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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI INTURI RAMA RAO & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the Revenue against the order dated 30-11-2016 passed by the Commissioner of Income Tax (Appeals)-10, Pune [‘CIT(A)’] for assessment year 2012-13.
2. Ground No. 1 is general in nature, hence, requires no adjudication.
3. Ground Nos. 2 to 5 raised by the Revenue challenging the action of CIT(A) in allowing the exemption u/s. 11 to an extent of Rs.13,57,70,750/- ignoring second proviso to section 13(1)(c)(ii) of the Act.
4. Brief facts relating to the issue on hand are that the assessee is a public charitable trust registered u/s. 12A of the Act vide order dated 25- 03-1975. The assessee derives income from Bank deposits and rent income. The assessee filed return of income declaring a total income at Rs.Nil. Under scrutiny, the AO issued notices u/s. 143(2) and 142(1) of the Act. In response to the said notices the authorized representative on behalf of the assessee appeared before the AO and furnished various details as called. Considering the same the AO denied exemption u/s. 11 and determined the total income of the assessee at Rs.13,57,70,750/- by recording reasons from paras 8 to 12 at page 12 of its order dated 30-03- 2015 passed u/s. 143(3) of the Act. The CIT(A) following its own order for A.Y. 2011-12 allowed the exemption u/s. 11 of the Act. Having not satisfied with the order of CIT(A), the Revenue is before us.
Heard both the parties and perused the material available on record. We note that a similar issue on identical facts came up before this Tribunal in assessee’s own case in and vide order dated 16-09-2020, considering the order for A.Ys. 2010-11 and 2011-12 remanded the issue to the file of AO for deciding the issue afresh as per directions as rendered by this Tribunal in A.Ys. 2010-11 and 2011-12. The ld. DR placed on record report dated 01-08-2022 enclosing factual report in the case of assessee, objects of assessee and order giving effect to the directions of this Tribunal. On perusal of giving effect order dated 23- 03-2021 passed by the AO it is clear that the AO allowed exemption and held chargeable of Rs.3,11,664/- on account of violation of provisions u/s. 13 of the Act. Therefore, in view of the said fact following the order latest being in A.Y. 2013-14 we deem it proper to remand the matter to the file of AO for its fresh consideration to pass order in accordance with the directions rendered by this Tribunal in A.Ys. 2010-11 and 2011-12 vide its order dated 28-06-2017. For ready reference paras 3 and 4 are reproduced here-in-below : “3. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue was involved in assessee’s own case for A.Y. 2010-11 and A.Y. 2011-12 and the Tribunal vide its common order dated 28.06.2017 passed in and ITA No.1180/PUN/2015 decided the same vide paragraphs no.6 to 10 as under :- “6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The only dispute in the present set of appeals is; Whether the assessee has violated the provisions of section 13(1)(c)(ii) of the Act. Before proceedings further it would be relevant to first see the provisions of aforesaid section. The relevant extract of the provisions of section 13(1)(c)(ii) are reproduced herein-below : “[Section 11 not to apply in certain cases.] 13.(1) Nothing contained in section 11 [or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof – (a)……………….. (b)……………….. (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i)……………….. (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub- section (3): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub- clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person refer- red to in sub- section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution: Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub- clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub- section (3) in so far as such use or application relates to any period before the 1st day of June, 1970 ;”
A bare perusal of the above provisions of section 13(1)(c)(ii) show that in case any income or property of the trust is used either directly or indirectly for the benefit of trustee or any person referred to sub-section (3) of section 13, the benefits granted to the trust u/s. 11 shall be forfeited. However, the first proviso to section 13(1)(c) provides an exception. According to first proviso benefit derived by the trustee or the person mentioned in sub-section (3) shall not debar the trust from availing the benefit of section 11 and 12, if : (i) the trust is created or established prior to the commencement of the Act; and (ii) the benefit extended to the trustee or the person referred to in sub- section (3) is in compliance with the mandatory terms of the trust.
