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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIAAND SHRI LALIET KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBERAND SHRI LALIET KUMAR, JUDICIAL MEMBER
ITA Nos. 1785 to 1790/Bang/2016 Assessment Years :2008-09 to 2013-14
M/s. Panchajanya Vidya Peetha Welfare Trust, The Deputy Commissioner of 19th Main, 1st ‘N’ Block, Income Tax, West of Chord Road, Vs. Central Circle – 1(3), Rajaji Nagar, Bangalore. Bangalore – 560 010. PAN: AAATP 1325M APPELLANT RESPONDENT
C.O. Nos. 52 to 57/Bang/2017 (in ITA Nos. 1785 to 1790/Bang/2016) Assessment Years : 2008-09 to 2013-14
M/s. Panchajanya Vidya Peetha Welfare Trust, 19th Main, 1st ‘N’ Block, The Assistant Commissioner of West of Chord Road, Income Tax, Vs. Rajaji Nagar, Central Circle – 1(3), Bangalore – 560 010. Bangalore. PAN: AAATP 1325M APPELLANT RESPONDENT
Assessee by : Shri A. Shankar, Advocate Revenue by : Smt. Susan D. George, CIT (DR)
Date of hearing : 21.11.2017 Date of Pronouncement : 29.11.2017
O R D E R Per Bench: All these six appeals are filed by the revenue and all these six COs are filed by the assessee which are directed against the combined order of ld. CIT(A)-11, Bangalore dated 18.07.2016 for Assessment Years 2008-09 to 2013-14. All these were heard together and are being disposed of by way of this common order for the sake of convenience.
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First we take up the appeals of the revenue. The grounds raised by the revenue in all these years are identical and hence, we reproduce the grounds raised in Assessment Year 2008-09 in ITA No. 1785/Bang/2016.
The grounds are as under. “1 Whether on facts and in circumstances of the case, the Ld CIT(A) erred in allowing depreciation on assets which had been taken into account for application for the purpose of Section 11(1)(a) in the previous years? 2 Whether on facts and in circumstances of the case, the Ld CIT(A) erred in admitting a ground regarding set off of excess expenditure over income when the ground does not arise from the order of the Assessing Officer and no claim has been made in the Returns of Income? 3 Whether on facts and in circumstances of the case, the Ld CIT(A) erred in not considering that as per the judicial precedents and Board's Circular, the income of charitable or religious trust/ institution is required to be computed by applying general commercial principles without referring to the regular provisions of Income Tax Act as contained under Chapter-IV? 4 Whether on facts and circumstances of the case, the Ld CIT (A) erred in not considering that as per the provisions of Sec.11, 12 and 13 there is no provision enabling set-off of loss from one source against income from another source/ set-off of loss of one head against income from another head and carry forward and set-off of loss against the income of subsequent years as envisaged u/s 70 to 79? 5 Whether on facts and in circumstances of the case, the Ld CIT (A) erred in not considering the decision of the Hon'ble ITAT, Bombay in the case of Income-tax Officer vs. Trustees of Sri Sathya Sai Trust (33 ITD 320) which has held that the deficit arising on account of application of funds/ sums which are not in the nature of income is not capable of being carried forward? 6 Whether on facts and in circumstances of the case, the Ld CIT(A) erred in not considering the decision of the Hon'ble ITAT, Delhi, in the case of Pushpavati Singhania Resaerch Institute for Lever, Renal and Digestive Diseases Vs. DDIT(E), New Delhi (29 SOT 316) which has held that any excess expenditure incurred by a trust/ charitable institution in earlier years cannot be allowed to be carried forward and set off against the income of subsequent assessment years?
ITA Nos. 1785 to 1790/Bang/2016 & CO Nos. 52 to 57/Bang/2017 Page 3 of 11
7 Any other ground that may arise at the time of hearing.” 4. The ld. DR of revenue supported the assessment order. She also submitted written submissions and in respect of the allowability of depreciation, reliance is placed on a judgment of Hon’ble Kerala High Court rendered in the case of M/s Lissy Medical Institutions vs. CIT, 349 ITR 344 and of Hon’ble Apex court rendered in the case of Escorts Ltd. vs. Union of India, 199 ITR 43. In respect of the second issue i.e. carry forward and set off of excess of expenditure over income, reliance is placed on the tribunal order rendered in the case of ITO vs. Sri Sathya Sai Trust, 33 ITD 320. In addition to this, reliance is placed on the following judicial pronouncements in respect of this second issue:- a) CIT vs. Indian national Theatre Trust, 305 ITR 149 (Delhi), b) CIT vs. Ramchandra Poddar charitable Trust, 164 ITR 666 (Cal), c) DIT (Exemption) vs. Girdharilal Shewnarain Tantia Trust, 199 ITR 215.
