the "income" of the trust for the
purposes of section 11(1). Further, the trust must spend at least 75 per cent
of this income and not accumulate more than 25 per cent thereof. The excess
accumulation, if any, will become taxable under section 11(1).‖ The above CBDT
circular clarifies that for claiming exemption u/s 11(1)(a) , it is the
‗income' of the assessee which is relevant and not the ‗total income' as
defined u/s 2(45) of the 1961 Act. It further provides that for business
undertaking, held under trust, the income as is recorded in the books of the
undertaking shall be relevant. This is not the issue before us rather the issue
before us is that whether in case of deficit/losses wherein expenditure
incurred by the assessee towards its objects has already exceeded its income ,
whether further exemption by relying on provisions of second limb of Section
11(1)(a) of the 1961 Act can still be claimed.
Further , the said
decision of tribunal in Lalji Velji Charitable Trust(supra) relied upon
decision of Hon'ble Supreme Court in the case of CIT v Programme for Community
Organisation(supra), which judgment of Hon'ble Supreme Court is reproduced
hereunder:
I.T.A. No.7131/Mum/2017
"1. The questions that were referred to the High Court for consideration,
at the instance of the revenue, read thus :
"1. Whether, on
the facts and in the circumstances of the case and on an interpretation of the
relevant provisions of the Income-tax Act, 1961, the assessee is entitled to
exemption at 25 per cent on Rs. 2,57,376 or only on Rs. 87,010 ?
2. Whether, on the
facts and in the circumstances of the case, should not the Tribunal have
accepted the view of the revenue expressed in the circular, the same being
consistent with the relevant provisions of the Income-tax Act, 1961 ?
3. Whether, on the
facts and in the circumstances of the case, and also considering the scope of
the earlier order of the Commissioner (Appeals) dated 18-11-1983 the Tribunal
is right in law in holding that the Commissioner (Appeals) has rightly
interfered with the order of the Income-tax Officer ?"
2. The answers being in
favour of the assessee, the revenue is in appeal by special leave.
3. The question that
really requires consideration is whether, for the purposes of section 11(1)(a)
of the Income-tax Act, 1961 ('the Act'), the amount for the grant of exemption
of twenty-five per cent should be the income of the trust or it should be its
total income determined for the purposes of assessment to income-tax. This
question has to be answered in the light of these facts: the assessee-trust
received donations in the aggregate sum of Rs. 2,57,376. It applied thereout
for its charitable purposes the aggregate sum of Rs. 1,70,369 leaving a balance
of Rs. 87,010. The question is whether the assessee is entitled to accumulate
twenty-five per cent of Rs. 2,57,376, as it contends, or twenty-five per cent
of Rs. 87,010, as the revenue appeared to contend.
Section 11(1)(a) reads
thus :
"11. Income from
property held for charitable or religious purposes.--(1)(a ) Income derived
from property held under trust wholly for charitable or religious purposes, to
the extent to which such income is applied to 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 twenty-five per cent of the income from such
property;"
4. Having regard to the
plain language of the above provision, it is clear that a charitable or
religious trust is entitled to accumulate twenty-five per cent of its income
derived from I.T.A. No.7131/Mum/2017 property held under trust. For the present
purposes, the donations, the assessee received, in the sum of Rs. 2,57,376,
would constitute its property and it is entitled to accumulate twenty-five per
cent thereout. It is unclear on what basis the revenue contended that it was
entitled to accumulate only twenty-five per cent of Rs. 87,010.
5. For the aforesaid
reasons, the civil appeal is dismissed.
6. No order as to
costs.‖ The Question before Hon'ble Supreme Court in the above case of CIT v
Programme for Community Organisation(supra) was whether accumulation of income
as is provided u/s 11(1)(a) shall be 25% of the income of the trust or 25% of
the income computed under 1961 Act for assessment purposes. The Hon'ble Supreme
Court held that accumulation of income shall be allowed u/s 11(1)(a) to the
tune of 25% of the ‗income' of the trust and not on ‗total income' as is
computed for assessment of income-tax which is referred to in provisions of
Section 2(45) of the 1961 Act. This is not the issue before us rather the issue
before us is that whether in case of deficit/losses wherein expenditure
incurred by the assessee towards its objects has already exceeded its income ,
whether further exemption by relying on provisions of second limb of Section
11(1)(a) of the 1961 Act can still be claimed.
The second decision
relied upon by tribunal in Lalji Velji Charitable Trust(supra) is Hon'ble
Supreme Court in the case of ACIT v. A.L.N.Rao Charitable Trust (1995) 216 ITR
697(SC). The Hon'ble Supreme Court has in detailed manner explained the
inter-play between provisions of Section 11(1)(a) and 11(2) of the 1961 Act, by
holding as under:
"10. Before we
proceed to deal with the rival contentions centering round the true scope and
ambit of section 11(1)(a) and section 11(2) as applicable to the assessment
year in question, namely, 1969-70, it would be apposite to refer to these
provisions at the outset. These provisions, as they stood at the relevant time,
read as under : "11. Income from property held for charitable or religious
purposes.--(1) Subject to the provisions of sections 60 to 63, the following
income shall not be included in the total income of the previous year of the
person in receipt of the income :
(a)income derived from
property held under trust wholly for charitable or religious purposes, to the
extent to which such income is applied to such purposes in India; and, where
any such income is accumulated for application to I.T.A. No.7131/Mum/2017 such
purposes in India, to the extent to which the income so accumulated is not in
excess of 25 per cent of the income from the property or rupees ten thousand,
whichever is higher;
** ** ** (2) Where the
persons in receipt of the income have complied with the following conditions,
the restriction specified in clause (a) or clause (b )of sub-section (1) as
respects accumulation or setting apart shall not apply for the period during
which the said conditions remain complied with--
(a) such persons have,
by notice in writing, given to the Income- tax Officer in the prescribed
manner, specified the purpose for which the income is being accumulated or set
apart and the period for which the income is to be accumulated or set apart,
which shall in no case exceed ten years;
(b) the money so
accumulated or set apart is invested in any Government security as defined in
clause (2) of section 2 of the Public Debt Act, 1944 (XVIII of 1944), or in any
other security which may be approved by the Central Government in this
behalf."
Section 11 underwent an
amendment by the Taxation Laws (Amendment) Act, 1975. As we are not concerned
with these amended provisions in the present case, we need not dilate on them.
11. A mere look at
section 11(1)( a), as it stood at the relevant time, clearly shows that out of
total income accruing to a trust in the previous year from property held by it
wholly for charitable or religious purpose, to the extent the income is applied
for such religious or charitable purpose, the same will get out of the tax net
but so far as the income which is not so applied during the previous year is
concerned at least 25 per cent of such income or Rs. 10,000, whichever is
higher, will be permitted to be accumulated for charitable or religious purpose
and it will also get exempted from the tax net. Then follows sub-section (2)
which seeks to lift the restriction or the ceiling imposed on such exempted
accumulated income during the previous year and also brings such further
accumulated income out of the tax net if the conditions laid down by sub-
section (2) of section 11 are fulfilled meaning thereby the money so
accumulated is set apart to be invested in the Government securities, etc., as
laid down by clause (b)of sub-section (2) of section 11 apart from the
procedure laid down by clause (a) of section 11(2) being followed by the
assessee-trust. To highlight this point we may take an illustration. If Rs. 1
lakh are earned as the total income of the previous year by the I.T.A.
No.7131/Mum/2017 trust from property held by it wholly for charitable and
religious purposes and if Rs. 20,000 are actually applied during 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 under first part of section 11(1). So far as the remaining Rs.
80,000 are concerned, if they could not be actually applied for such religious
or charitable purposes during the previous year then as per section 11(1)(a) at
least 25 per cent of such total income from property or Rs. 10,000, whichever
is higher, will also earn exemption from being considered as income for the
purpose of income-tax, that is, Rs. 25,000 will, thus, get excluded 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 exemption from payment of income tax as per section
11(1)(a) second part. Then follows sub-section (2) which states that the
ceiling or the limit or the restriction of accumulation of income to the extent
of 25 per cent of the income or Rs. 10,000, whichever is higher, for earning
income-tax exemption as engrafted under section 11(1)(a) will get lifted if the
money so accumulated is invested as laid down by section 11(2)(b) meaning
thereby out of the total accumulated income of Rs. 80,000 accruing during the
previous year and which could not be spent for charitable or religious purposes
by the trust balance of Rs. 55,000 if invested as laid down by sub-section (2)
of section 11 will also get excluded from the tax net. But for such investment
and if section 11(1) alone had applied Rs. 55,000 being the balance of
accumulated income would have been covered by the tax net. The learned counsel
for the revenue submitted that the investment as contemplated by sub-section
(2)(b )of section 11 must be investment of all accumulated income in Government
securities, etc., namely, 100 per cent of the accumulated income and not only
75 per cent thereof. And if that is not done then only the invested accumulated
income to the extent of 75 per cent will get excluded from income tax
assessment. But so far the remaining 25 per cent of the accumulated income is
concerned, it will not earn such exemption. It is difficult to appreciate this
contention. The reason is obvious. Section 11(1)(a) operates on its own. By its
operation two types of income earned by the trust during the previous year from
its properties are given exemption from income- tax, (i) that part of the
income of previous year which is actually spent for charitable or religious
purposes in that year; and (ii) out of the unspent accumulated income of the
previous year 25 per cent of such total property income or Rs. 10,000,
whichever is higher, I.T.A. No.7131/Mum/2017 can be permitted to be accumulated
by the trust, earmarked for such charitable or religious purposes. Such 25 per
cent of the income or Rs. 10,000, whichever is higher, will also get exempted
from income-tax. That exhausts the operation of section 11(1)(a). Then follows
sub-section (2) which naturally deals with the question of investment of the
