NANDALAL TOLANI CHARITABLE TRUST,MUMBAI vs. ADIT (E) - II (2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.6949/Mum/2018 for A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-1, Mumbai in appeal No.CIT(A)-1/ADIT(Exem)-II(2)/IT-250/2014-15 dated 24/03/2014 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 24/03/2014 by the ld. Asst. Director of Income Tax (Exemption)- II(2), Mumbai (hereinafter referred to as ld. AO).

2 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust “1. The Learned CIT(A) has erred in not allowing deduction of Rs.75,90,943/- at 30% on Rs.2,53,03,142/- as standard deduction u/s.24(a) of the Income-tax Act, 1961 while computing income from property on the ground that income derived from property held for charitable purposes is assessable under the provisions of Section 11 to 13 of the Act. overlooking that Section 11 to 13 are provisions for allowing exemption to the TRUST if applied for the objects of the TRUST and Section 11 to 13 are applicable only to reduce Taxable Income by granting exemption if income is applied for the objects of the Trust and if income is computed as taxable then the same has to be computed as per the provisions of Income-tax Act including statutory deduction u/s.24(a) of the Act. 2. The Learned CIT(A) has erred in not following the judgment of Jurisdictional ITAT in the case of ACIT vs. Saurashtra Trust 106 ITD 1 (Mum) Special Bench wherein it is held that in the case of Trust, income should be classified under the head INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES and held that Assessee will be entitled to deductions on account of Income computed under each head. 3. The Learned CIT(A) has erred in not considering that provisions of Section 11 and 12 of the Act are beneficial provisions for the benefits of charitable trusts and therefore income cannot be taxed at higher amount of income computed as compared to the other Assessees as while computing income of other Assessees deduction u/s.24(a) is allowable and therefore Assessee Trust cannot be denied the Statutory deduction, if Trust is made liable to pay tax under the Act. 4. The Learned CIT(A) has erred in not considering the BOARD CIRCULAR NO. 5-P (LXX-6) of 1968 dated 19.6.1968 which has clarified the difference between the word "Income" as per Section ll(l)(a) and the words "TOTAL INCOME" as per Section 2(45) computed in the manner laid down in this Act and therefore under Section 11 "income" is entitled to exemption and if income is taxable the same has to be computed as per the term "Total Income" and if the Trust is "business undertaking" then the same has to be determined in accordance with the provisions of the Act and similarly when the Trust is having "Income from Property" the same has to be determined in accordance with the provisions of the Act for the purpose of arriving at "Total Income" u/s.2(45) of the Act to determine tax payable by the Trust and therefore the 'Income from Property" has to be computed as per Chapter IV-C of the Act allowing deduction of 30% u/s.24(a) of the Act. 5. The Learned C1T(A) has erred in not considering the judgement of Amritsar Bench ITAT in the case of AKHARA GHAMANDA DASS vs. Asst. CIT (2001) 114 Taxman 27 (ASR) (Mag.) referred by Hon'ble

3 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust Bangalore ITAT in the case of Al Ameen Educational Society (2012) 26 Taxmann.com 250 at Paragraph 9, it is held that in the case of Trusts Capital Gain has to be taxed and calculated as per the provisions of Section 45 to 55A of the Act and therefore in the case of Appellant Trust income from property has to be calculated as per the provisions of Section 24(a) of the Act allowing Statutory deduction of 30% while computing "Income from House Property". 6. The Learned CIT(A) has erred in directing the A.O. to allow deduction u/s.11(2) for accumulation of income for 5 years commencing from 1.4.2011 instead of allowing the deduction from the date of filing the application u/s.11(2) before the Hon'ble CIT(A). 7. Appellant craves to add and or alter the above grounds of appeal.