Ld. AR of assessee supported the order of CIT(A). He also submitted a copy of the Tribunal order rendered in the case of DDIT(E) Vs. Karnataka Jesuit Educational Society in ITA Nos. 485 & 486/Bang/2013 dated 12.08.2016 and submitted that as per this Tribunal order, the issue in dispute regarding allowability of depreciation on the assets which were considered as application of income in the year of purchase was decided and it was held that this issue is covered in favour of the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of DIT Vs. Al-Ameen Charitable Fund Trust in ITA No. 62/2010 dated 22.02.2016 and respectfully following this judgment of Hon'ble Karnataka High Court, the issue was decided in favour of the assessee.
Regarding the second issue in respect of carry forward of deficit, he submitted that this issue was decided by CIT(A) by following the judgment of Bangalore Bench of the Tribunal rendered in the case of Jyothi Seva Society of Bangalore Vs. ADIT(E) in ITA No. 312/Bang/2015 and the relevant portion of the Tribunal order has been reproduced by the CIT(A) on pages 15 to 19 of the order of
ITA Nos. 1785 to 1790/Bang/2016 & CO Nos. 52 to 57/Bang/2017 Page 4 of 11
CIT(A) and therefore, this issue is also covered by the decision of Bangalore Bench of the Tribunal.
We have considered the rival submissions. We find that both the issues are squarely covered in favour of the assessee by two separate judgments as noted above. The first issue regarding allowability of depreciation on the assets which was considered as application of income in the earlier year, this issue is covered in favour of the assessee by the Tribunal order rendered in the case of DDIT(E) Vs. Karnataka Jesuit Educational Society (supra) in which the Tribunal has followed the judgment of Hon'ble Karnataka High Court rendered in the case of DIT Vs. Al-Ameen Charitable Fund Trust (supra) and several other Tribunal orders and hence, respectfully following these judicial pronouncements, we decide this issue in favour of the assessee and accordingly, the ground raised by the revenue in this regard is rejected. In respect of two judgments cited by the learned DR of the revenue, it is noted that one of these two judgments is of Hon’ble Kerala High Court and when the issue in dispute is covered by the judgment of Hon’ble Jurisdictional High Court rendered in the case of DIT Vs. Al-Ameen Charitable Fund Trust (Supra), this judgment of Hon’ble Kerala High Court is not even required to be considered. We consider the applicability of the second judgment i.e. of Hon’ble apex court rendered in the case of Escorts Ltd. (Supra). We find that the dispute in that case was regarding allowability of depreciation on those assets which were allowed as deduction u/s 35 (1) (iv) which deals with expenditure of capital nature on scientific research. Under these facts, it was held that if depreciation is also allowed in respect of same assets which were allowed as deduction u/s 35 (1) (iv), it will amount to allowance of double deduction. In the present case, the revenue contends that considering the acquisition of assets to fulfill the objects of the trust as application of income of the trust and thereby exempting such income u/s 11, it amounts to allowance of deduction and therefore, depreciation on those assets is not allowable because it will amount to allowing of double deduction. We find a fallacy in this argument because by considering the acquisition of assets to fulfill the objects of the trust as application of income of the trust and thereby exempting such income u/s 11 does not amount to
ITA Nos. 1785 to 1790/Bang/2016 & CO Nos. 52 to 57/Bang/2017 Page 5 of 11 allowance of a deduction because by doing so, income is not reduced and only the nature of the income is considered as exempt. This is also a settled law by now that income of a trust has to be computed on commercial lines and when the acquisition of assets is not reduced from income but only considered as application of income for the objects of the trust resulting into exemption of such income from tax, it is not equal to allowing of deduction and therefore, allowing of depreciation on those assets does not result into allowing of double deduction and therefore, this judgment is not applicable in the present case. Hence, we respectfully follow the judgment of Hon’ble Jurisdictional High Court rendered in the case of DIT Vs. Al-Ameen Charitable Fund Trust (Supra) and decide the first issue in favour of the assessee.
