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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These three appeals filed by the assessee are arising out of the different orders of Commissioner of Income Tax (Appeals)-I, Mumbai [in short CIT(A)], in appeal Nos. CIT(A)-I/IT/E(2)/37,46/2013-14, 2014-15 & CIT(A)-I/IT/E1(140)/2015-16 dated 13.08.2015, 28.10.2015, 26.08.2016. The Assessments were framed by the Income Tax Officer (Exemption), Ward-II(1), Mumbai (in short ITO/ AO) for the A.Ys. 2010-11, 2011-12, 2013-15 vide dated 20.03.2013, 18.03.2014 & 20.102015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. There is only one common issue in all these three appeals of assessee. The issue is whether the assessee is correct in claiming the sanctioning of amounts for the purpose of charitable projects as “application of income” but not spent for the purpose of section 11(1)(a) of the Act. The disbursement is not a pre condition for claiming “application”. The facts and circumstances are exactly identical in all the three years as admitted by the assessee as well as Revenue. Hence, we will take the facts and circumstances from AY 2010-11 in ITA 5281/Mum/2015 and decide the issue. The relevant grounds raised read as under: - “1 The Commissioner of Income Tax (Appeals) erred in upholding the order of the ITO (Exem.) dated 20th March, 2013 assessing the Appellant to LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 income of Rs. 2,11,47,230/-, as against the income of Rs. NIL, returned by the Appellant.
2. The Commissioner of Income Tax (Appeals) erred in holding that the Appellant's case was hit by Section 11 (3)(d) of the Act and the explanation to Section 11(2) of the Act.
3. The Commissioner of Income tax (Appeals) failed to appreciate that the sum of Rs. 2,1147,230/- did not at all fall within the provisions of Section 11
(3) (d) of the Act.”
Briefly stated facts are that the assessee is a public charitable Trust registered under the Bombay Public Trust Act, 1950 vide registration No. e-23965 dated 27.02.2007. The assessee Trust is also registered under section 12A of the Act. The assessee has been filing its return of income regularly and voluntarily since its inception i.e. 27.02.2007 for and from AY 2007-08 for the relevant AY 2010-11. The assessee has filed its return of income under section 139(1) of the Act on 09.09.2010 along with audited accounts and form No. 10B. The assessee before the AO claimed that it is following the method of claiming application of income under section 11(1)(a) of the Act on the basis of projects sanctioned and not on the basis of disbursal of funds for the purpose of projects relating to the medical relief or education purposes. The assessee claimed that the amount of ₹ 2,11,47,228/- is spent out of the last years application and set apart and claimed as application of income by giving the following notes in its computation of income: - “Note:
LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 1. During the year trust has applied ₹ 8,99,592/- for charitable purpose.
During the year the trust has spent ₹ 7,56,44,703/- for charitable purpose.
3. Following are the year wise breakup of the amount spent during the year: a. Application of income for the FY. 2009-10 (AY 2010-11) 54,497,475 b. Amount spent out of the last year application and set apart 21,147,228 Total 75,644,703 4. Following are the amount need to be spent by the trust in the subsequent years: a. Application of income for the FY. 2009-10 (AY 2010-11) 35424117 b. Application of income and amount set part in the FY 2008-09 9482012 (AY 2009-10) Total 44,906,129 4. The AO require the assessee to explain as to why this exemption claimed be not disallowed as an amount has not been applied towards the objects of the trust in view of the explanation to section 11(1) of the Act. The assessee claimed that it has been following the above stated method consistently since the AY 2008-09 and same has been accepted by the Department but the AO disallowed the claim of exemption and added the amount to the return income of the assessee by observing as under: - “The contention of the assessee is considered but the same is not tenable for reasons given in the above pam 5. From the submission filed in soft copy regarding the application of income towards the objects it is seen that an amount of Rs.2,84,49,550/- has been spent under the head Health which is by LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 way of giving donations to almost 33 trusts or institutes. Further, an amount of Rs.2,89,18,611/- was spent towards infrastructure which is also by way of giving the donation to almost 45 trusts or institutes. The total income for the year is shown at Rs.8,68,29,189/-. Moreover, the assessee has accumulated an amount of Rs.3,54,24,117/- out of current year's income, u/s.11(2) of the Income Tax Act, 1961, the intimation of which has also been submitted to the Department in Form 10 filed before filing the return of income. This fact is also mentioned in the note to computation of income filed along with the return. Thus from all the facts narrated above it is entailed that the assessee has spent this amount out of earlier years' accumulation u/s.11(2) which is also stated by the assessee in its note to computation and thus the income of the assessee of Rs.2,11,47,228/-is not allowed as income applied towards the objects of the trust and is treated as taxable income in view of the explanation to Section 11(2) of the Income Tax Act, 1961. Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961 are separately initiated for filing inaccurate Particulars of income.”
Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO by observing that actual disbursement of this amount of ₹ 2,11,47,228 took place in FY 2009-10 relevant to this AY 2010-11 and it is not the case of the assessee that the amounts were debited in earlier years to its profit and loss account or it was shown as liability in the balance sheet. The CIT(A) noted that as per the provisions LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 of section 11(2) of the Act if any amount is accumulated or set apart, Form No. 10 has to be filed before the AO with reference to this income set apart. He also noted that this amount has been paid to the other trusts during the year under consideration and hence, the assessee’s case is hit by explanation of section 11(2) of the Act, hence, he confirmed the action of the Assessing Officer. Aggrieved, now assessee is in appeal before Tribunal.
Before us, the learned Counsel for the assessee Shri F.V. Irani explained that the amounts spent / disbursed during the assessment year 2010-11, was not utilization of income accumulated under section 11(2) of the Act for AY 2009-10. It was explained by him, that the assessee has already claimed this said sum of ₹2,11,47,228/- as an application of income in the year of sanction i.e. an amount of ₹ 5 lacs in AY 2008-09 and an amount of ₹ 2,06,47,225/- in AY 2009-10 on the basis of project sanctioned during the previous years relevant to the said assessment years. It was explained by the learned Counsel that the said amounts were sanctioned in earlier years but actual disbursal of the same had taken place during the financial year 2009-10 relevant to this assessment year 2010-11. Hence, it was rightly claimed by the assessee and treated the said sum as application of income in the year of sanction and has been accepted by the AO under section 143(3) of the Act for the AYs 2008-09 and 2009-10. The learned Counsel for the assessee filed copy of assessment order before us. The learned Counsel for the assessee took us through the provisions of section 11(2) of the Act, which reads as under: - “(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:—
(a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years;
(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5);
(c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:
Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.
Explanation.—Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub- section (1), read with the Explanation to that sub- section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.”
The learned Counsel for the assessee particularly drew our attention to clause (b) of sub-section 2 of section 11 of the Act, wherein the money so accumulated or set apart is invested or deposited in the form or modes specified in sub-section 5. In view of the above, the learned Counsel for the assessee stated that this method followed by assessee has approval of Hon’ble Andhra Pradesh High Court in the case of CIT vs. Trustees of H.E.H. the Nizam's Charitable Trust [1981] 131 ITR 497 (Andhra Pradesh). The learned Counsel for the assessee stated that the AO and the CIT(A) has himself admitted the following clear note given by the assessee in this computation of income along with return of income, wherein vide 3(b) it is mentioned that the amount has been out of the last year application and set apart. Whereas, the AO as well as CIT(A) have himself read this note as 3(b), amount spent out of LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 the last year accumulation of the set part of this amount. Hence, he argued that both the authorities below has wrongly invoked the provisions of section 11(3)(d) of the Act and brought to tax the aforesaid amount of ₹ 2,11,47,227/-. On the other hand, the learned Sr. Departmental Representative heavily relied on the assessment order and the order of CIT(A).
