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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 3517/Del/2017 Assessment Year: 2013-14
KPMG Foundation ITO (Exemption) 8th Floor, Tower-B, Building No. 10, Faridabad DLF Cyber City, Phase-II Gurgaon 122002 Vs. PAN AABTK1231C (Appellant) (Respondent)
Assessee by: Shri G.C. Srivastava, Advocate Shri Anubhav Jain, Advocate Department by: Shri Amit Jain, Sr. DR Date of Hearing 26/07/2018 Date of 07/08/2018 pronouncement
O R D E R PER AMIT SHUKLA, J.M. The aforesaid appeal has been filed by the assessee against impugned order dated 27.3.2017, passed by Ld. CIT (Appeals)-2, Gurgaon for the quantum of assessment passed u/s 143(3) for the assessment year 2013-14. In the revised grounds of appeal assessee has raised following grounds: -
“2. On the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in holding:
2.1 That the donations of different items valued in the aggregate at Rs. 69,14,593 to various charitable organizations registered under section 12A of the Act cannot be treated as application of income for charitable purposes under section 11(1)(a) of the Act. 2.2 That the CIT(A) has erred in enhancing the quantum of the disallowance in regard to 2.1 above. 2.3 That the amount of donations paid to various charitable institutions registered under section 12A of the Act was to be disallowed as it did not according to him, represent the application of income u/s 11(1) (a) of the Act. Donations to various colleges amounting to Rs. 36,82,865 3. The CIT(A) has erred in holding that the donations of sums of money paid by issue of cheques to various government financed colleges for the advancement of education and/ or the advancement of general public utility activity cannot be treated as application of income for charitable purposes under section 11(1)(a) of the Act as according to CIT(A), the donations could not be linked to any student or any beneficiary in particular. Application of income for other charitable activities like tree plantation, distribution of prizes among students etc. aggregating to Rs. 12,59,155 4. The CIT(A) has erred in holding that the application of income towards charitable purposes of tree plantation, marathon participation, distribution of prizes among students, printing of annual reports, cannot be treated as application of income for charitable purposes under section 11(1)(a) of the Act. Amount spent as Administrative and General Expenses amounting to Rs. 17,39,164
The CIT(A) has erred in holding that the expenses claimed by the Appellant to perform its charitable activities cannot be treated as application of income for charitable purposes under section 11 of the Act in the absence of connection of such expenses with the people engaged in the activities of the trust.”
The facts in brief are that assessee is a public charitable trust which was constituted by trust deed dated 27.7.2005 with the objectives of providing; i) relief to the poor; ii) education; iii) medical relief; and iv) the advancement of any objects of general public utility. Looking to its charitable activity assessee was registered u/s 12A vide order/certificate dated 28th September, 2006. Assessee after claiming exemption u/s 11 of Rs. 3.90 crores on account of application of income of more than 85% of the gross receipt and consequently filed its return of income at NIL. Ld. AO during the course of the assessment proceedings asked the assessee to furnish complete details of application of income with documentary evidences, in response to which all the details as required were filed. AO noted that following payments or utilisation did not amount to application of income for the charitable purposes: - Sl. No. Nature of transaction Amount (in INR) 1. Donations to government-financed 36,82,865 colleges 2. Donations to charitable organisations 10,99,477 3. School fees for children from financially 9,24,624 weak backgrounds 4. Sums applied towards activities like 12,59,155 tree plantation and distribution of items to school children from financially weak backgrounds Total 69,66,121
Accordingly, he made the addition of Rs. 69,66,121; and after considering the total receipt and income applied for the charitable purposes, he finally completed the assessment at an income of Rs. 30,36,828/-.
