Loading judgment…
No AI summary yet for this case.
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 17TH DAY OF JULY, 2018 PRESENT THE HON’BLE Dr.JUSTICE VINEET KOTHARI AND
THE HON’BLE MRS.JUSTICE S SUJATHA
ITA No.312/2016 and ITA No.313/2016 ITA No.312/2016 :
BETWEEN: 1. Commissioner of Income Tax (Exemptions), Unity Building Annexe, Mission Road, Bangalore.
Dy. Director of Income Tax (Exemptions) Circle 17(2), Bangalore. ... APPELLANTS
(BY SRI: JEEVAN J. NEERALGI, ADV.) AND: Ohio University Christ College, Academy for Management Education, 4th Floor, Christ University Campus, Hosur Road, Bangalore PAN : AAATO1522D. ... RESPONDENT (BY SRI: ANKUR PAI, ADV.)
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
2/47
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, ARISING OUT OF ORDER DATED 09/10/2015 PASSED IN ITA NO.1075/BANG/2014, FOR THE ASSESSMENT YEAR 2008-2009 PRAYING TO 1) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT 2) TO SET ASIDE THE APPELLATE ORDER DATED 09.10.2015 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT ASSESSEE’S CASE, IN APPEAL PROCEEDINGS NO. ITA NO.1075/BANG/ 2014.
ITA No.313/2016 :
BETWEEN: 1. Commissioner of Income Tax (Exemptions), Unity Building Annexe, Mission Road, Bangalore.
Dy. Director of Income Tax (Exemptions) Circle 17(2), Bangalore. ... APPELLANTS
(BY SRI: JEEVAN J. NEERALGI, ADV.)
AND: Ohio University Christ College, Academy for Management Education, 4th Floor, Christ University Campus,
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
3/47
Hosur Road, Bangalore PAN : AAATO1522D. ... RESPONDENT
(BY SRI: ANKUR PAI, ADV.) THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, ARISING OUT OF ORDER DATED 09/10/2015 PASSED IN ITA NO.1076/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010, PRAYING TO : 1) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT 2) TO SET ASIDE THE APPELLATE ORDER DATED 09.10.2015 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT ASSESSEE’S CASE, IN APPEAL PROCEEDINGS NO. ITA NO.1076/BANG/ 2014.
THESE ITAs COMING ON FOR ADMISSION THIS DAY, Dr.VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. JEEVAN J. NEERALGI, Adv for Appellant – Revenue. Mr. ANKUR PAI, Adv for Respondent - Assessee.
These appeals are filed by the Revenue raising the purported substantial questions of law
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
4/47
arising from the order of the Income Tax Appellate Tribunal, Bench `B’, at Bangalore, in ITA Nos. 1075 and 1076/Bang/2014 for Assessment Year 2008-2009 and 2009-2010 before the Deputy Director of Income Tax (Exemptions), Circle 17(2) Bangalore in Commissioner of Income Tax (Exemptions) Bangalore vs. Ohio University Christ College, Academy for Management Education, Bangalore.
The respondent – assessee is a registered public Charitable Trust under Sec. 12A of the Income Tax Act, 1961. The suggested substantial questions of law in the memo of appeal are quoted herein below for reference :
“(1) Whether on the facts and in circumstances of the case, the Tribunal is right in deleting faculty teaching charges to Ohio University towards
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
5/47
academic expenses by holding that merely because the payments are made outside India, it cannot be said that the charitable activities were also conducted outside India even when the assessee has applied its income for charitable activities outside India and not within which is an essential condition as set out in section 11 of the Act and the assessee has not been granted such exemption by CBDT vide a special order ?
(2) Whether on the facts and in the circumstances of the case, the Tribunal is right in confirming the order of the CIT directing the assessing authority to allow the claim of assessee for set off of brought forward excess application of income/loss of income/loss of income for earlier years by relying upon the decision of this Hon’ble Court in case of SCIT v/s. Sisters of St. Anne (reported in 146 ITR page 28 and Circular No. 5-
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
6/47
P(lxx)-6 of 1968 when the assessing authority rightly disallowed the claim by holding that no such set of brought forward excess application of income/loss of income of earlier years are permitted under the provisions of the Act in the case of educational institution ?