In the present case, the assessee has placed on record a copy of the Trust Deed at pages 40 to 48 of the paper book. The Trust Deed is in Marathi language. The English translation of the Trust Deed is at pages 49 to 53 of the paper book. A perusal of the trust deed shows that the trust was created in the year 1930 i.e. much prior to the enactment of Income Tax Act, 1962. Thus, the first condition to fall within the scope of proviso to section 13(1)(c)(ii) of the Act is satisfied.
As regards second condition i.e. the benefit to be granted to the assessee or the person referred to in sub-section (3) in application or uses of the property or income of trust is concerned, the use or application of the property should be in compliance of the mandatory terms of the trust. From perusal of English translation of the Trust Deed it appears that the trustees were in possession of the residential part of the property on second floor. As per the assertions of ld. AR, the legal heirs of the author of the trust were in possession of part of property on ground floor as well. Admittedly, there is a clear mandate in the trust deed that part of the property which is in possession of author of the trust shall be for the sole purpose of occupancy by the author of the trust or his legal heirs. The part of the property which is subject matter of dispute are 3 shops on ground floor of the building. From the perusal of English translation of Trust Deed the details of the property in possession of the author of the trust at the time of execution of Trust Deed is not discernible. Under such circumstances, we are of considered opinion that this issue needs a re-visit to the Assessing Officer. Representative of both the sides concur on the point that the part of property referred to in the Trust Deed has to be clearly identified. The Assessing Officer is directed to ascertain the part of property which was in the possession of author of the trust at the time of execution of the trust in the year 1930, qua which mandate has been given for the exclusive use by the author of the trust and his legal heirs.
In case the shops under question are part of the property which was in possession of the author of the trust deed at the time of execution, then the assessee clearly falls within the exception as mentioned in proviso to section 13(1)(c)(ii) of the Act.
The assessee has raised an alternate plea by way of additional ground to restrict the addition to the extent of violation made u/s. 13(1)(c)(ii) and 13(2)(b) of the Act. The Co-ordinate Bench of the Tribunal in the case of Sinhgad Technical Education Society Vs. ACIT in for assessment year 2006- 07 decided on 14-12-2016 has held that there cannot be denial of exemption in toto u/s. 11 of the Act. The benefit of exemption shall not be available to the extent there is violation of provisions of section 13(1)(c) and the same be brought to tax at the maximum marginal rate. In case the Assessing Officer comes to the conclusion that shops are not part of the property as mandated in the Trust Deed, the addition has to be made to the extent of violation of provision of section 13(1)(c)(ii) and 13(2)(b) of the Act. The Assessing Officer before deciding this issue afresh in accordance with our directions shall grant opportunity of hearing to the assessee, in accordance with law.”
As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2010-11 and A.Y. 2011-12, we respectfully follow the order of the Tribunal for A.Y. 2010-11 and A.Y. 2011- 12 and restore this issue to the file of the Assessing Officer for deciding the same afresh as per the same direction as given by the Tribunal vide its order dated 28.06.2017 for A.Y. 2010-11 and A.Y. 2011-12.”
In the light of the above, we deem it proper to remand the matter to the file of AO for its fresh consideration and AO shall pass order in accordance with the directions as indicated in the order dated 28-06-2017 for A.Ys. 2010-11 and 2011-12 above. Thus, ground Nos. 2 to 5 raised by the Revenue are allowed for statistical purposes.
7. Ground No. 6 raised by the Revenue challenging the action of CIT(A) in allowing exemption u/s. 11 of the Act without appreciating the expenditure on the objects of the trust is negligible as compared to expenditure incurred on maintenance of commercial property.
