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Income Tax Appellate Tribunal, “A-SMC”BENCH: KOLKATA
Before: Shri A. T. Varkey, JM ]
PER SHRI A.T. VARKEY, JM
This appeal is preferred by the assessee against the order of Ld. CIT (A), 25, Kolkata dated 18.10.2019 for the assessment year 2012-13. 2. The assessee has raised the following grounds of appeal:- GROUNDS OF APPEAL (Each ground and sub ground is without prejudice to each other) 1. Against treatment of corpus donation as normal donation: For that on facts and circumstances of case and in law, Id. Commissioner of Income tax [CIT(A)] erred in sustaining the addition to the extent of Rs.295000/ out of total addition of Rs.7,95,000/ made by Id. A/O by treating corpus donation as normal donation. 2.Against reduction of establishment expenses from gross income for computation of allowable (15%) accumulation of income u/s 11(1)(a) : For that on the facts and circumstances of the case and in law, the Id. CIT(A) erred in sustaining the action of ld. A/O deducting Rs.13,56,000/ as estimated establishment expenses from gross income for calculating the allowable 15% accumulation of income u/s 11(1)(a) of Income tax Act, 1961 resulting in addition ofRs.203400/. Alternative to ground no. 2 : For that on the facts and circumstances of the case and in law, the Id. CIT(A)' erred in sustaining the ld. A/O's action of estimating the establishment expenses in the sum of Rs.1356000/ while deducting it from gross income for calculating the allowable 15% accumulation of income u/s 11(1)(a) of Income tax Act, 1961. 3. Against lowering down of amount of application of income u/s 11(1)(a) For that on facts and circumstances of the case and in law; the ld. CIT(A) erred in not disturbing ld. A/O's action of lowering down the amount of application of income for charitable purposes u/s 11(1)(a) by: 1 I.T.A No. 2496/Kol/2019 A.Y 2012-13 Shree Ram Trust
a) not allowing excess application of income for charitable purposes made in earlier year amounting Rs.I003387/ as application of income. b) not allowing tax deducted at source amounting Rs.4,98,795/ as application of income. 4. Against not allowing establishment expenses as application of income u/s 11(1)(a) : For that on the facts and circumstances of the case and in law, the Id. CIT(A) erred in not disturbing ld. A/O's action treating Rs.1356000/ [the establishment expenses amounting Rs. 1127264/ and charity and donation Rs. 228736 (out of Rs. 499936/)] as expenses for earning income instead of application of income u/s. 11(1) (a) ass referred in ground no.2 above and its alternative ground.
Brief facts of the case are that during the year under consideration the assessee trust received an aggregate sum of Rs.7,95,000/- as corpus donation received from several donors which included corporate entities as well as individuals/HUFs. The assessee in view of provisions of section 11(1)(d) of the Income tax Act, 1961 ( in short hereinafter, the ‘Act’) treated the corpus donation as not income and were directly routed to the balance sheet. During the assessment proceedings the AO called for the details of corpus donations and the assessee filed copies of respective covering letters of the donors, which stated the nature of the respective donation was corpus donation. The AO asked the assessee to produce 11(eleven) donors being individuals/ HUFs who donated total donation to the tune of Rs. 2,95,000/- ( out of total Rs. 7,95,000/-). Out of the 11 corpus donors summoned by AO, 10 donors, who donated corpus donation of Rs. 2,45,000/- appeared personally or through their relatives before the AO, who recorded their statements; and out of which eight (8) donors who all donated Rs 1,85,000/- admitted of giving to assessee corpus donation and corroborated their respective covering letters given along with the donation. The donor, namely Ms. Rakhee Saraf, who donated Rs. 50,000/- attended the office of the predecessor AO but her statement could not be recorded since the AO was out of station on that date when she appeared. However, two persons submitted before the AO that the donations were normal donation and they were Sri Ratanlal Kabra, who donated Rs. 20,000/- and Shri Rajesh Kabra, who donated Rs. 40,000/-, totalling to Rs.60,000/-. Even though out of 11 donors as summoned by the AO only 2 donors said before him that they donated the amount as normal donation and not as corpus donation, the AO drew adverse inference against the entire amount of corpus
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donation of Rs. 7,95,000/- and treated the same as normal donation. Aggrieved, the assessee preferred an appeal before the ld. CIT(A), who called for remand report, which has been reproduced by him at pages 21-22 of the impugned order. Considering the same the ld. CIT(A) gave partial relief to the assessee by restricting the addition by to Rs. 2,95,000/-. Aggrieved, the assessee is before us.