Before the Ld. CIT(A), assessee filed detailed written submissions along with documentary evidences with regard to various additions made by the AO to demonstrate that each and every expense incurred were purely for charitable purposes and hence amounts to application of income, which has been incorporated by the Ld. CIT(A) from pages 3 to 4 of the appellate order. The said submissions were sent for remand report before the AO who has submitted its report which has been incorporated at page 5 and 6 of the appellate order and also assessee’s counter on such report of the AO. However, the Ld. CIT(A) again required the assessee to furnish each and every item of expenditure incurred and noted that assessee has shown following expenses under different heads: - Head of Expense Amount (Rs.) Schedule G: Donation Paid 3,51,13,499 Schedule H: Administrative & General Expenses 19,65,794 Total 3,70,79,293 But again, the bifurcation of donations was asked by the Ld. CIT (A) with regard to the grouping of expenses in Schedule G & H, which was submitted by the assessee in the following manner: - Regrouping of expenses of Schedule G Amount (Rs.) (i) Organisation having 12AA Registration 2,92,40,173 (ii) Schools 9,31,306 (iii) Colleges 36,82,865 (iv) Others 12,59,155 4
Total 3,51,13,499 Sub-head of expense Amount (i) Professional fee 2,24,720 (ii) Travel expense 1,49,416 (iii) Conveyance expense 5,77,652 (iv) Meal and refreshment 71,854 (v) Events 9,40,242 1,910 19,65,794
Ld. CIT(A) observed that in so far as expenses given in Schedule H, there is neither any salary expense nor any expense for rent which has been claimed by the assessee; and when no persons are employed then how travelling and conveyance expenses have been claimed and also the expenses for professional fee were also not justified. He further noted that the assessee trust is basically giving donations to various concerns like organisation which were registered u/s 12AA, colleges, schools and others which AO has not examined it properly, therefore, he proceeded to give enhancement notice u/s 251(2) to examine and add the entire donation payments made to the various organisation /entities. He had short listed various payments made to certain entities and also invited assessee’s submissions which has been dealt and incorporated by him from pages 11 to 19 of the appellate order. Thereafter, he held that following expenditure do not qualify under 85% of utilisation: -
Sl.no. Vendor/payment to Amount (i) Geo Tech International 33,15,652 (ii) Mumbai Mobile Creches 26,01,247
(iii) APD School 13,79,103 (iv) Mobile Creches 3,15,656 (v) Literacy India 7,73,809 (vi) Vidya School and Literacy 1,30,276 India 85,15,743
Thereafter, he further disallowed amount spent on donation in kind to colleges at Rs. 36,82,865/-; amount given and spent through colleges at Rs. 36,82,865/-; amount given and spent through schools Rs. 9,31,306/-; and amount spent under the head ‘others’ at Rs. 12,59,155/-. The reason given by him was that assessee has given donation on lumpsum basis to respective colleges which is not directly linked with any particular student and some of these colleges and schools are not registered u/s 12A. He held that the amount and items given to institutions which are registered u/s 12A cannot be allowed in view of section 13(3)(d). He further disallowed the amount spent under the head “others” the details of which noted by him are as under: -
S.No. Name of Parties Amount (in Rs.) 1. Purchase of water bottles bags etc. for 3,26,702 distribution at competition among school children 2. Payment to vendor (i.e. Reprint) for 2,67,750 printing annual reports on charitable activities of the Appellant 3. Saplings purchased from ‘Green 2,30,623 Carbon Energy & IT Consultancy’ for free plantation drives 4. Participation in Marathon – Procam 1,40,000 International Ltd.
Saplings purchased from ‘Carbon And 1,32,026 Energy Consultants’ for tree plantation drives 6. Purchase of 200 mugs for distribution 45,000 among winners of tree planting challenge from Vendor (i.e. mystic Charlies) 7. Participation fees in Marathon – 31,200 PROCAM INTERNATIIONAL LTD. 8. Purchase of flags and banners for walk 26,325 for life in Delhi from Vendor (i.e. Modern Business Systems) 9. Purchase of drawing materials (i.e. 18,386 colours stationery) for a painting activity among children 10. The Socio-Friendly Football 16,854 Championship charges 11. Cost of printing posters for promoting 15,850 Earth Day and Walk for life from Vendor (i.e. MKM Creatives) 12. Transport charges for volunteering 7,289 activities paid to Shree Enterprises 13. Water bottles and miscellaneous 1,148 expenses for Delhi & Pune scholarship students Total 12,59,155
He held that the aforesaid expenses cannot be held to be expenses belonging to the assessee trust, because they cannot be held to have been incurred by the assessee for charitable purposes. Similarly, with regard to amount spent under the head administrative and general expenses he again gave a detailed finding that these expenditures were not required in the case of the assessee and disallowed the most of the expenditure. Finally, the amount of expenditure disallowed by him
and expenses claimed by the assessee was recasted by him under the following manner: -
Item of Expense Expense Disallowed Allowed Claimed by in Appeal the appellant A 12AA organisations 2,92,40,173 85,15,743 2,07,24,430 B Colleges 36,82,865 36,82,865 Nil C Schools 9,31,306 Nil 9,31,306 D Others 12,59,155 12,59,155 3,51,13,499 E Administrative & 19,65,794 17,39,164 2,26,630 General expenses 3,70,79,293 2,21,71,142 2,18,82,366
In this manner, he enhanced the income for the year under consideration at Rs. 1,12,67,634/- and held that the receipt of the assessee was Rs. 3.90 crores, out of which 85% of this amount equivalent to Rs. 3,31,50,000/- were to be applied for the Charitable purposes, but, since assessee has applied only Rs. 2,18,82,366/-, therefore, the balance amount of Rs. 1,12,67,634/- was held to be Income for the year under consideration.