8. We note that the AO found that the assessee incurred capital expenditure towards Mandir and Vidyalaya which is the part of total expenditure of Rs.544.54 lakhs. Further, he held that the capital expenditure incurred other than the objects is negligible as compare to expenditure incurred towards the objects. We find that the AO summarized the expenditure towards objects as well as capital expenditure incurred by the assessee in Page No. 6 of the assessment order. We find that the assessee incurred expenditure towards object at Rs.121.16 lakhs and towards capital expenditure at Rs.423.38 lakhs which is 77.75% than 22.25% towards objects. Therefore, the AO opined that the capital expenditure incurred by the assessee is meager than that of incurred to its objects. The CIT(A) discussed the issue from pages 11 to 15 of the impugned order which are as under for ready reference : (v) I have considered the submission carefully and gone through the reasonings enumerated in A.O.'s order. In fact, a perusal of the order reveals that the AO has observed that revenue expenditure incurred on other than the object is Rs. 423.38 lakhs which according to him is incurred for the commercial adventure. The said amount of Rs. 423.28 lakhs is a part of the total expenditure incurred of Rs. 544.54 lakhs. The AO has also observed that the expenditure on the objects Expenditure Account for the year ended 31.03.2012 shall reveal that the expenditure has been classified under various heads. Based on such classification, the AO has inferred that the expenditure is incurred for the commercial adventure, which is not correct. A closer look at the expenditure shall reveal that the expenditure is in relation to the trust property or in the nature of administrative and other expenses. If there is property held in trust, then exemption to a Trust under Section 11 can be granted when the source of its income is some property, which is held under Trust or under any other legal obligation for religious or charitable purposes. The exemption will be allowed if the source of income, viz. the property, is held upon a Charitable Trust. The word 'Property' is used in the widest import indicating all that a person has dominance over. As held by the Bombay High Court in the case of A.J. Patel v. CIT (1974) 97 ITR 683, even the right to exploit either side of the bridge as advertising space so as to yield income, was property which could be held in Trust. In the case of Institute of Banking Personnel Selection vs. Asst. Dir. of IT, 67 ITO 160 (Mum.Trib.), the Trust was formed with the object of promoting efficiency in the financial sector in the country. Substantial income was earned in the course of conducting examinations for recruitment of personnel to various public sector banks. The Assessing Officer treated the activity as commercial. The Tribunal held that the activities undertaken were incidental to the main objects, and hence, the Trust was entitled to exemption under Section 11 of the Act. Further, all, expenditure incurred on earning of such income is necessarily a deductible expenditure and magnitude of such expenditure shall have no relevance. One need not be unduly influenced by the quantum of expenditure incurred to earn the income or by the fact that expenditure incurred on objects is lower than expenditure incurred to earn the income from property held in trust. There is no doubt that tile earning of income requires deduction of expenses directly incurred to earn the income (such as fundraising expenses, expenses for soliciting donations, interest collection charges, etc.). It cannot also be said that all the administrative expenses are incurred only to earn income. Administrative expenses may also be incurred for the general objects and activities of the Trust. Hence, administrative expenses may therefore be deducted from the gross income to compute income for the purpose of section I!, when they are directly attributable to the earning of such income. Other administrative expenses are however deductible under the provisions of Section 11(1)(a), as an application of income for charitable or religious purposes. In fact, any expenditure not directly on these objects is not for charitable purpose, and not application of income in taking a myopic view of the entire scheme of taxation of charitable trusts and is a fractured response to a statutory imperative. This view is supported by the decision of the Madhya Pradesh High Court in the case of Parsi Zoroastrian Anjuman Trust, Mhow v. CIT (1987) 163 ITR 832. A similar view has also been taken by the Calcutta High Court in the case of CIT vs. Birla janahlt Trust (1994) 208 ITR 372, where the Court held that the expenditure on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the Trust must be considered as application for charitable purposes. Even Income tax and wealth tax paid by a Trust are to be deducted in computing the income. This is on account of the fact that exemption under Section 11 is based on application of the income for religious or charitable purposes. To the extent of the tax paid, the income is not available for application to such purposes, and has therefore necessarily to be deducted. Payments on account of Income Tax and Wealth Tax are not expenditure by themselves for the purpose of the Trust, but an incidence of the income or accumulation of income, and as such, must be deducted from the income of the Trust [CIT vs. Trustees of H.E.H. the Nizam's Supplemental Religious Endowment Trust, (1981) 127 ITR 378 (A.P.)]