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Income Tax Appellate Tribunal, D/“SMC” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal is filed by the assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-17, Chennai dated 29.01.2015 pertaining to assessment year 2010-11.
The first issue is with regard to allowability of depreciation as application of income while granting exemption u/s.11 of the Act.
I have heard both the parties and perused the material on record. It is noticed that similar issue came for consideration before the jurisdictional High Court in the case of DIT(Exemption)-III, Chennai Vs. M/s.Medical Trust of the Seventh Day Adventists, Chennai in TCA No.949 of 2015 and 771 of 2016 –Assessee’s appeal & Tax case (Appeal) No.844 of 2010 –Departmental Appeal vide order dated 08.08.2017 wherein it was held that:-
“34.The short point that arises for decision is whether the provisions of Section 11(6) inserted by Finance (No.2) Act, 2014 w.e.f. 1.4.2015, operate prospectively with effect from assessment year 2015-16 or retrospectively with respect to earlier years as well. In this regard, M/s.Pushya Sitaraman, learned senior counsel and other learned counsels appearing for the assesses refer to the provisions of Circular 1 of 2015 dated 21.1.2015 (371 ITR (St) 0022) containing explanatory notes to the provisions of Finance (No 2) Act, 2014 The relevant portion of the circular reads as follows:
7 3. Several issues had arisen in respect of the application of exemption regime to trusts or institutions in respect of which clarity in law was required. 7.4 The first issue was regarding the interplay of the general provision of exemptions which are contained in section 10 of the Income-tax Act vis-a-vis the specific and special exemption regime provided in sections 11 to 13 of the said Act. As indicated above, the primary objective of providing exemption in case of charitable institution is that income derived from the property held under trust should be applied and utilized for the object or purpose for which the institution or trust has been established. In many cases it had been noted that trusts or institutions which are registered and have been availing benefits of the exemption regime to not apply their income, which is derived from property held under trust, for charitable purposes. In such circumstances, when the income becomes taxable, a claim of exemption under general provisions of section 10 in respect of such Income is preferred and tax on such Income is avoided. This defeats the very objective and purpose of placing the conditions of application of Income, etc., in respect of income derived from property held under trust in the first place. 7.4.1 Sections 11,12 and 13 of the income-tax Act are special provisions governing institutions which are being given benefit of tax exemption. It is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigation. … 7.6 Applicability. – These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-2016 and subsequent assessment years.
Para 7.6 of the Circular states that the amendment would apply to assessment year 2015-16 and subsequent assessment years.
Reliance was placed onthejudgment of the Supreme Court in CIT vs.AlomExtrusions Ltd., (2009) and CIT Vs. Vatika Townships (367 1TR 466) for the proposition that an amendment that increases the liability of an assessee is liable to be applied only prospectively. Mr. Narayanaswamy would object stating that the amendment had been inserted to a correct an existing anomaly and thus was clearly clarificatory, and consequently retrospective in operation.”
We do not agree with the Revenue. The amendment, inserted specifically with effect from Assessment Year 2015-2016 seeks to disturb a vested right that has accrued to the assessee. The amendment does not purport to be clarificatory, on the other hand the Explanatory Memorandum makes it applicable only w.e.f. A Y 2015-16 and application of the amendment retrospectively would—certainly lead to a great deal of hardship to the assessee. We are thus of the view that the provisions of section 11(6) of the Act inserted with effect from 1.4.2015 shall operate prospectively with respect to assessment year 2015-2016 only.”
In view of the above judgement of jurisdictional High Court, I am of the opinion that the lower authorities is not justified in disallowing the claim of depreciation as application of income while granting exemption u/s.11 of the Act and it cannot be said that when the expenditure is allowed in its entirety on the acquisition of the fixed assets as application, thereafter granting of depreciation as an application while allowing exemption u/s.11 of the Act, will not amount to double deduction. Hence, this ground of the appeal raised by the assessee is allowed.
The second issue is that the Ld.CIT(A) erred in not allowing the ground that excess expenditure of earlier years should be treated as application for the current year especially when the matter had been clarified in favour of assessee by the High Court in the case of CIT Vs. Program for community organization reported in 228 ITR 620 (Kerala).
The claim of assessee is that carry forward of excess expenditure of earlier years to be considered while computing the present year of application of income. In the computation of income, the assessee had claimed an amount of `22,93,219/- as excess application set off for the A.Y 2002-03, A.Y 2003-04 & AY 20044-05.
The Details for the above were called for by A.O. The authorised representative submitted working for the above set off of excess application before A.O. On verification of details filed, it was found by A.O that the assessee calculated the excess application after reducing 25% / 15% of the permissible accumulation and thereafter deducting the other applications. As the excess application only means application in excess of income and not in excess of income after accumulation, the authorised representative was at the time of hearing before A.O, required to substantiate the claim. The AR of the assessee contended that the accumulation of 25% / 15% is mandatory and excess application should be on the reduced amount of income. The contention of the authorised representative was not accepted by A.O as excess application only means “application in excess of the Income” and not application in excess of income after accumulation of 15% / 25%”.
The excess applications of income of the assessee were reworked as under by A.O:
Sl.No. A.Y Gross receipts Application Excess application avilable 1 2002-03 11152368 10459733 No Excess Application 2 2003-04 15217192 13596985 No Excess Application 3 2004-05 12867200 16195767 Rs. 33,28,567/- (an amount of Rs.1,91,1851- was set off against the short fall for the Asst.Year 2006-07 & an amount of Rs. 32,10,421/- was set off against the shortfall for the AY 2009- 10) leaving a balance of Rs.8,60,841/- available for set off for future 4 2005-06 15629047 14629178 No Excess Application 5 2006-07 14972112 12535110 No Excess Application 6 2007-08 17853787 17470535 No Excess Application 7 2008-09 21196602 199919125 No Excess Application 8 2009-10 25018411 18055229 No Excess Application It is evident from the above working that there is an excess application of income only in the A.Y 2004-05. The claim of the assessee to set off of excess application of income of the A.Y 2002- 03 is not correct and hence rejected by AO. The assessee filed a revised statement restricting the claim of excess application to `8,60,841/. As the assessee is having excess application of income for the A.Y 2004-05 to the tune of `8,60,841/- only and the same is considered in this assessment by AO. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). On appeal, Ld.CIT(A) confirmed the action of the ld. Assessing Officer. Against the order of Ld.CIT(A), now the assessee is in appeal before us.
I have heard both the parties and perused the material on record. In my opinion, as held by the Madras High Court in the case of CIT Vs. Matriseva Trust in [2000] 242 ITR 20 (Mad) that the assessee-trust is entitled to set off the amount of excess application of the last year against the deficiency of the present year. Further, in my opinion, the assessee has to apply 85% of the income towards charitable objects subject to accumulation of income u/s.11(2) of the Act. Accordingly, I direct the AO to re-compute the excess application in the above assessment years mentioned in the table at para-6 and give benefit of set off, if there is excess application in earlier assessment years against the deficiency of present assessment year. With this observation, this ground is remitted back to the file of ld. Assessing Officer for fresh consideration.
In the result, the appeal of assessee is partly allowed for statistical purposes. Order pronounced on 06th November, 2017. Sd/-
(चं� पूजार�) (CHANDRA POOJARI) लेखा सद�य /ACCOUNTANT MEMBER Chennai, Dated the 06th November, 2017. K s sundaram.