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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
This appeal preferred by the assessee is against the order of the Ld. CIT(E), Kolkata dated 14.03.2017 for assessment year 2012-13 passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
In the several grounds raised in the appeal the assessee has objected to the action of the Ld. CIT(E), Kolkata in invoking the revisional jurisdiction u/s. 263 of the Act in the facts and circumstances of the case and directing the AO to re-compute the taxable income of the assessee.
Briefly stated the facts of the case are that the assessee is a Public Religious Charitable Trust registered u/s. 12A of the Act. For the relevant assessment year 2012-13, the assessee Trust had filed its return of income declaring ‘NIL’ total income. Thereafter, the AO framed the assessment u/s. 143(3) of the Act at ‘NIL’ after granting benefit of exemption u/s. 11 of the Act. Subsequently, the assessee Trust got a show cause notice u/s. 263 of the Act dated 15.07.2016 from the Ld. CIT(E) holding the assessment order to be erroneous and prejudicial to the interest of the Revenue on two grounds viz. (a) according to Ld. CIT, the AO had taken the expenses of Rs.40,88,944/- which, inter alia, included income tax of Rs.40,61,061/- paid during the FY 2011-12 and it was allowed as application
Sri Sri Gonesh Jew Thakur Trust, AY 2012-13 of income. The Ld. CIT, however, observed that the said tax payment was refunded to the assessee in FY 2014-15 but not shown as income in the corresponding year and hence, the AO had wrongly allowed the payment of Rs.40,61,061/- in the relevant FY 2011-12, (b) as per receipts and payments account, the assessee had received Rs.92,50,000/- from M/s. Tirupati Associates but in the Balance Sheet the said receipt was shown as advance against property less returned to the Tirupati Associates. According to the Ld. CIT(E), no such return to Tirupati Associates was reflected in the payment side of the receipt and payment account and the said receipt was also not taken into the gross receipt for the purpose of determining the profit resulting in under-assessment of the assessee trust’s income.
In response to the show-cause notice, the assessee filed its detailed written submissions which are found placed at pages 4 to 14 of the paper book. After considering the assessee’s submission, the Ld. CIT(E) was satisfied about the explanation with regard to the receipt of Rs.92,50,000/- from M/s. Tirupati Associates and accordingly, dropped the proceeding u/s. 263 of the Act in respect of the said issue. However, in respect of the first issue, the Ld. CIT(E) has departed from the reasons set out in the show cause notice and proceeded on entirely new line of reasoning. The assessee before the Ld. CIT(E) had explained that the tax of Rs.40,60,061/- was paid by the assessee in respect of demand raised on the assessee for earlier years and as noted by the Ld. CIT(E) in the show cause notice, the refund was received in FY 2014-15 relevant to AY 2015-16. According to the assessee trust, its assessment for AY 2012-13 could not be considered erroneous within the meaning of sec. 263 of the Act, if in the year of refund, the same was not reflected in the tax return for AY 2015-16. According to the assessee, in deciding the question as to whether the assessment for AY 2012-13 was erroneous, the Ld. CIT(E) could not take into account the transaction which pertained to subsequent assessment years and since such refund was not received by the assessee in the AY 2012-13, the assessment order framed by AO for AY 2012-13 could not be considered by him to be erroneous. Further, the assessee had also brought to the knowledge of the Ld. CIT(E) that in its revised return for AY 2015-16, the assessee trust had included the said tax refund as its income and, therefore, even the reason set out in the show cause notice was no longer existing to justify the proceedings u/s. 263 of Sri Sri Gonesh Jew Thakur Trust, AY 2012-13 the Act. After having considered the foregoing explanations of the assessee trust, the Ld. CIT(E) in the impugned order found that during the FY 2011-12 the assessee had paid income tax of Rs.40,60,061/- but in the income and expenditure account prepared such tax payment was not reflected as and by way of expenditure. The ld. CIT(E) also found that in the computation of income also such tax payment was not reflected as expenditure. He however found that in the note sheet recording made on 22.09.2014, the AO had admitted of receiving revised computation of income in which the assessee had claimed income tax payment to be application of income for charitable purposes. The Ld. CIT(E) noted that although the AO did not consider such tax payment to be application of income for charitable purposes, nonetheless the AO considered such tax payment to be administrative expenses and allowed this set off against income derived from the property held under the trust and thereby arrived at the income assessable u/s. 11 of the Act. In the Ld. CIT’s opinion the assessee’s claim for deducting income tax payment could not have been considered by the AO since such claim was not made either in the return of income or in the revised return but only by way of revised computation. The ld. CIT(E) therefore, held that as per the judgment of the Hon’ble Supreme Court in the case of Goetz India Ltd. 284 ITR 323 the AO was not permitted to admit and allow the claim not made by the assessee in the return or revised return of income. Since such claim was allowed by the AO, the Ld. CIT (E) considered the assessment order to be erroneous and prejudicial to the interest of the revenue and the Ld. CIT(E) set aside the assessment order with a specific direction to re- compute the income after disallowing the income tax as expenditure claimed in the assessment. Aggrieved by the said order, the assessee is now before us.
