SHRI RAM SHARNAM SABHA REGD.,PANIPAT vs. ITO(E), AMBALA

2. Briefly stated facts are that the assessee filed its return of income on 27.09.2015 declaring a taxable income of Rs. NIL. Subsequently, the case was selected for scrutiny and the assessment u/s 143(3) of the Income tax Act, 1961 (“the Act”) was issued on 29.7.2016 which was duly served on the assessee. Subsequent to that notice u/s. 142(1) of the Act alongwith detailed questionnaire was issued to the assessee on 29.5.2017. While framing the assessment, the Assessing Officer noticed that the assessee is a society, engaged in religious and charitable activities. This society is running Ashrams and Medication programmes and was duly granted registration u/s 12AA of the Act by the Office of CIT, Rohtak. The AO noticed that the assessee society was required to apply 85% of its income on the objectives of the society. As per Assessing Officer, accumulation of income in excess of 15% of the income is allowed subject to certain conditions. The AO noticed that the application of income fall short of benchmark of 85% at Rs. 53,89,038/-. Therefore, he called upon the assessee to explain as to why the benefit of exemption claimed u/s 11(2) of the Act be given to assessee. The reply so filed by the assessee was not found satisfactory by the AO therefore, he proceeded to reduce the amount of Rs.53,89,038/- and made addition of Rs.53,89,038/-.

3. Aggrieved with the above, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, dismissed the appeal of the assessee.

5.1 As regards Ground No. 1 is concerned, the same is general in nature, hence, not required adjudication.

5.2 At the time of hearing, Ld. AR submitted that Hon’ble ITAT, Delhi Tribunal in assessee’s own case for AY 2016-17 in vide order dated 12.4.2022 has dealt the exactly similar and identical issues and decided the same in favour of the assessee, hence, the Grounds No. 2 to 6 raised in the instant appeal are squarely covered by the decision of the aforesaid order dated 12.04.2022. Therefore, he requested to follow the same ratio and accordingly allow the Grounds No. 2 to 6 raised by the assessee in the present appeal.

5.3 Ld. Sr. DR did not controvert the aforesaid proposition made by the Ld. AR, but he supported the orders of the authorities below.

5.4 At the time of hearing, it was a common point between the parties that the Ground No. 2 to 6 involved in the captioned appeal of the Assessee are squarely covered by the decision of the Coordinate Bench in assessee’s own case for AY 2016-17. For this purpose, reliance has been placed on the decision of the Tribunal Delhi Tribunal in assessee’s own case for AY 2016-17 passed in vide order dated 12.4.2022, a copy of which has been placed on record. In order to impart completeness, we may hereinafter, refer to the relevant discussions in Tribunal order for AY 2016-17 with respect to the instant issues.

9. I have heard the rival contentions and perused the material available on record and gone through the orders of the authorities below. I find that the AO did not accept the submissions of the assessee on account of set off of excess utilization of funds of earlier years against the surplus of the current year and accumulation of funds. In sofar as the question of filing of Form No.10, the Hon’ble Supreme Court in the case of CIT vs Nagpur Hotel Owner’s Association (supra) has held that “if during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation rises from section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time it completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, in our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Therefore, even assuming that there is no valid limitation prescribed under the Act and the Rules, even then, in our opinion, it is reasonable to presume that the intimation required under section 11 has to be furnished before the assessing authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income the assessing authority cannot entertain the claim of the assessee under section 11, therefore, compliance of the requirements of the Act will have to be any time before the assessment proceedings. Further, any claim for giving the benefit of section 11 on the basis of information supplied subsequent to the completion of assessment would mean that the assessment order will have to be reopened.

I find that the Assessing Officer did not consider this part of the judgement hence, the order of the assessing authority is erroneous. It is also noticed that Ld.CIT(A) on this issue has merely affirmed the view of the AO without adverting to the submissions of the assessee. This approach of the authorities below is contrary to the binding precedents. Undisputedly, the assessee had filed Form No.10 before the completion of assessment.

Tax vs Raghuvanshi Charitable Trust 197 Taxman 170 (Delhi). The Hon’ble High Court answered the question in favour of the assessee that “whether a trust can be allowed to carry forward the deficit of current year and to set off of same against the income of subsequent years; in favour of the assessee and further question whether adjustment of deficit of current year against the income of subsequent year would amount to application of income of the trust for charitable purposes in the subsequent year within the meaning of section 11(1)(a) of the Act in favour of the assessee.” Hon’ble Delhi High Court has answered this question by observing as under:- 6. “We find from the order of the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') that the Tribunal has decided the issue in favour of the assessee by placing reliance on the aforesaid judgment of the Gujarat High Court. We have gone through the judgment of Gujarat High Court in Shri Plot Swetamber Murti Pujak Jain Mandai's case (supra). It could not be disputed by the learned counsel for the Revenue that the question of law raised and answered in the said case was identical to the one raised in the present appeals. This question was decided in favour of the assessee interpreting the provisions of section 11 of the Act. The relevant discussion contained in the said judgment is in the following terms:

"3. The learned DR sought to rely upon the finding of Assessing Officer. None was present on behalf of the assessee. We find that the issue is answered by Hon'ble Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandai [1995] 211 ITR 293, wherein the High Court observed as under: "We are, therefore, of the opinion that the adjustment of he (sic. the) expenses incurred by the trust for charitable and religious purposes in the earlier year against the income earned by the trust in the subsequent year would amount to applying the income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made and will have to be excluded from the income of the trust under section 11(1)(a) of the Act."

No contrary decision has been cited. From the aforesaid judgment, it is clear that there is no bar in computing income of subsequent year after allowing set off of excess amount spent on object of trust, as this also amounts to application of income. Thus, there is no infirmity in the order of the learned CIT(A)."

7. The submission of the learned counsel for the revenue, however, was that the aforesaid case does not decide the question correctly. She submitted that the Gujarat High Court proceeded on the premise that there was no limitation in section 11, which provides that the income should have been applied for charitable or religious purposes 'only' in the year in which the income has arisen. This, according to the learned counsel, was a wrong premise and contrary to the expression of provision contained in section 11(1)(c) read with Explanation and section 11(1)(c) categorically suggests to the contrary, viz., the income has to be applied for charitable or religious purposes 'only' in the year in which it has arisen. However, we find that the Gujarat High Court has discussed this issue in greater detail and relying upon the Circular No. 100, dated 24-1-1973 Issued by the Central Board of Direct Taxes and the judgment of the Rajasthan High Court in the case of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439. We may also point out at this state that the aforesaid view of Rajasthan High Court and Gujarat High Court has been consistently followed by other High Courts in the following judgments: (i) CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom.); (ii) Siddaramanna Charities Trust v, CIT [1974] 96 ITR 275 (Mys.); and iii) CIT v. Matriseva Trust [2000] 242 ITR 20 (Mad.); 8. It would be fruitful to refer to the discussions contained in Institute of Banking Personnel Selection (IBPS)'s case (supra ), Per Hon'ble Mr. Justice S.H. Kapadia, which is advanced before us by the learned counsel for the revenue to repel the same in the following words: "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 the 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 Assessing Officer 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 section 11 to section 13 of the Income-tax Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under section 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 the excess of expenditure of earlier years to be adjusted against income of the 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 are applied 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 the section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under section 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 293 . Accordingly, we answer question No.3 in the affirmative, i.e., in favour of the assessee and against the Department."