ITO(EXEMPTION), WARD-1(2), KOLKATA, KOLKTA vs. DEV SANGHA SEVA PRATISTHAN, KOLKATA

- This Revenue’s appeal for assessment year 2013-14 arises against Commissioner of Income Tax (Appeals)-25. Kolkata’s order dated 17.03.2017 in case No. CIT(A)-25 Kolkata/FY 2016-17/ Dev Sangha Seva Pratishan, AY 2013-14_143(3)_B-1B/432, in proceedings u/s 143(3) of the Income Tax Act, 1961; in short, ‘the Act’.

The Revenue’s former substantive ground pleads that the CIT(A) has erred in law as well as on facts in reversing the Assessing Officer’s action deleting assessee’s administrative and establishment expenses disallowance of ₹56,08,823/- as application of its case for charitable purpose u/s 11A of the Act with the following detailed discussions:- “5. Accumulation / setting-apart u/s. 11(1)(a): Issue of ‘administrative and establishment expenses’. [Ground of appeal No.1] ₹56,08,823/- ITO (Ex), Ward-1(2), Kol. Vs. Dev Sangha Seva Pratisthan Page 2 5.1 It will be better appreciated if at the outset the relevant extract from the statute is presented. The concerned section 11(1)(a), relevant extract, is hereunder: Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of…. The following income shall not be included in the total income of the prevus year of the person in receipt of the income- (a) Income derived from property held on the trust wholly for charitable or religious purposes, to the extent to which such income is applied such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property. 5.2 Now, the impugned issue is concerning the 2nd part of the clause (a) – that is, the accumulation/setting apart. The accumulation/setting apart could come into consideration only when it is the case that 100% of the income has not been applied. So, if it were the case that 100% of the income has been applied, the impugned issue of ‘administrative and establishment expenses’ would not have arisen. And it should be so for the property is held ‘wholly’ for the charitable purposes – which is the purport of clause (a). So as regards the 1st part of the clause (a) – the issue will not arise. However, as regards the 2nd part of the clause (a), if by taking a restricted view that administrative and establishment expenses are not be considered as application of income this tantamount to taking contradictory views. That, as regards the 1st part [the income having been applied] that administrative and establishment expenses are incidental application of income, but when it comes to the 2nd part of accumulation/setting apart that such expenses are not incidental application of income. so a different interpretation is being taken for the 1st part [application of income], and a different interpretation is taken for the 2nd part [accumulation/setting apart]. Interpretation has to be wholistic and consistent for the entire clause (a). 5.3 Per se, administrative and establishment expenses are the very necessary incidental expenses required for the trust to exist in the first place itself. Else, how could it exists to carry out the objectives and activities for which it has been granted registration u/s. 12AA.”