C.I.T., BIKANER vs. KRISHI UPAJ MANDI SAMITI

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ITA/47/2013HC RajasthanRJHC01020795201326 April 201613 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT was justified in allowing the exemption under Section 11(1)(a) of the Act. The Court relied on its own precedent in CIT vs. Maharana Mewar Charitable Foundation, which established that expenditure incurred in excess of income in a previous year, even if met from accumulated funds or corpus, should be allowed to be set off against the income of a subsequent year. To hold otherwise would create an anomaly where taking a loan for charitable purposes and repaying it from subsequent income would be eligible for exemption, but using accumulated funds for the same purpose and reimbursing from subsequent income would not. The Court distinguished the decision in Shri Akhey Ram Ishwari Prasad Trust, stating it was not preceded by consideration of Section 11(1)(a) and the Maharana Mewar Charitable Foundation case, and therefore, did not lay down a universal principle for all such cases. Furthermore, the Court noted that the Revenue had accepted the ITAT's decision on similar issues for earlier assessment years, precluding it from taking a different stand. The appeals were dismissed.

What were the facts?

The appeals by the Commissioner of Income Tax (Revenue) challenge the Income Tax Appellate Tribunal's (ITAT) order allowing exemption under Section 11(1)(a) of the Income Tax Act, 1961, to four Krishi Upaj Mandi Samitis (Assessees) for the assessment year 2008-09. The Assessees claimed charitable trust status and applied their income for charitable purposes. However, their expenditure exceeded their income for the relevant previous year, with the excess being met from surplus in their Public Deposit (PD) accounts, which represented accumulated funds from earlier years. The Assessing Officer (AO) rejected the exemption, deeming the excess expenditure from accumulated funds ineligible. The Commissioner of Income Tax (Appeals) upheld the AO's order. The ITAT, however, allowed the Assessees' appeals, relying on its prior decision.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was justified in allowing the claim of Rs. 2,76,65,446/- (and similar amounts for other appeals) as application of income under Section 11(1)(a) of the Income Tax Act, 1961? Assessee's contentions: - The issue stands decided in their favour by the ITAT in a prior appeal (ITA No.385/JU/2009). - Relied on the High Court's decision in CIT vs. Maharana Mewar Charitable Foundation and Gujarat High Court's decision in CIT vs. Shri Plot Swetamber Murti Poojak Jain Mandal. - The ITAT's power under Section 254 of the Act allows it to entertain claims for deduction, even if not made before the AO via a revised return, citing Goetze (India) Ltd. Revenue's contentions: - The ITAT erred in relying on its earlier decision in ITA No.385/JU/2009, which was based on CIT vs. Maharana Mewar Charitable Foundation. The facts in the present case are different as the excess expenditure was incurred from the corpus fund (surplus in PD account from earlier years). - The matter is squarely covered by this Court's decision in Shri Akhey Ram Ishwari Prasad Trust vs. CIT, which held that expenditure in excess of income from charity fund/accumulated fund of earlier years disentitles the assessee to exemption under Section 11(1)(a). - The ITAT's earlier decision in ITA No.385/JU/2009, which was not appealed against, had attained finality.

Which sections of the Income-tax Act were involved?

Section 11(1)(a),Section 143(2),Section 10(26AAB),Section 254

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Cited by 6 judgments on BharatTax

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Cause title — parties, addresses and appearances
COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR (D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR

ORDER

1.

COMMISSIONER OF INCOME TAX, BIKANER VS.

(D.B.INCOME TAX APPEAL NO.47/13)

2.

(D.B.INCOME TAX APPEAL NO.48/13)

3.

(D.B.INCOME TAX APPEAL NO.50/13)

4.

(D.B.INCOME TAX APPEAL NO.51/13) Dated:- 26th April, 2016. HON'BLE MR.JUSTICE SANGEET LODHA HON'BLE MR.JUSTICE KAILASH CHANDRA SHARMA Mr.K.K.Bissa, for the appellants. Mr.Rajesh Choudhary, for the respondents. BY THE COURT :- (PER HON'BLE MR.SANGEET LODHA,J.)

1.