After hearing both parties, it is noted that appellant is a charitable trust registered u/s. 12A of the Act. The Appellant Trust income for year under this appeal, and the effect of AO’s action is given in the form of chart at a glance, which is as under:-
Particulars Ought to have Actually done by been done as AO per AR Gross Income: Rent 1291579 Service charges 1291579 related to rent Interest 129244 Misc. Income incl. prior year 3073223 3073223 129244 1530190 income 1530190 122210 122210 Add: Corpus donation recd. Claimed as 795000 Rs.795000/- exempted u/s. (treated as 11(1)(d) normal donation) 3073223 3868223 Less: Establishment expenses Claimed as 1356000/- Rs. 112764 application of (estimated) income 3073223 2512223 Less: 15% permissible 460983 376833 accumulation u/s. 11(1)(a) 2612240 2135390 Less: Application of income Charity & donation Rs.499936 499936 2712000 Capital expediency by way of purchase 30282 30282 of Fixed assets 30282 Tax deducted 498795 NIL at source 498795 1127264 Establishment exp. 1127264 NIL Excess application in 1003387 3159664 NIL 301482 Earlier year B/f 1003387 Total Income (-) 547424 1833908 3 I.T.A No. 2496/Kol/2019 A.Y 2012-13 Shree Ram Trust
I note that the ld. CIT(A) has called for the remand report, wherein the AO after enquiry from M/s. Uma Road Carriers P.Ltd and M/s. Jayshree Chemicals Ltd had concluded by stating “it can be concluded from the above discussions that out of the claim of total corpus donation of Rs. 7,95,000/ the donations received from Uma Road Carriers Pvt. Ltd and Jayshree Chemicals Ltd. totalling of Rs. 5 lakhs can be considered as Corpus Donation received by the assessee during the FY 201112.” Taking note of the remand report the ld. CIT(A) has given partial relief to the assessee and treated the amount of Rs. 2,95,000/- as general Donation. We note that AO during the assessment proceedings had called for 11 donors who had given total donation to the tune of Rs. 2,95,000/- and it is noted that 11 donors had appeared before the AO and 10 donors gave their statements, which has been recorded by the AO. One, Rakhi Saraf, who donated Rs. 50,000/- came to the office of the previous AO in order to appear before him, however since the AO was out of station her statement could not be recorded. And I note that out of 11 donors only 2 donors had submitted that they have donated not for corpus. [ Shri Ratanlal Kabra and Shri Rajesh Kabra who donated Rs. 20,000/- and Rs.40,000/-, totalling to Rs. 60,000/-]. All other donors have appeared and filed their respective covering letters stating that the donations given to the assessee was for the purpose of corpus. In such a scenario, the AO erred in drawing adverse inference against persons who had appeared and corroborated by deposing before the AO that they had made the donations for the corpus of the assessee. However since two (2) donors had submitted that donation of Rs. 60,000/- is to be treated as donation not for corpus, therefore, we direct that out of addition confirmed of Rs. 2,95,000/- by the ld. CIT(A) I direct the addition to be restricted to Rs. 60,000/- and the assessee gets relief of [Rs. 2,95,000 – Rs.60,000/-] Rs. 1,95,000/-. Ground no. 1 of assessee’s appeal is partly allowed. 6. Ground no 2 of appeal of assessee is against the calculation of the allowable (15%) accumulation of income. 7. During the year under consideration the assessee earned following income:- Rent Rs. 1291579/- Service Charges related to rent Rs.129244/- Interest Rs.1530190/- Other income Rs. 122210/- 4 I.T.A No. 2496/Kol/2019 A.Y 2012-13 Shree Ram Trust
Total Rs.30,73,223/-
Accordingly, the assessee computed the amount allowed to be accumulated u/s. 11(1)(a) of the Act a sum of Rs. 4,60,983/- being 15% of the total income of Rs. 30,73,223/-. The AO did not agree. According to him 15% accumulation of income allowed u/s. 11(1)(a) of the Act is to be computed with reference to the net income after deduction of expenses incurred for earning such income and computed such expenses incurred to earn income was only Rs. 3,76,833/- in place of assessee’s claim of Rs. 4,60,983/-. Aggrieved, the assessee preferred an appeal before the ld. CIT(A), who confirmed the action of the AO. Aggrieved, the assessee is before us. I note that aforesaid facts are not disputed. I find that the issue under consideration in respect of accumulation of income allowed u/s. 11(1)(a) is no longer res integra. For that we rely on the decision of the co-ordinate bench decision