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Facts
The assessee, a charitable trust, filed belated Income Tax Returns for Assessment Years 2015-16 and 2016-17, claiming nil income after exemptions under Section 11 and set-off of brought-forward excess expenditure. The AO and CIT(A) denied these benefits due to the belated filing and treated certain donations as income, contending that the term "corpus" was not explicitly mentioned in the receipts and thus lacked specific directions.
Held
The Tribunal ruled that the Finance Act, 2021 amendment, which restricts set-off, was not applicable retrospectively to the relevant assessment years. It held that the benefit of set-off for brought-forward losses could not be denied solely because the returns were filed belatedly. Regarding corpus donations, the Tribunal found that receipts and financial statements indicated clear specific directions for the donations to form part of the corpus. Consequently, the Tribunal remitted the issues back to the AO for fresh examination and decision in accordance with law.
Key Issues
1. Whether the benefit of set-off of brought-forward excess expenditure can be denied to a charitable trust due to belated filing of the Income Tax Return. 2. Whether donations received by a charitable trust should be treated as corpus contributions under Section 11(1)(d) based on specific directions and circumstances, even if not explicitly labelled 'corpus' in all receipts.
Sections Cited
250, 11, 139(1), 13(9), 11(2), 234A, 234B, 234D, 11(1)(d), 12A, 70, 80, 10(23)(c), 139, 139(4), 12AA, 143(1)(a), 12A(1), 139(4A), 139(5), 12A(1)(ba), 12, 12(1), 13
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARAJAN K
M/s. Ragigudda Sri Prasanna Anjaneya Swamy, Vs. ITO, 9th Block, Jayanagar, Ward - 2(Exemption), Bangalore -560 069. Bangalore. PAN : AAATR 1439 A Appellant Respondent Assessee by : Shri. Shreehari Kutsa, Advocate. Revenue by : Shri. Subramanian, JCIT(DR)(ITAT), Bangalore. Date of hearing : 02.12.2024 Date of Pronouncement : 14.02.2025 O R D E R Per Laxmi Prasad Sahu, Accountant Member
These two appeals have been filed by the assessee against separate Order passed by the CIT(A) on the following grounds of appeals:
Grounds of appeal in ITA No.1082/Bang/2023
1. The Order of the learned Commissioner passed under section 250 of the Act is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.
2. The Appellant denies to be assessed to tax on total income as determined by the learned AO of Rs. 86,19,182/- as against the total income reported by the Page 2 of 14 Appellant of NIL on the facts and circumstances of the case.
The learned Commissioner of Income Tax (appeals) having allowed the plea of the Appellant that it is entitled to benefit of set off of brought forward excess expenditure from earlier years, is not justified in denying the same on the ground of return of income not being filed within the due date prescribed under section 139(1) of the Act in the facts and circumstances of the case.
4. The learned Commissioner of Income-tax(Appeals) erred in law in holding that the benefit of section 11 is not available on account of return of income for the A.Y. 2015-16 having been filed on 22/03/2017 as opposed to due date of 30/09/2015 under section 139(1), without appreciating the fundamental fact that the legislature introduced the pre-condition of ITR filing vide sub-section (9) of section 13 of the Act only w.e.f. assessment years 2016-17 onwards in the facts and circumstances of the case.
5. Without prejudice the learned AO ought to have allowed application of Rs 2,94,02,713 as claimed by the Appellant in the return of income which was related to the relevant assessment year in full.
6. Without prejudice the learned CIT(A) ought to have granted the liberty to the Appellant to file the Form 10 to enable the accumulation of the surplus that arose for the impugned period under the provisions of Section 11(2) of the Act as the same would be in accordance with the intention of the legislature in the facts and circumstances of the case.
7. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s. 234A, 234B and 234D of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
8. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.
The Order of the learned Commissioner passed under section 250 of the Act is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.
2. The Appellant denies to be assessed to tax on total income as determined by the learned AO of Rs. 43,25,344/- as against the total income reported by the Appellant of NIL on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax (Appeals) erred in law that corpus donation shall form part of the total income of the Trust whereas as per section 11(1)(d) of the act any donation with a specific direction that such donation should be excluded from the computation of total income of the Trust the facts and circumstances of the case. 4. The learned Commissioner of Income-tax (Appeals) failed to appreciate that from the receipts produced, it is evident that the Donors are aware of the specific purpose for which the donation is collected and denial of the deduction u/s 11(1)(d) on the pretext that the term “corpus” is missing is unsustainable under law in the facts and circumstances of the case. 5. The learned Commissioner of Income Tax (appeals) having allowed the plea of the Appellant that it is entitled to benefit of set off of brought forward excess expenditure from earlier years, is not justified in denying the same on the ground of return of income not being filed within the due date prescribed under section 139(1) of the Act in the facts and circumstances of the case.
6. Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the condition of filing the ITR within due date is only for carrying forward the losses of the present year and the same does not preclude the entity from setting off the brought forward losses and therefore the reasoning of the AO and the CIT(A) are bad at law in the facts and circumstances of the case.
7. Without prejudice the learned AO ought to have allowed application of Rs.99,05,341/- as claimed by the Appellant in the return of income which was related to the relevant assessment year in full.
8. The learned Commissioner of Income-tax (Appeals) erred in not appreciating the fact that the accumulation under sub clause a of sub section 1 of section 11 has to be allowed at 15 percent of the Gross receipts and not on Net receipts 9. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s. 234A, 234B and 234D of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled. 10. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 11. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.
From the above grounds, it is clear that the issue raised in both the appeals are identical in nature. For the sake of brevity and convenience, we are taking appeal for Assessment Year 2015-16 and the decision taken in for Assessment Year 2015-16 shall apply mutadis mutandis for Assessment Year 2016-17 in .
Page 5 of 14 Briefly stated, the facts of the case are that the assessee filed return of income on 22.03.2017 declaring an income of Rs. Nil out of gross receipts of Rs.4,57,80,040/-, after claiming exemption under section 11 of the Act. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee has been granted registration under section 12A of the Act vide No.Trust/718/10A/Vol/B.II/R-130 dated 02.12.1981 in the status of Charitable Trust. The assessee filed details as sought by the AO. From the documents, it was noticed that the total gross receipt is Rs.4,57,80,043/- which is inclusive of corpus funds of Rs.50,37,369/-. Further, on verification of the computation of income, it was noticed that the assessee has claimed an expenditure of earlier year amounting to Rs.1,92,30,583/- as application during the year. In this regard, assessee was asked to explain and the assessee furnished reply on 24.11.2017 and assessee relied on various case laws. The AO further noted that the regular provision of the Income Tax Act are not applicable to the charitable / religious trusts and institutions for the purpose of arriving at the taxable income. The AO also relied on the Board Circular No.5P(LLX-6) dated 19.06.1968. The income of the charitable trust / institution is to be computed by applying commercial principle apart from sections 11, 12 and 13 of the Act. He noted that the provisions of sections 70 to 80 is applicable only in respect of assessee's other than those and are covered under sections 11, 12 and 13 and 10(23)(c) of the Act because the assessee is required to apply the income towards the objects so as to avail tax exemption. The application of income shall be restricted to the income which is otherwise subject to tax. The AO also referred to section 11 of the Act. The AO did
Page 6 of 14 not allow to set off of carry forward of loss / expenditure of earlier years and assessed income at Rs.1,47,30,583/-.
3. Aggrieved from the above Order, assessee filed appeal before the CIT(A). During the course of appellate proceedings, assessee also relied on various case laws. The learned CIT(A) was convinced with the case laws but he distinguished the facts that the assessee filed its return of income belatedly on 22.03.2017 which is much after the due date and the cardinal principle for allowability and set off of loss is envisaged in the fact is that the return of income has to be filed in time for the purpose of allowability of set off of brought forward losses and dismissed the appeal of the assessee.
Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel for the assessee has filed written synopsis and the relevant portion of the written synopsis is reproduced below:
1. The learned Commissioner of Income Tax (appeals) having allowed the plea of the Appellant that it is entitled to benefit of set off of brought forward excess expenditure from earlier years, is not justified in denying the same on the ground of return of income not being filed within the due date prescribed under section 139(1) of the Act in the facts and circumstances of the case. The only issue that arises before this Tribunal is w.r.t to set-off of brought forward excess expenditure from earlier year where the return of income is filed belatedly. The CIT(A) has observed that since the ITR is not filed within due date, therefore the set-off is not allowed. It is pointed out that the approach of the CIT(A) is fundamentally flawed, as even in the case of commercial entities, set-off of brought forward losses were allowed where ITR is filed
Page 7 of 14 belatedly for the A.Y. 2015-16 and 2016-17. Thus, for this reason alone these grounds are required to be allowed and the additions deleted. Without prejudice, it is necessary to appreciate the legislative provisions that enable disallowance of set-off of brought forward excess application from earlier years as follows: The explanation (5) was introduced to section 11 only by o Finance Act, 2021 where the set-off was not permitted w.e.f 1 April 2021. Explanation 5.—For the purposes of this sub-section, it is hereby clarified that the calculation of income required to be applied or accumulated during the previous year shall be made without any set off or deduction or allowance of any excess application of any of the year preceding the previous year.] Thus it is a logical corollary and accepted across the o judicial forums, that the set-off of brought forward losses is permitted without any conditions or caveats as to the date of filing of IT return. Prior to the above amendment that takes effect from A.Y. o 2022-23, the position that prevails various courts have held set-off of excess application of income of earlier years. The same view is upheld by jurisdictional bench in the case of Sindhi Youth Association vs ADIT (ITA no. 358/Bang/2023), M/s. Jyothy Charitable Trust in Academy of Liberal Education in and DDIT(E) v. Karnataka Food Civil Supplies Ltd., ITA No.124/Bang/2014. Although these are cases where return of income is filed o within the due date but in the instant case although the return of income is filed belatedly, when the Courts have held that exemption u/s 11 is allowed if the return is filed u/s 139 of the Act which includes section 139(4), then applying the same analogy set-off also should be allowed.
Reliance is placed on the Circular F.No. 173/193/2019- o ITA-I dated 23.04.2019 which has clarified that a trust registered U/s 12AA of the Act could avail the benefit of exemption u/s 11 of the Act if its return of income are filed within the time allowed u/s 139 of the Act. o Reliance is placed on the decision of Kolkata ITAT in the case of Income-tax Officer (Exemption) v. Debendra and Rohini Memorial Trust [2023] 153 taxmann.com 687 wherein it was held that: 11. From perusal of the above referred circular, we find that in Para 3 of the said circular specifically states that a trust registered u/s 12AA of the Act, benefit of section 11 shall be available if the return of income is filed within the time allowed u/s 139 of the Act. It further states that orders u/s 143(1)(a) of the Act in those cases in which demand has been raised on this issue may please be rectified. From the circular, we note that an amendment was brought in by insertion of clause (ba) of section 12A(1) of the Act from 2018-19 onwards through which one of the requirements for claiming the benefit u/s11 and 12 of the Act was to file the return of income within time allowed u/s 139(4A) of the Act. It seems that specifically for A.Y 2018-19, when the Form ITR-7 was being processed and for such belated return, demand was raised, representations were received from various assessees on this issue. Taking note of this issue, the said CBDT Circular has issued and while dealing with this issue, the returns filed within the time allowed u/s 139 of the Act have been directed to be accepted for the purpose of considering benefit of deduction u/s11 of the Act. Now, since only section 139 of the Act has been mentioned and does not specify whether it is about u/s 139(1) of the Act or section 139(5) of the Act, the view beneficial to the assessee needs to be accepted and, since section 139(1) and section 139(5) are part of section 139 only and in this section 139 and sub- section (5) provides the mechanism to file a belated return, therefore, for A.Y 2018-19, even if the assessee files the return before the last date of filing of belated return the same should be treated as due compliance to section 12A(1)(ba) of the Act. For the year under appeal,
Page 9 of 14 the belated return could have been filed before 31-3- 2019, and since the assessee has filed the return on 15- 11-2018, therefore, considering the directions of CBDT Circular dated 23-4-2019, which are binding on the Revenue authorities, we are of the view that the assessee has fulfilled the conditions provided under sub-clause (ba) of section 12A(1) of the Act and has filed the return of income within the time allowed.'
Similar view has been taken by Rajkot bench in the case of o Shri Rajkot Vishashrimali Jain Samaj v. Income-tax Officer [2023] 150 taxmann.com 361 wherein it was held that: 6.3 In view of the above discussion, we are of the view that once return of income has been filed within the time prescribed u/s 139(4) of the Act, benefit of sections 11 and 12 cannot be denied to the assessee by invoking the provisions of clause (ba) to sub-sections (1) of section 12A of the Act. Wherefore, the Appellant humbly submits that the Appellant shall be entitled to benefit of set off of brought forward excess expenditure from earlier years.
