THE ACIT(E), CIRCLE-1, AHMEDABAD vs. UTTHAN SEVA SANSTHAN, AHMEDABAD

आदेश/O R D E R

PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER:

2. Grounds of appeal raised by the Revenue are as follows:

1. Whether the ld.CIT(A) has erred in the law and facts in allowing the assessee accumulation u/s. 11(1)(a) at the rate of 15% instead of 2 allowing the accumulation to the extent of available surplus funds/income as provided in section 11(1)(a).

2. Whether, the Ld.CIT(A) has erred in the law and on facts in allowing carryforward of deficit (notional deficit) which has arisen due to claim of deemed application of income (at flat 15%) u/s.11(1)(a) of the Act and not real application of income for the objects of the trust? Revenue craves to add, alter amend modify, substitute delete /or rescind all or any Grounds of appeal on or before the final hearing if necessary so arises.

Sl. Claimed by the Allowed by the no. Particulars assessee AO

6. Excess application - 5,71,98,746 - 3,77,64,639

4. Aggrieved against this order, the assessee filed an appeal before theCommissioner of Income Tax (Appeals)-9, Ahmedabad. The Ld.CIT(A) allowed the claim of the assessee by holding as under: “4.3 I have carefully considered the contentions of the appellant and the observations of the A.O. It is observed that the A.O has restricted the excess expenditure incurred for the year under consideration at Rs. Nil as against (-) Rs.5,71,98,746/- as declared in the return of income. The appellant is aggrieved by the wrong application of Sec- 11(1)(a) of the Act by the A.O. According to the appellant, the total receipts during the year including the corpus donation are Rs. 13,51,06,715/-. Out of this, an amount of Rs.55,46,000/- was received as corpus which is exempted u/s.11(1)(d) of the Act leaving behind income of Rs. 12,95,60,715/-: On this income, from the property held under the trust, the appellant claimed 15% for the purpose of accumulation u/s.11(1)(a) of the Act amounting to Rs.1,94,34,107/-. Out of the remaining amount of Rs.11,01,26,607/-had applied Rs.16,73,25,354/- towards the objects of the trust the deficit of (-) Rs.5,71,98,746/-. In my considered opinion, the appellant correctly applied the provision of sec.11(1)(a) and the A.O was not justified in denying 15% of income out of the receipts during the year for accumulation. Thus, the A.O is directed to reduce Rs. 1,94,34,107/- as 15% of amount u/s.11(1)(a) of the Act and thereafter reduce the amount applied for the objects of the trust. Thus, ground no.1 of appeal is allowed.

4.1. On the second issue of carry forward of excess expenditure for set off in the subsequent years, the ld.CIT(A) followed judgment of Hon’ble jurisdictional High Court in the case of CIT Vs. Shri Plot ShwetambarMurtipuja Jain Mandal, 211 ITR 293 (Guj) wherein, Hon’ble Court held as follows:

"A. bare perusal of section 11 of the Income-tax Act, 1961, shows that the income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There are no words of limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which the income had arisen. The word "apply" means "to put to use" or "to turn to use " or "to make use" or "to put t practical use". Having regard t the provision of section 11 of the Act, it is clear that when the income of a trust is used or put to use to meet the expenses incurred for religious or charitable purposes, it is applied for charitable or religious purposes. The application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or\ religious purposes. In other words, even if expenses for charitable and religious purposes have been incurred for the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for Charitable and religious purposes had been adjusted. There is nothing in the language of section 11(1)(a) of the Act to indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of the earlier year, would not amount to such income being applied for charitable or religious purposes. Income derived from trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purpose s in the earlier year against 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 such adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and will

5 have to be excluded from the income of the trust under section 11(1)(a)."

5. Following the jurisdictional High Court decision, the Ld.CIT(A) allowed the assessee’s appeal. Aggrieved against the same, the Revenue is in appeal before the Tribunal.

“… 9. We find that the identical issue cropped up in assessee’s own case in AY 2010-11 as well, wherein no error was found in the action of the CIT(A) for granting accumulation or set apart of income already applied in this year to the extent of 15% of the receipt and consequently, the deficit was suitably enhanced. The relevant operative para of the order of the co-ordinate bench in assessee’s own case is reproduced hereunder:

“3. With the assistance of the ld.representative, we have gone through the record carefully. The ld.counsel for the assessee has placed on record a copy of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Programme for Community Organisation, 248 ITR 1 = 166 CR 401 (SC). We find that this decision has silenced the controversy. It is very small decision. It read as under:

1. The questions that were referred to the High Court for consideration, at the instance of the revenue, read thus :

"1. Whether, on the facts and in the circumstances of the case and on an interpretation of the relevant provisions of the Income-tax Act, 1961, the assessee is entitled to exemption at 25 per cent on Rs. 2,57,376 or only on Rs. 87,010 ?

2. Whether, on the facts and in the circumstances of the case, should not the Tribunal have accepted the view of the revenue

6 expressed in the circular, the same being consistent with the relevant provisions of the Income-tax Act, 1961 ?

3. Whether, on the facts and in the circumstances of the case, and also considering the scope of the earlier order of the Commissioner (Appeals) dated 18-11- 1983 the Tribunal is right in law in holding that the Commissioner (Appeals) has rightly interfered with the order of the Income-tax Officer ?"

3. The question that really requires consideration is whether, for the purposes of section 11(1)(a) of the Income-tax Act, 1961 ('the Act'), the amount for the grant of exemption of twenty-five per cent should be the income of the trust or it should be its total income determined for the purposes of assessment to income-tax. This question has to be answered in the light of these facts: the assessee-trust received donations in the aggregate sum of Rs. 2,57,376. It applied thereout for its charitable purposes the aggregate sum of Rs. 1,70,369 leaving a balance of Rs. 87,010. The question is whether the assessee is entitled to accumulate twenty-five per cent of Rs. 2,57,376, as it contends, or twenty- five per cent of Rs. 87,010, as the revenue appeared to contend.

Section 11(1) (a) reads thus :

"11 Income from property held for charitable or religious purposes.-(1)(a ) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty- five per cent of the income from such property;"

4. Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulated twenty-five percent of income derived from property held under trust. For the present purposes the donations the assessee received, in the sum of Rs. 2,57,376, would constitute its property and it is entitled to accumulate twenty five 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.

10. In parity with the view already taken by the co-ordinate bench in assessee’s own case in the earlier assessment year, the CIT(A) was justified in admitting the claim of the assessee for accumulation of income. The CIT(A) has rightly viewed that exemption under s.11(1)(a) of the Act i.e. 15% of the income is unfettered and not subject to any conditions. Hence, we do not see any perceptible reason for our indulgence with the order of the CIT(A). We thus decline to interfere.”

7.1. Further reliance was placed on the judgment Hon’ble Supreme Court in the case of CIT(Exemption) Vs. Subros Educational Society, 92 taxmann.com 652, wherein issue raised by the Revenue was that whether any excess expenditure incurred by trust/charitable

8 institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking section 11. After hearing the Department, Hon’ble Supreme Court has found no merit on the question of law raised by the Department, and accordingly, MA filed by the Department was dismissed.