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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the Revenue challenging the impugned order dated 18/01/2019, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by learned Commissioner of Income Tax (Appeals)– 3, Mumbai, [“learned CIT(A)”], for the assessment year 2014–15.
In its appeal, the Revenue has raised the following grounds:
“1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) is justified in allowing the assessee's claim of benefit of 30% standard deduction from the rented property under the head of income from house property ignoring the judgment in the case of CIT Vs. Programme for Guru Nanak Vidyak Society ITA No.3222/Mum./2019 Community Organization [2001] 248 ITR 1 (SC) and CIT VS, Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad) wherein it was clearly stated that the income of a trust is that which is available, so that the same is to be computed and arrived at in the commercial sense and it is not to be computed under any head of income".
2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) is right in allowing assessee's claim of standard deduction (30%) from the rented property under the head of income from house property ignoring the judgment in the case of M/s Nandlal Tolani Charitable Trust (149 ITD 357) (Mumbai Tribunal) (2014) & in the case of M/s Cutchi Memon Union (60 SOT 260) (Bangalore Tribunal) (2013) wherein it was held that while computing income of a trust, deduction u/s 24(a) of the I.T. Act from property held for charitable or religious purpose cannot be allowed.
3. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) right in directing the A.O. to verify the claim of the assessee and allow the claim of expenses of Rs.31,93,48,721/- as application of income u/s. 11(1) of the I.T.Act as against the expenses of Rs.29,62,28,856/- claimed by the assessee in the return of income ignoring the fact that the A.O, cannot allow expenses as application of more than the claim made by the assessee in the return of income while processing the return of income u/s 143(1) of the I.T. Act, 1961.
4. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is correct in directing the AO to allow 15% exemption u/s 11(1)(a) of the I.T. Act, 1961 as claimed by the assessee in row 9(v) of Part B-TI of the ITR which is restricted the maximum of 15% (7-8) and in row 7. the income falling in section 11 is shown at Nil clearly showing that there is no error in processing u/s 143(1) of the I.T. Act and if there is any error in the return of income about such claim, without lawfully correcting the same, the exemption claimed by the assessee cannot be allowed u/s 143(1) of the I.T. Act.
5. The appellant prays that the order of the Commissioner of Income Tax (Appeals)-3, Mumbai be set aside and that of the Assessing Officer be restored.
6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary".
The issue arising in grounds no. 1 and 2, raised in Revenue‟s appeal, is pertaining to the grant of deduction under section 24(a) of the Act on rental income earned by the assessee trust.
The brief facts of the case pertaining to this issue are: The assessee is a registered charitable trust, vide registration No. G/g(a)/94. For the year under Guru Nanak Vidyak Society ITA No.3222/Mum./2019 consideration, the assessee filed its return of income on 17/03/2015 declaring total income at Rs. Nil. The return of income filed by the assessee was processed vide intimation dated 16/03/2016 issued under section 143(1) of the Act determining the total income of the assessee at Rs. 5,46,50,346. While processing the return of income under section 143(1) of the Act, the AO computed „Income from House Property‟ at Rs. 79,15,551 and „Amount of Accumulated or Finally Set Apart for Application to Charitable or Religious Purposes‟ at Rs.Nil.
The learned CIT(A) vide impugned order directed the AO to compute the „Income from House Property‟ after allowing standard deduction under section 24(a) of the Act. Being aggrieved, the Revenue is in appeal before us.