of this Tribunal [Bangalore] in the case of Green Wood High Trust Vs. ACIT(Exemption) (2018) 62 ITR (Trib) (2018) 264 ITAT, Bangalore, wherein it was held as under: 3.4.3 The issue to be decided by us is as to whether for the purpose of accumulation of income for application for charitable purposes under section 11 (1 )(a) of the Act is to be allowed at 15 per cent. of the gross receipts or the net receipts i.e. ; gross receipts less revenue expenditure. We find that the issue in question was considered and adjudicated by a coordinate bench of the Tribunal in the case of Mary Immaculate Society an in its order in I. T. A. Nos. 240 and 241/Bang/2015 dated June 23, 2015 held that the assessee is to be allowed accumulation of income for application for charitable purposes under section 11 (1 )(a) of the Act at 15 per cent. of the gross receipts following the decision of the Incometax Appellate Tribunal Special Bench in the case of Bai Sonabai Hirji Agiary Trust v. ITO [2005] 272 ITR (AT) 67 (Mumbai) [SB] ; [2005] 93 ITO 70 (ITATMum) [SB]. In its order (supra), the coordinate Bench has held as under at paragraphs 15 and 16 thereof: "15. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15 per cent. under section 11 (1 )(a) of the Act, one has to take the gross receipts or gross receipts after expenditure for charitable purpose i.e., the net receipts. This is issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust v. ITO [2005] 272 ITR (AT) 67 (Mumbai) [SB] ;[2005] 93 ITO 70 (ITATMum) [SB]. The facts in the aforesaid case were that the assessee was a public charitable trust enjoying exemption under section 11 of the Incometax Act. As per the requirement of section 11 (1) of the Incometax Act, as it prevailed at that point of time, the asses see had to apply 75 per cent. of its income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent. of its income, which was subject to fulfilment of other conditions. While calculating the aforesaid 25 per cent., the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of Incometax Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from 5 I.T.A No. 2496/Kol/2019 A.Y 2012-13 Shree Ram Trust
the gross income and 25 per cent. of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the Incometax Appellate Tribunal on the issue held as follows (page 73 of 272 ITR (AT)) : '9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the hon'ble Supreme Court in the case of CIT v. Programme for Community Organisation [2001] 248 ITR 1 (SC). In the decision, their Lordships, after taking note of provisions of section 11 (1 )(a), have held as under (page 2 of 248 ITR) : "Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twentyfive per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of Rs. 2,57,346 would constitute its property and it is entitled to accumulate twentyfive per cent. thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent. of Rs. 87,010. For the aforesaid reasons, the civil appeal is dismissed." It is clear from the above that deduction of twentyfive per cent. was held to be allowable not on total income as computed under the Incometax Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier affirmed the decision of Kerala High Court in CIT v. Programme for Community Organisation [1997] 228 ITR 620 (Ker) ; [1997] 141 CTR 502 (Ker) wherein it is held as under (page 623 of 228 ITR) : "At the outset, the statutory language of section 11 (1 )(a) of the Incometax Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be understood to be in excess of 25 per cent. of the income from such properties. It other words, the very language of the statutory provision under consideration sets apart 25 per cent. of the income from the source of property with reference to the extent to which such income is applied for such purposes, charitable or religious, In other words, for the purpose of section 11 (1 )(a) of the Act, the income in terms of relevance would be the income of the trust from and out of which 25 per cent. is set apart in accordance with the spirit of the statutory provision." This means that, when it is established that trust is entitled to full benefit of exemption under section 11 (1), the said trust is to get the benefit of twentyfive per cent. and this twentyfive per cent. has to be understood as income of the trust under the relevant head of section 11 (1), In other words, income that is not to be included for the purpose of computing the total income would be the amount expended for purposes of trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous language of section 11 (1 )(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation is the income derived by the trust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under section 11 (1), we are to go to the stage of income before application thereof and taken into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and 6 I.T.A No. 2496/Kol/2019 A.Y 2012-13 Shree Ram Trust