Regarding the second issue in dispute, i.e. regarding carry forward of deficit, we find that this issue is also covered in favour of the assessee by the Tribunal order rendered in the case of Jyothi Seva Society of Bangalore Vs. ADIT(E)(supra). The relevant portion of this Tribunal order as reproduced by CIT(A) on pages 15 to 19 are reproduced herein below for the sake of ready reference. “We have heard the rival contentions of both parties and perused and carefully considered the material on record; including judicial pronouncements, cited and placed reliance upon. We find that the case of Institute of Banking, (supra), the Hon'ble High Court of Bombay has held as under :-
" Now coming to question No. 3, the point which arises for consideration is : 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? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the AO did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, their income was assessable under self-contained code mentioned in s. 11 to s. 13 of the IT Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under s. 28 in which the provision for carry forward of losses was relevant. That, in the case of a charitable trust, there was no provision for carry forward of
ITA Nos. 1785 to 1790/Bang/2016 & CO Nos. 52 to 57/Bang/2017 Page 6 of 11 the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles areapplied 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 s. 11 of the Act and that such adjustment will have to be excluded from the income of the trust under s. 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT vs. Shri Plot SwetamberMurtiPujak Jain Mandal (1994) 119 CTR (Guj) 144 : (1995) 211 ITR 293 (Guj). Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the Department."
The co-ordinate bench of this Tribunal in the case of Baldwin Methodist Educational Society (supra), has held as under :-
" We also find that 'A' bench of this Tribunal in the case of Academy of Liberal Education in ITA No.687/Bang/2014 dated 20/2/2015, to which one of us i.e. the Accountant Member is the signatory, has considered this issue and in para.8 of its order, held as under:
"8. We are of the view that pendency of an appeal before the Hon'ble High Court of Karnataka cannot be the basis not to follow the decision on the issue already rendered in identical cases. Section 11(1)(a) does not contain any words of limitation to the effect that the income should have been applied for charitable or religious purpose only in the year in which the income has arisen. The application for charitable purposes as contemplated insection 11(1)(a) takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the income of such subsequent year can be said to be applied for charitable or religious purposes in the year in which such adjustment takes place. In other words, the set-off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to application of income of such later year. The above is the position of law as held in the case of CIT Vs. Maharana of Mewar Charitable Foundation 164 ITR 439 (Raj) CIT Vs. Shri Plot SwetamberMurtiPujak Jain Mandal 211 ITR 293 (Guj.). In CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom), it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be application
ITA Nos. 1785 to 1790/Bang/2016 & CO Nos. 52 to 57/Bang/2017 Page 7 of 11 of income for subsequent years and that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under s. 11 in past years. In Govindu Naicker Estate VS. ADIT 248 ITR 368 (Mad), the Hon'ble Madras High Court held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of CIT Vs. Society of Sisters of ST. Anne 146 ITR 28 (Kar)."
We find that the order of the CIT(A) is in consonance with the judicial precedents reproduced above. Therefore, we see no reason to interfere with the order of the CIT(A). The revenue's appeal is, accordingly, dismissed."
It is clear from the relevant portions of the aforesaid decisions of the Hon'ble High Court of Bombay (supra) and the co-ordinate bench of the ITAT, Bangalore (supra) extracted above that the income of charitable trusts is required to be computed on commercial principles. The concept of application of the income for the year in which the income has arisen is not found in Section 11(1)(a) of the Act. No limitation to the above effect is found in the language of the section. It merely requires application of the income that has arisen from the property held under trust. In this view of the matter, the principles relating to set off of losses, etc. is not of any relevance and therefore any excess application of income during the year can be regarded as application of the income of future years and can be adjusted. Therefore, in our view, the claim of the assessee for carry forward of
ITA Nos. 1785 to 1790/Bang/2016 & CO Nos. 52 to 57/Bang/2017 Page 8 of 11 excess application is in accordance with the judicial precedents on the issue and the same is allowable.
In the case of Indian National Theater (supra) relied on by the learned Departmental Representative. The Hon'ble High Court of Delhi has held that to satisfy the requirements of section 11(2)(b) of the Act, the investment must necessarily come out of current year's income and the investment made in the past obviously cannot satisfy the requirements for the current year. The above decision of the Hon'ble Delhi High Court has considered the provisions of section 11(2) of the Act and has taken the view that the accumulation under Section 11(2) of the Act can be only out of current income. We, however, find that the co- ordinate benches of the Bangalore Tribunal have consistently followed the view of the Hon'ble Bombay High Court (supra) in which the application has been regarded as adjustable against the income of the future years. We are, therefore, inclined to follow the view taken by the co- ordinate benches of this Tribunal, inter alia, in the case of Baldwin Methodist Educational Society (supra), based on the view/decisions of the Hon'ble Bombay High Court in the case of Institute of Banking (supra) and the Hon'ble Gujarat High Court in the case of CIT V Shri Plot SwetamberMurtiPujak Jain Mandal reported in 211 ITR 293. In this view of the matter, the Assessing Officer is directed to allow carry forward of the excess application of Rs.7,44,328 for the year to be adjusted from income from property held under trust of the subsequent years. It is ordered accordingly. Consequently, Grounds 2 and 3 of assessee's appeal are allowed.
