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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM आयकरअपीलसं./ I.T.A. No. 1821/Mum/2022 (निर्धारणवर्ा / Assessment Year: 2019-20) Parab Maratha Samaj, NFAC, Delhi बिधम/ 10, 5th floor Mahohar Bldg, Priti Kanha, Chitable Path, Vs. Dadar(W), Mumbai-400 028 स्थायीलेखासं./जीआइआरसं./ PAN No. AAATP4197P (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri Dinesh Shah, Ld. AR प्रत्यथीकीओरसे/Respondent by : Ms. Neeta Jeph, Ld. DR सुनवाईकीतारीख/ : 01.09.2022 Date of Hearing घोषणाकीतारीख / : 30.11.2022 Date of Pronouncement आदेश / O R D E R Per Amit Shukla, Judicial Member: The aforesaid appeal has been filed by the assessee against the impugned order dated 09.05.2022, passed by National Faceless Appeal Centre (NFAC), Delhi for the quantum of assessment passed u/s 143(3) for AY 2019-20. The assessee has raised the following grounds of appeal:-
2 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj 1. Trust was formed orally before 1953 and it carried out activities on small scale with minimal resources and it was formally registered under Bombay Public Trust Act 1950 on 10-01-1966. Subsequently, object clause of trust deed was also amended by AGM and submitted before Charity Commissioner and now benefit is available to the public at large and hence the appellant be allowed benefit of exemption u/s 11 & 12. 2. The assessee trust was registered u/s 12A and 80G vide order dated 30-03-2022 and 06-04-2022 respectively. Appellate proceedings are nothing but extension of assessment proceedings and since the assessee trust has now received 12A and 80G certificates from the department we request your honour to delete the additions made. (3rd proviso to S.12A) 3. The appellant had earned interest income of Rs 1,48,585 which pertained to FD in connection with corpus fund and hence the same cannot be added to the income. 4. The appellant has spent amount aggregating to Rs 2,00,329 on the object of the trust and hence the same should be allowed as application of income and same is now allowable by amended provisions and since it is relief giving provision it should have retrospective effect. 5. Without prejudice to all the above contentions, if Rs 1,48,585 and Rs 1,73,709 are considered as income and operational expenses of Rs 1,02,066 and expenses on objects of trust of Rs
3 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj 2,00,329 is allowed then taxable income would be Rs 19,899 and hence the assessed income be recomputed and demand be deleted. 2. The facts in brief are that, the assessee’s Trust was formed before 1953, however it registered under Bombay Public Trust Act 1950 on 10-01-1966. The assessee Trust was not registered u/s 12AA and was not registered for AY 2019-20. It was registered u/s 12A and 80G vide order dated 30.03.2022 and 06.04.2022 respectively. It has filed return of income for AY 2019-20 on 28.09.2019 showing NIL income. The assessee has earned FD interest income of Rs 1,48,585/-, other interest from bank of Rs 26,004; and income from donations and subscription Rs 1,47,705 (68,200+79,505). So against total income of Rs 3,22,490, it had incurred expenditure of Rs 3,08,774 for running the organization and hence net income as per income and expenditure account was Rs 13,716. While filing returned income it had shown income of other interest from bank of Rs 26,004/- and income from donations and subscription Rs 1,47,705/- totaling to Rs 1,73,905 and expenses of equivalent amount i.e. Rs 1,73,905/-. The assessee has also given the details of expenses which have been incorporated in the impugned appellate order.
4 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj 3. Ld. AO noted that assessee has claimed exemption u/s 11 which it is not entitled to, because it was not granted registration u/s 12A. Accordingly, he has taxed the interest income of Rs. 1,48,585/- and expenses of Rs. 2,00,329/- incurred on other charitable purposes. Accordingly, he assessed the income of Rs. 3,22,294/-.
Ld. CIT(A) has confirmed the action of AO and also disallow the assessee’s claim.