(3) Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the disallowance of accumulation of income made by the assessing authority by holding that the decision of this Hon’ble Court in case of DIT(E) v/s. Envisions in ITA No. 752/2009 dated 13/3/2015 when the assessing authority rightly rejected the claim by holding that the assessee has not stated specific reasons for accumulation ?”
In our opinion, none of the suggested substantial questions of law, is a substantial
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
7/47
question of law falling within the parameters of S.260-A the Income Tax Act, 1961 and the issues raised in the present appeals filed by the Revenue are covered issues decided by the cognate Bench of this Court and also by the Hon’ble Supreme Court and therefore we shall first discuss both the findings of fact rendered by the Income Tax Appellate Tribunal and the relevant case laws before disposing of the present appeals filed by the Revenue.
As far as the first question is concerned, the learned Income Tax Appellate Tribunal has found that in the educational institutions run by the respondent – Charitable Trust for imparting higher education, the payments made to the Professors of Ohio University, USA for which the requisite provision was made in the books of
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
8/47
accounts of the previous year, but actual payment was made in the next assessment year, therefore it would satisfy the conditions of Sec.11(1)(a) of the Act, which requires the income derived from property held under the Trust for charitable or religious purposes to the extent to which such income is `applied’ to such purposes in India. The learned Tribunal has rendered the findings in the following manner : “4.5.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements relied upon by both parties. The basic facts, not in dispute, are that the assessee has entered into an agreement with Ohio University, USA, whereby Ohio University sends its faculty to the assessee’s premises in India for teaching purposes, for which the
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
9/47
assessee makes payment to Ohio University for providing the faculty and other support services. In terms of the agreement, the assessee is required to pay a sum of USD 9,000 per student for the 18 month duration of the course (i.e. USD 3,000 per student for 6 months period.) At the end of the year, as the payments had not yet been made, the assessee had accrued the amount in its books of account and the actual remittance was made in the subsequent year. The assessee had deducted tax at source on the amounts so credited towards faculty teaching charges on the basis of income accruing/arising to Ohio University in India by virtue of a PE in India. Further Ohio University had filed returns of income in India offering this income to tax and paid taxes accordingly.
4.5.2 It is also not disputed that the services have been rendered by the
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
10/47
faculty members from Ohio University as the classes were taken in Bangalore. The services have been utilized for the purposes of the Trust’s objectives in India, viz. of imparting higher education in India. Ohio University has also offered the income earned by it from the assessee trust to tax in India. In the light of the above mentioned facts, it is clear that the activities of the assessee trust were conducted in India in accordance with its objects.
4.5.3 As regards the payments being made out of India, we concur with the view of the learned CIT (Appeals) that merely because the payments are made outside India, it cannot be said that the charitable activities were also conducted outside the country. In this regard, the judicial decisions of the ITAT, Mumbai and Delhi Benches, cited
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
11/47
by the assessee, squarely apply to the case on hand.
In the case of Gem and Jewellery Export Promotion Council V. ITO, reported in 68 ITD 95 (Mum), the Mumbai Bench of the Tribunal at para 33 thereof held as under:-
“33. A bare reading of the sub-s. 11(1)(a) does not leave us in doubt that the requirement under s. 11 is for application of income for purposes in India and it does not restrict the application of income within the territory of India. The charitable purpose for which the income should be applied for claiming exemption under s. 11(1)(a) should be in India. In this case, it is not disputed that the Trade Delegation had
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
12/47
been sent abroad for the benefit of the entire trade in India. The exports are made from India and the purpose for sending the Delegation was to increase the possibilities of exports out of India. We accordingly hold that since the assessee has applied the income for charitable purposes in India, the mere fact that the expenditure has been incurred out of India, does not disqualify the expenditure from exemption under s. 11(1)(a).”
