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Income Tax Appellate Tribunal, “F”, BENCH MUMBAI
Before: SHRI. VIKAS AWASTHY & SHRI G. MANJUNATHA
IN THE INCOME TAX APPELLATE TRIBUNAL “F”, BENCH MUMBAI BEFORE SHRI. VIKAS AWASTHY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA No.2532/Mum/2018 (Assessment Year: 2012-13) Vipassana Research Institute Vs. ITO(Exemptions)-2(4) 2nd Floor, Green House Piramal Chambers Green Street, Fort Lalbaug, Parel Mumbai-400 023 Mumbai-400 012 PAN/GIR No.AAATV1217E (Appellant) .. (Respondent)
Revenue by Shri. Samatha Mullamudi Assessee by Shri. Rajnikant V.Chaniyari
Date of Hearing 13/11/2019 Date of Pronouncement 15 /11/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)–1, Mumbai, dated 26/02/2018 and it pertains to Assessment Year 2012-13.
The assessee has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer [herein after referred to as 'AO'] has erred in taxing profit of Rs.28,91,364/- arising on sale of units of mutual funds under the head 'Income from Other Sources' without appreciating that the same has been taxed separately under the appropriate head 'Capital Gains' and the Hon'ble Commissioner of Income-tax (I Appeals) - 1 (herein after referred to as "CIT(A)”] has erred in upholding the decision of learned AO.
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The Appellant Trust prays that the Learned AO be directed to reduce the profit of Rs.28,91,364/- arising on sale of units of mutual funds from the total receipts under the head 'income from Other Sources', tax the same under the head 'Capital Gains” and consequently, allow carry forward of long term capital loss of Rs.60,75,739/- (determined after allowing indexation benefit u/s. 43). 2. On the facts and in the circumstances of the case and. in law, the Learned AO has erred in disallowing the claim of 15% as Accumulation of Income u/s. 11(1)(a) of the Act of Rs. 33,18,282 and the Hon'ble ClT(A) has erred in upholding the decision of learned AO. The learned AO be directed to allow the Accumulation of Income of Rs. 33,13,271 and increase the deficit accordingly. 3. The brief facts of the case are that the assessee trust is registered with CIT(Exemption), Mumbai u/s 12A of the I.T.Act 1961. The assessee has filed its return of income for AY 2012-13 on 30/09/2012, declaring total deficit at Rs. 97,47,021/-. The case was selected for scrutiny and during the course of assessment proceedings, the Ld. AO noticed that the assesse has claimed depreciation on assets, which have been claimed as application of income u/s 11(1)(a) of the I.T.Act 1961. Accordingly, he opined that if depreciation is allowed on said fixed receipts, it amount to double deductions and accordingly, rejected the claim of depreciation on fixed assets. Similarly, the Ld. AO has rejected the claim of deficit claim of the assesee to subsequent years, on the ground that when, application of income for objects of the trust is over and above, the income derived from property held under trust, then the question of allowing 15% set off u/s 11(1A) (a) of the I.T.Act, 1961 does not arise and accordingly, rejected deficit claim of the assesee. Similarly, the Ld. AO has recomputed long term capital gain derived from sale of mutual funds without allowing the benefit of indexation and also, considered net capital gain earned from transfer of capital asset under the head income from other sources and treated as part of income derived from property held under trust and, accordingly,
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computed income under the provision of section 11 of the I.T.Act 1961.
Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesee has challenged additions made by the AO towards depreciation on fixed receipts, carry forward of deficit, dividend income exempt u/s 10(35), taxability of gains arising on sale of units of mutual funds and accumulation of income u/s 11(1A)(a) of the I.T.Act, 1961 along with certain judicial precedents. The Ld.CIT(A), for the detailed reasons recoded in his appellate order partly allowed, appeal filed by the assessee, where he had allowed relief towards depreciation on fixed assets by following decision of Hon’ble Bombay High Court, in the case of CIT vs Institute of Banking and Personnel Selection (IBPS) (2003) 264 ITR 110. He has also allowed the claim of the assessee to carry forward deficit of the year to subsequent year by following the decision of Hon’ble Bombay High Court, in the case of CIT vs IBPS (supra). Similarly, he had allowed relief to the assessee, in respect of dividend income exempt u/s 10(34) of the I.T.Act 1961. However, confirmed the findings of the AO, insofar computation of capital gain on sale of units of mutual funds, on the ground that income of trust /institutions shall be computed on commercial principles of income computation without resorting to any head of income and also, other deductions as permissible under those heads of income. Similarly, the Ld.CIT(A) has rejected the claim of the assessee towards application of income for reinvestment of net consideration from sale of units of mutual funds in fixed deposits, on the ground that in order to get the benefit of section 11(1)(a) ,the net consideration shall be invested in any other
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capital assets. Since, the assesse has not invested net consideration in another capital asset, the surplus derived from sale of units of mutual funds cannot be considered as application of income. As regards, accumulation of income @15% u/s 11(1)(a), the Ld.CIT(A) held that when income of trust is fully applied for charitable purpose and deficit has been carry forward for subsequent years, then the question of further allowance for accumulation of income @15% on notional basis does not arise. Aggrieved by the Ld.CIT(A) order, the assessee is in appeal before us.
5 The first issue that came up for our consideration from ground No. 1 of assesse appeal is computation of capital gain on sale of units of mutual funds and taxing the profit under the head income from other sources without allowing the benefit of indexation to cost of acquisition of assets. The facts borne out from records, on this issue are that during the year under consideration, the assessee trust had earned profit of Rs. 28,91,364/- on sale of units of mutual funds. The assessee, while computing income of trust u/s 11 of the I.T.Act, 1961, has excluded profit from sale of units of mutual funds and computed capital gains on such sale of units of mutual funds, in accordance with the provision of section 45 r.w.s.48 of the I.T.Act, 1961 and determined long term capital loss of Rs.60,79,739/- after claiming indexation benefit. The assessee trust claimed such long term capital loss be allowed to be carry forward and set off against any long term capital gains in subsequent years. The Ld. AO has disallowed the claim of the assessee, on the ground that as per section 11(1A)(a), when a capital asset being property held under trust is transferred and any part of net consideration is utilized for acquiring another capital asset to be so held, then the capital gain
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arising from the transfer shall be deemed to have been applied to charitable purposes to that extent utilized. The Ld. AO further observed that in this case, the assessee has computed capital gain under the normal provision of section 45 r.w.s. 48 of the I.T.Act, 1961, without considering the provision of section 11(1A)(a) of the Act, and determined long term capital loss after claiming the benefit of indexation, therefore, he opined that long term capital loss computed by the assessee is not in accordance with the scheme taxation of trust claiming exemption u/s 11 and accordingly, recomputed capital gain on sale of units of mutual funds and determined capital gain at Rs. 28,91,363/- and added to income derived from property held under trust. However, the Ld. AO denied the benefit of application of income u/s 11(1)(a) on the ground that in order to get the benefit of application of income, the assessee shall invest net consideration for acquiring another capital asset to be so held, since the assesee has not acquired any capital asset, the benefit of application of income cannot be given.
The ld. AR for the assessee, at the time of hearing submitted that the Ld.AO, as well as the Ld.CIT(A) were erred in considering profit earned from sale of units of mutual funds under the head income from other sources without appreciating fact that same needs to be taxed separately under appropriate head of income after applying necessary provisions of the Act, which is applicable to computation of capital gain from transfer of capital assets. The Ld. AR, further, submitted that when, the capital asset has been sold, and resultant gain or loss shall be computed in accordance with provision of section 45 r.w.s. 48 of the I.T.Act, 1961. The assessee has applied said provisions and determined long term capital loss of
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Rs.60,75,739/- after claiming indexation benefit. However, the assessee has excluded profit earned from sale of units of mutual funds from income derived from property held under trust for the purpose of computation of income u/s 11 of the I.T.Act, 1961. The Ld. AO without appreciating these facts has considered surplus under the head income from other sources. The Ld. AR, further submitted that the Ld. AO, as well as the Ld. CIT(A) were also erred in not considering profit of Rs. 28,91,364/- as application of income u/s 11 of the I.T.Act, 1961, even though the assessee has reinvested net consideration in fixed deposits with banks.