balance of accumulated income which has still not earned exemption under
sub-section (1)(a). So far as that balance of accumulated income is concerned,
that also can earn exemption from income-tax meaning thereby the ceiling or the
limit of exemption of accumulated income from income-tax as imposed by
sub-section (1)(a) of section 11 would get lifted if additional accumulated
income beyond 25 per cent or Rs. 10,000 whichever is higher, as the case may
be, is invested as laid down by section 11(2) after following the procedure
laid down therein. Therefore, sub-section (2) only will have to operate qua the
balance of 75 per cent 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-section (1)(a) of section 11. If the learned counsel for
the revenue is right and if 100 per cent of the accumulated income of the previous
year is to be invested under sub-section (2) of section 11 to get exemption
from income-tax then the ceiling of 25 per cent or Rs. 10,000, whichever is
higher, which is available for accumulation of income of the previous year for
the trust to earn exemption from income-tax as laid down by section 11(1)(a)
would be rendered redundant and the said exemption provision would become
otios. It has to be kept in view that out of the accumulated income of the
previous year an amount of Rs. 10,000 or 25 per cent of the total income from
property, whichever is higher, is given exemption from income-tax by section
11(1)(a) itself. That exemption is unfettered and not subject to any
conditions. In other words, it is an absolute exemption. If sub-section (2) is
so read as suggested by the learned counsel for the revenue, what is an
absolute and unfettered exemption of accumulated income as guaranteed by
section 11(1)(a) would become a restricted exemption as laid down by section
11(2). Section 11(2) does not operate to whittle down or to cut across the
exemption provisions contained in section 11(1)(a) so far as such accumulated
income of the previous year is concerned. It has also to be appreciated that
sub- section (2) of section 11 does not contain any non obstante clause like
'notwithstanding the provisions of sub-section (1)'. Consequently, it must be
held that after section 11(1)(a) has full play and if still any accumulated
income of the previous year is left to be dealt with and to be considered for
the purpose of income-tax exemption, subsection (2) of section 11 can be
pressed in service and if it is complied with then such additional accumulated
income beyond 25 per cent or Rs. 10,000, whichever is higher, can also earn
exemption from income-tax on compliance I.T.A. No.7131/Mum/2017 with the
conditions laid down by sub-section (2) of section 11. It is true that
sub-section (2) of section 11 has not clearly mentioned the extent of the
accumulated income which is to be invested. But on a conjoint reading of the
aforesaid two provisions of sections 11(1) and 11(2) this is the only result
which can follow. It is also to be kept in view that under the earlier Indian
Income-tax Act, 1922 exemption was available to charitable trusts without any
restriction upon the accumulated income. There was a change in this respect
under the Act. Under the Act, any income accumulated in excess of 25 per cent
or Rs. 10,000, whichever is higher, is taxable under section 11(1)(a) unless
the special conditions regarding accumulation as laid down in section 11(2) are
complied with. It is clear, 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 accumulation of 25 per cent or Rs.
10,000, whichever is higher, it will not be included in the taxable income.
Section 11(2) quoted above further liberalizes and enlarges the exemption. A
combined reading of both the provisions quoted above would clearly show that
section 11(2) while enlarging the scope of exemption removes the restriction
imposed by section 11(1)(a) but it does not take away the exemption allowed by
section 11(1)(a). On the express language of sections 11(1) and 11(2) as they
stood on the statute book at the relevant time no other view is possible.
12. In the light of the
aforesaid discussion and keeping in view the illustration which we have given
earlier the combined operation of section 11(1)(a) and section 11(2) as
applicable at the relevant time would yield the following result:
(i) If the income
derived from property held under trust wholly for charitable or religious
purposes during the previous year is Rs. 1 lakh and if Rs. 20,000 therefrom are
actually applied to such purposes in India then those Rs. 20,000 will get
exempted from payment of income-tax as per the first part of section 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 part
of section 11(1)(a). Thus, out of the total income derived from property as
aforesaid during the previous year, that is, Rs. 1 lakh, Rs. 45,000 in all,
will get excluded from the tax net on a combined operation of first and second
part of section 11(1)(a).
I.T.A. No.7131/Mum/2017
(iii) The aforesaid
ceiling of Rs. 25,000 of accumulated income from property of previous year,
will get lifted under section 11(2) to the extent the balance of such
accumulated income is invested as laid down by section 11(2). To take an
illustration if, say, an additional amount of Rs. 20,000 out of the balance of
accumulated income of Rs. 55,000 is invested as per section 11(2) then this
additional amount of Rs. 20,000 of accumulated income will get excluded from the
tax net as per section 11(2).
(iv) The remaining
balance of the accumulated income out of Rs. 55,000, that is, Rs. 35,000 if not
invested as per sub-section (2) of section 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 accumulated income of Rs. 55,000 is wholly invested
as per section 11(2) the said entire amount of Rs. 55,000 will get exempted
from the tax net.
13. We may also at this
stage mention that the Kerala High Court in H.H. Marthanda Varma Elayaraja of
Travancore Trust's case (supra ), the Madhya Pradesh High Court in Mohanlal
Hargovinddas Public Charitable Trust's case (supra) , the Bombay High Court in
Trustees of Bhat Family Research Foundation's case (supra) and the Madras High
Court in C.M. Kothari Charitable Trust's case (supra) have taken the same view
as the Karnataka High Court in the present case. We approve the view taken in
the aforesaid decisions. We also approve the similar view taken by the Jammu
& Kashmir High Court in Shri Krishen Chand Charitable Trust's case (supra)
. The learned counsel for the revenue, therefore, has made out no case for our
interference with the decision rendered by the Division Bench of the Karnataka
High Court.