4 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust India Services Pvt. Ltd. 368 ITR 531 (Bom) (Page 544) which is binding on Department in Mumbai as law of the land wherein it is held that income chargeable to tax has to be computed u/s.l4 of the Act and therefore income from property has to be computed allowing deduction u/s.24(a) of the Act in the case of all assesses including charitable trusts. 3. The Learned A.O. as well as Learned CIT(A) have erred in not following judgement of Hon'ble Bombay High Court in the case of Director of Income- tax (Exemption) vs. Jasubhai Foundation (2015)374 ITR 315 wherein it is held that income which is not to be included in Total Income as per the provisions of Act cannot be included in Taxable Income of the Trust entitled to exemption of certain income u/s.10 and u/s.11 of the Act and therefore 30% of income excluded from Income from Property u/s.24(a) of the Act cannot be charged to tax in the case of charitable trust for computing taxable income of CHARITABLE TRUST. 4. The Learned CIT(A) has erred in not allowing the ground raised before him vide ground no11 of the detailed grounds of appeal and ground no.4 of the concise grounds wherein the Appellant claimed that while computing capital gain included in Total Income deduction should be allowed u7s.11(lA) for amount utilized in purchasing another capital assets and therefore amount of Rs.49,22,316/- on account capital gains included in Income & Expenditure Account should be allowed as deduction from Total Income as the Appellant has utilized the same in purchase of another capital asset during the year. 5. The Learned CIT(A) has erred in not allowing deduction of Rs.13,00,635/- incurred as expenditure for Repairs and Maintenance as shown in Income and Expenditure Account and claimed as deduction vide ground no.5 of Concise grounds of appeal. 6.The Learned CIT(A) has erred in not considering that Appellant has made an application u/s.11(2) of the Act for accumulation of income for the year and therefore full amount of income remaining after deduction u/s.11(1 )(a) and 11(1 A) should be allowed as accumulated u/s 11(2) instead of allowing sum of Rs.2,10,00,000/- in Assessment Order as per Form 10 filed overlooking that if Taxable Income is increased due to disallowance then full deduction should be allowed on account on account of surplus u/s 11(2).” 2. The brief facts of the case are that the assessee trust is a charitable trust registered with Charity Commissioner as well as with Commissioner of Income-tax u/s 12A of Income-tax Act, 1961. The assessee trust is earmarking and spending funds for maintenance of college at Andheri, Mumbai as well as facilities at the Maritime Engineering College at Induri, Pune. The assessee has filed its return of income for AY 2012-13 on 28-09- 2012 declaring total income at Nil after claiming exemption u/s 11 of the Income-tax Act, 1961. The case has been selected for scrutiny and during the course of assessment, the AO noticed that the assessee has computed income

5 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust received from property held under trust under the normal provisions of the Act, instead of commercial principles in respect of „Income from house property‟. Therefore, called upon the assessee to explain us to why standard deduction claimed u/s 24(a) of the I.T. Act at 30% of Rs.76,04,849/- in respect of rental income derived from property shall not be disallowed. The AO after considering submissions of the assessee and also by following the decision of ITAT, Mumbai Bench in assessee‟s own case for earlier year in ITA Nos. 6970 & 199/Mum/2011 it shall our standard deduction claimed u/s 24(a) of the Act and recomputed income available for application u/s 11 of the I.T. Act 1961. Finally, the AO as determined total income of the assessee at Rs.63,81,840/- after considering accumulation of income u/s 11(2) of the I.T. Act for Rs.2.10 crore as per Form 10 filed by the assessee alongwith the return of income. 3. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). The assessee has contested disallowance of deduction u/s 24(a) of the I.T. Act on the ground that income of a trust claiming exemption u/s 11 shall be computed in accordance with provisions of the Act, as applicable to other assessees. Therefore, there is no error in the computation of income arrived at by the assessee in respect of rental income after claiming standard deduction u/s 24(a) of the Act. The assessee further contended that while determining the income, the AO has not allowed actual repairs and maintenance expenses incurred by the assessee in respect of property from which rental income has been derived. Therefore, even if income is computed under normal commercial principles, expenditure incurred towards repairs and maintenance shall be allowed as application of income before arriving at income of the assessee. The assessee also made an alternative claim inasmuch as, if the disallowance is necessary in respect of deduction claimed u/s 24(a), an amount equal to deduction claimed u/s 24(a) may be allowed to carry forward and utilized for the objects of the trust as per the provisions of section 11(2) of the Act. 4. The Ld. CIT(A) after considering the relevant submissions of the assessee and also by following the decision of ITAT, in assessee‟s own case for AY 2004-05 held that deduction u/s 24(a) of the Act against rental income in not in accordance with the scheme of taxation provided for computation of income in respect of trust/institution claiming exemption u/s 11 of the Income Tax Act. Accordingly, he rejected the ground taken by the assessee and affirmed the findings of AO. Insofar as alternative ground taken by the assessee regarding deduction towards actual expenditure incurred on repairs and maintenance for accumulation of income, the CIT(A) held that on perusal of assessment order it is noticed that the issue was not raised during the course of assessment proceedings nor deduction has been claimed in the computation of income. Accordingly, same does not arise from the findings of the AO therefore, there is no merit in the alternative argument taken by the assessee. With these findings, the Ld. CIT(A) dismissed appeal filed by the

