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Income Tax Appellate Tribunal, ‘’C’’ BENCH, AHMEDABAD
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’C’’ BENCH, AHMEDABAD BEFORE, SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1958/AHD/2016 With C.O.No.130/Ahd/2016 �नधा�रण वष�/Asstt. Year: 2009-2010
Income Tax Officer Polio Foundation, (Exemptions), Vs. Near Rajwadu, Near Malav Ward-2, Talav, B/h Sunflower Ahmedabad. School, Vejalpur, Ahmedabad-380051. PAN : AAATP1480H
(Applicant) (Respondent) : Revenue by Shri L.P. Jain, Sr.D.R Assessee by : Shri P.M. Mehta, A.R सुनवाई क� तार�ख/Date of Hearing : 14/03/2019 घोषणा क� तार�ख /Date of Pronouncement: 30/04/2019 आदेश/O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax,(Appeals)-9, Ahmedabad [Ld.CIT(A) in short], dated 01/06/2016 arising in the matter of assessment order passed under s. 143(3) r.w.s 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 02/03/2015 relevant to Assessment Year (AY) 2009-10. Assessee has filed Cross Objection bearing no.130/Ahd.2016 in ITA No.1958/Ahd/2016 for A.Y. 2009-10
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The Revenue has raised following grounds of appeal: i) Whether on the facts and in the circumstances of the case the ''Ld.CIT(A) us justified in allowing the assessee’s appeal negating the findings of the Assessing Officer denying the benefits of section 11 of the I.T Act and deleting the additions made of Rs.74,88,239/- ii) On the facts and circumstances of the case, the ''Ld. Commissioner of Income- Tax (Appeals) ought to have upheld the order of the Assessing Officer. iii) It is, therefore, prayed that the order of the ''Ld.Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer be restored. The issue raised by the Revenue is that the Ld. CIT (A) erred in allowing the benefits of section 11 of the Act by deleting the addition of Rs. 74,88,239/- made by the AO.
The facts of the case are that the assessee is a public charitable trust namely “Polio Foundation”. The AO during the assessment proceedings found that the assessee had shown gross receipt for a sum of Rs. 1,11,94,572/- (Rs. 1,12,44,165 – Rs. 49,593/-). The assessee against such gross receipt has claimed an expense of Rs. 35,55,926.00 which is just 33% of the total receipts. The balance amount of Rs. 74,88,239.00 was carried to the balance sheet as surplus which was claimed as exempted under section 11 of the Act.
2.1 The assessee during the assessment proceedings claimed that it had incurred capital expenditure of Rs. 2,45,85,700.00 for the object of the trust which was claimed as application of income. Accordingly it has filed its return of income at nil. The capital expenditure was incurred in addition to the current expenditure as discussed above.
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2.2 However, the AO disagreed with the submission of the assessee as it has not filed the supporting evidences in respect of the capital expenditure as claimed by it. Therefore in the absence of any supporting evidence the AO disregarded the claim of the assessee. Accordingly the AO treated the unutilized income of Rs. 74,88,239/- as income and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before the Ld. CIT (A). The assessee before the Ld. CIT (A) submitted that the capital expenditure incurred by it has to be considered as application of income towards the objects of the trust.
3.1 The assessee also pointed out that the AO did not consider the notes attached and the accounts filed with the return of income. There was clearly mentioned in note-6 that there was an application of income of Rs. 74,38,646.00 out of the total capital expenditure of Rs. 2,45,85,700/- towards the object of the trust. As such in schedule 1 attached to the balance sheet it clearly shows the addition in fixed assets for Rs. 2,45,85,700/- on which the depreciation was claimed.
3.2 The Ld. CIT (A) observed that the assessee has disclosed application of income of Rs. 74,88,239/- in its return of income along with statement of income towards the objects of the trust. Accordingly, the Ld. CIT (A) deleted the addition made by the AO after placing his reliance upon various judgments as discussed in his order.
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Being aggrieved by the order of CIT (A), Revenue is in appeal before us:
The Ld. DR before us vehemently supported the order of the AO.
On the other hand, the Ld. AR before us filed a paper book running from pages 1 to 69 and submitted that the capital expenditure has been treated as application towards the object of the trust. Therefore there cannot be any disallowance u/s 11 of the Act. As such it has not accumulated or set a part any fund as provided under section 11(2) of the Act.
5.1 The Ld. AR drew our attention on the income tax return filed along with the computation of income which is placed on page no. 3 of the PB and demonstrated that the assessee has clearly mentioned in note-6 forming part of the statement of income that the capital expenditure was incurred as application towards the objects of the trust.
5.2 The Ld. AR also filed the copies of the audited financial statements placed on page no. 11 of PB and drew our attention on the amount of capital expenditure incurred for Rs. 2,45,85,700/- during the year. It was also submitted that out of the said capital expenditure, a sum to the extent of Rs. 74,38,646/- was treated as application of income towards the objects of the trust.