These appeals arising out of the common order dated 4.12.12 passed by the Income Tax Appellate Tribunal (ITAT), Jodhpur Bench, Jodhpur, allowing the appeals preferred by the assessees, questioning the legality of the orders passed by the Commissioner of Income Tax (Appeals) [CIT (A)], affirming the Income Tax Act, 1961 (for short “the Act”), involving identical substantial question of law, were heard together and are being disposed of by this common order.

2.

The relevant facts in nutshell are that assessees, Agriculture Produce Market Committees, filed Return of Income for the assessment year 2008-09, claiming the status as Charitable Trust. Indisputably, the income derived during the previous year relevant to assessment year 2008-09, was applied by the assessees for charitable purposes, however, the expenditure incurred by the assessees towards the charitable aims and objects, were found to be in excess of the income earned in the previous year, relevant to the assessment year in question. It was also not in dispute that the excess expenditure was incurred by the assessees for charitable purposes out of surplus in Public Deposit Account (PD Account). Keeping in view a Bench decision of this court in “Shri Akhey Ram Ishwari Prasad Trust vs. CIT”, (2004) 266 ITR 281, the A.O. issued notices to the assessees under Section 143(2) of the Act, to justify their claim for deduction under Section 11 (1)(a) of the Act.

3.

In reply, the assessees pleaded that the issue stands decided in their favour by ITAT, Jodhpur Bench, in ITA No.385/JU/2009. The assessees also placed reliance upon a COMMISSIONER OF INCOME TAX, BIKANER VS.

decision of this court in the matter of “CIT vs. Maharana Mewar Charitable Foundation” (164 ITR 439) and a decision of the Gujarat High Court in case of “CIT vs. Shri Plot Swetamber Murti Poojak Jain Mandal”, (1995) 211 ITR 263. 4. The A.O. arrived at the finding that the expenses in excess of the income in the previous year relevant to the assessment year, were incurred by transferring the fund from interest bearing PD account to the non interest bearing PD account and thus, the excess expenses having been incurred from charity fund/accumulated fund for earlier years, the assessees are not entitled to exemption under Section 11(1) (a) of the Act and accordingly, assessed the income of the assessees during the previous year relevant to the assessment year as taxable income.

5.

Aggrieved by the assessment orders, the appeals preferred by the assessees before the CIT (A) failed. Aggrieved thereby, the assessees carried the matters in further appeals, which have been allowed by the ITAT vide orders impugned, relying upon its earlier decision dated 1.9.09 rendered in ITA No.385/JU/2009. The operative portion whereof quoted in the order impugned, reads as under:

“6. We have heard the parties and have carefully perused the material on record with reference to Sub-rule)(6) of Rule 18 of Appellate Tribunal Rules, 1963 and the COMMISSIONER OF INCOME TAX, BIKANER VS.

precedents cited at bar. The Hon'ble Apex Court in Goetze [India] Ltd [supra] has clarified that the issue as regards making of fresh claim for deduction otherwise than filing revised return is limited to the powers of assessing authority and does not impinge on the power of the tri u/s 254 of the I.T.Act. Following this ratio, we are satisfied that when the appellate authority including the ld. CIT(A), entertains a new claim as such, the judgement rendered by the Hon'ble Apex Court in Goetze [India] Ltd [supra] does not impinge his power to entertain the claim for deduction otherwise than by filing revised return before the assessing authority. The ld. CIT(A),therefore, cannot be said to have committed any error in entertaining the claim for deduction made before him as such.” Hence, these appeals by the Revenue.

6.

These appeals were admitted by a coordinate Bench of this court on the following substantial questions of law arising for consideration out of the order impugned passed by the ITAT: D.B.INCOME TAX APPEAL NO.47/13 “Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of Rs.2,76,65,446/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.48/13 “Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of Rs.1,57,89,828/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.50/13 “Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of Rs.8,86,27,401/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.51/13

COMMISSIONER OF INCOME TAX, BIKANER VS.

“Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of Rs.2,45,20,984/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961?”

7.