Before us the Ld. Counsel for the assessee, Shri G C Srivastava after narrating the entire facts as culled out from the impugned order submitted that the assessee has made donations in kind and in cheques and also for scholarship of students and for other charitable activities. He summarised nature of disallowance, allegation of the Ld. CIT (A) and the contention of the assessee in the following manner: -
S.No. Nature of Allegations of CIT(A) Assessee’s disallowance Comments 1. Donations in kind 1.Transaction of giving Disallowance can be i.e., School bus, material in neither made u/s 11(3)(d) Laptops, legally permissible. only if payment is Furniture, made to another 2. Payment in the form RO System, charitable of materials would not Solar water heating Institution out of be in compliance of system, accumulated funds. section 11(3)(d) of the Solar street lights, No embargo on Act. Sweaters payment/application 3. Payment of material of current year’s on behalf of section income. 12AA organisation Covered by Delhi HC does not constitute in the case of Bagri compliance of section Foundation [192 11(3)(d) of the Act Taxmann.309] 2. Donations in cheque Not been >Material has i.e Mumbai Mobile demonstrated as to provided for the Creches & how the said amount running of the trust. Literacy India has been applied for Documentation has the purpose of the been provided for. trust and donation of material is legally not >Disallowance can permissible be made u/s 11(3)(d) only if payment is made to another charitable Institution out of accumulated funds. No embargo on payment/application of current year’s income. 3. >Donations to >Donations not linked >Amount spent for colleges for with any particular the development of scholarship of student. education whether students in cash or kind is a >Colleges receiving deductible >Donations to donations are not expenditure colleges for Solar registered under installation at section 12A of the Act. >Colleges to whom colleges Hence do not fulfil the donations are made criteria of been given have not been to other registered registered u/s 12A organisations. of the Act – it has been submitted by the Appellant vide
submission dated 06 December 2016 before the CIT(A) wherein it has been clearly mentioned that the said colleges are Government aided (UGC approved). >Explanation to section 11(2) shall not apply as the amount has been spent out of current year’s income and not out of accumulated income. >Explanation 2 to section 11 will again not apply as educational institutes which are Government aided fall under section 10(23C) 4. Other charitable Not charitable and Charitable activities activities like spent for benefit of for general public Marathon, Tree donor utility plantation, Distribution of prizes to students etc. 5. Administrative & These expenses are Amount spent on General Expenses not connected to the the running of the persons engaged in the trust activities of the Trust
He also gave detail of donations made in kind items provided and the documentary evidences filed by the assessee before the Ld. CIT(A) and also the similar details with regard to donation in cheques and payment made to colleges and for such charitable activities of advancement of general public utility. The details of payment for
administrative expenses have also been highlighted before us along with the documents furnished. Thus, he submitted that entire approach of the Ld. CIT(A) for disallowing the amount spent for charitable purpose that such kind of donation for charitable activity does not amounts to utilisation for charitable purpose is erroneous in law and on facts. He further submitted that assessee is a public charitable trust who has mostly given donations to various institutions who were carrying out charitable activities in the field of education and who were carrying objects of general public utility and relief to the poor. So far as assessee is concerned, it has given the entire details and documentary evidences for the utilisation and thus the entire disallowance made by the Ld. CIT (A) should be deleted.
On the other hand, Ld. DR strongly relied upon the order of the Ld. CIT (A).
We have heard the rival submissions and also perused the relevant finding given in the impugned order. It is not in dispute that assessee is a charitable organisation which has been registered u/s 12A, looking to its objects which were purely for ‘charitable purposes’ as defined u/s 2(15). The AO had disallowed certain payments / expenditure incurred on the ground that either complete details were not furnished or the expenditure incurred on certain activity is not for charitable purpose or donations given to various organisation and colleges are not backed by any proper documentary evidences. Ld. CIT (A) went step further in analysing each and every heads of expenses so as to conclude that most of these expenditures incurred cannot be held to be spent for charitable activities at all and hence would not fall within the utilisation limit of 85% as provided in section 11(1). The summary of expenditure claimed by the assessee, amount disallowed
by the AO and the Ld. CIT (A) can be tabulated in the following manner: -
S.No. Item of Expense Claimed by Disallowed Disallowed the by the AO by CIT(A) Appellant 1 Organisations 2,92,40,173 10,99,477 85,15,743 registered under 12A 2. Colleges 36,82,865 36,82,865 36,82,865 3. Schools 9,31,306 9,24,624 NIL 4. Others 12,59,155 12,59,155 12,59,155 5. Administrative & 19,65,794 NIL 17,339,164 General Expenses TOTAL 3,70,79,293 69,66,121 1,51,96,927
We have already incorporated the chart summarising the disallowances made by the Ld. CIT (A) on various grounds. On the perusal of the entire details furnished for each and every nature of expenditure incurred which has been treated to be application of income by the assessee, we find that there are various categories of donations; i) Donations in kind i.e., School bus, Laptops, Furniture, RO System, Solar water heating system, Solar street lights, Sweaters, etc.; ii) Donations in cheques, i.e., Mumbai Mobile Creches & Literacy India; iii) Donations to colleges for scholarship of students and donations to colleges for Solar installation at colleges; iv) Other charitable activities like Marathon, Tree plantation, Distribution of prizes to students etc.; and v) Administrative & General Expenses. Ld. CIT(A) has disallowed most of the expenditure as non-application on the ground that; firstly, donations in kind and cheques have been to institutions who are registered under section 12A, hence in view of
provision of section 13(3)(d) they are deemed to be not applied; secondly, payment of material or kind to institutions like colleges and schools are not permissible; thirdly, amount not spent for benefit of donor; and lastly, assessee trust should have directly incurred the expenditure and not through institutions.