We have heard rival submissions and gone through the facts and circumstances of the case. The Ld. AR appearing on behalf of the assessee assailed the order of the Ld. CIT(E) on various grounds as discernible from the grounds of appeal. On the other hand, the Ld. DR from the Revenue vehemently supported the action of the Ld. CIT(E) and does not want us to interfere in the order passed by him.
In the first instance, we find that the reason for which the Ld. CIT(E) initiated the revisional jurisdiction were different from the reasons for which the assessment order was 3
Sri Sri Gonesh Jew Thakur Trust, AY 2012-13 finally held to be erroneous and prejudicial to the interest of the Revenue. In the show cause notice, the assessment was considered to be erroneous only because the tax paid during FY 2011-12 was found to be refunded to the assessee by the Department in FY 2014- 15 and such refund was not reflected in the income tax return filed for AY 2015-16 as income of the assessee. In this regard, we find merit in the contention of the Ld. AR that for failure of the assessee to disclose income tax refund as its income in AY 2015-16 could not be a valid reason for considering the assessment order for AY 2012-13 to be erroneous and prejudicial to the interest of the Revenue. The remedy for such failure/omission if any, on the part of assessee can be taken care by suitable action for AY 2015-16 and not a reason for finding fault with the assessment framed in AY 2012-13. The Ld. CIT(E) never disputed the fact that during FY 2011-12, a sum of Rs.40,60,061/- was paid by the assessee as income tax and to that extent, the sum available with the assessee for application of charitable purposes was diverted and not available to the assessee trust. In the circumstances, for determining the tax consequence for AY 2012-13, it was wholly immaterial whether the amount of tax paid was later on received back as refund and whether or not such refund was offered as income in the year of refund. Each assessment being a separate unit of taxation, the Ld. CIT(E) ought to have considered only the events occurring during the relevant year for deciding as to whether having regard to such events, the assessment framed by AO was erroneous and prejudicial to the interest of the revenue. In our considered opinion, merely because in the original return filed for AY 2015-16, the assessee had omitted to declare the tax refund as its income, cannot be a sole ground to conclude that the assessment order passed for AY 2012-13 i.e. the year in which the tax actually paid could be held to be erroneous and prejudicial to the interest of the revenue. Thus the assumption of jurisdiction by ld CIT(E) is on this incorrect understanding of law itself is erroneous and so makes the order untenable.
Be that as it may, however for completeness we would like to see the merit of the Ld. CIT(E)’s direction to AO to disallow the income tax as expenditure which according to us is also not in consonance with the applicable legal provisions and judicial precedents available on the issue. It may be true that in the return furnished by the assessee it did not Sri Sri Gonesh Jew Thakur Trust, AY 2012-13 claim deduction for the tax payment in arriving at the total income computed as per sec. 11 of the Act. However, as admitted in the impugned order, in the course of assessment proceedings the assessee had furnished a revised computation of income wherein the income tax payment was considered and claimed to be application of income for charitable purposes. We note that both the AO as well as the Ld. CIT(E) in their order has never disputed or disbelieved the fact that during the AY 2012-13 the assessee has in fact remitted income tax to the tune of Rs.40,60,061/-. It is also not disputed either by the AO or by the Ld. CIT(E) that such tax payment was made out of the income derived by the assessee from the properties held under trust. It is also not disputed by the AO or by the Ld. CIT(E) that such tax payment was duly recorded in the assessee’s books and the only issue to be adjudicated is whether in arriving at the correct income chargeable to tax, the assessee is entitled to consider the said payment to be permissible deduction either by way of application of income or by way of expenditure. Since in the impugned order, the Ld. CIT(E) has given a specific direction to disallow the income tax remitted by the assessee, let us look at the validity of such a direction to AO.
