ITO, WD-1(3), KOLKATA, KOLKATA vs. THE YOUNG MENS CHRITIAN ASSOICATION OF CALCUTTA, KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.1244/Kol/2016 Assessment Year :2010-11 Income Tax Officer (E) V/s. The Young Mens Ward-1(3), 6th Floor, Chritian Association of 10B, Middleton Row, Calcutta, 25, Jawarharlal Kolkata-71 Nehru Road, Kolkata-67 .. अपीलाथ� /Appellant ��यथ�/Respondent Shri S. Dasgupta, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri A.K. Tibrewal, FCA ��यथ� क� ओर से/By Respondent 24-01-2018 सुनवाई क� तार�ख/Date of Hearing 28-02-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-25, Kolkata dated 21.03.2016. Assessment was framed by DCIT(Ex)-I,, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 25.03.2013 for assessment year 2010-11. The Revenue has raised following grounds:- “1. That on the facts and circumstances of the case the Ld. CIT(A) has erred in allowing set off of brought forward deficits of Income & Expenditure accounts of earlier years with the surplus of the current year beyond the scope and ambit of section 11 of the Income Tax Act, 1961. 2. That on the facts and circumstances of the case the Ld. CIT(A) has erred in appreciating the essence of section 11(2) of the Income Tax Act, 1961 by virtue of which fifteen per cent of the surplus can be set apart or invested as per provisions of section 11(5), but no set-off of earlier deficit is allowed to be set-off from future surplus and the

ITA No.1244/Kol/2016 A.Y. 2010-11 ITO(E) Wd/1(3) Kol. Vs. The Young Mens Chritian Association of Calcutta Page 2 provisions of chapter VI is not applicable incase of charitable organizations. 3. That on the facts and circumstances of the case the Ld. CIT(A) has erred in considering the income from transfer of capital asset in accordance with the provisions of section 11(1A) of the Income Tax Act, 1961. 4. That on the facts and circumstances of the case the Ld. CIT(A) has failed to appreciate the clarification of CBDT in this regard in Circular No.100 dated 24.01.1973 [F.No.195/1/72-IT(A-1)] in which the mentioned set-off of debt or loan is not related to the present case. 5. That the appellant craves leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.” Shri S. Dasgupa, Ld. Departmental Representative appeared on behalf of Revenue and Shri A.K. Tibrewal, Ld. Authorized Representative appeared on behalf of assessee. 2. Ground No. 1 to 5 are inter-related and therefore being taken up together. The issue raised by the Revenue is that Ld. CIT(A) erred in treating the deficit of earlier years as application of income u/s 11(1)(a) of the Act. 3. Briefly stated facts are that assessee is a trust and registered u/s 12A of the Act since the year 1976. It is engaged in the activities of renting out its premises to various business concerns and boarding & lodging facilities along with some sports facilities. The assessee in the year under consideration has treated the amount of deficit pertaining to the earlier years as application of income of the year under consideration. The necessary details of the deficit claimed by the assessee in the earlier years stand as under:- THE YOUNGMENS CHARISTIAN ASSOCIATSION OF CALCUTTA Yr. AY Date of filing Due date of Sale advance Additions to Losses as ending filing received F. assets per ITR 31.03.04 04-05 13.01.05 -- 4,000,000 5,300 (2,939,877) 31.03.05 05-06 29.11.05 -- 7,000,000 --- (3,912,678) 31.3.06 06-07 05.12.06 -- 9,00,000 659.288 (4,722.013) 31.03.07 07-08 26.03.08 --- 4,500,000 5,676.133 (6,056,642) 31.03.08 08-09 30.03.09 -- 2,000,000 272.120 (2,460,730) 31.03.09 09-10 29.01.10 -- 1,500,000 31,865 (3,391,156) 31.03.10 10-11 2,000,000 30,000,000 (23,483,078) ========= ==========

ITA No.1244/Kol/2016 A.Y. 2010-11 ITO(E) Wd/1(3) Kol. Vs. The Young Mens Chritian Association of Calcutta Page 3 In fact the assessee in the financial year 2003-04 has entered into an agreement for sale of its property for a total consideration of ₹ 3 crores only. The aforesaid amount was received by assessee in various installments beginning from financial year 2003-04 till the financial year 2009-10 respectively. The assessee received final installment in the financial year 2009-10 and accordingly, the deal for sale of impugned property was completed. Thus the profit on sale of property was accounted for in the year under consideration. However the assessee prior to the year under consideration has shown the amount received against the agreement for the sale of property as advance and the same amount was used for the activities of the trust. Hence the deficit arose in the earlier years as discussed above.