In the case of NASSCOM V DDIT in 130 TTJ 377 (Del), the Delhi Bench of the Tribunal at para 11 thereof has held as under:-
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
13/47
“11. We have considered the rival submissions. A perusal of the provisions of s. 11(1)(a) of the Act clearly shows that the words used are “Is applied to such purpose in India”. The words are not “is applied in India”. The fact that the legislature has put the words “to such purpose” between ‘Is applied’ and ‘in India’ shows that the application of income need not be in India, but the application should result and should be for the purpose of charitable and religious purpose in India. Undisputedly, the assessee is registered under s. 12A as a charitable institution. It is also not disputed that the activities of the assessee are
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
14/47
charitable. It is also not the case of the Revenue that the expenditure incurred by the assessee in Hanover, Germany has not resulted in the benefit being derived in India. In these circumstances, it cannot be said that the expenditure incurred by the assessee in Hanover, Germany, which resulted in and which was for the purpose of attaining the charitable object in India, is not application of income. This view is also supported by the decision of a Co-ordinate Bench of this Tribunal in the case of Gem & Jewellery Export Promotion Council (supra), wherein, it has been held as follows:
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
15/47
“A bare reading of the sub-s. 11(1)(a) does not leave us in doubt that the requirement under s.11 is for application of income for purposes in India and it does not restrict the application of income within the territory of India. The charitable purpose for which the income should be applied for claiming exemption under s. 11(1)(a) should be in India. In this case, it is not disputed that the trade delegation had been sent abroad for the benefit of the entire trade in India. The exports are made from India and the purpose for sending the delegation was to increase the possibilities of exports out of India. We accordingly hold that since
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
16/47
the assessee has applied the income for charitable purposes in India, the mere fact that the expenditure has been incurred out of India, does not disqualify the expenditure from exemption under s. 11(1)(a).”
4.5.4 We also do not concur with the Assessing Officer’s view that a specific exemption is required from CBDT for making claim of application of income. This requirement has been specified only for those trusts that have as its objects, the promotion of international welfare. In the case of the assessee in the case on hand, the objects of charitable activities for imparting higher education in India, has already been approved by the Department while granting the assessee trust registration.
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
17/47
4.5.5 We are also unable to concur with the view of the Assessing Officer that mere credit entries in favour of Ohio University in the assessee’s books of account cannot be taken by the assessee as being for charitable purposes as contemplated in Section 11 of the Act. In this regard, the decision in the case of Trustees of HEH Nizam’s Charitable Trust (supra) cited by the assessee squarely applies to the assessee’s case. In the cited case, the trust had debited certain amounts to the income and expenditure account and claimed the same as application of income for the purposes of Section 11 of the Act even though the amounts were disbursed by the Trust after the accounting year. Further, the amounts debited to the income and expenditure account but which were not actually disbursed were shown as liabilities in the balance sheet. The Hon’ble
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
18/47
Andhra Pradesh High Court which upholding the decision of the Hyderabad Bench of the Tribunal held as under:-
“………………We agree with the Tribunal that it is not correct to equate the word “applied” with the word “spent”. If the legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word. There cannot be any doubt that the money which was sanctioned was applied for a specific purpose as there was nothing else to be done except the actual payment. The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
19/47
whether there has been an application of the funds….”
4.5.6 We also find in the cases of CIT V Radhaswami Satsang Sabha (supra) and CIT Vs. Thanthi Trust (supra), it has been held that the word ‘applied’ does not mean ‘spent’ and even if the income has been earmarked and allocated for the purpose of carrying out the objects of the institution, it might be deemed to be applied for that purpose.
In view of the facts and circumstances and the legal matrix of the case on hand, as discussed above, we uphold the decision of the learned CIT (Appeals) in deleting the addition/disallowance made in respect of faculty teaching charges. Consequently, the grounds raised by Revenue at A(1 to 5) for both A.Ys 2008- 09 and 2009-10 are dismissed.”
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
20/47
Having heard the learned Counsels, we are of the opinion that the said findings of the learned Tribunal relying upon the decision of the Hon’ble Supreme Court in the case of CIT v. Thanthi Trust – (1999) 239 ITR 502 (SC) and other High Court judgments in Trustees of H.E.H. the Nizam’s Charitable Trust (1981) 7 Taxman 178 (AP) = 131 ITR 479 and Radhaswami Satsang Sabha (1954) 25 ITR 472 (Allahabad) are correct and justified findings of fact. The learned Tribunal has rightly held that Sec. 11(1)(a) of the Act does not employ the term `spent’ but `applied’, which later term `applied’ has wider connotation.