14. In the result, this
appeal fails and is dismissed.
However, in the facts
and circumstances of the case, there will be no order as to costs.‖ Thus, the
aforesaid judgment of Hon'ble Supreme Court in A.L.N Rao Charitable Trust(supra)
has clearly laid down that for computing income of the trust chargeable to tax,
first expenditure incurred towards the object of the trust by the tax-payer has
to be reduced from income of the trust as provided in the first limb of Section
11(1)(a). Thereafter, out of the remaining unspent income after adjusting
I.T.A. No.7131/Mum/2017 expenditure , further exemption of accumulation of
income to the extent of 25% or Rs. 10000 (now 15%) which ever is higher to be
computed on ‗income' shall be provided by invoking second limb of Section
11(1)(a) of the 1961 Act. Say for example , income derived by tax-payer from
property held under charitable purposes is Rs. 1,00,000/- and an amount of
expenditure towards object of the trust was Rs. 20,000/-. The unspent amount is
Rs. 80,000/- , then in that case further exemption shall be provided to the
tune of Rs. 15,000/- so as to reduce taxable income to Rs. 65,000/-. Thus , it
is only out of the unspent amount of income after exhausting first limb of
Section 11(1)(a), the second limb of Section 11(1)(a) shall come into play and
in case expenditure of the tax-payer trust is already more than its income
which exhausted its income, then only first limb of Section 11(1)(a) shall come
into play and second limb of Section 11(1)(a) can never be applied. This was
the mandate of aforesaid decision of Hon'ble Supreme Court in the case of ACIT
v. A.L.N.Rao Charitable Trust(supra). Hon'ble Bombay High Court in the case of
Institute of Banking Personnel Selection(IBPS) (supra) has held that excess of
expenditure incurred towards the objects of the trust over its income from
property held for charitable purposes i.e. deficit/losses is to be carried
forward to subsequent years to be set off against income/surplus of subsequent
years. The Hon'ble Bombay High Court never held that over and above excess of
expenditure incurred towards objects of the trust over its income from property
held for charitable purposes, there shall be an additional exemption allowed to
the tune of 15% of income by way of accumulation of income . This decision of
Hon'ble Bombay High Court in the case of Institute of Banking Personnel
Selection(IBPS) (supra) has been followed by Hon'ble Bombay High Court in
several other cases . These judgments of Hon'ble Bombay High Court in other
cases has been referred in the order of the tribunal in the case of ITO v.
Kaivalya Education Foundation in ITA No. 5575/Mum/2017 vide orders dated 08th
February 2019 wherein one of us(Accountant Members) was part of the DB
adjudicating that appeal and the operative part of the order is reproduced in
preceding para's of this order. The SLP filed by Revenue with Hon'ble Supreme
Court challenging decision of Hon'ble Bombay High Court in the case of DIT
(Exemption) vs. M/s. Gem & Jewellery Exports Promotion Council (ITA (LOD)
No. 1133 of 2010) dated 15.02.2011 has also been dismissed by the Hon'ble
Supreme Court in CC 13512/2011 vide orders dated 09.09.2011. Similarly SLP
filed by Revenue in the case of MIDC(supra) has been dismissed by Hon'ble
Supreme I.T.A. No.7131/Mum/2017 Court vide orders dated 13.12.2017, in CA No.
009813/2014 registered on 13.10.2014 in SLP(C) no. 009891/2014 in DIT v.
MIDC.MIDC(supra) . None of the judgments of Hon'ble Bombay High Court held that
15% accumulation of income as provided under second limb of Section 11(1)(a)
shall be in addition to excess of expenditure over income which was allowed to
be carried forward to subsequent years to be set off against income/surplus of
subsequent years by invoking first limb of provisions of Section 11(1)(a) of
the 1961 Act.
We have also observed
that learned CIT(A) while deciding this issue against assessee and in favour of
Revenue had held that in case of deficit wherein expenditure incurred towards
objects of the trust has exceeded its income from property held for charitable
pruposes, no further accumulation of 15% of income as is provided in second
limb of provisions of Section 11(1)(a) can be allowed . The learned CIT(A)
while deciding the issue in favour of Revenue has relied upon following orders
of the tribunal:
a) Dawat Institute of
Dawoodi Bohra Community in ITA No. 4309/Mum/2005 , order dated 30.04.2013
(2008) 116 TTJ 673 (Mum-trib.)
b) ITO(E) v. Lakshmi
and Usha Mittal( Formerly known as LNM Foundation) in ITA no. 5383/Mum/2011 The
tribunal in the case of Dawat Institute of Dawoodi Bohra Community (supra) has
held in favour of Revenue by holding that further exemption by way of
accumulation of income to the tune of 15% of income cannot be allowed in case
expenditure of the trust has already exceeded its income from property held for
charitable purposes, by holding as under:
"7. Having heard
the rival submissions and from careful perusal of the record, we find that
section 11 relates to the computation of income from property held for
charitable or religious purposes. In order to support a claim for exemption of
income under the provisions of this section, the following conditions must be
satisfied;
(1) The income must be
derived from property;
(2) Such a property should
be held under trust or other legal obligations;
(3) Such trust or legal
obligations should be wholly for religious or charitable purposes;
(4) Such income is
applied or accumulated for the application to such religious or I.T.A.