Both the Ld. DR and Ld. AR vehemently supported the order of the respective authorities below as favourable to them.
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We have heard rival contention and perused the materials available on record. The issue in the instant case relates whether the assessee is entitled for deduction under section 11 of the Act for the capital expenditure incurred by it as application of income.
7.1 At this juncture, we find important to refer the provisions of section 11 of the Act which reads as under: 11. (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 34 held under trust wholly for charitable or religious purposes, to the extent to which such income 34 is applied 34 to such purposes in India; and, where any such income 34is accumulated 34 or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart 37 is not in excess of 38 [fifteen] per cent of the income from such property;
7.2 A plain reading of the above provision reveals that the assessee is entitled for the deduction of the capital expenditure under section 11 of the Act if it is incurred for the object of the trust as discussed above.
7.3 We also find support and guidance from the judgment of Madras HC in the case of CIT v/s Kannika Parmeshwari Devasthanam and Charities reported in 133 ITR 779 wherein it was held as under: “Section 11 contemplates the computation of the income, in order to find out whether the income has been applied for charitable purposes to the required extent. It is, therefore, necessary for the ITO to find out first what the property held in trust is. He will then have to ascertain the income derived from the said properties of the trust and after ascertaining the income, he will have to examine whether any part of the said income has been accumulated for application. Such accumulation could be only up to a maximum of 25 per cent of the income from the property or Rs. 10,000, whichever is higher. This provision itself shows that to the extent of 75 pr cent of the income, there has to be an application of the income for charitable purposes. It was in the context of the application of the income that the Tribunal in the instant case had observed that the expenditure in improving the property of the trust or maintaining it resulting in the income of the trust being maintained or even
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increased would have to be taken as application for charitable purposes. In coming to this conclusion, the Tribunal had mixed up two things relevant under section 11. Section 11 requires consideration of the objects of the trust and also of the income derived from the property held in trust. The income from the trust properties has to be applied on the objects of the trust. As far as the objects of the trust are concerned, the application of the amount can be for revenue or capital purposes. So long as the expenditure had to be incurred out of the income earned by the trust, even if such expenditure is for capital purposes on the objects of the trust, the income would be exempt. The Tribunal was, therefore, wrong in proceeding on the basis that improvement of a property held under trust would by itself come within the scope of the application of the income for charitable purposes. However, facts would have to be investigated to find out whether the assessee had, in incurring the expenditure of a capital nature, promoted the objects of the trust by applying the income to those objects. The ITO would have to go into this question, as the assessment itself had been set aside by the Tribunal and restored to his file. So long as the income derived from the property held under trust had been expended on the objects of the trust, the income would be exempt under section 11. If this was not done, then the income would not be exempt.”
7.4 We also find support and guidance from the judgment of Hon’ble Gujarat HC in the case of Satya Vijay Patel Hindu Dharamshala Trust Vs. CIT reported in 86 ITR 683 wherein it was held as under:
“So far as the assessment years 1962-63 and 1963-64, governed by section 11 of the 1961 Act were concerned, the question to be decided was whether the use of trust money in construction of new dharamshala was investment of trust fund in furtherance of the trust objectives. The only requirement of section 11(1)(a) is that the income of the trust must be applied to the charitable purposes for which the properties are held on trust. It does not say that the application of the income should be such that it necessarily results in revenue expenditure. The charitable purpose may, in a given case, require for its fulfilment, purchaser of a capital asset and where income is applied for purchase of such a capital asset, it would still be application of the charitable purpose. In the instant case the dominant object of the settlors was to establish Dharamshala for the use of the Hindu public and clause 8 contemplated that the trustees might enlarge the Dharamshala by additional construction. The establishment of additional Dharamshala was therefore, clearly a charitable purpose which within the objects of the trust. It was in order to carry out this charitable purpose which fell within the objects of the trust that the trustees utilised the income of the trust properties and the amounts spent by the trustees in the construction of the new Dharamshala were, therefore, clearly by way of application of income of the trust properties for carrying out a charitable purpose of the trust. The Tribunal was therefore, wrong in holding that the use of moneys in the construction of the new Dharamshala was an investment of the trust funds and not its expenditure.”
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7.5 In view of the above we hold that the capital expenditure incurred by the assessee shall be treated as application of income. Accordingly we do not find any reason to interfere the order of the Ld. CIT (A). Hence the ground of appeal of the Revenue is dismissed.
7.6 In the result, the appeal filed by the Revenue is dismissed.
Now coming to the CO 130/AHD/2016 filed by the assessee.
At the outset learned counsel for the assessee submitted that he has been instructed by the assessee not to press the grounds raised in the CO. Therefore, we dismiss the CO filed by the assessee.
8.1 In the result, the CO filed by the assessee is dismissed.
In the combined result the revenue appeal is dismissed and CO filed by the assessee is dismissed.
Order pronounced in the Court on 30/04/2019 at Ahmedabad.
-Sd- -Sd- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER (True Copy) Ahmedabad; Dated 30/04/2019 manish