Learned counsel appearing for the Revenue contended that the ITAT has seriously erred in allowing the appeal relying upon its earlier decision dated 1.9.09 rendered in ITA No.385/JU/2009. Learned counsel would submit that the said decision of the ITAT was based on decision of this Court in the Maharana Mewar Charitable Foundation's case (supra), wherein the assessees had claimed set off of expenditure incurred in the previous year relating to the assessment year 1970-71 against the surplus of income over expenditure relating to assessment year 1971-72. Learned counsel submitted that the facts of the instant case are different inasmuch as the assessees herein have incurred the expenditure out of surplus in PD account as on 31.3.08, which is corpus fund of the Trust out of earlier years savings and therefore, the assessees were not entitled for exemption under Section 11(1)(a) of the Act. Learned counsel would submit that as a matter of fact, the question of law arising in the instant appeals stands squarely covered by a Bench decision of this Court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), wherein this Court held that where the expenditure incurred is in excess of the income earned out of charity

COMMISSIONER OF INCOME TAX, BIKANER VS.

fund/accumulated fund of earlier years, the assessees are not entitled for exemption under Section 11(1)(a) of the Act. On being asked by the Court whether the decision of the ITAT rendered in ITA No.385/JU/2009 and other connected appeals preferred by inter alia the assessees herein, was appealed against before this Court, learned counsel submitted that no appeal was filed against the said decision of the ITAT and the same has attained finality.

8.

On the other hand, learned counsel appearing for the respondent submitted that the controversy involved in these appeals stand covered by decision of this Court in Maharana Mewar Charitable Foundation's case (supra), the decision of Gujarat High Court in Shri Plot Swetamber Murti Poojak Jain Mandal's case (supra), a decision of Delhi High Court in 'Director of Income Tax Vs. Raghuvanshi Charitable Trust' and other connected matters, [2011] 197 TAXMAN 170 [Del] and a decision of Bombay High Court in the matter of 'CIT Vs. Institute of Banking Personnel' (2003) 131 Taxman 386. Learned counsel would submit that the conclusion arrived at by this court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), is not supported Charitable Foundation's case (supra), which is a binding precedent, has not even been taken note of. Learned counsel would submit that the decision rendered by this court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), taking into consideration the facts of that particular case, is not applicable to the facts of the present cases.

9.

We have considered the rival submissions and gone through the decisions relied upon by the learned counsel appearing for the parties.

10.

Indisputably, the assessees have incurred expenditure for charitable purposes during the previous year relevant to the assessment year 2008-09 in excess of the income derived during In Maharana of Mewar Charitable Foundation's case (supra), while dealing with the issue regarding claim for set off of the expenses incurred over the income, in the previous assessment year, against the surplus of the income over expenditure, relating to the subsequent assessment year, a Bench of this court after due consideration of the provisions of Section 11(1)(a) and the various decisions of different High Courts categorically held :

“8. We are unable to accept the aforesaid contention of Shri Arora. In our view, there is nothing in the language of Section 11(1)(a) which lends support to the contention of Shri Arora that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year and utilisation of such income for meeting the expenditure of the earlier year would not amount to such income being applied for charitable or religious purposes. In our opinion, the words used in Section 11(1)(a) must be given their natural meaning. The word “applied” as defined in Chambers' Dictionary means “to put to use” or “to turn to use”. According to the Oxford Dictionary, the word “applied” means “to make use” or “to put to practical use”. assessment year 1970-71 should be set off against the surplus of income over expenditure relating to the assessment year 1971-72 in computing the taxable income of the latter assessment year.” (emphasis added)

12.

As noticed above, in Maharana of Mewar Charitable Foundation's case (supra), this court has categorically observed Maharana of Mewar Charitable Foundation's case (supra), has been consistently followed by different High Courts as well.

14.

Keeping in view the law laid down by this court in Maharana of Mewar Charitable Foundation's case (supra), this Trust's case (supra), heavily relied upon by the Revenue, it is to be noticed that the said decision of a coordinate Bench of this court, affirming the finding of the ITAT, is not preceded by the consideration of the provisions of Section 11(1)(a) of the Act and earlier decision of this court in Maharana of Mewar Charitable Foundation's case (supra) having direct bearing on the facts of the case, was not even brought to the notice of the court. With ustmost respect, in our considered opinion, the decision rendered by a Bench of this court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), taking into consideration the facts of Aditya/

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