No.7131/Mum/2017 charitable purposes in India.
8. Unless the above
conditions are fulfilled, the assessee cannot successfully claim exemption
under section 11 of the Act. The exemption under this section is subject to the
provisions of sections 60 to 63 of the Act which deals with the situations
where income from estate is not liable to tax in the hands of the recipient of
that income but in the hands of another person. We have also carefully examined
the provisions of sub-section (1)(a) of section 11 and the controversy involved
before us and we find that clause (a) of sub-section (1) of section 11 deals
with the exemption of income in two situations; (1) where the income derived
from such property is applied to the purposes of the trust in India, the entire
income shall be exempted or shall not be included in the total income of the
previous year of the person in receipt of the income (2) where the entire
income derived from the property could not be applied for the purposes of the
trust but such income is accumulated or set apart to the extent of 25 per cent
of such income for application to such purposes, the said accumulated or set
apart income shall not be included in the total income of the previous year.
The total limit of exemption is 100 per cent of the income derived from the
property. It has not been mentioned anywhere in this clause that first of all
25 per cent of the total income is to be accumulated or set apart for
application to the purposes of the trust in India in succeeding year and then
the remaining income is to be applied for such purposes and in case the
application of income is more than the remaining income, i.e., 75 per cent of
the total income the deficit would be carried forward for its set off in
succeeding year against the income of the trust. If this interpretation is to
be accepted it would result into an exemption more than the income derived from
the property held by the trust and this cannot be the intention of the
Legislature. These provisions are brought to the statute to encourage the trust
to apply its income derived from property for the religious or charitable
purposes of the trust in the same year and if not possible they can accumulate
or set apart the income but it is restricted to 25 per cent of the total income
for its application for the religious and charitable purposes of the trust. If
entire income is applied for the purpose of the trust and nothing is left out,
nothing can be accumulated or set apart for its application for the purposes of
the trust in succeeding year. We, however, for the sake of reference extract
the provisions of section 11(1)(a) of the Act as under :
"11. Income from
property held for charitable or religious purposes :
(1) (a) Income derived
from property held under trust wholly for charitable or religious purposes, to
the extent to which such income is applied to such purposes in India, and where
any such income is accumulated or set apart for application to such purposes
I.T.A. No.7131/Mum/2017 in India, to the extent to which the income so
accumulated or set apart is not in excess of twenty-five per cent of the income
from such property."
9. We have carefully
examined the judgments referred to by the parties and we find that the
judgments referred to before us were rendered on different issues and as such the
ratio laid down therein cannot be applied to the present case. In the case of
Programme for Community Organization (supra), the issue in dispute was with
respect to the percentage of accumulation of income; whether it should be 25
per cent of the total income or 25 per cent of the balance amount/remainder
after application of the income for charitable purposes of the trust. The facts
of that case are that the assessee-trust received donations in the aggregate of
Rs. 2,57,376. It applied for its charitable purposes the aggregate sum of Rs.
1,70,369 leaving a balance of Rs. 87,010. The dispute arose whether the
assessee is entitled to accumulate 25 per cent of Rs. 2,57,376 or 25 per cent
of the balance amount of Rs. 87,010. The Apex Court has categorically held that
the charitable or religious trust is entitled to accumulate 25 per cent of its
income derived from the property held under the trust. Their Lordships further
held that for the present purposes, the donations, the assessee received in a
sum of Rs. 2,57,376 would constitute its property and is entitled to accumulate
25 per cent thereof.
10. In Board's Circular
No. 2-P(LXX05) dated 15-5-1963 it was explained that the religious or
charitable trust, claiming exemption under section 11(1) must spend at least 75
per cent of its total income for religious or charitable purposes. In other
words, it was not permitted to accumulate more than 25 per cent of the total
income. The total income of the trust for the purposes of section 11(1) was
explained by the Board by another Circular No. 5-P(LXX-6) of 1968 dated
19-6-1968.
11. In the case of
Munisuvrat Jain (supra) the issue arose with regard to the allowability of
depreciation under section 32 of the Act and Their Lordships of the Bombay High
Court have held that in such type of cases, section 32 of the Act providing for
depreciation for computation of income derived from business or profession in
respect of assets specified therein which are used for business or profession
is not applicable. Nevertheless, the income of the trust must be computed under
section 11 of the Act after providing for allowance of normal depreciation and
deduction thereof from the gross income of the Trust. Similar view was again
expressed by the Hon'ble Bombay High Court in the case of Institute of Banking
Personnel Selection (supra). One more issue has been raised before the
jurisdictional High Court with regard to the carry forward of the excess of the
expenditure for its set off against the surplus of the subsequent I.T.A.