We are unable to fathom as to how giving of such donations to schools and colleges for scholarship of students; amount given for activities like marathon race, tree plantation; distribution of prizes to the students; donations given in kind like donating of school furniture, school buses, solar water heating system / solar street lights, rain water harvesting systems, RO system etc. to schools; motor car to mobile crèches; donation of sweaters to Schools; to literacy India; donation to Mumbai Mobile Creches etc.; can be held for non- charitable activities. Where in the law has it been provided that a trust has to incur expenditure on its own and cannot give donation in kind to institutions who in turn have given to the needy which otherwise are for charitable purposes. Here in this case the incurring of the amounts either in kind or in cheques for donation cannot be disputed, because, so far as donation in kind to these institutions are concerned same are fully supported by confirmation from these institutions and by payment advices, etc. for which the evidences were given before CIT (A). What Ld. CIT (A) has held that, since assessee trust has not directly incurred these expenses but has given to institutions who have incurred these expenses and donation has been given kind, therefore, it cannot be reckoned as utilisation of funds for charitable purposes. We are unable to appreciate such logic, sans any legal authority to support such reasoning. Further Ld. CIT (A) has held that, since some these donations have been given to organisations which are registered u/s 12A, therefore, such an amount spent cannot
be allowed in view of section 11(3) (d). In our opinion such a contention of Ld. CIT (A) that donations made in kind or in cheques to charitable organisation which are registered u/s 12A are deemed to not allowable as per section 13(3)(d) is completely misunderstanding of the said provision, because disallowance under this clause can only be of the payment made to another charitable institution out of accumulated funds and there is no embargo of payment / application of current year income. This proposition is well settled by the judgment of Hon’ble Delhi High Court in the case of DIT (E) vs. Bagri Foundation (2012) 192 taxman 309 (Delhi).
If assessee instead of carrying any charitable activity by itself has given funds to various organisation and institutions who are carrying out donation / relief to the poor or medical relief, in cheque or in kind, then it will still tantamount to incurring of expenditure for charitable purposes and hence will constitute application of income in the hands of the assessee. There is no prohibition under law that donation in kind or to institutions which are carrying charitable activities cannot be given. If a charitable organisation gives donations in kind to poor or gives scholarship or aid to the needy students to encourage the students, then it cannot be disallowed that the assessee itself has not directly carried out such charitable activities. Similarly, we find that payment made to various colleges and educational institutions the assessee has given in the form of scholarship and in the form of solar energy conservation products, etc., this again is for educational purpose only and hence has to be treated as expenditure incurred for charitable purposes. In so far as payment for other charitable activities of advancement of public utility like tree plantation, distribution of various prizes, contribution for participation in marathon and purchase of various drawing material for the
students for painting activities among children, all will fall within the category of advancement of general public utility and we were unable to appreciate that how these expenditures can be held to be for non- charitable purposes. Hence, we allow such expenditures as application of income for charitable purposes.
In so far as payment for administrative expenses aggregating to Rs. 17,39,164/- these are being incurred for day to day activities for the assessee trust and running of the trust and without such expenditure no charitable trust can carry out these activities. Here the major expense relates to expense on tree plantation drive which ostensibly is for the environment and hence for charitable purposes. Thus, the entire allegation by the Ld. CIT (A) in disallowing the expenditure incurred on such activities is held to untenable. Accordingly, we hold that none of the expenditure which has been disallowed by treating it non-application of income is for non- charitable purpose. Thus, entire addition and disallowance made by the Ld. CIT (A) is deleted and the grounds raised by the assessee are allowed.
In the result appeal of the assessee is allowed. Order pronounced in the Open Court on 7th August, 2018. sd/- sd/- (PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 07/08/2018 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 15
CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi