SAURASHTRA TRUST,MUMBAI vs. DCIT (E) I(2), MUMBAI

आयकर अपीलीय अधिकरण “E” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य एविं श्री एम बालगणेश, लेखा दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, JM AND SRI M BALAGANESH, AM आयकर अपील सुं./ ITA No. 2114/Mum/2015 (यिर्ाारण वर्ा / Assessment Year 2010-11) आयकर अपील सुं./ ITA No. 5305/Mum/2015 (यिर्ाारण वर्ा / Assessment Year 2011-12) Saurastra Trust The Dy. Commissioner of Natvarlal Vepari & Co., Income Tax, (E)-1(2) Chartered Accountants. Mumbai, 5 th Floor, Piramal बनाम/ Oricon House, 4th Floor, 12, Chambers, Lalbaug, Vs. K. Dubash Marg, Fort, Mumbai-400 012 Mumbai-400 023 (अपीलार्थी / Appellant) (प्रत्यर्थी/ Respondent) स्र्थायी लेखा सुं./PAN No. AAATS2786B अपीलार्थी की ओर े / Appellant by : Shri Y.P. Trivedi, Vipul Joshi, Ms. Usha Dalal, ARs प्रत्यर्थी की ओर े / Respondent by : Shri Manjunatha Swamy, DR ुिवाई की तारीख / Date of hearing: 06.11.2019 घोर्णा की तारीख / Date of pronouncement : 06.12.2019 आदेश / O R D E R

महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:

These appeals by assessee are arising out of order of the Commissioner of Income Tax (Appeals)]-1, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-I/IT/E-1 (16)/2014-15 vide dated

2 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust 30.01.2015. The Assessment was framed by the DDIT(E), Circle 1(2), Mumbai (in short DCIT/ ITO/ AO) for the A.Y. 2010-11 vide order dated 04.03.2013 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

In ITA No. 2114/Mum/2015

“1. The CIT(A) erred in holding that the appellant is not a charitable trust entitled to the benefit of exemption of Income Tax Act, 1961.

3 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust 3. The CIT(A) ought to have held that even if the surplus arising from Newspaper is taxable still, the income from property was entitled to tax exemption. 4. The CIT(A) erred in not allowing set off of brought forward loss to be set of from income from printing of new paper business. 5. The appellant carves leave to add, amend, alter or modify any of the above grounds at the time or before the time of hearing.” 3. Briefly stated facts are that the assessee is a trust registered with DIT (exemption), Mumbai under section 12A of the Act under registration No. TR/3007 and also registered with charity commissioner, Mumbai vide registration No. A-85, (Mumbai). The main object of the assessee, has noted by the AO is aiding the conduct of schools, colleges, libraries, or publishing and aiding the publication of books, booklets, pamphlets, newspapers, magazines etc. The assessee field its return of income for the AY 2010-11 on 27.09.2010 along with the income and expenditure account, balance sheet and audited report in form No. 10B declaring the total income at ₹87,29,954/-. During the course of assessment proceedings,

4 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust the AO from the computation of income noted that the assessee has received following rental income. The assessee also claimed that it has business income from running of newspapers at ₹87,29,954/-. The AO also noted that the assessee has claimed shortfall of application of income bring forward losses from AY 2005-06 amounting to ₹83,53,790/- and claimed the same as application of income in excess of 85% of income during the year. The AO noted that the assessee has claimed the statutory deduction under section 23 and 24 of the Act being 30% on account of repairs etc., according to him, this cannot be treated as application of income and therefore, the amount to the extent of 30% of statutory deduction was disallowed by the Assessing Officer. The AO also not allowed the claim short fall of brought forward losses of AY 2005-06 to the extent of ₹83,53,790/-. Aggrieved, against the disallowance, assessee preferred the appeal before CIT(A). The assessee challenged the determination of total income of assessee at ₹1,95,01,977/- as against the return filed by the assessee and return income of ₹87,29,954/-. The CIT(A) after considering the grounds of the assessee and case records issued enhancement notice dated 13.01.2015 and the relevant enhancement notice is reproduced in the order of CIT(A) at Para 11.2 as under: -

”11.2 ……

5 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust per computation in assessment order, the income of the trust during the year is ₹87,29,954/- (business income) + ₹5,22,89,734/-. Account spend on the objects of the trust is ₹4,00,000/- and further accumulation u/s11 is noted at ₹1,75,00,000/- 3. The AO has noted in para 3.2 of the assessment order that – “the assessee’s contention that the carried forward deficit be allowed under section 11 of the Act is not acceptable”. However, b/f loss of AY 2005-06 amounting to ₹83,53,000/- has been allowed by the AO by t a subsequent finding that ‘However in view of amendment in section 2(15) of the Act by insertion of proviso to section 2(15) w.e.f 01.04.2009, the income from business is liable to tax, the carried forward of earlier years is allowed from the said business income under section 72 of the Act. 4. As per legal provisions under the I.T. Act, 1961 in reference to application of proviso to section 2(15), when the exemption under section 11 is lost, the income is liable to be brought to tax by

6 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust computation in ‘commercial manner’, without deductions under Chapter IV and VI of the I.T. Act, 1961 (circular No.5 LXX-6 of 1968 dated 19.06.1968.). Therefore, in this context the taxable income during the year, as per the figures in computation in the assessment order, works out to ₹ 87,29,954/- (business income) + ₹ 4,35,59,780- (rental income) = ₹ 5,22,89,734/- at an enhanced figure as compared to the total income assessed by the AO at ₹ 1,95,01,977/-.

7 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust assessee’s issue is covered from earlier years and there cannot be any deviation in this year. 5. The CIT(A) after going through the submissions of the assessee and case records enhanced the income to ₹5,22,89,734/- as against assessed by the AO at ₹1,95,01,977/- by observing in Para 11.4 to 11.7 as under: -

”11.4 I have considered the facts of the case, the assessment order of the A.O and the if the activity is in the nature of business so long as objects are charitable, the proviso cannot be applied. However, there is no such stipulation in the proviso to section 2(15) rather contrarily if a charitable organization carrying out objects of advancement of general public utility is involved in carrying on business is excluded from being ‘charitable’. The case of the appellant is not excluded also because the charitable & activity claimed by it is in the domain of advancement of general public utility only. The profit motive behind such business, commerce or trade activity is not required to be separately examined and proved for applicability of proviso to section 2(15). The specific amendment by way of

8 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust proviso to section 2(15) w.e.f. A.Y. 2009- 10 does not provide for carrying out business trade or commerce per se for applicability of proviso, rather the stipulation in the proviso is 'in relation to' which is to be interpreted and applied in that context - in a wider term and not to be confined to carrying out trade, business and profession. It was held in the case of Subhram Trust vs. DIT (E) (2009) 317ITR (AT)(Bang.) that ‘the term in relation to should be broadly interpreted i.e. to say if any activity which directly or indirectly facilitates the rendering of any service in relation to any trade, commerce or business, is carried on by trust, then it will be covered under proviso to section 2(15)’.

11.5 The other argument of the appellant that only such income should be brought to tax which is hit by proviso to section 2(15), is erroneous and misplaced in the context of section 13(8) of the I.T. Act, 1961 which has been reproduced above where "any income' is referred, thereby applicable to all income from property

9 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust held under trust. The forfeiture of exemption u/s. 11 is to the income of the appellant from the property held under trust. The source of income of the appellant is from the property which is held under trust, therefore, there is no reason to divide its income in parts, particularly when the source is one and single i.e. 'Income from property held for charitable or religious purposes' and which was claimed exempt in that manner u/s. 11 of the I.T. Act, 1961.

The argument of benefit of excess application of earlier years is also not because once proviso to section 2(15) of the I.T. Act, is "applicable, nothing in section 11 and 12 operates so as to exclude the income from taxation, following thereby that the machinery provisions of computation u/s. 11 are rendered inapplicable for deductions/exemptions of amounts relating to application of income and/or accumulation of income. Further the decision in the case of Kanahya Lal Pun] Charitable Trust Vs DIT (Exem) (Del) 297

10 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust ITR 66 is applicable where it was held that 'once the exemption u/s. 11 an 12 is withdrawn, all the receipts of the trust either by voluntary contribution or income derived from its property would be an income of the trust in the normal course and is chargeable to tax.

11.6 The A.O has deducted brought forward loss of A.Y. 2005-06 of Rs.83,53,790/- erroneously by applying provision of section 72 of the LT, Act, 1961 without appreciating the legal position in this behalf that –

"Once the exemption u/s. 11 & 12 is withdrawn, all the receipts of the trust either by voluntary contribution or income derived from its property would he an income of the trust in the normal course and is chargeable to tax as held in Kanahya Lal Punj Charitable trust Vs DIT (Exem)(Del) 297 ITR 66."

It is further held that the provisions of c/f and set off of losses u/s, 72 of the I.T. Act, 1961 specifically refers to "Carry

11 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust forward and set off of business losses' in relation to ^computation under the head profit gains of business or profession'. As per the letters of law in this section, there is no provision for c/f. and set off of deficit / excess application of income of earlier years which are subject matter u/s. 11 of the I.T. Act, 1961. Further, since appellant is excluded from exemption / application / deduction available and flowing from section 11, in terms of section 13(8) of the I.T. Act, 1961, such claim of deduction of earlier year losses is against the provisions of I.T. Act, 1961. The decision in the case of DIT Vs Girdharilal Shewnarain Tantia Trust [1993] 199 ITR 215 / 71 Taxmam 150 (Cal.) is applicable where it was held that - "The income contemplated by the provisions of section 11is the real income and n of the income as assessed or assessable, Since the income form property held under trust has to be arrived at in a normal Commercial manner and

12 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust when the income from property held under trust as such is excluded, there is no scope of computing the income from property by applying the provisions of section 14 of the Act. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the Act dealing with different heads of income in computing the income accumulated does not arise when the trust loses the benefit of accumulation"

Therefore, as discussed above, the appellant is not entitled for deduction of b/f losses as allowed by the AO in the assessment order and claimed by the appellant otherwise.