No.7131/Mum/2017 years. The Hon'ble High Court has examined this issue in the
light of the revenue's argument that the expenditure incurred in earlier years
cannot be met out of the income of the subsequent years and that utilization of
such income for meeting the expenditure of earlier year would not amount to
application of income for charitable or religious purposes. In that case, the
Assessing Officer did not allow carry forward of the excess of expenditure to
be set off against the surplus of the subsequent years on the ground that in
the case of a charitable trust, their income was assessable under self
contained code mentioned in sections 11 to 13 of the Act and that the income of
the charitable trust was not assessable under the head "Profits and gains
of business" under section 28 of the Act under which the provision for
carry forward of losses was relevant. Their Lordships did not agree with the revenue's
contentions and have held that the income derived from the trust property has
also got to be computed on commercial principles and if commercial principles
are applied then adjustment of expenses incurred by the trust for charitable
and religious purposes in the earlier years against the income earned by the
trust on the subsequent year will have to be regarded as application of income
of the trust for charitable and religious purposes in the subsequent year in
which adjustment has been made having regard to the benevolent provisions
contained in section 11 of the Act and that such adjustment will have to be
excluded from the income of the trust under section 11(1)(a) of the Act.
12. The other judgments
in the case of Bhoruka Welfare Trust (supra), Sheth Manilal Ranchhoddas Vishram
Bhavan Trust (supra) and Society of the Sisters of St. Anne (supra) are
rendered with regard to the claim of depreciation while computing the income of
charitable institutions. The issue in dispute is entirely different, and as
such these judgments cannot be applied to the present case. The other judgment
in the case of Birla Janahit Trust (supra) is also rendered in different
context holding therein that the expenditure on salary and miscellaneous
expenditure for the purposes of carrying out the object or purposes of the
trust must be considered as application for charitable purposes. Likewise, the
other judgments referred to by the assessee are also rendered in different
context. None of the judgments referred to by the assessee is on the issue in
dispute.
13. The issue in
dispute is whether the assessee is entitled to first accumulate or set apart 25
per cent of the total income of the trust and then claims a carry forward of
the excess amount, incurred on application for purposes of the trust, over and
above the remaining income, i.e., 75 per cent of the total income for its set
off against the income of the trust in succeeding year. The carving of the
funds to the extent of 25 per cent of the total income is hypothetical
situation and it was not envisaged by the Legislature. The Hon'ble Bombay High
Court in the case of Institute of Banking (supra) have examined the situation
where the assessee has incurred or applied the expenditure more than I.T.A.
No.7131/Mum/2017 the total income of the trust in a particular year and claimed
carry forward of the excess expenditure to succeeding year for its set off
against the income of the trust and Their Lordships have held that the income
derived from the trust property has also got to be computed on commercial
principles and if the commercial principles are applied then the adjustments of
expenses incurred by the trust for charitable and religious purposes in earlier
years against the income earned by the trust in the subsequent year will have to
be regarded as application of income of the trust for charitable and religious
purposes in subsequent years in which the adjustments have been made having
regard to the benevolent provisions contained in section 11 of the Act, but in
the instant case, the assessee has claimed the accumulation or set apart of 25
per cent of total income first and thereafter carry forward of the excess
expenditure incurred for charitable purposes to succeeding year for its set off
against the income of the trust. This proposition of the assessee cannot be
accepted as the exemption is to be allowed on application of the income of the
assessee and not for its accumulation. The accumulation of 25 per cent of the
total income is permissible when the assessee failed to apply the total income
of the trust in a particular year. If the assessee applies the entire income of
the trust he is entitled to claim 100 per cent exemption and there is no
question of further accumulation of 25 per cent of the total income of the
assessee. If the assessee incurs more expenditure than the total income of the
trust the expenditure over and above to the income can be carried forward and
is allowed to be set off against the income in succeeding year. In the instant
case, the assessee has incurred expenditure or applied for charitable religious
purposes Rs. 58,09,87,048 against the total income of Rs. 35,60,82,101. In this
case, he is entitled to claim the carry forward of the excess expenditure but
he will not be allowed to accumulate 25 per cent of the total income first and
then claim the excess expenditure for its carry forward to subsequent years. We
accordingly set aside the order of the CIT(A) and restore the matter to the
file of the Assessing Officer with a direction to allow the carry forward of
the excess expenditure incurred by the assessee to subsequent year for its set
off only in terms indicated above.
14. In the result, the
appeal of the assessee is partly allowed for statistical purposes in the manner
as indicated above.‖ The Ld. CIT(A) has also relied upon while deciding this
issue in favour of Revenue on the decision of tribunal in ITA no. 5383/Mum/2011
in ITO(E) v. Lakshmi and Usha Mittal (Formerly known as The LNM Foundation) ,
dated 23.10.2012 wherein tribunal held as under:
―4........We have heard
the rival submissions and have perused material placed before us. We find that
‗A' Bench of ITAT, Mumbai vide its order dtd.13-05-2009 (ITA No. 170/M/08 AY
2003-04) has decided the same issue vide para No.3 of its order as under:
I.T.A. No.7131/Mum/2017
―We have heard both the parties, peruse the records and considered the matter
carefully. The issue whether deficit in the income and expenditure in case of
charitable institutions can be carried forward to subsequent year and adjusted
towards application of income has been decided by the Jurisdictional high Court
in the case of Institute of Banking (supra), in which it has been held that
excess expenditure in earlier year can be adjusted against income in the
subsequent year and such adjustment has to be treated as application of income
in the subsequent year. Thus the assessee would be entitled for carrying
forward of deficit to subsequent year, which would be treated as application of
income in that year.