Depending upon the normal accounting practices adopted by the assessee in ordinary course of business, if a provision for an
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
21/47
expenditure is made in a particular year and the amount in question is `spent’ in the subsequent period, it cannot be said that the amount is not `applied’ for the specified purpose in that relevant assessment year. In the present case, the Tribunal has found that the payment made to the Professors of Ohio University, USA who visited the class rooms of the respondent – educational institution in Bangalore and imparted higher education to the students of the respondent – Trust, the provision for such payments to the Ohio University was made in the relevant year and the remittances or payment was made in the next year itself, which payments have also been brought to taxation under the Indian Income-tax Act, as the Ohio University, USA had a `permanent establishment’ in India and offered the said
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
22/47
receipts of remittances from the respondent – Trust to taxation in India.
Thus, neither the liability for payment was admitted by the respondent – Trust by making a provision for such payment is disputed by the Revenue nor the fact of actual payment made in the subsequent or next year is also disputed. Therefore, in fact and in substance, the condition of `application of the income’ of the Charitable Trust for the specified purpose, namely of imparting higher education is satisfied and the exemption to the said Charitable Trust cannot be denied on the anvil of non-fulfillment of the said conditions under Sec. 11(a) of the Act.
We extract below from the aforesaid judgments in support of the aforesaid proposition which we have discussed.
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
23/47
In CIT v. Thanthi Trust, supra, the Hon’ble Supreme Court held as under :
“In the circumstances, the High Court was right in the conclusion which it arrived at. It may also be mentioned that it is no part of the Revenue’s case at any point of time that the credit entries made in the assessee’s books of account were not genuine or true or that they were mere make-believe or bogus. It is also not brought to our notice that the Income-tax Officer doubted the said entries and called upon the assessee to produce the accounts of the college and that the assessee failed to produce the same.”
In Commissioner of Income Tax v. Trustees of H.E.H. the Nizam’s Charitable Trust (supra), the Division Bench of Andhra Pradesh High Court held as under :
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
24/47
”The Tribunal had rightly taken the view that it was not correct to equate the word “applied” as used in Section 11 with the word “spent”. If the Legislature had intended that the amount should actually be spent, there was nothing which had prevented it from using that word. In the instant case, therefore, the amounts which were sanctioned but not actually spent in the relevant accounting year would, in the given facts and circumstances, constitute application of the funds for charitable purposes within the meaning of section 11(1)(a).”
Following its earlier view in the case of H.E.H. Nizam’s Religious Endowment Trust v. CIT (1966) 59 ITR 582 (SC) and Commissioner of Income-tax v. Radhaswami Satsang Sabha (1954) 25 ITR 472 (Allahabad) and distinguishing the Madras High Court view in the case of Nachimuthu Industrial
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
25/47
Association v. Commissioner of Income-tax (1980) 123 ITR 611 (Mad.) that it is not correct to equate the words `applied’ for the words `spent’. If the Legislature intended that the amounts should actually be spent, in that very year, nothing prevented them from using that word in Sec. 11 itself. On facts, the Court held that there cannot be any doubt that the money which was sanctioned was applied for a specific purpose as there was nothing else to be done except actual payment and the Tribunal was right in holding that the actual payment is irrelevant for the purpose of finding out whether there has been an application of the fund for the specific purpose or not. The relevant extract from the said judgment is quoted below for ready reference :
“We agree with the Tribunal that it is not correct to equate the word “applied” with the word “spent”. If the Legislature intended that the amounts should actually be spent, there was nothing preventing it from using that
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
26/47
word. There cannot be any doubt that the money which was sanctioned was applied for a specific purpose as there was nothing else to be done except the actual payment. The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out whether there has been an application of the funds. In this connection, we may refer to the observations in CIT v.Radhaswami Satsang Sabha (1954) 25 ITR 472 (All.). Dealing with the word “applied” in the Indian Income-tax Act, 1922, the learned judges observed as follows (p. 522) :
“The word `applied’ in this clause means actually spent and it was pointed out that while in clause (i) of sub-section (3) of Section 4 of the Act, the words used are `income applied or finally set apart’ the words `finally set apart’ have not been repeated in clause (ia) of that sub-section. We do not think that the word `applied’ necessarily means `spent’. Even if it has been earmarked and allocated
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
27/47
for the purposes of the institution, it might, to our minds, be deemed to have been applied for the purpose.”
