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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
Since the issues are common and connected these are being disposed of by this common order. Some facts are identical we are referring to facts and figures from A.Y. 2013-14.
One common issue raised relates to assessee’s claim of deduction u/s. 24 of the I.T. Act against income from house property. The Assessing Officer dealt with the issue as under :- The AO stated that it was noticed from the computation of income submitted by the appellant that the appellant has shown rent receipt of Rs. 1,16,88,161/- and has claimed standard deduction u/s 24(a) of the IT Act of Rs. 35,06,448/-. The AO further stated that submission and justification made by the appellant trust vide letter dated 14.08.2015 has been carefully perused and considered. However, the submissions made are not acceptable on the basis of following grounds:-
2 Shantaram Bhat Charitable Trust a. As per circular of CBDT No. 5-p [LXX6] dated 19.06.1968, where in it is stated that he income of the trust is to be computed in the commercial sense i.e. book income. Even where the trust derives income from property or dividends, such income will be computed on actual commercial basis and not under provisions relating to income from house property or income from other sources. b. Further, in a recent judgment in the case of Nandlal Tolani Charitable Trust, the Hon'ble ITAT vide its order No. & 199/Mum/2011 and ITA no. 1111/Mum/2011 gas declined the claim of standard deduction of the appellant u/s 24(a) of the IT Act. Reliance is also places on CIT vs. Programme for Community Organization [2001] 248 ITR 1 (SC) and CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad) wherein it is clearly laid down that the income a trust is that which is available, so that the same is to be considered and arrived at in the commercial sense and it is not computed under any head of income. c. In view of the facts mentioned above, the appellant's claim of deduction u/s 24(a) of the IT Act of Rs. 35,06,448/- on the income from property held under trust wholly for charitable or religious purpose is denied and Rs. 35,06,448/- claimed by the appellant is added to the total of the appellant.
Upon assessee’s appeal learned CIT(A) upheld the same holding as under:- “6.3 I have considered the facts of the case and the submissions made by the appellant. In this context it is relevant to note that section 11(1) provides that ‘the following income shall not be included in the total income of the previous year................'.
The reference in section 11(1) and sub section (a) is invariably to 'income' and not to ‘total income'. Total Income' has been specifically defined in Section 2(45) of the Act as 'the total amount of income referred to in section 5, computed in the manner laid down in this Act'. Therefore, the word income used in section 11(1A) is distinct to the expression 'total income' vide section 2(45) of the IT. Act,1961. The CBDT in its Circular No. 5 LXX-6 of 1968 dated 19.06.1968 further explained that 'where the trust derives income from House Property, Interest on securities, Capital Gains or other sources, the word income should be understood in its commercial sense. Para 2 of the said Circular is reproduced for the sake of convenience.
"2. Section 11(1) provides that subject to the provisions of Sections 60 to 63, "the following income shall not be included in the total income of the previous year......". The reference in sub-section (a) is invariably to "income" and not to "total income". The expression "total income" has been specifically defined in section 2(45) of the Act as "the total amount of income computed in the manner laid down in this Act". It would accordingly be incorrect to assign to the word "income" used in 3 Shantaram Bhat Charitable Trust section ll(l)(a), the same meaning as has been specifically assigned to the expression "total income" vide section 2(45). " 6.3.1. The above noted position is further approved by the decision in the case of CIT Vs. Programme for Community Organization (1997) 228 ITR (Ker.) where it was laid down that the expression 'income' has to be understood in the popular or general sense and not in the sense in which the income is arrived at for purposes of assessment to tax by the application of some artificial provisions either giving or denying deductions. The stand of the AO is also supported by the decisions of the Hon'ble ITAT Mumbai in the case of Nandlal Tolani Charitable Trust, and 199/Mum/2011 dated 30.09.2013 and in the case of the same assessee in ITA No. 1165/Mum/2012 dated 25.7.2014. These decisions have been rendered after the decision of the Tribunal in the case of Sathya Sai Trust relied upon by the assessee. Thus, for the above noted reasons and legal position, the deduction claimed by the appellant under section 24 of the IT Act, 1961 is not allowable. The action of the A.O. of disallowing the claim of deduction made by the assessee is therefore, upheld.”
Against this order the assessee is in appeal before us. We have heard both the counsel and perused the records. We find that for computing income under the head ‘income from house property’, section 24 of the Act provides that income chargeable under this head shall be computed after making following deductions namely :-
a) sum equal to 30% of the annual value b) ………………..
A bare reading of the above makes it amply clear that the provisions of the Act do not provide any restriction whatsoever that any category of tax payer is excluded from this deduction. Identical view was expressed by the ITAT in the case of Sri Sathya Sai Trust (ITA no. 7350/Mum/2011 vide order dated 25.3.2013) and in that case the ITAT has held that the assessee a Trust was eligible for deduction u/s. 24 @ 30% of the rental income. We find that the view adopted by learned CIT(A) is erroneous in the light of the express provisions of the Act. It is settled law that the provisions of the Act have to be construed in a strict manner, when there is no ambiguity whatsoever in the provisions of the Act. Hence, extrapolation made by learned CIT(A) that the Trust shall not be entitled for deduction u/s. 24 of the Act in computation of income from house property is totally unsustainable in law. As a matter of fact,
4 Shantaram Bhat Charitable Trust the proposition that income has to be computed as per provisions of the Act even in the case of Trust was approved by Hon'ble Bombay High Court in the case of Institute of Banking Personnel (264 ITR 110), wherein capital expenditure for acquiring asset which was already shown as application of income was held to be eligible for depreciation which was denied by the Revenue. In this view of the matter in our considered opinion the assessee is entitled to deduction u/s. 24 of the Act. Following the precedent as above, we direct accordingly. Since we are deciding the issue following the Hon'ble Bombay High Court decision as above, other decisions relied upon by the Revenue are not applicable.