However, in computing
the deficit, addition @ 15% of the gross receipt cannot be allowed as such
accumulation is permissible only when the expenditure is less than the income
which is not so in this case. Therefore, the deficit available for carry
forward to the subsequent year will be only Rs. 75,58,503/-. This view is also
supported by the decision of the Tribunal in the case of the L.N.M. Foundation
in ITA No. 4422/M/05 It is, therefore held that the assessee would be entitled
for carry forward of deficit of Rs.75,58,503/- which would be treated as
application of income in the subsequent year. We hold, accordingly.‖ Keeping in
view our detailed discussions in the preceding para's of this order and
Respectfully following the aforesaid decision of Hon'ble Supreme Court in the
case of ACIT v. A.L.N.Rao Charitable Trust(supra), Hon'ble Bombay High Court
decision in the case of Institute of Banking Personnel Selection(IBPS)(supra)
and decisions of Mumbai tribunal in the case of Dawat Institute of Dawoodi
Bohra Community (supra) and ITO(E) v. Lakshmi and Usha Mittal (Formerly known
as The LNM Foundation)(supra), we hold that under factual matrix of the case
before us, the assessee trust shall not be allowed exemption owing to
accumulation of income to the tune of 15% of its income as is provided under
second limb of Section 11(1)(a) of the 1961 Act as its expenditure towards the
objects of the trust has already exceeded its income from property held for
charitable purposes. However, as provided by Hon'ble Bombay High Court in the
case of Institute of Banking Personnel Selection(IBPS)(supra), the assessee
will be entitled for carry forward of excess of expenditure incurred towards
objects of the trust in excess of income from property held for charitable
purposes , as is allowable as provided under first limb of provisions of
Section 11(1)(a). Both Revenue appeal as well assessee's CO stood dismissed. We
order accordingly.
11. In the Result,
appeal of the Revenue in ITA no. 6544/Mum/2017 and CO
No.354/Mum/2018 filed by the assessee for the impugned assessment year
2012-13stood dismissed. ― 6.3 The appeal of the Revenue and also CO filed by
the tax payer was dismissed by the tribunal in the case of The Executive Board
of the Methodist Church(supra), wherein tribunal allowed excess of the
expenditure incurred towards the objects of the trust over income from property
held for charitable purposes being deficit to be carried forward to subsequent
years to be allowed to be set off against I.T.A. No.7131/Mum/2017
income/surplus of the subsequent years. But, however, the tribunal in the case
of The Executive Board of the Methodist Church in India disallowed the
accumulation/deduction of 15% of the income under second limb of Section
11(1)(a) of the 1961 Act on the grounds that once expenditure incurred by the tax-payer
trust towards objects of the trust is already exceeding income from property
held for charitable purposes , it cannot be allowed further
accumulation/deduction of 15% of the income under second limb of Section
11(1)(a) of the 1961 Act , which decision of the tribunal was based on
decisions of Hon'ble Apex Court in the case of ALN Rao(supra), decision of
Hon'ble Bombay High Court in the case of Institute of Banking Personnel
Selection(supra) and several decisions of ITAT. We have also observed that the
assessee has relied upon decision of SMC(Single Member) , ITAT, Mumbai decision
in its own case in ITA no. 3775/Mum/2015 , order dated 30.09.2015 for AY
2008-09 , wherein SMC, ITAT, Mumbai held in favour of the assessee , by holding
as under;-
"8. Ground nos. 3
to 5 relate to the disallowance of carry forward of deficit of Rs. 65,41,073/-.
In the return of income, the said amount was claimed as set-off against the
accumulated carried forward deficit of earlier years. AO did not consider the
same and made a disallowance. On appeal, After considering the submissions of
the assessee, CIT (A) granted relief vide paras 4.3 and 4.4 of the impugned
order. Aggrieved with the said decision of the CIT (A) Revenue is in appeal
before the Tribunal vide ground nos. 3 to 5 of the appeal.
9. During the
proceedings before the Tribunal, Ld DR relied on the order of the AO.
10. On the other hand,
Ld Counsel for the assessee heavily relied on the order of the CIT (A) and
reiterated the submissions made before the lower authorities.
On hearing the Ld
Representatives of both the parties and on perusal of the orders of the Revenue
Authorities in general and paras 4.3 and 4.4 of the CIT (A)'s order in
particular, I find the same are relevant in this regard. Considering the significance
of the said paras 4.3 and 4.4 of the impugned order are extracted as under:
―4.3. I have perused
the order of the appellant for AY 2005-06 vide appeal no. CIT
(A)-I/IT-E1(81)/2011-12 I.T.A. No.7131/Mum/2017 and also noted that the Ld CIT
(A) has allowed carry forward of losses for AY 2005-06. I see that the facts
and the grounds are the same in the current year as were in AY 2008-2009.