The Ld. DR, on the other hand, strongly supporting order of the AO as well as Ld.CIT(A) submitted that income of trust claiming exempt u/s 11 shall be computed in accordance with normal commercial principles without resorting to any head of income to claim the benefit of notional deduction provided there under . The Ld. DR, further submitted that the Ld. CIT(A) has categorically explained the position of law as enumaraed u/s 11, to deny the benefit of computation of long term capital gain and consequent application of income and its order should be upheld.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below along with case laws cited by both parties. It is an admitted fact that the provision of section 11 to 13 of the I.T.Act, 1961 is applicable to any trust/institutions claiming the benefit of exemption from tax, in respect of income derived from property held under trust. The provision of section 11 to 13 are self contended code and thus, the computation of income of charitable trust claiming the benefit of
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exemption is governed by the commercial principles of income computation. In other words, any trust/institutions claiming the benefit of exemption u/s 11, then they need to compute their income in accordance with normal commercial principles without resorting to any particular head of income to get the benefit of deduction /exemptions provided therein. Therefore, the claim of the assessee trust to treat capital gain/loss under the head capital gain and to treat such income under the scheme of 11 to 13 of the I.T.Act, 1961 not correct, because, unlike the provision of section 72, that provides for carry forward and set of capital loss, there is no such enabling provision in the case of trust to allow capital loss to be carry forward. Therefore, we are of the considered view that there is no merit in the claim of the assessee that income derived from sale of units of mutual funds shall be computed under the provision of section 45 r.w.s.48 of the I.T.Act, 1961. This view is fortified by the decision of Hon’ble Kolkata High Court in the case of DIT (E) vs Girdharilal Shewnarain Tantia Trust (1993) 199 ITR 2015, where it was held that the heads of income u/s 14 have no relevance and question of allowing the statutory deductions will not arise. For this reasons, the term used in section 11(1A) is net consideration i.e, full value of consideration received as a result of transfer of capital asset less any expenditure incurred on such transfer to qualify the capital gain on transfer of capital assets of a trust to be eligible for application of income, if, net consideration is invested in another capital asset. Since, the assessee has not invested net consideration in any other capital asset, and also investment in fixed deposits does not come under the meaning of capital asset, the benefit of application of income cannot be given. Hence, we reject the claim of the assesee.
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Having held so, let us examine the claim of the assessee with regard to application of income in respect of profit derived from sale of units of mutual funds u/s 11 of the I.T.Act, 1961. The provision of section 11(1)(a) is very clear, as much as, if net consideration is invested on transfer of capital assets for acquiring another capital assets to be so held, then the capital gain arising from the transfer shall be deemed to have been apply to charitable purpose to that extent utilized. In this case, lower authorities have brought out clear facts to the effect that the assessee has not utilized net consideration for acquiring another capital asset to be so held. Even though, the assesse claim that it has invested net consideration in fixed deposits with banks, but fixed deposits with banks does not come within the meaning of definition of capital assets. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that the benefit of application of income to the extent of net consideration to be given is incorrect. Accordingly, we reject the claim of the assessee.
The next issue that came up of our consideration from ground No.2 of assessee appeal is accumulation of 15% of income u/s 11(1)(a) of the I.T.Act, 1961 to the extent of Rs.32,18,282/-. The facts with regard to the impugned disputed are that during the year under consideration, the assessee has computed income from other sources being income derived from property held under trust at Rs.3,10,62,980/-. The assesee has excluded dividend income being exempt u/s. 10(34)/10(35), long term capital gain derived from sale of units of mutual funds and corpus donation from gross income and arrived at net income from property held under trust Rs. 1,85,63,548/-. As against this, the assessee has claimed amount
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applied for charitable or religious purpose in India during the previous year u/s 11 of the I.T.Act, 1961 at Rs. 2,49,97,599/-. The assessee has also claimed accumulation of income for charitable purpose to the extent of15% of income derived from property held under trust u/s 11(1)(a) amounting to Rs.33,13,271/- and claimed net deficit of Rs. 97,47,021/- to be carry forward for subsequent years. The Ld. AO has denied the benefit of carry forward of deficit to subsequent years, on the ground that if application of income for charitable purpose is over and above, the income derived from property held under trust, then further deduction towards 15% accumulation of income u/s 11 (1)(a) of the I.T.Act, 1961 does not arise. The assesee claims that when, income is computed u/s 11 of the I.T.Act, 1961, permissible deduction, including notional deduction as provided u/s 11(1)(a), @15% towards accumulation of income for charitable purpose should be allowed, whether or not any surplus is derived for the year under consideration. In this regard, the assesee has relied upon the decision of ITAT, Mumbai, in the case of ADIT (Exemption) vs SAYAJI-U-BA KHIN Memorial Trust in ITA o. 5883 & 5646/Mum/2011.