6 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust assessee. Aggrieved by the CIT(A)‟s order, the assessee is in appeal before us. 4. The first issue that came up for our consideration from grounds 1 to 3 is deductibility of standard deduction amounting to Rs.76,04,849 claimed u/s 24(a) of the Act, in respect of rental income derived from property and consequent deduction on actual expenditure incurred towards repairs and maintenance of the property. The Ld.AR for the assessee, although admitted the fact that the issue has been decided against the assessee by the Tribunal for earlier years, argued that principles settled by Hon‟ble Bombay High Court in the case of Vodafone India Services Ltd vs CIT 368 ITR 531 (Bom) which is binding on department as law of the land wherein it is held that income chargeable to tax has to be computed under the provisions of the Act, and therefore, income from property has to be computed allowing deduction u/s 24(a) of the Act, in the case of all assessee‟s including charitable trust. The Ld.AR further submitted that the Hon‟ble Bombay High Court in the case of DIT (Exemption) vs Jasabai Foundation 374 ITR 315 (Bom) held that income which is not included in total income as per the provisions of the Act, cannot be included in taxable income of the trust entitled to exemption of certain income u/s 10 and section 11 of the Act and, therefore, 30% of income excluded from income from property u/s 24(a) of the Act, cannot be charged to tax in the case of charitable trust for computing taxable income. 5. The Ld. DR, on the other hand, submitted that the issue is covered against the assessee by the decision of ITAT for earlier years, where the Tribunal, after considering relevant facts held that standard deduction on rental income @30% u/s 24(a) of the I.T. Act, 1961 cannot be allowed while computing income of a trust / institution claiming exemption u/s 11 of the Income-tax Act, 1961. 6. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. We find that the issue involved in the present appeal, i.e. deductibility of deduction u/s 24(a) against rental income in case of a trust / institution claiming benefit of exemption u/s 11 is a recurring issue in assessee‟s case for earlier period. The co-ordinate bench of ITAT, Mumbai Bench “B” in assessee‟s own case for AY 2005-06 in ITA No.200/Mum/2011 had considered similar issue in the light of provisions of section 24(a) and also section 11 of the Income-tax Act, 1961, and held that income of a trust / institution shall be computed under normal commercial principles without resorting to computation mechanism as provided under respective head of income while determining income available for application u/s 11 of the Act. The relevant observations of the Tribunal are as under:- “8. We have heard the rival parties and gone through the material available on record. On a perusal of the Tribunal order dated 30.09.2013 in ITA Nos.6970 & 199/Mum/2011 & ITA No. llll/Mum/2011 for assessment year