We have considered the rival submissions and perused the material available on record. The assessee during the year earned a rental income of Rs.79,15,551. While filing its return of income, the assessee reduced 30% as standard deduction from its rental income and declared Rs.55,40,886 as income from house property. Vide intimation issued under section 143(1) of the Act, the standard deduction of 30% claimed by the assessee was disallowed, which was overturned by the learned CIT(A) granting relief to the assessee. Thus, the issue arises whether the assessee, being a trust, is entitled to claim a deduction of a sum equal to 30% of the annual value under section 24(a) of the Act. We find that the Hon‟ble Madras High Court in CIT vs Rao Bahadur Calavala Cunnan Chetty Charities, [1982] 135 ITR 485 (Mad.) held that the income from property held under trust would have to be arrived Page | 3
Guru Nanak Vidyak Society ITA No.3222/Mum./2019 at in a normal commercial manner without reference to the provisions which are attracted by section 14. The relevant findings rendered by the Hon‟ble Madras High Court, in the aforesaid decision, are as under:
“The Tribunal has in a way mixed up the notion of total income in understanding the expression "income from property held under trust". Section 14 occurs in the chapter "Computation of total income". It provides that all income for the purposes of charge of income-tax and computation of total income be classified under certain heads. Therefore, the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chap. III. There is one further error in the order of the Tribunal. The Tribunal has proceeded on the basis that the receipts from rents amounting to Rs. 1,31,412 during the year ending with 31st of March, 1965, would have to be considered under the head "Income from house property" and the net income arrived at under that head. In the view that we have explained above, the determination of the income as if the sum of Rs. 1,31,412 relates to house property and would, therefore, have to be considered in the context of the provisions of ss. 22 to 27, would not be correct. Those provisions enact certain technical rules for the purpose of the ascertainment of income for the particular head for purposes of charge and as seen already that cannot be imported into the determination of the income of the property held in trust for the purpose of s. 11 which excludes that income from the computation of total income. The view that we have taken above is also consistent with the circular of the Central Board of Direct Taxes dated 19th June, 1968, reproduced in V.S. Sundaram's Law of Income Tax in India, 11th Edn., p. 798.”
Thus, respectfully following the aforesaid decision of the Hon‟ble Madras High Court, we direct the AO to disallow the deduction of 30% claimed by the assessee on rental income. As a result, grounds no. 1 and 2 raised in Revenue‟s appeal are allowed.
The issue arising in grounds No. 3 and 4, raised in Revenue‟s appeal, is pertaining to the computation of exemption under section 11 of the Act.
Guru Nanak Vidyak Society ITA No.3222/Mum./2019 9. The brief facts of the case pertaining to this issue are: During the year, the assessee earned total revenue of Rs.35,10,20,199, while it incurred a total expenditure of Rs.31,93,48,721. Since the expenditure incurred by the assessee was higher than the 85% of the income required to be spent as per section 11 of the Act, therefore, the assessee restricted the claim of expenditure to the extent of its income, without claiming any carry forward of loss (i.e. the difference between the amount required to be spent in the amount actually spent). The AO vide intimation issued under section 143(1) of the Act considered the income at Rs.35,08,79,202 and allow the expenditure of Rs.29,62,20,856 instead of Rs.31,93,48,721 being actual expenditure incurred by the assessee. The learned CIT(A) vide impugned order allowed the appeal filed by the assessee on this issue. The learned CIT(A) directed the AO to allow 15% exemption under section 11(1)(a) and also directed that expenses be allowed to be set off to the extent of the income.
We have considered the rival submissions and perused the material available on record. As per section 11 of the Act, the income derived from property held under trust wholly for charitable or religious purposes, to the extent applied to such purposes in India shall be excluded while determining the total taxable income of the trust for the year under consideration. The said exemption shall not be in excess of 15% of such income accumulated, as per the provisions of section 11 of the Act. Since vide intimation under section 143(1) the claim for accumulation under section 11(1)(a) was taken as Nil, therefore, we find no infirmity in the order passed by the learned CIT(A)
Guru Nanak Vidyak Society ITA No.3222/Mum./2019 directing the AO to allow 15% exemption under section 11(1)(a) as claimed by the assessee as per the law. Further, since the expenditure actually incurred by the assessee is much higher than the 85% of income which is required to be spent under section 11, therefore, we find no infirmity in the direction of the learned CIT(A) to allow the set off of expenses to the extent of the income. As a result, grounds No. 3 and 4 raised in Revenue‟s appeal are dismissed.
In the result, the appeal by the Revenue is partly allowed. Order pronounced in the open Court on 30/01/2023