. Further, in the case of CIT vs. Baroda Industrial Development Corporation Limited, (1986) 24 Taxman 36, the Gujarat High Court held that the Income Tax liability of a Charitable Trust has to be deducted as a necessary outgoing before the net income capable of obligation for the purpose of the Trust under Section 11(1)(a) of the Income-tax Act could be ascertained. A similar view was taken by the Gujarat High Court in C1T vs. Ganga Charity Trust Fund, (1986) 162 ITR 612. Under the circumstances, no adverse inference can be drawn on the basis of the factual data culled out by the AO in the assessment order. (vi) Further, the total expenditure has to be considered to be inclusive of the depreciation. The total expenditure, rather application, is Rs. 917.05 lakhs. The AO has further observed that capital expenditure has been incurred on other than the objects of the trust amounting to Rs 679.47 lakhs which addition according to him is not for charitable purpose but has been incurred for enlargement of commercial activities. The AO has referred to capital expenditure towards objects is Rs. 2.90 lakhs. However, the inference that only the expenditure incurred on Daulat Ram Mandir is expenditure on the objects and the other capital expenditure is not relating to the objects is without basis. Expenditure on property of the trust may not be directly on the object but that cannot take us away from the fact that it is expenditure on the property of the trust. Reliance may be placed on the decision of Kerala High Court in the case of CIT vs. St. George Forana Church, (1988) 170 ITR 62, where surplus funds were utilized for additions to a building, which was let out and the income thereof applied for charitable or religious purposes. The utilization of such surplus was held to amount to application of income for religious or charitable purposes. The Court 'took the view that the word 'applied' is of wider import than the term 'expended', and that though such utilization of funds was not an expenditure for religious or charitable purposes, it was an application for such purposes. (vii) Further, Jharkhand High Court in the case of CIT VS. Karimia Trust (2008) 302 ITR 57 has held that breach of conditions would not disentitle assessee from getting benefits which it has been getting in previous years where the Assessing Officer denied the exemption to a charitable cum religious trust on the ground that trust violated the terms of the trust deed. Hence, considering the above discussion and several judicial pronouncement it is held that on present fact it cannot be said that the application of income or fund has not been applied towards the object of the trust. Accordingly, the view of the A.O. is rejected. As a result, ground No.2 is allowed.”
9. Heard both the parties and perused the material available on record. We note that the case of the AO is that the expenditure incurred on other than the object is Rs.423.38 lakhs which was incurred for the purpose of commercial adventure. He also found that the said amount is part of total expenditure incurred to an extent of Rs.544.54 lakhs. The contention of ld. AR is that the AO nowhere held the said expenditure incurred into violating the objects of trust and no adverse remark as held by the assessee violated the provisions of section 13 of the Act while incurring the said expenditure. We note that the CIT(A) by placing reliance on the decision of Hon’ble High Court of Kerala in the case of St. George Forana Church reported in 170 ITR 62 held that where surplus funds were utilized for additions to a building, which was let out and the income thereof applied for charitable or religious purposes, the utilization of such surplus was held to amount to application of income for religious or charitable purposes. Further, we note that the CIT(A) placed reliance on the decision of Hon’ble High Court of Jharkhand in the case of Karimla Trust reported in 302 ITR 57 which held that breach of conditions would not disentitle assessee from getting benefits. The CIT(A) examined the issue in detail from Page No. 11 of the impugned order and held the assessee is entitled to claim exemption u/s. 11 of the Act. Thus, we agree with the reasons recorded by the CIT(A) and it is justified. Thus, ground No. 6 raised by the Revenue is dismissed.
10. Ground No. 7 raised by the Revenue challenging the action of CIT(A) in holding non-applicability of section 60 of the Act.