In addition to the above written synopsis, he further submitted that the learned CIT(A) has wrongly distinguished the case laws relied on by the learned Counsel for the assessee. The amendment made in the Act is not applicable to the assessee and he further submitted that the carry forward of loss for the previous Assessment Year will not affect even if the assessee files return of income after due date for the impugned assessment year . The Revenue authorities cannot deny to the assessee to give benefit of carry forward of losses for earlier years. He further submitted that the donation given by the donours are clear from the receipts issued by the assessee Trust. The learned Counsel for the assessee further relied on the judgments of Hon'ble jurisdictional High Court of Karnataka in the case of CIT Vs.Sri
Page 10 of 14 Durga Nimishamba Trust in IT Appeal No.443 of 2009 Order dated 05.09.2011 and submitted that the Hon'ble Court held that the contribution made towards corpus fund would not be treated as inform for the purpose of levying of tax where even if corpus fund was misused, it could not be treated as income and no income tax could be levied thereon. Where in such situation only cause open for Revenue is to seek cancellation of registration granted under section 12A of the Act. He also relied on the judgment of Co- ordinate Bench of ITAT, Chandigarh 'B' Bench in the case of Shree Mahadevi Tirath Sharda Ma Seva Sangh Vs. ITO in IT Appeal No.1091(CHD) of 2009 Order dated 29.01.2010. The relevant portion is as under:
On the other hand, the learned DR relied on the Order of the lower authorities and submitted that the assessee has filed return of income belatedly. Therefore, assessee is not eligible for claiming of set off of loss expenditure carried forward from earlier years. The learned CIT(A) has rightly pointed and distinguished the case laws relied on by the assessee Counsel. He further submitted that during the course of assessment proceedings, the AO treated the corpus funds as income as the receipt copies submitted to the AO did not contain the term "corpus" in which the assessee has admitted that the receipts do not contain the term "corpus" and the donour is aware of the specific purpose and is making contribution for the specified purpose. The assessee has claimed deduction under section 11(1)(d) of the Act is contrary to the provisions of the Act in the case of the assessee. During the course of assessment proceedings, the AO did test check and noted that these receipts were made by the assessee and the assessee has no discretion to treat the contribution as corpus and where direction of the donour is important to decide the nature of corpus.
In the rejoinder the learned Counsel for the assessee submitted that the amount has been received towards Annapoorneshwari Prasada Bhavana Fund. He also produced details of the corpus fund receipts which is placed on record from page Nos.1 to 69. During the course of assessment proceedings, assessee had filed complete details as required by the AO. The ledger copy was also filed and, in some instances, the assessee has received cheque also which is clear from the copy of the ledger accounts filed.
Considering the rival submissions, we noted that there are two issues to decided that for not giving benefit of section 11(1)(d) of the Act and not giving set off of loss for the earlier Assessment Years. The assessee filed return of income belatedly on 22.03.2017 and the amendment took place by the Finance Act, 2021, w.e.f. 01.04.2021 which is not applicable to the assessee for the relevant Assessment Year. Therefore, assessee is even belatedly filed return of income for the relevant Assessment Year the benefit of set off of losses for the earlier years cannot be denied to the assessee. Further, in the case of the corpus funds, the AO observed that purpose was not mentioned in the receipts as test check made by the AO but we have gone through the Paper Books filed by the assessee in respect of receipt No.2433 placed at Paper Book Page No.80 dated 15.03.2015 in the general receipt there is a direction which says so. Further, in receipts No.256 dated 12.07.2015, No.2758 dated 18.11.2015, No.3649 dated 29.02.2016, No.407 dated 21.04.2015 and No.434 dated 11.06.015 we noted that there is a clear direction by the donor but the AO has treated it has revenue income instead of specified direction given by the donor which is part of the Corpus of the assessee.. We also noted from the financial statement and auditors report placed at page No.4 under the head "Revenue Recognition" the auditor has observed as under: "v. Donations received in cash with a specific direction that, they shall form part of the corpus fund or endowment fund of the Trust (such as Shashwatha Fund) are classified as such, and are added to Trust Fund in the Balance Sheet."
Considering facts of the case, we are remitting back the issue to the file of the AO for a fresh examination and decide the issue as per law.
In the result, appeals of the assessee for both the years are partly allowed for statistical purposes.