One common issue raised relates to disallowance of claim of accumulation of unutilized funds.
The Assessing Officer has dealt with the issue as under :- “The AO stated that it was observed that during the year under consideration, the appellant trust added accumulation income of AY 2008-09 of Rs. 18,50,000/- as it was not spent. Further the said amount taken as accumulation made u/s 11(2)& reduced it from the income of the Trust. However, the unutilized amount of Rs. 18,50,000/- is taxable u/s 11(3) of I.T. Act, 1961 as deemed income of the appellant. Considering the facts and circumstance of the case and discussion made in the foregoing paragraph, it is crystal clear that unutilized amount of Rs. 18,50,000/- is taxable under sec 11(3) of the I.T. Act as deemed income of the appellant.”
Upon assessee’s appeal learned CIT(A) held as under :- 7.3 I have considered the facts of the case, assessment order and the submissions of the appellant. The appellant contended that it is eligible to accumulate the surplus income in view of the provision u/s 11(2) and u/s 11(3A) of the Act. The appellant has shown spending of Rs. 5,51,857/- out of the unutilized accumulation of AY 2008-09, in the assessment year under consideration. However, the AO held that appellant's claim for spending the accumulated amount of Rs. 5,51,875/- is not as per the resolution passed by the trustees on 29.03.2008 in Form-10 and thus is not eligible as valid application of income.
7.3.1. Secondly, the appellant trust in its computation has added back the unutilized accumulation of Rs. 18,50,000/- to total income of the trust, and after arriving at the net income after application of funds, the appellant has claimed for accumulation of the net income u/s 11(2) through filing Form 10
5 Shantaram Bhat Charitable Trust which indeed included the 'unutilized accumulation of AY 2008-09'. The contention of the appellant that the unspent accumulation is set aside for the same purpose of constructing school and college is not permissible as per sec 11(2) of the Act. It is because, the unutilized accumulation of the appellant of AY 2008-09 is in the nature of deemed income , whereas sec 11(1) uses the phrase "income derived from property" for the purposes of allowing the benefits of accumulation u/s 11(2) of the Act . Thus, the deemed income u/s 11(3) should not be taken as part of the income derived from the property for accumulation purpose as claimed by the appellant in its computation. I find the AO has rightly excluded Rs 18,50,000/- out of the assessed total income to arrive at the accumulation u/s 11(2) of the Act.
7.3.2. In regard to the alternative claim of making an application u/s 11(3A) of the Act, the appellant's application to utilize unspent accumulation for such other charitable purpose in conformity with the object of the Trust was not allowed by the Assessing Officer in absence of any documentary evidence to establish the situation as 'beyond control' . The provision of sec 11(3A) allows to revise purpose more than once provided the AO allows modification of the purposes for which the accumulation to be applied. The CBDT Circular No. 204 dated 24.7.1976 also holds the same view in regard to AO's role for allowing such application. Even otherwise, in my opinion, the time-frame given to modify the purpose is not open-ended but would be valid upto the year in which the amount becomes taxable u/s 11(3)(c) of the Act i.e. in the instant case, it is AY 2013-14. Thus, if the period expires, then the option to revise the purposes cannot be exercised. While perusing the documents filed by the appellant, nothing found contrary to the observation made by the AO in para 8.4.(c) of the assessment order, and therefore, in absence of any specified 'unavoidable circumstances, on record to modify purposes, I declined to interfere with the finding of the AO in regard to the utilized funds of Rs. 18,50,000/- which is held to be taxable as deemed income u/s 13(3) of the IT Act.
Against this assessee is in appeal before us. We have heard both the counsel and perused the records. We find that the issue in dispute on this issue is unutilized portion of fund of Rs. 18,50,000/- for A.Y. 2008-09. The same has been held to be taxable by the Assessing Officer u/s. 11(3) of the Act. This aspect has been upheld by learned CIT(A) on the ground that any specified unavoidable circumstances is not on record. This he held so by observing that if any specified period expires then it is the option to assessee to revise the purposes cannot be exercised. He held that while perusing the document filed by the assessee, he did not find anything contrary to the observation of the Assessing Officer. Therefore in the absence of any specified unavoidable circumstances on record to modify purpose, he declined to interfere with the finding of the Assessing Officer. In our considered opinion it
6 Shantaram Bhat Charitable Trust is nowhere emanating as to whether the learned CIT(A) has confronted this aspect or not. In our considered opinion interest of justice demands this issue may be remitted to the file of the Assessing Officer. The Assessing Officer is directed to consider the issue afresh after giving the assessee opportunity of being heard.
In the result, appeal by the assessee stands partly allowed. Order has been pronounced in the Court on 25.11.2019.