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Income Tax Appellate Tribunal, “D” Bench, Mumbai
O R D E R Per Shamim Yahya (AM) :- This appeal by the assessee is directed against the order of learned CIT(A) dated 14.12.2018 and pertains to A.Y. 2008-09.
The grounds of appeal
read as under :-
1. On the fact and circumstances of the case and in law the Ld. CIT(A) erred in uploading the order of AO in disallowing capital expenditure of Rs.72,06,37,632/- made out of corpus as the expenditure was claimed application of income and the same were for the objects of the trust.
2. On the fact and circumstances of the case and in law the Ld. CIT(A) did not appreciate the contentions and the propositions and the settled legal position and case laws and without considering the same disallowed the capital expenditure on objects of the trust.
3. The authorities failed to appreciate that such capital expenditure made out of corpus fund on the object of the trust were allowed consistently in all years and following the same ought to have been allowed.
4. The order of CIT(A) was received on 15.03.2019 and appeal is filed on 12.07.2019.
2 Dawat E Hadiyah
Brief facts of the case are as under :-
The assessee is a trust which is engaged in religious charitable activities for the welfare of Dawaoodi Bohra community and other communities. The trust is registered as a Charitable Organization with CIT (Exemption), Mumbai u/s. 12A of the Income Tax Act, 1961. The Trust is also registered with Charity Commissioner, Mumbai. It filed return of income on 29.09.2008 declaring total income at deficit of Rs.85,46,88,9037-. The AO passed assessment order u/s 143(3) on 22.12.2010 at a total income of Rs. Nil. The AO in its order disallowed capital expenditure made out of corpus fund claimed as application, depreciation and carry forward of deficit. Aggrieved the assessee has filed this appeal.
The Assessing Officer has disallowed capital expenditure of Rs. 72,06,37,632/- made out of corpus, which was claimed as application of income towards object of the Trust. Before the Assessing Officer in this regard assessee gave explanation regarding expenses made from corpus fund. However the Assessing Officer rejected the same by holding as under :-
“On going through the explanation of the appellant, the AO concluded as below: i) The appellant was not able to give fund flow statement for the total expenses of Rs. 172,76,46,104/-. ii) By its own explanation, the appellant had excess of expenditure of Rs 72,06,37,632/- over income, iii) The excess expenditure made by the appellant is out of the corpus donation received during the year.
The AO relied on the decision of Hon'ble ITAT in appellant's own case for AY 2002-03 wherein the similar issue had been dealt with. The relevant portion of the AO's order is reproduced as under: "From the decision of the ITAT, it is clear that the expenses made out of the corpus fund cannot be claimed as application of income. The object for which the expenses have been incurred is immaterial since the source of income from which it is made is exempt income. Respectfully following the decision of the ITAT in the assessee's own
3 Dawat E Hadiyah case for AY 2002-02, the capital expenditure of Rs. 72,06,37,632/- which is spent out of corpus fund is disallowed."
Upon assessee’s appeal learned CIT(A) confirmed the addition by noting that the ITAT in assessee’s own case for A.Y. 2002-03 has decided the issue against the assessee.
Against this order the assessee is in appeal before us.
We have heard learned Departmental Representative and perused the record. None appeared on behalf of the assessee. Learned Departmental Representative contended that the issue is covered in favour of the Revenue by the decision of ITAT in assessee’s own case.
Upon careful consideration, we note that the issue is covered in favour of the Revenue by the ITAT decision in assessee’s own case which has been quoted by the Assessing Officer as under :-
This issue is squarely covered in the assessee's own case for A.Y. 2002-03 by the decision of the Income Tax Appellate Tribunal in order No.lTA No.3008/M/2006 passed on 12.08.2008. The relevant part of the order of the ITAT is reproduced below:- "Ground 3 relates to the decision of the CIT(A) in upholding AO's action in not allowing expenditure of Rs.14,64,95,056/-, while computing the loss for the current year for the reason that the said expenditure is spent out of the corpus donations.
Briefly stated, the relevant facts relating to this ground are that the assessee spent on the objects of the Trust a sum of Rs.14,64,95,056/- out of the total corpus donations of Rs. 36,77,37,417/-. AO disallowed the amount of Rs.14,64,95,056/- on finding that the said amount if spent out of the corpus funds, which was never reflected as the income of the assesses. During the appellate proceedings before the CIT(A),held that as per the provisions of section 11(1)(d) of the Income Tax Act, the corpus donations received are not be included in the taxable income of the assessee and the resultantly, the expenditure of Rs.14,64,95,056/- spent out of such corpus donations would also be outside the computation of income or loss. In this regard, the CIT(A) held while computing the loss for the current year, the assessee cannot claim any deduction for the expenditure, which was not incurred out of the taxable receipts.