After hearing both the parties and on perusal of the findings given in the impugned order as well as material referred before me, it is an undisputed fact that assessee was granted registration u/s 12A vide order dated 30.03.2022 and therefore for AY 2019-20, it was not entitled for any benefit u/s 11. The income and expenditure account for AY 2019-20 was as under:-
a) Gross receipts shown in Income & Expenditure A/c for AY 2019- 20 is as under Bank Interest Rs. 26,004 Voluntary donation received Rs. 68,200 Other Income Rs 79.505 Total Receipts as per I & E Rs. 1,73,709
5 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj b) Interest income credited to three corpus funds- - Education Fund Rs 52,698 - Health Fund Rs 53,459 - General Fund Rs 42,428 Total Rs 1,48,585 c) Total Income (a+b) Gross receipts as per IE A/c Rs 1,73,709 Corpus Donation Interest Rs 1,48,585 Total Gross income Rs 3,22,294 d) Expenses incurred by the Trust:- - Repairs & maintenance Rs 43,000 - Insurance Rs 1,198 - Establishment expenses Rs 54,868 - Audit Fees Rs 3,000 - Depreciation Rs 6.398 Expenses to run the trust Rs 1.08.464 e) Net surplus = Rs 3,22,294 - Rs 1,08,464 = Rs 2,13,830 f) Amount spent on the objects of the trust= Rs 2,00,329
It is seen that AO has taxed and completed the assessment at an income of Rs. 3,22,294/- at a maximum marginal rate (MMR) of 30%. Though, AO was correct in holding that assessee cannot claim the benefit of section 11 in absence of registration u/s 12A, because
6 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj computation of section 11 and benefit therein can be given only if assessee has been granted registration u/s 12A, even though the assessee trust was formed for carrying out charitable objects. Before me, Ld. Counsel had made two fold arguments; firstly, the expenses debited in the income and expenditure account should be allowed and maximum marginal rate should not be applied. Secondly, he submitted that provision of section 164(2) of the Act will not apply in the case of the assessee, because it refers only certain income which are not exempt u/s 11 and 12 which is charitable to tax at MMR, i.e., the tax will be charged on the relevant income of the Trust which is not exempt u/s 11. Section 164(2) reads as follows:-
"In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2, or which is of the nature referred to in sub-section (4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of persons : Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by
7 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj virtue of the provisions contained in clause (c) or clause (d) of sub- section (I) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate." 7. This section 164(2) applies in case of income derived from the property held under trust wholly for charitable or religious purposes. The following income to the extent not exempt u/s 11 or 12 is chargeable to tax at AOP Rates:-
a) Income derived from property held under trust b) Income referred to in Section 2(24)(iia) of the IT Act 1961 (Voluntary contribution) c) Income referred to in Section 11 (4A). (Profits and gains of business if it is incidental to the attainment of main objects provided separate books of accounts are maintained.)
Proviso to S 164(2) deals with circumstances where the income is not exempt u/s 11 or 12 by virtue of provisions contained in S.13(1)(c) or S.13(1)(d) and Maximum Marginal Rate (MMR) has to be applied.
The conditions stipulated in Section 13(1) can be summarized in the following manner:--
8 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj Exemption u/s 11 & 12 shall not be allowed to a trust if 13(1)(a) any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public; 13(1)(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste 13(1)(c) income of the charitable or religious institution or if any part of such income or any property of the trust during the previous year used or applied directly or indirectly for the benefit of any person referred to in sub-section 13(3) (settler, author, trustee, etc). 13(1)(d) the charitable or religious institution or purposes makes investments other than those prescribed u/s 11(5) (eg- Shares of company, loans to trustee's relatives)
Here in this case, there is no violation made by the Trust and accordance with section 13(1)(c) and 13(1)(d) of the Act. Thus, only if there is any violation of u/s 13, then only MMR is applicable on that part of the income which has forfeited exemption and not the entire income of the trust. This proposition has been held by the Hon’ble Bombay High Court in the case of DIT(E) vs. Sheth
9 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj Mafatlal Gagalbhai Foundation Trust (2001) 114 taxman 19 (Bom).
From the perusal of the gross receipts shown, I find that, none of the receipts falls into the category of income which has been envisaged in section 164(2). Once that is so, then the MMR cannot be applied.
Further, the provision of section 167B is also not applicable because of the following reasons:-
a) Section 167B of Income Tax Act, 1961 explicitly excluded companies and societies registered under Society Registration Act 1980 or any other similar legislation. The different rates as prescribed in Section 167B are applicable where shares of members are unknown. But as far as charitable and religious trusts are concerned there is no scope of sharing of income or surplus among members concerned. b) Secondly there are no individual private beneficiaries and the beneficiaries are public at large.
