AKSHAT EDUCATION AND CHARITABLE TRUST,ANAND vs. THE ITO, WARD- EXEMPTION, VADODARA

The Ld. CIT(A) issued notices of hearing under section 250 on 05.07.2024, 26.08.2024, and 12.09.2024, which were served electronically on the registered e-filing account and e-mail of the assessee. However, the assessee did not respond to any of the notices.

On merits, the Ld. CIT(A) observed that the assessee had filed its return and Form 10B belatedly, beyond the due date of 15.02.2021, and hence the conditions prescribed under section 12A(1)(b) and (ba) stood violated. Consequently, exemption u/s 11 was not available. The Ld. CIT(A) held that the CPC had correctly taxed the gross receipts and dismissed the appeal, both for non-prosecution as well as on merits.

Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:

The Learned Authorised Representative submitted that the CPC gravely erred in taxing gross receipts without allowing deduction of revenue expenditure. It was pointed out that even if exemption u/s 11 was not available owing to late filing, the income is still to be computed on commercial principles as per section 4 read with section 2(24) of the Act.

The AR relied upon the following judicial precedents: H M V Educational Cultural & Social Trust v. ITO(E), ITA No. i. 9/Bang/2023 (ITAT Bangalore), wherein it was held that CPC could not levy tax on gross receipts without allowing expenditure, even if return was belated. Sree Venkateswara Educational Trust v. ITO (Exemptions) [2024] ii. 167 taxmann.com 366 (Madras HC), wherein the Hon’ble High Court held that even where exemption under sections 11 and 12 is not available, the benefit of other deductions under the Act must be granted before finalising assessment.

On these facts, the AR prayed that the income be directed to be recomputed on net basis after deduction of revenue expenditure.

The Learned Departmental Representative, on the other hand, strongly supported the order of the Ld. CIT(A). It was submitted that Akshat Education and Charitable Trust Vs. ITO(E) Assessment Year 2020-21 5 several opportunities were granted by the first appellate authority, but the assessee failed to avail any of them. Hence, the Ld. CIT(A) was justified in dismissing the appeal for non-prosecution and confirming the action of CPC.

We have heard the rival submissions and perused the material available on record. The undisputed facts are that the assessee is a public charitable trust, duly registered under section 12AA of the Act vide order dated 06.07.2015 issued by the CIT (Exemptions), Ahmedabad. The assessee filed its return of income for the year under appeal in Form ITR-7 on 31.03.2021, declaring nil income after claiming exemption under section 11. The audit report in Form 10B was also filed on 31.03.2021. Both filings were admittedly beyond the extended due date of 15.02.2021 under section 139(1). The CPC, while processing the return under section 143(1), denied exemption under section 11 and taxed the entire gross receipts of Rs. 1,99,48,893/- as income, without allowing any deduction for expenditure. The Ld. CIT(A), Coimbatore, upheld the action of the CPC, holding that since the return and Form 10B were filed beyond due date, exemption under section 11 was not available. He also dismissed the appeal for non- prosecution.

The short controversy before us is whether, after denial of exemption under section 11 on account of late filing, the CPC was justified in taxing the gross receipts of the assessee trust without allowing deduction of the expenditure incurred for carrying out its educational activities. Akshat Education and Charitable Trust Vs. ITO(E) Assessment Year 2020-21 6 14. In our considered view, the action of CPC in taxing the gross receipts is not sustainable in law. Income-tax is a levy on "income" and not on "gross receipts". The term “income” as defined in section 2(24) of the Act and as understood under the charging section 4, contemplates computation on net basis, after deduction of legitimate expenditure incurred in earning such income. Even where exemption under section 11 is denied for technical non- compliance, the Assessing Officer is still duty-bound to compute the taxable income in accordance with ordinary provisions of the Act and cannot mechanically bring to tax the gross receipts.

We find support for this view from the decision of the Co-ordinate Bench of ITAT, Bangalore in the case of H M V Educational Cultural & Social Trust v. ITO(E), order dated 23.03.2023. In that case also, CPC had denied exemption under section 11 due to belated filing of return and taxed the entire gross receipts. The Co-ordinate Bench held that – 8. From the above, it is clear that the above receipts includes bank interest of Rs. 24,94,862/- and we noted that in over all, the Trust is in loss for the year of Rs. 6,62,323.82/- The income tax is levied on the income of the assesee during the impugned assessment year. However, in this case, the CPC has charged the income tax on the entire gross receipts without giving effect of the expenditures incurred by the assessee towards earning of the income. The income has been defined in section 2(24) of the Act., the income should be construed in its general meaning but not to the entire receipts, if the assessee has incurred any expenditure towards earning the income, in such case, the assessee is entitled for deduction of expenditure incurred as prescribed in the Income Tax Act. There may be disallowances of the expenditures, which are not in conformity within the provisions of the Income Tax Act. In this case, the assessee filed return of income belatedly as per section139(4) of the Act. The section 139(4A) of the Act prescribes that all other provisions of the Act shall apply as if it were a return required to be furnished under sub-section (1) of section 139 of the Act. The income is arrived after deducting the allowable expenditures as per the I.T. Act. 1961. Akshat Education and Charitable Trust Vs. ITO(E) Assessment Year 2020-21 7 In the impugned case on hand, the total receipts declared by the assessee, which is placed at Paper Book page No.6, we observe that there is excess expenditure over income of Rs.6,62,324/-, which is loss suffered by the assessee during the year. Therefore, in this case, the claim of deduction from income under section 11 and 12(1) (ba) of the Act does not arise. No doubt that the assessee has filed his return of income belatedly but he was required to compute his income and the income is below the threshold limit and in this case no tax shall be charged on the entire receipts. We also make it clear that the assessee will not get the benefit of carry forward & setting off of loss for the subsequent year as prescribed under section 139(3) of the Act. Considering the facts of the case, we set aside the order of the CIT(A). Accordingly, appeal of the assessee is partly allowed.

Similarly, the Hon’ble Madras High Court in Sree Venkateswara Educational Trust v. ITO (Exemptions) [2024] 167 taxmann.com 366 has held that even when exemption under sections 11 and 12 is not available, the assessee is still entitled to claim deduction of revenue expenditure while computing taxable income, and the Assessing Officer is not expected to fasten unjust tax liability by taxing gross receipts.

In the present case, the assessee has placed audited accounts (in the form of form 10B) evidencing expenditure incurred towards its educational activities. The lower authorities have not doubted the genuineness of these expenses; rather, they have mechanically denied exemption and taxed gross receipts. This approach cannot be upheld.

We, therefore, set aside the impugned order of the Ld. CIT(A) and direct the Assessing Officer/CPC to recompute the income of the assessee on net basis, i.e. after allowing deduction of legitimate revenue expenditure incurred during the year. Needless to state, the assessee shall not be entitled to the benefit of exemption u/s 11 or carry forward of deficit, as the return Akshat Education and Charitable Trust Vs. ITO(E) Assessment Year 2020-21 8 and Form 10B were filed beyond the due date.

In the result, the appeal of the assessee is allowed for statistical purposes.