In Commissioner of Income-tax v. Radhaswami Satsang Sabha, the Division Bench of Allahabad High Court held that even if the amount is ear marked or allocated for the purpose of the institution, it should be deemed to have been applied for its purpose. The Division Bench of the Allahabad High Court dealt with the provision of Sec. 4(3)(i) of the old Income-tax Act, 1922, which is again under Sec. 11(1)(a) of the 1961 Act. The relevant portion of the said judgment is also quoted below for ready reference :
“The Sabha, in the sense understood by Lord Macnaghten, is clearly an institution having been brought about to effect the purpose and to carry out the objects for which the trust was founded. The other word, on which reliance is placed, is the word “applied” in
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
28/47
clause (ia). This word “applied” in this clause, it is said, means actually spent and it is pointed out that while, in clause (i) of sub- section (3) of Section 4 of the Act, the words used are “income applied or finally set apart”, the words “finally set apart” have not been repeated in clause (ia) of that sub-section. We do not think that the word “applied” necessarily means “spent”. Even if it has been earmarked and, allocated for the purposes of the institution, it may, to our minds, be deemed to have been applied for its purposes. Neither the word “applied” nor the word “institution” is of any importance in this case, in our view, the case is governed by income from the property held under trust as laid down in Section 4(3)(i) of the Indian Income-tax Act.”
The decision of the Hon’ble Madras High Court in the case of Nachimuthu Industrial Association v. Commissioner of Inome-tax is distinguishable on facts. In that case, the donor – a
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
29/47
charitable trust under the Nachimuthu Industrial Association, though passed resolutions for donating certain amounts to the educational institutions, neither communicated such resolutions to the Donee, who were running the Polytechnical Educational Institution, nor there were any corresponding entries in the books of accounts of that educational institutions and in the absence of any proof that such donations were actually made over to donee educational institutions, the Madras High Court held that the conditions of Sec. 11(1) were not satisfied in that case. Instead of the provision made for such donation and shown as a liability in the balance sheet of assessee – trust, the said amounts were shown as a `Reserve for Donation’. The relevant extract of the said judgment is also quoted below for ready reference :
“The learned Counsel relying on a decision of the Supreme Court in
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
30/47
H.E.H.Nizam’s Religious Endowment Trust v. CIT (1966) 59 ITR 582, contended that the word “applied” in Section 11 of the Income-tax Act meant “applied or finally set apart” for the benefit of the trust and that the allocation as made in the assessee’s books was enough to show that the relevant amount was finally set apart or applied for charitable purposes. We are unable to agree. It is not in dispute that there was no communication sent to the polytechnic showing that any such sum had been set apart in its favour. If at least that had been done and if there had been any reciprocal entries in the books of the polytechnic, there could be some justification in the contention that the amount was set apart or applied for charitable purposes. In the present case, except for the making of the entries in the assessee’s own books, which entries could have been reversed if and when the assessee chose to do, the assessee had not done anything which can characterize the payments as donation or application of the
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
31/47
income of the trust for any charitable purposes.
In the balance-sheet, the amount is merely shown as reserve for donation. There was a balance under the said account even earlier and this amount is added to it. Merely adding this sum to such a reserve in the account cannot be taken as any application of the income for any charitable purpose, or setting apart for any charitable purpose. The result is that the first question referred to us has to be answered in the affirmative and in favour of the revenue.”
Even though by a short order, the appeal filed against the said judgment of Madras High Court was dismissed by the Hon’ble Supreme Court on 17-12-1997, vide Nachimuthu Industrial Association v. Commissioner of Income-tax (1999) 235 ITR 190 (SC).
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
32/47
Thus, we are of the opinion that in view of the findings of fact recorded by the learned Tribunal that a provision was made to the Ohio University for charitable activity by way of education being imparted in India and the fact of the actual payment made to the Ohio University in the very next year and that too offered for taxation in India being undisputed, no such substantial question of law arises for our further consideration.
In so far as the second question proposed by the Revenue, quoted above is concerned also, we find that the Tribunal’s findings in this regard do not give rise to any substantial question of law. The said findings are quoted below for ready reference :
“5.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed application of income on account of expenditure of earlier years, which has been brought forward
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
33/47
and set off in the year under consideration.
The Assessing Officer disallowed the same on the ground that there is no express provision in the Act permitting the adjustment of earlier years brought forward expenses as application of income in the current year. According to the Assessing Officer, the application of income for charitable purposes must be during the relevant previous year. Since the income of the trust is exempt from tax, the question of deficit does not arise and also the trust is required to utilize 85% of the income of the previous year for charitable purposes during the year. In this view of the matter and for the above reasons, the Assessing Officer disallowed the assessee’s claim of expenditure of earlier years being brought forward and set off during the year.
5.2 On appeal, the learned CIT (Appeals) allowed the amortization of the expenditure as claimed by the assessee and deleted the disallowance made by the
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
34/47
Assessing Officer by placing reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Society of the Sisters of St. Anne reported in 146 ITR 28 (1984) and CBDT Circular No.5-P(LXX)- 6 of 1968.
5.3.1 We have heard the rival contentions of both the learned Departmental Representatives for Revenue and the learned Authorised Representative for the assessee and perused and carefully considered the material on record, including the judicial pronouncements cited. The facts of the issue before us is that the assessee had incurred certain preliminary expenditure in the year of setting up of the trust. The same is amortised by the assessee trust over a period of 5 years from the year of incurring of expenditure. The fact of amortization was not disputed by the Assessing Officer in the assessment proceedings for Assessment Year 2007-08 where the entire amount was added back
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
35/47
claiming 1/5th of the expenditure. The un- amortized expenditure has been brought forward and set off as application of income in subsequent years, including the assessment years 2008-09 and 2009-10 which are under consideration.
5.3.2 We find that the issue before us is directly related to the issue decided by the Hon’ble Karnataka High Court in the case of Sisters of St. Anne (supra) cited by the assessee. In the said case, the Hon’ble Karnataka High Court at paras 8 to 10 thereof has held as under : - Xxxxxxx …….
5.3.3 Further, the CBDT Circular No.5-P (LXX)-6 of 1968 cited by the assessee makes it clear that income should be understood in its commercial sense : in the case of trusts also and therefore the commercial principle enunciated by the Hon’ble Karnataka High Court in the above referred case of Sisters of St. Anne (supra) applies to trusts as well. In
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
36/47
view of the factual and legal matrix of this issue in the case on hand as discussed above, we concur with the decision of the learned CIT (Appeals) in cancelling the disallowance made by the Assessing Officer and in allowing the amortization of expenses. Consequently, Ground No.B (1 to 6) of the Revenue’s appeal for Assessment Year 2008- 09 and Ground No.C for Assessment Year 2009-10 are dismissed.”
In our opinion, the matter is squarely covered by a decision of the cognate Bench of this Court in the case of CIT vs. Society of the Sisters of St. Anne
(1984) 16 Taxman 400 (Kar.) and (1984) 146 ITR 28, wherein the congnate Bench of this Court held that even the depreciation not involving any cash outflow is also in the character of expenditure and therefore such depreciation is nothing but decrease in the value of property through wear and tear, deterioration or obsolescence and the allowance made for that purpose
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
37/47
in the books of accounts were deemed to be the application of funds for the purpose of Sec. 11 of the Act. The relevant portion of the said judgment is also quoted below for ready reference: “11. Mr. Srinivasan, however, urged that there are enough indications in Section 11 to exclude the mercantile system of accounting. The learned counsel relied upon sections 11(1)(a) and 11(4) in support of his contention. We do not think that there is anything in these sub-sections to support the contention of Mr. Srinivasan. Explanation to section 11(1)(a) on the contrary takes note of the income not received in a particular year. It lends support to the contention of the assessee that accounting need not only be on cash basis. Section 11(4) is not intended to explain how the accounts of the business undertaking should be maintained. It is intended only to bring
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
38/47
to tax the excess income computed under the provisions of the Act in respect of business undertaking.
The depreciation if it is not allowed as necessary deduction for computing the income from the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The Board also appears to have understood the `income’ under section 11(1) in its commercial sense. The relevant portion of the Circular No.5XX- 6 of 1968, dated 19-6-1968 (See Taxmann’s Direct Taxes Circulars, Vol. 1, 1980 edn. P.85) reads:
“Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word `income’ should be understood in its commercial sense, i.e., book income, after adding back any appropriations or
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
39/47
applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income, computed in the aforesaid manner, should not be less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under section 11(1).”