not "total income" as computed under the Incometax Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twentyfive per cent. of the above income is to be allowed as a deduction. Similar view has also been taken by the hon'ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust Mhow v. CIT [1987] 163 ITR 832 (MP). No reason whatsoever has been given by the Revenue authorities for deducting Rs. 2,17,126 in this case for purposes of section 11(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above. The circular of the Central Board of Direct Taxes has also been considered by the hon'ble Kerala High Court in its decision referred to above. Accordingly the question referred to is answered in the affirmative and in favour of the assessee.' 16. The aforesaid decision clearly supports the plea of the assessee. Following the same, we hold that the accumulation under section 11 (1 )(a) of the Act should be allowed as claimed by the assessee." 3.4.4 Respectfully following the decision of the coordinate Bench in the case of Mary Immaculate Society (supra), we hold and direct the Assessing Officer that the accumulation under section 11 (1 )(a) of the Act is to be allowed at 15 per cent. of gross receipts, as claimed by the assessee. “
Taking note of the aforesaid ratio of the co-ordinate bench of the Tribunal, I direct the AO to allow the accumulation income u/s. 11(1)(a) of the Act at 15% of the gross receipt i.e Rs. 4,60,983/- as claimed by the assessee and consequently ground raised by the assessee is allowed. 10. Ground no. 3 is against the action of the ld. CIT(A) in confirming the action of the AO in lowering down the amount of application of income. Ground no. 3(a) is against not allowing excess application of income for charitable purpose made in earlier year amount to Rs. 10,03,387/- as application of income u/s. 11(1)(a) of the Act thus totalling Rs. 31,59,664/- which included the excess application of income for charity in earlier year to the tune of Rs. 10,03,387/-, which claim of assessee was not accepted by the AO. The issue of allowability of excess application of income in earlier year as well as in subsequent year is no longer res integra. The Hon’ble Supreme Court in CIT-Exemptions Vs. Subros Educational Society reported in (2018) 303 CTR 0001, wherein it was held that eligible trust which are enjoying the registration u/s. 12AA of the Act are entitled to carry forward and set off of the excess 7 I.T.A No. 2496/Kol/2019 A.Y 2012-13 Shree Ram Trust
application of income. We further find that the decision/order dt. 28.09.2018 of the co- ordinate bench (Tribunal, Mumbai) in ITO E Vs. Shri Sushilaben Ramnikal Jhaveri, Charitable Trust (ITA No. 4131/Mum/207 AY 2013-14) held as under:- “7. We have heard the authorized representatives of both. the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence has been sought by the revenue to adjudicate, as to whether, the CIT(A) was right in law and facts of the case in allowing the carry forward of the deficit of earlier years, for being set off against the surplus of subsequent years of the assessee trust. We have deliberated at length on the issue under consideration, and are of the considered view that the issue involved in the case before us is squarely covered by the judgment of the Hon 'ble High Court of Bombay in the case of CIT Vs. Institute of Banking (2003) 264 ITR 110 (Bom). We find, that the Hon'ble High Court while dismissing the appeal of the revenue had observed, that as the income of the trust was to be computed on commercial principles, thus 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, was to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year. We find that the Hon'ble High Court had in unequivocal terms observed, that the adjustment of the expenses incurred by the trust in the earlier years, against the surplus of the subsequent year, will have to be excluded from the income of the trust under Sec. l1(l)(a) of the Act. Still further, a similar view had been taken by the Hon 'ble Supreme