Aggrieved with the above decision of the CIT(A), the assessee filed an appeal before the Tribunal. Ld AR for the assessee argued in this regard, the words
4 Dawat E Hadiyah used in section 11(1)(a) are "such income is applied". The amount incurred out of the corpus is an amount 'applied' for the objects of the Trust and, therefore, the said amount is claimable as deduction u/s. 11(1)(a) of the Income Tax Act It is because of some urgency or exigency that the amount is spent from the corpus. Income Tax Act does not allow penalizing the Trust, which spent funds from the corpus for the purposes of the trust because of special circumstances or exigencies. He further submitted that the Income Tax Act allows the Trust to carry forward such loses and claim set off against the future income. The are benevolent provisions of the Income Tax Act and such debits to corpus account are only accounting presentations. Relying on the Kerala High Court judgment in the case of George Forna Church (170 ITR 62), the AR mentioned that the word "applied" occurring in section 11(1)a) is of wider import then the word "expenditure", where the expenditure means the disbursement. Hence, the said expenditure was an application of income of the assessee for religious or charitable purposes. He further relied on the judgment in the case of apex court in the case of S RM M CT M Tiruppani Trust (230 ITR 636( (SC) for the proposition that the application of amounts from corpus fund from the charitable purposes is an allowable expenditure u/s. 11(1)(a). Ld DR relied on the orders of the revenue authorities and argued that the contentions which are falling u/s. 11(1)(d) are not to be included as taxable income oft eh assessee. Therefore, the expenditure incurred relatable to such donations:-should also be outside the computation of income. We have heard the rival submissions and perused the order of the lower authorities as well as the judgements relied on by the LdAR. Section 11(1)(a) and 11(1)(d) 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 held under Trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent the income from such property. (b) (c) ......... (d) Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
Clause (a) provides for exclusion of income applied or set apart for such purposes not exceeding 25% of the income from such property. Further, clause (d) provides for exclusion of the voluntary contribution made with a specific direction that they shall form the part of the corpus of the Trust. Accordingly, the amounts found entry into the corpus of the k Trust is outside the scope of the computation of income or loss. While this being the legal position on chargeability of income of such property, the allowability of 5 Dawat E Hadiyah expenditure incurred out of non taxed corpus funds in the computation of income is the issue for adjudication in the instant case.
In this connection, we have perused the judgment in the case of George Forna Church (supra) where the issue was whether the construction of building would amounts to application of income u/s. 11 when the amounts were spent out of the surplus funds of the religions trust Whereas, the assessee case is the case of deficit. Similarly, we have perused the apex court judgment in the case of S RM M CV M Tiruppani Trust (supra). The case before the apex court was whether the excluded income, which formed part of the accumulations as per section 11(1)(a) and when spent for trust objects, is an allowable expenditure or not. Where as in the instant case, the issue is whether the expenditure incurred out of the 'corpus' of the trust is to be allowed in the computation of Income or loss. Thus the both the case relied on by the LD AR do not held the assessee. The case of revenue authorities in the instant case was that the income applied on the object of the Trust out of the corpus funds of the Trust, is not be considered in the computation of income of the assessee. We have also perused the provisions of the clauses (a) and (d) of section 11(1). The facts suggest that the assessee seeks deduction of the expenditure incurred out of the funds formed part of the contributions covered by the provisions of clause (d) i.e. corpus funds and not the provisions of clause (a) i.e. deemed accumulations. Therefore, we are of the opinion that the order of the CIT(A) does not call for any interference in this regard. Accordingly, the ground 3 of the assessee is dismissed." From the decision of the ITAT, it is dear that the expenses made out of the corpus funds cannot be claimed as application of income. The object for which the expenses have been incurred is immaterial since the source of income from which it is made is exempt income. Respectfully following the decision of the ITAT in the assessee's own case for A.Y. 2002-03, the capital expenditure of Rs. 72,06,37,632/- which is spent out of corpus fund is disallowed.”
Accordingly respectfully following the decision of the ITAT in assessee’s own case, this appeal by the assessee stands dismissed. Pronounced in the open court on 9.3.2021.