Now coming to the issue of allowability of expenses, assessee had given the following explanation before the authority below:-
10 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj 4. The above expenses of Rs. 3,08,774/- are essential for existence of the trust (organization) without which the existence of the trust will be in question. Factual position of each expenditure is provided hereunder:- Repairs and maintenance- Rs 43,000 Repairs and maintenance expenditure are incurred for smooth running of the organization without which the functioning of the organization would not be possible and organization will not be able to do any activity. Thus, these expenses are incurred wholly and exclusively for the purpose of carrying on activities and earning income and hence shall be allowed. Insurance-Rs 1,198 Insurance expenses are to be incurred in order to reduce the extra expenditure that might be incurred in case of fire, theft or other natural or manmade calamities. So, these expenses are incurred to protect the assets. Thus, these expenses are incurred wholly and exclusively for the purpose of carrying on activities and earning income and hence shall be allowed. Establishment expenses Rs 54,868 Establishment expenses are needed for smooth running and functioning of the organization. If such expenses are not incurred then it is quite possible that the very existence of the organisation would be in danger. Thus, these expenses are incurred wholly and exclusively for the purpose of carrying on activities and earning income and hence shall be allowed.
11 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj
Audit fees Rs 3,000 If statutory audit as per Bombay Public Trust Act, 1950 is not carried out as per the provisions of Bombay Public Trust Act, 1950 then there will be default as per the Bombay Public Trust Act, 1950 and hence the trust will be non compliant. Since, audit is compulsory for the existence of the trust, these expenses being incurred wholly and exclusively for the purpose of carrying on activities ought to be allowed. Depreciation on furniture & fixtures Rs 6,398 Furniture and fixtures are needed to run the organization and hence depreciation was claimed on commercial principles, which ought to be allowed (There are High Court and Supreme Court judgments in support of this contention). Thus, these allowances are necessary for and hence shall be allowed. Expenses on other charitable purposes - Rs 2,00,329 These expenditure pertaining to women day function, annual function expenses like Independence Day, Republic Day, etc. and financial help to the poor. Such expenses are incurred out of patriotism and love for the country. Such expenses help in creating goodwill for the organization and reputation in the society which helps in generating more revenue. Also, financial aid to the poor results in upliftment of the country. Thus, these expenses are incurred wholly and exclusively for the purpose of carrying on activities and earning income or raising more revenue. Such
12 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj expenses are required to be incurred for generating more and more revenue for the organization and hence these expenses shall be allowed. If we are not incurring such expenses then generation of revenue will be very difficult. Thus, there is direct nexus between expenditure and revenue and hence should be allowed. 13. Further, assessee had given the following details of annual function expenses incurred for other charitable purposes, which are as under:- Annual Function Expenses Shibir Exp for Prize. 52,354.00 Vadhuver Melava Exp 42,215.00 Gunagourav Exp. (Appreciate) 2,575.00 Prizes Distribution to the 20,650.00 student Childrens Day Celebration 33,087.00 1,50,881.00 (14.11) Woman Day Exp. 45,638.00 Financial AID (Relief of poverty) 3,810.00 Total 2,00,329.00 14. Even though in absence of any registration u/s 12A, the benefit of section 11 cannot be given, however, the expenditure incurred for carrying out the objects if they had not found to be non-genuine, the same has to be allowed, especially expenses to run the trust which are aggregating to Rs. 1,08,464/-. In so far as expenses incurred for carrying out other charitable trust, these are part of the objects and therefore, the same cannot be disallowed for
13 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj the reason that, nowhere it has been held by the AO or Ld. CIT(A) that these expenses have not been incurred and are not in accordance with the objects of the trust of the assessee. Only consequence will be that assessee will not get exemtion of surplus u/s 11. Accordingly, I direct the AO to allow the expenses and finally assessed the income as under:- Gross receipts as per IE A/c Rs. 1,73,709 Corpus Donation Interest Rs. 1,48,585 Total Gross income Rs. 3,22,294 Less: Office running expenses (Rs. 1,08,464) Less: Expenditure on objects of trust (Rs. 2,00,329) Assessed income Rs. 13,501
In the result, the appeal filed by the assessee stands partly allowed.
Orders pronounced in the open court on 30th November, 2022. Sd/- (Amit Shukla) Judicial Member मुंबई Mumbai;ददनांक Dated : 30.11.2022 Sr.PS. Dhananjay
14 I.T.A. No. 1821/Mum/2022 Parab Maratha Samaj आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. दवभागीयप्रदतदनदध, आयकरअपीलीयअदधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,
.उि/सहधयकिंजीकधर (Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai