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Income Tax Appellate Tribunal, DELHIBENCH ‘E’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the Revenue against the order of ld. CIT(A)-40, New Delhi dated 13.07.2018.
Following grounds have been raised by the Revenue:
“(i) On the facts and in the circumstances of the case and in law, Whether the Ld. CIT(A) has erred in directing the AO to asses and allow expenditure under the different heads whereas Hon’ble High Court in this case while denying benefit of section 11 & 12 did not detail anything about different heads of income & expenditure. The High Court had simply restored the matter to the file of AO to examine the aspect of granting allowabality of expenditure and depreciation if admissible, in accordance with law.
(ii) On the facts and in the circumstances of the case, whether the Ld CIT(A) erred in directing the A.O
2 Mehta Charitable Prajanalaya Trust to allow deduction under section 80G of the Act after verification though the issue of allowing 80G has not been specifically directed by the High Court.
(iii) On the facts and in the circumstances of the case and in law, whether the Ld CIT(A) erred in appreciating the direction of Hon’ble High Courte specially with respect to allowance of all the expenditure narrowing its scope to only few heads.”
The facts of the case are return of income was filed on 01.10.2013 declaring Nil income. The case was selected for scrutiny under compulsory category through CASS and notice u/s 143(2) of the Income Tax Act, 1961 was issued on 22.09.2014. The assessee is a trust which was created on 08.09.1971 and is registered u/s 12A vide order dated 28.11.1975.
The Assessing Officer based on the history of the case wherein for assessment years 2001-02, 2005-06 to 2012-13, exemption u/s 11 was denied and gross income was assessed to tax as income of the trust. It was a fact on record that for assessment years 1992-93 to 1994-95, 2001-02, 2005-06 to 2007-08, the Revenue filed appeals before Hon'ble Delhi High Court against the decision of the ITAT granting exemption to the trust. Based on the decision of the Delhi High Court in Judgment dated 20.11.2010, it was held that exemption cannot be allowed to the assessee. Further, it was also noted that vide order dated 02.12.2013 for assessment year 2009-10, the Hon'ble Delhi High Court had directed that “if claim of the assessee regarding expenses and depreciation on taxable income is found to be allowable, the same should be allowed”.
3 Mehta Charitable Prajanalaya Trust Later, as per the directions of the Addl. CIT(E), Range-1 issued consequent to the application moved by the assessee for seeking directions in the case for non inclusion of income from charitable activities in taxable income and allowing expenditure and depreciation out of business income in view of the decision of the Hon'ble Delhi High Court vide order dated 02.12.2013, income was computed wherein gross income from lease rental and interest was considered to be business income on which admissible deductions, including depreciation, were allowed and certain inadmissible expenses disallowed and net business income was computed at Rs.2,12,67,640/-.
Income from charitable activities was computed separately since the assessee continued to be registered under section 12A and continued to do charitable activities. Accordingly, income from the charitable activities was considered separately. The assessee had shown gross receipts for the said activities amounting to Rs.94,81,505/- as against which expenses amounting to Rs.3,91,94,612/- were claimed. The AO thus determined an amount of Rs.2,12,67,640/- as taxable income.
Before the ld. CIT(E), the assessee filed details of income and expenses from the “charitable activities”:
MEHTA CHARITABLE PRAJANALAYA TRUST, DELHI Set off of following activities not allowed by Assessing Officer in A.Y. 2013-14 S.No. Activity Income Expense Net Deficit 1 Hospital 1,936,292 10,566,046 8,629,754 2 Schools 5,790,116 9,958,771 4,168,655 ft. 3 Cow Shelters 190,285 3,794,673 3,604,388 4 Temples 292,611 1,789,293 1,496,682 5 Donations 89,528 2,015,171 1,925,643 6 Misc. Income 13,651 - (13,651)
4 Mehta Charitable Prajanalaya Trust 7 Expenses on lectures, literature - 1,129,471 1,129,471 Books etc. 8 Stipend to poor & fooding - 563,188 563,188 Expenses 9 Eye Camp Expenses - 9,328 9,328 10 Expenses on Sanskar Yojna - 6,785,343 6,785,343 11 Water distribution in Villages - 98,345 98,345 12 Ved Nidhi Vedic Expenses - 176,452 176,452 13 Tractor Hiring Charges - - - Allahabad Kumbh Exp - 1,298,125 1,298,125 14 15 Construction of Cremation head - 161,469 161,469 16 Agricultural Activity 1,169,022 811,501 (357,5210) 9,481,505 39,157,176 29,675,671
The ld. CIT(E) held that “since exemption under section 11 is not to be allowed to the assessee as per the decision of the Hon’ble Delhi High Court in appellant’s own case, the said income has to be taxed under the head “Income from other sources”. Further, while computing income under the head “Income from other sources” any expenditure (not been in the nature of capital expenditure) laid out or expended for the purpose of making or earning such income is to be allowed as deduction as per the provisions of section 57(iii). From the details as reproduced above, it is seen that no income has been earned for some of the expenses incurred Sl. Nos. 7 to 15 of the table in para 6.2.4. Hence, expenditure incurred on these counts cannot be allowed in computing income from other sources. Further, since income from agricultural activity is exempt from tax, expenditure incurred on such activity is also not be allowed as expenditure From the details it is also seen that the appellant has received donation of Rs. 89,528/- against which expenses amounting to Rs. 20,15,171/- on account of donation paid have been shown. Since donation is a voluntary contribution, no expenditure can be allowed for earning such income. However, in case of donations paid, the said amount is 5 Mehta Charitable Prajanalaya Trust to be allowed as deduction u/s 80G in case donations paid are to entities which are approved for the purpose of section 80G. Accordingly, the Assessing Officer is directed to-
i. assess the income of the assessee with respect to activities categorized as charitable activities in the assessment order as income from other sources after verifying the expenditure incurred against SI. No. 1 to 4; ii. no expenditure is to be allowed with respect to items at Sl. No. 7 to 15 since no income has been earned as per of section 57(iii); iii. allow deduction tinder section 80G for donations paid amounting to Rs. 20,15,171/- after verifying that the entities to whom donations have been given are approved for the purpose of section 80G and to the extent of donations paid to entities approved under section 80G as per the relevant provisions of the Income Tax Act. iv. not allow expenditure on agricultural activity since the said income is exempt from tax; and v. allow set off of business income with loss computed under the held "Income from sources" after examining the applicability of the same as per the provisions of the Income Tax Act.
From the adjudication of the ld. CIT(E), we find that the revenue authorities have duly allowed the depreciation and other expenses as directed to be considered by the Hon’ble High Court. The revenue authorities have also allowed to set off of the business income with loss computed under the head “income
6 Mehta Charitable Prajanalaya Trust from other sources” which is in tune with the provisions of the Income Tax Act. Since, exemption u/s 11 is not to be allowed as per the orders of the Hon’ble High Court, the expenditure on which is unrelated to the earning of the income only has been disallowed.
Hence, we decline to interfere with the order of the ld. CIT(E). The appeal of the revenue stands dismissed.
With regard to the application for admission of additional ground under Rule 27, the same has been allowed. The assessee has taken up the grounds to treat the income earned by the assessee to be assessed under the head “business income”. We find that the revenue authorities have duly allowed the expenditure and depreciation incurred in connection with the earning of the income. The income from business activities was also allowed to be set off against the loss from income from other sources. The assessee has filed return claiming exemption u/s 11. As the exemption is not allowed by the revenue, the income is treated as the business income of “AOP”.