We note that the AO during the course of assessment proceedings found the assessee has shown the value of Lohiya Vidyalaya at Rs.37 lakhs in fixed asset schedule. The AO asked the assessee to provide profit and loss account, Balance sheet of Lohiya Vidyalaya along with the names of trustees and copy of the return etc. It was explained that the assessee is the owner of Lohiya Vidyalaya and given to Lohiya Pratisthan for maintenance and operation as per resolution dated 24-06-1999. On an examination of income and expenditure statement the AO found surplus of Rs.1,60,201/- and opined is to be treated as income of the assessee requiring application for charitable purposes in terms of provisions u/s. 60 of the Act. It was explained that the Lohiya Vidyalaya Pratisthan is also a trust running school in the said premises resultantly no income earned thereon. The assessee vehemently contended the non-application of section 60 of the Act before the AO. We find the same submissions as made before the CIT(A) and considering the same the CIT(A) held that the provisions u/s. 60 of the Act is not applicable. The relevant portion of the CIT(A) is reproduce as under for ready reference : “(ii) However, the appellant has objected to the clubbing by explaining the issue as under: "1. In Para 4.3 of the order, the AO has discussed regarding the applicability of provisions of Section 60 for a building allowed to be used by given to another trust namely Lohia Pratisthan. We have to submit that the school is being run by the said Trust. There is no question of earning income and section 60 shall have no application. In any case, section 11 to 13 provides an independent scheme of taxation of trusts.
In this connection, it is submitted that though the ownership of Lohia Vidyalaya property lies with the appellant, it is given to another trust, Lohia Pratisthan for operation send maintenance. It is akin to a donation In kind in the form of allowing the other trust to run the school. This shall be in any case an application of income.
The Bombay High Court had in CIT vs. Trustees of Jadi Trust (1982) 133 ITR 494, and the Calcutta High Court had in CIT vs. Hindustan Charity Trust (1983) (139 ITR 913), held that the donation made by one Trust to another Trust, both Trusts being established for Charitable purposes, would amount to an application of Income or Charitable purposes by the donor Trust and the same would be entitled to exemption under Section 11. Reiterating this View, the Gujarat High Court held in the case of CIT Vs. Sarladevi Sarabhai Trust, (No.2) (1988) 172 ITR 698 that such a donation would constitute application for religious or charitable purposes, even if it was towards the corpus of the other Trust. Similar is the decision of the Delhi High Court in CIT v. Shri Ram Memorial Foundation (2004) 269 ITR 35. (iii) I have considered the submission of the appellant and gone through the provision of Section 60 of the I.T. Act. I find force in the argument of the appellant on the simple reason that the provisions of section 11 to 13 are an independent scheme of taxation of trust and accordingly, the general provision of section 60 may not be applied unless or otherwise so specified. Hence, in my considered view, the provision of section 60 is not attracted in the case of the appellant on present facts of the case.
Heard both the parties and perused the material available on record. We note that the assessee allowed a building belonging to it another trust by name Lohia Pratisthan. We note that the said Lohia Pratisthan is also a trust running school in the said premises. According to the ld. AR that the assessee is not earning any income from the said property which was given to the said Lohia Pratisthan which is running a school in the said premises. He contended that section 60 is not applicable to the facts on hand for the reason that the exemption u/s. 11 is independent and is to be separately examined. We note that the CIT(A) held that section 60 is not applicable to the facts on hand by placing reliance on the decision of Hon’ble High Court of Bombay in the case of Trustees of Jadi Trust reported in 133 ITR 494. The provisions u/s. 60 of the Act explains all the income arising to any person by virtue of a transfer is chargeable to Income Tax as the income of the transferor shall be included in his total income. As we discussed above that the assessee is a trust applying its income towards its objective and other trust Lohia Pratisthan also running school in the said premises. Therefore, we find force in the arguments of ld. AR that the exemption u/s. 11 is to be examined independently and the provisions u/s. 60 is not applicable to the facts on hand. On examination of the reasons recorded by the CIT(A) we note that the assessee in the capacity of owner is not deriving any income from the other trust to which a property has been given to run a school. Therefore, we find no infirmity in the order of CIT(A) in holding the non-applicability of section 60 of the Act. Thus, we agree with the reasons recorded by the CIT(A) in Page No. 16 of the impugned order and it is justified. Thus, ground No. 7 raised by the Revenue is dismissed.
In the result, the appeal of Revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 10th August, 2022.