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The provisions of section 11 to 13 of the Act, governs computation of income of any trust/institutions claiming the benefit of exemption. As per the said provision, the income of a trust claiming the benefit of exemptions shall be computed in accordance with normal commercial principles. The said provisions further provides for accumulation of income to the extent of 15% of gross income derived from property held under trust to be accumulated for
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subsequent years for application of said income for charitable or religious purposes, if the trust derives surplus from its operations for the year under consideration before taxing any income of a trust under the provision of section 11 of the I.T.Act, 1961. In other words, if the assesee wants to claim the benefit of accumulation of income to the extent of 15% of gross income u/s 11(1)(a), then there should be a surplus for the year under consideration. In case, the assessee has spent amount towards charitable purpose over and above the amount of income derived from property held under trust, then the deficit so arrived shall be carry forward to subsequent years to be applied out of income of subsequent years. In this legal position, if you consider the case of the assesse, whether the assessee is entitled for accumulation of income to the extent of 15% of gross income u/s 11(1)(a) has to be examined, in light of the facts brought out by the AO. In this case, it is an admitted fact that the amounts spent for charitable purpose u/s 11 of the I.T.Act, 1961 is over and above the amount of income derived from property held under trust. In other words, for the year under consideration, there is no surplus income for the assessee out of its charitable activities. Further, when there is no surplus for the year under consideration, then the question of accumulation of 15% income out of gross income for subsequent years u/s 11(1)(a) does not arise. This legal principle has been explained by the Hon’ble Supreme Court in the case of Addl.CIT vs A.L.N.Rao Charitable Trust. (1995) 129 CTR 205, wherein, the procedure of computation of income of charitable trust has been explained. As per the said finding of the Hon’ble Supreme Court, the assessee is entitled for accumulation of income to the extent of 15% only, when the trust derives surplus income out of its activities for the year under consideration. If there is no surplus
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income for the year under consideration, then the question of accumulation of income to the extent of 15% of gross income does not arise. In this case, no doubt, the assessee has filed a computation of total income, as per which the income derived from property held under trust is less than the amount of income applied for charitable purpose in India during the previous year. Under these circumstances, further deduction towards 15% income u/s 11(1)(a) is incorrect and opposed to the law. Accordingly, deduction claimed by the assessee towards accumulation of income to the extent of 15% of income derived from property held under trust is hereby rejected.
Having said so, let us examine, whether the lower authorities were right in rejecting the claim of the assessee towards carry forward of deficit to subsequent years. It is settled position of law that in any year, the income derived from property held under trust is lesser than the amount of income applied for charitable purpose in India, then the excess application of income shall be carry forward to subsequent years to be set off against income of subsequent years. This legal proposition is supported by the decision of Hon’ble Bombay High Court in the case of CIT vs IBPS (supra). In this case, on perusal of facts, we find that before accumulation of income to the extent of 15%, the assessee has spent an amount of Rs. 2,49,97,599/- for charitable or religious purpose in India during the previous year. We, further, noted that the assessee has derived income from other sources being income derived from property held under trust at Rs. 2,14,55,211/-, including profit derived from sale of units of mutual funds. If you consider amount applied to charitable purpose in India during the previous year amounting to Rs. 2,49,97,599/-, to the income derived from property held under trust
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amounting to Rs. 1,85,63,848/-, then the assessee has applied excess amount of Rs. 64,33,751/-. In other words, the assesse has computed deficit of Rs. 64,33,751/- for the year under consideration and the said deficit needs to be allowed to be carry forward to subsequent years. Therefore, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were incorrect in rejecting the claim of the assesee in total without considering the settled position of law. Hence, we direct the AO to allow carry forward of the deficit for Rs. 64,33,751/- to subsequent years.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on this 15 /11/2019
Sd/- Sd/- ( VIKAS AWASTY) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 15/11/2019 Thirumalesh 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. BY ORDER, 6. Guard file. स�यािपत �ित //True Copy// (Asstt. Registrar) ITAT, Mumbai