11.7 In view of the above facts and circumstances of the case the submissions and arguments of the appellant on the notice of enhancement are misplaced, erroneous hence, rejected.

The appellant has not furnished any details, corrections and submissions on

13 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust quantum or merit of the issue for taxability or the amounts proposed to be taxed in the notice of enhancement dated 13.01.2015, reproduced in foregoing paragraphs. Hence, amounts and income as computed in the said notice of enhancement is taken as taxable income of the appellant during the year.”

Aggrieved, assessee came in appeal before Tribunal.

14 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust ₹4,35,59,780/- as income of the trust in view of the proviso to section 2(15) of the Act. We noted that the Hon’ble Bombay High Court in assessee’s own case for the AY 2007-08 has allowed the claim of assessee for carry forward of loss vide order in Income Tax Appeal No. 260 of 2014 in ITA No. 5965/Mum/2011 dated 15.07.2016. Hence, according to us this issue of claim of set off of brought forward of loss is covered in favour of assessee and we direct the AO accordingly.

15 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust find that the identical issue was before the Tribunal vide ground No. 2 of that appeal, the Tribunal at page-3, para-6 of its order held as under:

“We have considered submissions of Ld. Representatives of parties and orders of authorities below. We observe that assessee is a charitable trust and carrying on the objects for the last 42 years. Assessee has computed income of rent received of Rs. 14,72,376/- and Rs. 60,000/- respectively, and as per the provisions of Chapter IV-C of the Income Tax, Act, i.e. under the income from house property claimed deduction u/s. 24 @ 30%. We observe that there is no provision of Income Tax Act that if the property of the assessee trust is held for charitable purposes, no deduction u/s. 24 would be available. Section 24 itself allows deduction of 30% of rental income. Hence, we are of the considered view that Ld. CIT(A) has rightly directed the AO to allow the

16 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust claim of the assessee. Ld. DR has not pointed out any decision or made submissions contrary to the observation made by Ld. CIT(A). We, therefore, reject the grounds of appeal taken by department and uphold the order of Ld. CIT(A).” 9. Further, the issue of income from house property will be eligible for exemption under section 11 for charitable and religious purposes as application of income of the Trust, the issue has been decided by the Tribunal in ITA No.4965/Mum/2011 order dated 11.07.2013 vide Para 9 which read as under: - “9. We have carefully perused the order of the Hon’ble Jurisdictional High Court (supra). In the light of the facts in issue raised vide ground No. 3, we find that while answering to question No. 3, it was before the Hon’ble High Court - “ whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in subsequent year for charitable purposes to which the Hon’ble High Court observed that income

17 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust u/s. 11(1)(a) of the Act. For these observations, the Hon’ble High Court drew support from the decision of the Gujarat High Court in the case of Commissioner of Income-tax v. Shri Plot Swetamber Murti Pujak Jain Mandal. Facts in issue before us being identical, respectfully following the above decision of the Hon’ble Jurisdictional High Court, findings of the Ld. CIT(A) are confirmed. Ground No. 3 of the Revenue is dismissed.”

18 | P a g e ITA No.2114 & 5305/Mum/2015 Saurashtra Trust 10. As the issue of rental income and consequent deduction under section 24 of the Act, is considered as application of income by the Tribunal decision in assessee’s own case, respectfully following the same we direct the AO to allow the claim of the assessee. 11. Similar are the facts in AY 2011-12 and the decision for AY 2010-11 will apply for all the grounds. 12. In the result, both the appeals are partly allowed as indicated above. Order pronounced in the open court on 06.12.2019 Sd/- Sd/- (एम बालगणेश / M BALAGANESH) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददिािंक/ Mumbai, Dated: 06.12.2019 स दीप सरकार, व.यनजी सधिव / Sudip Sarkar, Sr.PS आदेश की प्रयिसलपप अग्रेपिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A) 4. आयकर आयुक्त / CIT ववभागीय प्रयतयिधर्, आयकर अपीलीय अधर्करण, मुिंबई / DR, ITAT, Mumbai 5. 6. गार्ा फाईल / Guard file. आदेशान सार/ BY ORDER, त्यावपत प्रयत //True Copy// उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीलीय अधिकरण, मुिंबई / ITAT, Mumbai