The cost of acquisition of the impugned property after depreciation was shown at ₹1,00,879/- only whereas sale consideration was recorded at ₹ 3 crores. Thus, profit of ₹2,98,99,121/- was recorded by the assessee in its books of account. However, this profit was adjusted by assessee with the deficit of earlier years. However, the AO was of the view that deficit of the earlier years cannot be treated as application of income in the manner as provided u/s 11(1)(a) of the Act and accordingly treated the amount of ₹2,98,99,121/- as income under the head “capital gains”. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who held that the amount of deficit pertaining to the earlier year was very much eligible for set off against the income of current year. In holding so the ld. CIT-A relied on the judgment of Hon'ble Rajasthan High Court in the case of CIT vs. Maharana of Mewar Charitable Foundation reported in 164 ITR 439 (Raj). The Revenue, being aggrieved by this order of Ld. CIT(A) filed an appeal before us. 5. Before us Ld. DR vehemently relied on the order of AO and requested the Bench to confirm the same whereas Ld. AR for the assessee filed paper book which is running pages from 1 to 111 and relied on the order of Ld. CIT(A).

ITA No.1244/Kol/2016 A.Y. 2010-11 ITO(E) Wd/1(3) Kol. Vs. The Young Mens Chritian Association of Calcutta Page 4 6. We have heard the submissions made by the rival parties. We have also examined the orders passed by the Authorities Below and the judgments / orders cited by the representatives of both the parties. In the instant case, AO has not allowed the deficit shown by assessee in the earlier year as application of income u/s 11(1)(a) of the Act. Now the limited issue arises for our consideration whether the deficit claimed by assessee in earlier year can be treated as application for the year under consideration. In this regard, we find that various courts have held that the deficit arisen in the earlier year can be treated as application of income. In holding so, we find support and guidance from the judgment of Hon'ble Rajasthan High Court in the case of Maharna of Mewar Charitable Foundation (supra) wherein the Hon'ble court has held as under:- “A perusal of the section 11(1)(a ) would show that the income derived from property held under trust wholly for charitable or religious proposes to the extent to which such income is applied to such purposes in India is to be excluded for the purposes of computing the income of the trust for the purposes of assessment. There are no words of limitation in this section requiring that the income should have been applied for charitable or religious purposes only in the year when the income had arisen. It is clear from section 11(1)(a ) that when the income of a trust is used or put to use to meet the expenses incurred for the religious or charitable purposes it is applied for charitable or religious purposes. The said application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if the expenses for charitable and religious purposes have been incurred in the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year could be said to be applied for charitable and religious purposes in the year in which the expenses incurred for these purposes had been adjusted. Further, the CBDT has issued a Circular No. 101, dated 24-1- 1973 [See Taxmann's Direct Taxes Circulars Vol. 1, 1985 and., p. 23] wherein the CBDT has considered the question as to whether where a trust incurs a debt for the purpose of the trust, the repayment of the debt would amount to an application of income for the purposes of the trust. According to the said circular, if the trust wants to spend more money on charitable and religious purposes then in a particular year it can take loan and the said loan can be repayed out of the income of the subsequent year and the payment of the said loan out of the income of the subsequent year would amount to application of income for charitable and religious purposes under section 11(1)(a). In the present case, it had not been found by the authorities below that the impugned amount was not incurred by the assessee for charitable purposes. Therefore, the Tribunal was right in directing that the deficit of the

ITA No.1244/Kol/2016 A.Y. 2010-11 ITO(E) Wd/1(3) Kol. Vs. The Young Mens Chritian Association of Calcutta Page 5 said amount arising out of the excess of expenditure over income during the previous year relevant to the assessment year 1970-71 should be set off against the surplus of income over expenditure relating to the assessment year 1971-72 in computing the taxable income of the latter assessment year.”

In the background of the above discussions and precedent we do not find any infirmity in the order of Ld. CIT(A) and accordingly we uphold the same. Consequently, ground raised by Revenue is dismissed. 7. In the result, Revenue’s appeal stands dismissed. Order pronounced in the open court 28/02/2018 Sd/- Sd/- (�या$यक सद&य) (लेखा सद&य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 28 /02/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ITO(E), Ward-1(3), 6th Fl, 10B, Middleton Row, Kolkata-71 2. ��यथ�/Respondent-The Young Mens Chritian Association of Calcutta, 25, Jawarharlal Nehru Road, Kolkta-67 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �$त$न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।