In CIT v. Trustee of H.E.H. The Nizam’s Supplemental Religious Endowment Trust (1981) 127 ITR 378, the Andhra Pradesh High Court has accepted the accounts maintained in respect of the trust in conformity with
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
40/47
the principles of accountancy for the purposes of determining the income derived from the property held in trust.”
In view of the aforesaid findings of the learned Tribunal, allowing any expenditure of the earlier year which has been brought forward and set off in the year under consideration, is a justified finding of fact based on the correct interpretation of law and the judgment relied upon by it rendered by the cognate Bench. Therefore, the same does not call for interference. A similar view was also taken by the Division Bench of Bombay High Court in Commissioner of Income- tax v. Institute of Banking (2003) 264 ITR 110, wherein the Division Bench of Bombay High Court held that the income derived from the trust property has also got to be computed on commercial principles and if commercial principles
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
41/47
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. The relevant portion of the said judgment of Bombay High Court is also quoted below for ready reference : “Normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Inome-tax Act, 1961. Income of a charitable trust derived from building, plant and machinery and furniture is liable to be computed in a normal commercial manner although the trust may not be carrying on any business and the
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
42/47
assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Act providing for depreciation, for computation of income derived from business or profession is not applicable. However, the income of the trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from the gross income of the trust.
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
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
43/47
year in which adjustment had been made having regard to the benevolent provisions contained in section 11 of the Act and such adjustment will have to be excluded from the income of the trust under section 11(1)(a).”
In so far as question No.3 quoted above is concerned, the finding of the Tribunal are quoted below for ready reference : “7.5.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. The purposes mentioned by the assessee trust in Form No.10 were `for use in purchase of fixed assets’ and for use in other purposes, `for fulfillment of the objects of the trust.’ The Assessing Officer disallowed the assessee’s claim for accumulation of income on the grounds that the purposes mentioned in Form No.10 was not specific. As
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
44/47
pointed out by the learned CIT (Appeals), there are divergent decisions by various High Courts in the matter. While the Assessing Officer has relied on the decision of the Hon’ble Kerala High Court, the assessee has relied on the decision of the Hon’ble Delhi High Court. The learned CIT (Appeals) after noting the divergent views taken by different High Courts has decided the issue in favour of the assessee by observing that there is no decision of the jurisdictional High Court in the matter, the decision favourable to the assessee should be followed.
In the proceedings before us, the learned Authorised Representative for the assessee submitted that the Hon’ble High Court of Karnataka, the jurisidictional High Court, has since decided the issue in the case of DIT (E) V. Envisions in ITA No.752/2009 dt. 13.3.2015 (reported in 58 taxmann.com
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
45/47
184) (Kar) is squarely on the subject. In the said decision, the Hon’ble Court at para 10 of its order has held as under:-
“10. In the present case, we find that the revenue does not dispute the fact that all the three purposes specified by the assessee in Form 10 are for achieving the objects of the trust, and that the purposes as well as objects, are both charitable. Merely because more than one purpose has been specified and details about the plan of such expenditure has not been given, the same would not, in our view, be sufficient to deny the benefit under Section 11(2) of the Act to the assessee. As long as the objects of the trust are charitable in character and as
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
46/47
long as the purpose or purposes mentioned in Form 10 are for achieving the objects of the trust, merely because of non-furnishing of the details, as how the said amount is proposed to be spent in future, the assessee cannot be denied the exemption as is admissible under sub-section 2 of section 11 of the I.T. Act, 1961.”
Respectfully following the aforesaid decision of the Hon’ble High Court of Karnataka in the case of DIT (Exemptions), Bangalore V. Envisions (supra), we decide the issue in favour of the assessee. Consequently, Ground D of the Revenue’s appeal for Assessment Year 2009-10 is dismissed.”
Date of Judgment: 17.07.2018 in ITA Nos.312 & 313 of 2016
Commissioner of Income-tax & another vs. Ohio University Christ College
47/47
In view of the controversy covered by the decision of the Hon’ble cognate Benches quoted above, we are of the opinion that no substantial question of law arises in this regard also.
Therefore, we do not find any substantial question of law requiring our further consideration in the present appeals filed by the Revenue. The same are liable to be dismissed.
The appeals of Revenue are accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
Mgn/-