7 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust 2004-05, we find that on identical issue has been decided against the assessee by observing as under: 3.2 The first issue arising in the instant appeals is the validity in law of the assessee's claim toward repairs and maintenance u/s. 24 of the Act in computing the income from house property let out assessee, and toward which it has (subsequently) a single precise ground. The claim is, by all counts, without merit. This is for the simple reason that the income of a charitable trust or institution, subject to its application for charitable purposes, for which it has been in fact formed (per its Constituting charter) is exempt from tax under Chapter III (ss.10 to 138) of the Act The said income does not form part of the total income of the entity to which it arises or accrues or is received by. It is only the income forming part of the total income u/s. 2(45) of the Act, which is to be classified under the various heads of the income u/s. 14 and, accordingly, subject to the computation provisions of Chapter IV (ss. 14 to 59)of the Act. The expenditure incurred in earning the same is, likewise, and only understandably, not to be taken into account in computing the total income under the Act, which represents trite law, and toward which a separate section (sec. 14 A) has since been inserted by Finance Act, 2001 with retrospective effect from 01.04. 1962. This aspect stands abundantly clarified by the hon'ble apex court in the case of CIT vs. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC) explaining that an income to come within its purview must satisfy the definition of total income u/s. 2(15) (of the Income-tax Act, 1922, which is para material with section 2(45) of the Act), prescribing two conditions. Firstly, it must comprise the total amount of income, profits and gains referred to in section4(l) and, two, must be computed in the manner laid down under the Act. The capital gain being not chargeable u/s.128 of the 1922 Act during the relevant period, the same would not enter the computation mechanism of the total income. This is as the capital gain or loss (which is only negative income) did not form part of the total income of the assessee which could be brought to charge, so that it was not required to be computed. Reference in this context may also be made to the following observation by the tribunal in the case of Pravin Shah Trust vs. Dy. CIT(in ITA No. 4782/Mum/2010 dated 05. 07. 2013): 3.3…. That is, an income exempt u/s.11 of 'the Act, not forming of the total income, would not enter the computation process determine the quantum of income under the relevant head of each of which has its own computation provisions. To the same effect and purport are its observations in the case of LKP Securities Ltd.(in ITA Nos. 638 & 639/Mum/2012 dated 17.05.2013): '14 ....... The income (and loss, which is only negative income) failing under chapter in of the Ad d/iu, uius, exempt from the levy of the tax, would not form part of the computation of the income under Chapter IV of the Act. That

8 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust in fact is a fundamental premise; the basis of sec. HA of the Act. The Revenue's case in this regard is unexceptional, and we confirm the same. ' In both the decisions, the tribunal relied on the decision in the case of Harprasad & Co. (P.) Ltd. (supra). The reliance by the id. CIT(A) on the Circular issued by the Board (No. 5P(LXX6) dated 19.06.1968), explaining the position In the matter, is also apposite. It stands explained that only the income as reflected in the accounts of the trust/institution that is to be applied or deemed to have been applied for charitable purposes, and which, therefore, has to be computed in the commercial sense. The said Circular has been found by the hon'ble courts of law as representing the correct interpretation of the relevant provisions and the requirement of the la w, as in the case of CIT vs. Programme for Community Organization[1997] 228 ITR 620 (Ker), since approved by the apex court (reported at [2001] 248 ITR 1 (SC), to which (latter) decision reference stands also made by the Id. CIT(A). This aspect of the matter, i. e., the manner of computation of income of a charitable or religious trust/institution which has to be applied for the said purposes, has been a subject matter of a number of decisions, as by the Hon'ble jurisdictional High Court in the case of CIT vs. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom). This is even otherwise patent in as much as a trust could only apply the income as vailable with it, i.e., as arrived at following the accepted principles of commercial accounting. The computation provisions of the Act do not come into play, so that the said computation of the would be de hors the same. This would of course be subject to the specific provisions of the Act, so that where specifically provide for, the income would be computed in the manner as provided; for example ss. 11(4) and 11(4A) specifically provide for the computation of income of a business t/i(/forming part of the property held under trust by charitable trust/institution in accordance with the provisions of the Act, even as pointed out by the hon'ble court in Rao Bahadur Calavala Cunnan Chetty Charities (supra). The Special Bench of the tribunal in Scientific Atlanta India Technology (P.) Ltd. vs. ACIT [2010] 2 ITR 66 (Trib) (Chennai) (SB) held that the profits of a unit eligible for deduction u/s.10A of the Act, i.e., to the extent not covered by the deduction there-under, would stand to be taxed directly and not enter the computation mechanism inasmuch as the same do not form part of the gross total income, as section 10A falls under Chapter HI of the Act, so that the provisions of Chapter Vl-A and, consequently, s.80AD would not be applicable thereto. Before parting with the matter, we may also add that the assessee has been allowed ad the expenditure on repairs and maintenance as debited in its accounts, i.e., on actual basis (Rs. 11.97 lacs/PB 1 pg.39), even as directed by the Id. CIT(A), and which fact was also clarified by us during hearing. Accordingly, the assessee‟s ground/s for the claim of the standard deduction u/s.24 fail. We decide accordingly. Finally, the reliance by the assessee on the decision in the case of IAC, Mumbai vs. Saurashtra Trust [2007] 1061TD 1 (Mum) (SB) is, under the

9 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust circumstances, misplaced. The said decision is, firstly, sansany reference to any precedents; nay, even without a discussion of the law in the matter. This aspect would in fact become clear in view of the questions referred to and answered by Tribunal. As a reading of its order would show (refer para 1), are not directly connected with the issue before us. decision, thus, would be of no assistance to the assessee, w/jffi fve having even otherwise decided the matter following the precedents in the matter, so that the decision in the case of of Baroda v. H.C Shrivastava[2002] 256 TTR 385 (Bom), advocating judicial discipline with reference to the decision by the apex court in CCE v. Dunlop India Ltd. AIR 1985 SC 330, only supports the same. The decision in the case of Ameen Education Society v. DIT (Exemption) (in IT A No.575/Bang./2011 dated 28/9/2012, also at [2012] 26 taxmann.com 250 (Bang.)) is again only in respect of the specific provision of sec.11(1 A) of the Act, i.e., qua capital gain, and, thus, not applicable. We have already clarified that our decision is based on and represents the general position of law, so that it would be subject to the specific provisions of the Act, giving example of ss. 11(4) and 11(4A). It may be relevant to state that the decision by the apex court in Harprasad & Co. (P.) Ltd. (supra), referred to earlier, is also in respect of capital gains.” 9. No contrary decision was brought to our notice by the learned AR. In view of this fact, we confirm the order of the CIT(A) disallowing the claim of the assessee u/s. 24(a) of the Act. Thus, the ground taken by the assess fails.” 7. In this view of the matter and consistent with the view taken by the co- ordinate bench, we are of the considered view that there is no error in the orders of authorities below and hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the assessee. 8. Coming to the issue of actual repairs and maintenance claimed by the assessee in the P&L account. The assessee has incurred actual repairs and maintenance expenses of Rs.13,00,635, as per its financial statements. However, while arriving at income available for application u/s 11, it has claimed standard deduction @30% of gross rental income u/s 24(a) of Income-tax Act, 1961. The AO has is allowed standard deduction claimed u/s 24(a) of the Act. However, expenditure incurred as per the books of account of the assessee has not been allowed while determining income available for application. It is the settled position of law that once income of a trust / institution is computed under the provisions of section 11 of the Act, whatever income derived from the property held under trust is to be taken into account and against which actual expenditure incurred for the objects of the trust has to be considered as application of income. Therefore, while arriving at income u/s 11, the AO needs to allow deduction towards actual repairs and maintenance expenses incurred for Rs.13,00,635. Therefore, we direct the AO to allow deduction towards actual repairs and maintenance expenditure incurred for Rs.13,00,635 before arriving at income available for accumulation u/s 11(2) / taxable income of the trust / institution.

10 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust

11 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust

Order pronounced in the open court on this 15/01/2020

Sd/- Sd/- (MAHAVIR SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 15/01/2020 KARUNA, sr.ps Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai

12 ITA No.6949/Mum/2018 Ms. Nandalal Tolani Charitable Trust

Initial Date 1. Draft dictated on 09/01/2020 Sr.PS 2. Draft placed before author 10/01/2020 Sr.PS 3. Draft proposed & placed JM/AM before the second member 4. Draft discussed/approved by JM/AM Second Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed Yes