In this regard, we find that the issue as to whether the taxes paid to the Department can be considered as application of income or allowable as expenditure has been considered by various judicial precedents. The Hon’ble Andhra Pradesh High Court in the case of CIT Vs. Trustee of H.E.H. Nizams Supplemental Religious Endowment Trust (1981) 127 ITR 378 wherein the facts of the case were that the assessee had paid wealth tax and income tax during the relevant year but pertaining to the past assessment years. It was assessee’s contention that such tax payment constituted expenditure and, therefore, liable to be deducted in arriving at taxable income of the charitable trust. On appeal, the Hon’ble High Court accepted the contention of the assessee trust and allowed the appeal of the assessee by observing as under:
“It is true that the payments in a particular year as shown in the accounts is not on account of the tax for that year and they relate to the preceding assessment years. But it can nevertheless be said that those payments are outgoings in that particular year and are only incidental to the carrying out of the purposes of the trust. It is difficult to say that on account of the income- tax or wealth-tax, a provision should have been made in the relevant assessment year. In any view of the matter, the payments made in a particular year, irrespective of the fact that they 5 Sri Sri Gonesh Jew Thakur Trust, AY 2012-13 relate to the assessment of the previous years, are yet outgoings and constitute expenditure. Such payments cannot be excluded from exemption and are thus to be excluded from the income of the trust. Point No. 2 is answered accordingly.”
We also rely on the judgment of the Hon’ble Gujarat High Court in the case of CIT Vs. Ganga Charity Trust Fund (1986) 162 ITR 612 wherein the Hon’ble High Court allowing the payment of income tax as and by way of expenditure from the total income held as follows:
We are, therefore, of the view that the Tribunal was right in coming to the conclusion that the income derived from trust property must be determined on commercial principles and in doing so all outgoings, including outgoing by way of income-tax paid by the assessee-trust must be deducted and it is only from the surplus income in the hands of the trustees that the question of application or accumulation or setting apart of income can arise. In this view that we take, we do not feel called upon to examine the second contention based on the decisions referred to above, whether the expenditure incurred by the, trust for the payment of income-tax can be said to be actual application of income for the charitable purposes of the trust in India.
We also rely on the judgment of the Hon’ble Delhi High Court in the case of DIT(E) Vs. National Association of Software & Services Companies (2012) 345 ITR 362 wherein the Hon’ble High Court has held as under:
“12. Thus, it appears that there is a consensus of judicial view on the question whether payment of taxes can be considered as a proper deduction while determining the income available to a trust for application to charitable purposes as required by Section 11 (l)(a) of the Act. The question is not whether taxes are allowable while computing the business income of an assessee under the provisions of the Act. The question is whether the word "income" used in Section 11 (l)(a) of the Act must be assigned the same meaning as the words "total income" as defined in Section 2(45) of the Act. The CBDT itself has opined in the circular cited above that it would be incorrect to assign to the word "income" used in Section 11 (l)(a) the same meaning as "has been statutorily assigned to the expression "total income" under Section 2(45) of the Act. Having regard to the authorities noticed above and keeping in view the fact that the long-settled position, which has also been accepted by the CBDT, should notbe upset, particularly where the statute which we are dealing with is an all India statute, we express our agreement with the judicial trend and hold that the payment of taxes under the VDIS is to be deducted before arriving at the commercial income of the assessee-trust that is available for application to charitable purposes. We are thus in agreement with the view taken by the Tribunal on this point.”
We, therefore, find that the issue involved in the present case is no longer res integra and the consensus view among various Hon’ble High Courts are that the income tax paid by a charitable trust must be allowed as deduction in arriving at income available for application of charitable purposes. Under these circumstances, we therefore, hold that the finding and the direction given by the Ld. CIT(E) in the impugned order requiring the AO to 6
Sri Sri Gonesh Jew Thakur Trust, AY 2012-13 disallow the income tax paid of Rs.40,60,061/- as expenditure is clearly contrary to the consistent view taken by the Hon’ble High Court at Delhi, Gujarat and Andhra Pradesh and, therefore, the direction of the Ld. CIT(E) is not inconformity with the view of the Hon’ble High courts, therefore, the direction of Ld. CIT(E) is clearly unwarranted and legally not tenable, so the direction of ld. CIT(E) is invalid.
Moreover it has been brought to our notice that AO has given effect to the impugned order of Ld. CIT(E) on 27.12.2017 and after complying with the direction of Ld. CIT(E) and after disallowing Rs.40,60,061/- (income tax paid) still the total income is “NIL”. So we note that there is no prejudice whatsoever caused to Revenue, so even if for argument sake the Ld. CIT(E)’s contention and direction is accepted as correct, then also the twin conditions which is a condition precedent is not satisfied at all. Thus in any case, the AO’s original order dated 14.11.2014 cannot be held to be erroneous and prejudicial to the Revenue. Therefore in the facts and circumstances discussed above, the very assumption of revisional jurisdiction by ld CIT(E) is bad in law. Therefore, we are inclined to quash the impugned revisional order passed by the Ld. CIT(E).
In the result, the appeal of assessee is allowed.
Order is pronounced in the open court on 27.06.2018