Court in the case of CIT(Exemption) Vs. Subros Educational Society (2018) 166 TDR (SC) 257. The' Hon'ble Apex Court, while affirming the judgment of the Hon'ble High Court of Delhi, had in the aforementioned case dismissed the appeal of the revenue and had declined to dislodge the observations .of the High Court, that the excess expenditure incurred by the charitable trust/ charitable institution in an earlier assessment year were to be allowed to be set off against the income of subsequent years by invoking Sec. 11 of the Act. We are of the considered view, that as the issue involved in the appeal before us is no more resintegra, hence going by the rule of judicial discipline, we respectfully follow the same. In terms of our aforesaid observations, finding no infirmity in the order of the CIT(A), which is found to be in conformity with the aforesaid judicial pronouncements, we thus uphold his order. 8. The appeal of the revenue is dismissed. “
Respectfully following the ratio (supra) I direct that the excess expenditure incurred by the assessee trust in earlier assessment year should be allowed to be set off against the income of this year and so I allow the claim of the assessee of Rs. 10, 03,387/- as application of income
12 Coming to ground no 3(b) is against the action of AO/ld. CIT(A) in not allowing tax deducted at source of Rs. 4,98,795/-, we find that this issue is no longer res integra by the decision of Hon’ble Calcutta High Court in the case CIT Vs. Jay Shree Charity Trust (1986) 159 ITR 280(Cal), wherein a question was, whether, where net dividend received by assessee after deduction of tax at source was spent for charitable purposes and whether the assessee was entitled to benefit of exemption on
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that portion of income, which had been taken away by deduction of tax at source even though that amount had not been spent/accumulated for purposes of charity. We note that Hon’ble Calcutta High Court answered the question and observed that “there is no reason to deny the benefit of exemption granted by section 11 to that portion of income which had been taken away by deduction of tax at source on the ground that amount had not been spent/ accumulated for the purpose of charity.
Respectfully following the ratio of the Hon’ble High Court, I direct the AO to allow Rs. 4,98,795/-, which is the tax deducted at source by assessee as application of income. Thus, I direct the AO to take the total figure of application of income a sum of Rs. 31,59,664/- as against Rs. 3,01,482/- as adopted by AO.
Coming to ground no. 4 in respect of action of the ld. CIT(A) in not allowing the establishment expenses as application of income, we note that the said issue is no longer res integra since Hon’ble Calcutta High Court in Birla Janhit Trust (1994) 208 ITR 372 (Cal) held that salaries and miscellaneous expenses, which are incurred for carrying out the objects and purposes of the trust must be considered as application for charitable purposes. I note that the assessee had claimed total expenses of Rs. 11,27,264/- (establishment expenses), however, AO estimated the expenses at Rs. 13,56,000/- which is per-se arbitrary and erroneous and ld. CIT(A) erred in confirming it. So relying on the ratio laid by the Hon’ble Calcutta High Court in Birla Janhit Trust (supra), I direct the AO to allow the establishment expenses claimed by the assessee to the tune of Rs. 11,27,264/- as application of income u/s. 11(1)(a) of the Act.
Before parting, it is noted that the order is being pronounced after ninety (90) days of hearing. However, taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, I rely upon the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JSW Limited in ITA No. 6264/Mum/2018 & 6103/Mum/2018, Assessment Year 201314, order dt. 14th May, 2020. In light of the above discussion, the appeal of assessee is partly allowed. 9 I.T.A No. 2496/Kol/2019 A.Y 2012-13 Shree Ram Trust
In the result, the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 22 -05-2020
Sd/- A.T. Varkey Judicial Member Dated 22 -05-2020
PP(Sr.P.S.)
Copy of the order forwarded to: 1. Appellant/Assessee: Shree Ram Trust 31 Chowringhee Road, Kolkata-16. Respondent/Revenue: The I.T.O (Exemption)., Ward 1(3), 10 Middleton 2 Row, Kolkata-71. CIT, 3. CIT(A), Kolkata. 4. DR, Kolkata Benches, Kolkata 5. **PP/SPS True Copy By By Order Assistant Registrar ITAT Kolkata
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