4.4. Further, in view
of the judgment of the jurisdictional High Court in the case of CIT vs.
Institute of Banking (2003) 204 ITR 110 (Bom) cited by the appellant, in my
opinion, the appellant deserves to succeed in regard to this ground of appeal.
Accordingly, I hold that the AO was wrong in disallowing the set-off of brought
forward deficit of earlier years against the current year's surplus of Rs.
65,41,073/-. The AO is directed to allow the same.
11. It is a settled
issue that any surplus amount of the current year can be set-off against the
brought forward deficit of the earlier years and the same view was even supported
by the Hon'ble jurisdictional High Court vide its judgment in the case of CIT
vs. Institute of Banking (supra). Considering the same, I am of the opinion
that the CIT (A) has rightly adjudicated the issue by granting relief to the
assessee. Therefore, the CIT (A)'s decision is fair and reasonable and it does
not call for any interference. Accordingly, Ground no. 3 to 5 raised by the
Revenue are dismissed.‖ 6.4 We have also noted that the assessee has relied
upon the judgment of Hon'ble Bombay High court in the case of CIT(E) v. Dawat
E. Hadiyah in ITA no. 741 of 2016 along with ITA no. 755 of 2016 , vide order
dated 03.12.2018 , wherein Hon'ble Bombay High Court by relying on the decision
of Hon'ble Apex Court in the case of CIT v. Rajasthan and Gujarati
Charitable Foundation Poona in Civil Appeal No. 7186 of 2014 vide judgment
dated 13.11.2017 held that the issue of carry forward of excess of expenditure
towards objects of the truts over its income being deficit to subsequent year
to be set off against the income/surplus of subsequent year stood concluded by
aforesaid judgment of Hon'ble Apex Court and hence question proposed did not
give rise any substantial question of law which was not entertained by Hon'ble
Bombay High Court, by holding as under:-
" 1. These Appeals
under Section 260-A of the Income Tax Act, 1961 (the Act) challenges the common
order dated 30th July, 2015 passed by the Income Tax Appellate Tribunal (the
Tribunal). The common impugned order relates to Assessment Years 2010-11 and 2011-12.
2. The Revenue has
urged the following re-framed questions of law in both the appeals for our
consideration :-
(i) Whether on the
facts and in the circumstances of the case and in law, the Tribunal was right
in allowing the appeal of the assessee on account of disallowing depreciation
on fixed assets for A.Y. 2010-11 and 2011-12 ?
(ii) Whether on the
facts and in the circumstances of the case and in law, the Tribunal erred in
allowing the carry forward of deficit for A.Y. 2010-11 and 2011-12 and allowing
set off against the income of the subsequent years ?
3. Mr. Kotangle,
learned Counsel appearing for the Revenue very fairly states that the issues
raised herein stands concluded against the Revenue and in favour of the
respondent assessee by the decision of the Apex Court in Commissioner of Income
Tax-III, Pune Vs. Rajasthan & Gujarati Charitable Foundation Poona, (2018)
89 Taxmann.com 127. Thus, the questions as proposed do not give rise to any
substantial questions of law. Thus, not entertained.
4. Both the appeals are
dismissed. No order as to costs.‖ 6.5 Thus keeping in view our detailed
discussion as above and the consistent view taken by Hon'ble Courts and
co-ordinate Benches of the tribunal in favour of the tax-payer on this issue of
carry forward of excess of expenditure incurred towards the object of the trust
over income of the tax-payer trust from property held for charitable purposes
to the subsequent years to be set off against income/surplus of the subsequent
years, we dismiss the appeal of the Revenue by adjudicating this issue in
favour of the assessee. While dismissing the appeal of the Revenue, we also
note that the Revenue has raised one of the grounds of appeal in memo of appeal
filed with the tribunal wherein it is contended that Revenue's SLP in the case
of MIDC (SLP (Civil) 9891 of 2014) on this issue is pending before Hon'ble
Supreme Court, which we have observed that as of now the said SLP was dismissed
by the Hon'ble Supreme Court vide orders dated 13.12.2017, in CA No.
009813/2014 registered on 13.10.2014 in SLP(C) no. 009891/2014 in DIT v. MIDC.
Thus, we have no hesitation in holding that the assessee would be entitled to
carry forward excess of expenditure incurred towards objects of the trust over
income from I.T.A. No.7131/Mum/2017 property held for charitable purposes being
deficit to the tune of Rs. 14,30,11,390/- for the impugned year to be carried
forward to subsequent years to be set off against income of the subsequent
years. The Revenue fails in its appeal. We order accordingly.
7. In the result,
appeal of the Revenue in ITA no. 7131/Mum/2017 for AY 2010-11 stand dismissed.
Order pronounced in the open court on 01.03.2019.
Sd/-
Sd/-
(SAKTIJIT DEY) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai,
dated: 01.03.2019
Nishant
Verma
Sr.
Private Secretary
copy to...
1. The
appellant
2. The
Respondent
3. The
CIT(A) - Concerned, Mumbai
4. The
CIT- Concerned, Mumbai
5. The DR
Bench,
6. Master
File
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
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