Respectfully following the decision of co-ordinate Bench we allow the appeal of the assessee.”
A contrary judgment has been pointed out by ld. DR of revenue as note above having rendered by the tribunal in the case of ITO vs. Sri Sathya Sai Trust, (Supra). In this case also, the tribunal has noted that the tribunal order rendered in the case of ITO vs. Trustees of Balkanji – Bari, 2 Taxman 377 (Bom.) is in favour of the assessee but that earlier tribunal order was not followed by saying that the facts are different. In that case, advance was received for sale of a property but transfer did not take place but proceeds were used for the objects of the trust giving rise to deficit. Under these facts, the tribunal held that the deficit is arising out of application of sums not in the nature of income and therefore, there is no deficit, which can be carried forward. The tribunal in that case also noted that the tribunal is aware of the apprehension of the assessee that in the year in which transfer takes a concrete shape, capital gain would be determined and that might be subjected
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to tax ignoring the application of such income in the earlier years but that is a matter which is to be considered in that year. It means, the claim was not out rightly rejected but it was held that it should be seen in the later year when income arises. Hence, this tribunal order has to be considered in the light of the later tribunal order cited by the learned AR of the assessee as per which, the issue is covered in favour of the assessee and this is a settled law by now that if two views are possible, the view in favour of the assessee should be adopted. Therefore, this tribunal order is not helping the revenue.
The second judgment relied upon by the learned DR of the revenue is the judgment of Hon’ble Delhi High Court rendered in the case of CIT vs. Indian national Theatre Trust (Supra). In this case, there was no dispute about deficit and it’s carry forward and set off in later years. The dispute in that case was about section 11 (2), and treating loan given as application of income. Therefore, this judgment is not applicable.
The third judgment relied upon by the learned DR of the revenue is the judgment of Hon’ble Calcutta High Court rendered in the case of CIT vs. Ramchandra Poddar charitable Trust (Supra) and the issue involved in this case was this that whether giving away the shares valued at Rs. 30,000/- as charity was an application of the income. In this case, there was no dispute about deficit and it’s carry forward and set off in later years. Therefore, this judgment is also not applicable.
The fourth judgment relied upon by the learned DR of the revenue is the judgment of Hon’ble Calcutta High Court rendered in the case of DIT (Exemption) vs. Girdharilal Shewnarain Tantia Trust (Supra) and the issue involved in this case was this that whether capital gain of Rs. 291,644/- is eligible for deduction u/s 80 T of I T Act. In this case also, there was no dispute about deficit and it’s carry forward and set off in later years. Therefore, this judgment is also not applicable.
As per above discussion, it is seen that the reliance on these three judgments of Hon’ble Delhi High court and Hon’ble Calcutta High Court is entirely
ITA Nos. 1785 to 1790/Bang/2016 & CO Nos. 52 to 57/Bang/2017 Page 10 of 11 misplaced and it is without considering the facts and dispute in these cases and in the present case. In our considered opinion, before placing reliance on any judgment, the facts and dispute of that case and the present case where the said judgment is being cited should be studied and compared and no case should be cited blindly as done by the learned DR of the revenue in the present case. We leave it at that.
As per above discussion, we have seen that the three judgments of two High Courts cited by the learned DR of revenue are not rendering any help to the revenue and the tribunal order cited by her is supporting the case of revenue but we follow the tribunal order cited by the learned AR of the assessee in view of above discussion on this aspect and in this manner, the second issue is also decided in favour of the assessee.
In the result, all the appeals of the revenue are dismissed.
Now we take up the Cos. filed by the assessee. At the time of hearing of these appeals and Cos., the same were heard on this understanding that if the decision in respect of the appeals of the revenue goes in favour of the assessee then the Cos. may be dismissed as not pressed and if the decision goes against the assessee then the COs may be refixed for hearing on merit. Since the issues involved in the appeals of the revenue are decided in favour of the assessee and the appeals of the revenue are dismissed, all these COs of the assessee are dismissed as not pressed.
In the result, all the appeals of the revenue and all the COs of the assessee are dismissed. Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/- (LALIET KUMAR) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, the 29th November, 2017. /MS/
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Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Senior Private Secretary, Income Tax Appellate Tribunal, Bangalore.