We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the assessee has, since its inception, has been consistently claiming application of the amounts sanctioned on the basis of sanction. This method was accepted by the Revenue while framing assessment under section 143(3) of the Act for AYs 2008-09 and 2009-10, wherein the copies of the assessment orders were filed by the assessee. It is a fact that during FY 2009-10 relevant to AY 2010-11, the assessee had not applied any income accumulated under section 11(2) of the Act for AY 2009-10. The amount so spent amounting to ₹ 2,11,47,228/- represented the amounts sanctioned in the earlier years but disbursed during the FY 2009-10 relevant to this AY 2010-11. We noted that accumulated income of ₹ 3.20 crores remained unutilized even during AY 2010-11 and outstanding amounts of the projects sanctioned and the unutilized accumulated income under section 11(2) of the Act. We noted that the amounts spent / disbursed during the assessment year under appeal amounting to ₹ 2,11,47,228 was not the utilization of income accumulated under section 11(2) of the Act for the AY 2009-10. The Assessee has already claimed the said sum as an application of income in the year of sanction i.e. ₹ 5 lacs in AY 2008-09 and ₹ 2,06,47,228 in AY 2009-10 on the basis of projects sanctioned during the previous years relevant to those assessment years. Though the said amount was sanctioned in earlier years, actual disbursal of the LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 same had taken place during FY 2009-10 relevant to this assessment year. We noted that the Revenue has accepted this system consistently that the claim of the assessee to treat the said sum as an application of income in the year of sanction. This has the support of the decision of Hon’ble Andhra Pradesh High court in the case of Trustees of H.E.H. the Nizam's Charitable Trust (supra), wherein Hon’ble High Court has held as under: -
We shall first consider the second question referred to us for decision. From the facts set out earlier, it is clear that the donees concerned make a request for a grant from the trust and the trustees after considering the request, sanction certain amounts in deserving cases. As soon as the resolution is passed, the secretary informs the institution that such and such amounts have been sanctioned by the trustees at a meeting held on a particular date and also intimates the purposes for which they are sanctioned. In cases where the amounts are not disbursed during the accounting year, the amounts are debited to the income and expenditure account and credited to the outstanding payment account, which contains the amount due to the various donees as per the resolutions passed by the board. When the payment is made, this amount is debited. The amounts debited to the income and expenditure account but which are not actually disbursed are shown as liabilities in the balance-sheet. In our view, these facts and circumstances would constitute application of the funds for charitable purposes LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 within the meaning of section 11(1)(a) of the Act. We agree with the Tribunal that it is not correct to equate the word applied" with the word "spent". If the Legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word. There cannot be any doubt that the money which was sanctioned was applied for a specific purpose as there was nothing else to be done except the actual payment. The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out whether there has been an application of the funds. In this connection, we may refer to the observations in CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All.). Dealing with the word "applied" in the Indian Income-tax Act, 1922, the learned judges observed as follows (p. 522):
The word 'applied' in this clause means actually spent and it was pointed out that while in clause (i) of sub-section (3) of section 4 of the Act, the words used are 'income applied or finally set apart', the words 'finally set apart' have not been repeated in clause (ia) of that sub-section. We do not think that the word 'applied' necessarily means 'spent'. Even if it has been earmarked and allocated for the purposes of the institution, it might, to our minds, be deemed to have been applied for the purpose."
12 LIC Golden Jubilee Foundation; ITAs No.5281/Mum/2015, 83 & 6813/Mum/2016 9. Hon’ble High Court has considered that in order to secure exemption under section 11(1)(a) of the Act, it is sufficient if the assessee provides or sets apart the funds for a charitable purpose and it is not necessary that the assessee must have spent the amount specified for a charitable purpose during the relevant assessment year. That this is the intention of the legislature as is evident from the words used i.e. “applied” in section 11(1)(a) of the Act. It was explained that if the intention of the legislature was otherwise, nothing prevented the legislature from using the words “spent” instead of “applied” in section 11(1)(a) of the Act. In view of the above facts and circumstances, we are of the view that the assessee is eligible for the claim of exemption under section 11(1)(a) of the Act and we order accordingly.
Similar are the facts in and 6813/Mum/2016 for AYs 2011-12 and 2012-13, taking a consistent view, we direct the AO to allow exemption under section 11(1)(a) of the Act in these years also.
In the result, all the appeals of the assessee are allowed.
Order pronounced in the open court on 21.05.2019. (एन. के. प्रधान/ NK PRADHAN) (महावीर ससंह /MAHAVIR SINGH) (लेखा सदस्य / ACCOUNTANT MEMBER) (न्याययक सदस्य/ JUDICIAL MEMBER) मुंबई, ददनांक/ Mumbai, Dated: 21.05.2019. दीप रकार, व.यनजी धिव / Sudip Sarkar, Sr.PS