KALINGA RELIEF & CHARITABLE TRUST,BHUBANESWAR vs. JCIT, BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.118/CTK/2015 Assessment Year :2011-12

Vs. Kalinga Relief & Charitable JCIT, Range-2, Aayakar Trust, Plot No.383, 384, Bhavan, Bhubaneswar. KIIT Campus-1, Patia, Bhubaneswar PAN/GIR No. (Appellant) .. ( Respondent)

ITA No.379/CTK/2015 Assessment Year :2011-12

Vs. JCIT, Range-2, Aayakar Kalinga Relief & Charitable Bhavan, Bhubaneswar Trust, Plot No.383, 384, KIIT Campus-1, Patia, Bhubaneswar PAN/GIR No. (Appellant) .. ( Respondent)

Assessee by : Shri S.K.Agrawalla, AR Revenue by : Shri A.K.Mohapatra/Subhendu Dutta, DR

Date of Hearing : 26/07/ 2017 Date of Pronouncement : 27 /07/ 2017

O R D E R Per N.S.Saini, AM These are cross appeals filed by the assessee and the revenue against

the order of CIT(A)-II, Bhubaneswar, dated 16.2.2015, for the assessment

year 2011-12.

2 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 First we take up the appeal filed by the assessee.

that the CITA) was not justified in not allowing deduction for expenses of

Rs.4,12,96,462/- given to Kalinga Institute of Social Sciences for

expenditure incurred on behalf of the assessee for providing free education,

fooding, clothing and medical facilities to the tribal students.

of institutions located at Patia, Bhubaneswar. The trust was created on

18.02.2003 through a Trust Deed and was allowed registration u/s. 12AA

of the I.T.Act, 1961. The trust established a school for tribal children under

the name and style "Kalinga Institute of Social Science" (KISS). For the

children studying in the school, the trust provides accommodation, food,

clothing, education, healthcare etc. completely free of cost. With effect

from the date of formation of this society, assessee trust had transferred

substantial assets to the society and started providing funds for the usual

running of the school under the society.

income & expenditure account, found that the trust has debited a sum of

Rs.4,12,96,462/- under the head “contribution to the expenditure of KISS”.

In reply to show cause notice, the assessee submitted the copies of 12AA

registration of KRCT, 26AS, statement of month-wise donations given by

3 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 various employees of KIIT School of Biotechnology, KIIT University to

KRCT, i.e. assessee and copies of certain bills and vouchers. It was stated

before the Assessing Officer that KISS has the total income of

Rs.17,67,53,608/- out of which a sum of Rs.4,42,96,462/- was only from

KRCT, i.e. assessee. Hence, the assessee is not funding the KISS rather it

had given the money for the students transferred from KRCT to KISS and,

therefore, the expenses incurred for running this school were charitable

expenses and allowable as per the provisions of section 11 of the Act.

Reliance was placed on the decision of Hon’ble Delhi High Court in the case

of CIT vs Shri Ram Education Foundation (2001) 171 CTR (Del) 220. It

was further submitted that the assessee had transferred its fund to another

society with a specific direction that this fund will be utilized for the purpose

of education of the Tribal children of the KISS, hence, the fund given by

one trust to another trust with specific direction for the purpose of

charitable activities will be treated as application of income within the

meaning of section 11 of the Act. For this, reliance was placed on the

decision of Hon’ble Delhi High Court in the case of CIT vs. Sri Ram Memorial

Foundation (2004) 190 CTR (Del) 454. It was submitted that the transfer

of fund is not tentamount to violation of provisions of section 13(1)(c) or

13(1)(d) of the Act. It was further submitted that as per the primary

objects of the trust, the funds were transferred to KISS for the fooding,

education, health, shelter, etc of the tribal children and, therefore, the

expenses are charitable in nature and allowable. The Assessing Officer

4 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 noticed that the control of the assessee trust and the new society i.e. KISS

was with the same group. He was of the view that the fund of the assessee

trust was provided to another society which did not have the benefit of

registration u/s.12AA of the Act. The Assessing Officer observed that in

earlier assessment year, the assessee had transferred funds to KISS under

the head of “bridging fund” and during the year under consideration, the

assessee has merely changed the nomenclature from bridging fund to

contribution to the expenditure of KISS. He also observed that the

assessee trust has no accumulated surplus funds which has been carried

forward to the current financial year 2010-2011 and, therefore, the transfer

of fund to KISS cannot be treated as application of income in view of the

provisions of section 11 of the Act as the same had been paid out of current

year’s income. Accordingly, he made an addition of Rs.4,12,96,462/- and

added the same to the income of the assessee trust

Assessing Officer.

the Tribunal dated 30.10.2015 in ITA Nos.522 & 523/CTK/2013 in

assessee’s own case for the assessment years 2009-2010 and 2010-11 and

5 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 submitted that similar addition has been deleted by the Tribunal and,

therefore, this issue is squarely covered in favour of the assessee.

authorities and materials available on record. We find that similar issue

had come up for consideration before this Bench of the Tribunal in

assessee’s own case for the assessment years 2009-10 & 2010-2011

(supra), wherein, the Tribunal has deleted the addition by observing as

under:

“8. We have considered the rival contentions on this issue and gone through the orders of the authorities below. We have perused the Memorandum of Understanding between the assessee trust and KISS, wherein, it is clearly mentioned as follows:

“1. Educate the students of KRCT from KG to Post Graduate level.

We also find from the MOU, the responsibilities imposed on the society by the assessee trust as under:

“i) KISS will work in the field of education for the tribal students of KRCT `without taking any fees from students.

6 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 ii) KRCT will provide necessary funds to KISS to the extent mobilized for this purpose by KRCT.”

The assessee trust is registered under section 12AA of the Act as charitable trust doing the charitable activities for the betterment of the society at large. The authorities below have accepted the charitable nature of the assessee trust. Neither the AO nor ld CIT(A) has doubted the charitable nature for which the trust is formed. The authorities below have not also questioned regarding the genuineness of the charitable activities of the trust or whether the trust is doing some business activities. Therefore, it is ample clear that the formations of the assessee trust and its activities are genuine and legally approved under the Income tax Act. The society was providing free education, fooding, clothing and medical facilities to the deprived children of the scheduled tribes. Besides this formal education, vocational training in different streams has also been provided to the students so that they can earn their livelihood after schooling. The said registered society is an extension of the assessee trust itself. From the above, it is clear that the intention of the assessee trust is nothing but to provide charity to the needy and betterment to the society. The assessee has transferred the fund to the society so that the society can bear the expenditure of the children. The assessee trust had received the donation amount and from that it had paid the society. In other words, even in the absence of society, the assessee trust would have carried on the charitable activities and whatever amount has been spent that is for the benefit of the tribal children. Therefore, the Bridging Fund is the reimbursement of expenses to the society and it is an extension of charitable work of the assessee trust carried on through the society. Therefore, we set aside the order of the ld CIT(A) on this issue and decide that the transfer of funds from the assessee trust to society i.e. KISS under the head “Bridging Fund” is an application of assessee’s income for the charitable purpose. Hence, we decide this issue in favour of the assessee.”

above quoted order of the Tribunal was varied in appeal by any other

higher forum. Hence, facts being identical, respectfully following the

decision of co-ordinate Bench of this Tribunal, we set aside the orders of

7 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 lower authorities and allow the grounds of appeal of the assessee deleting

the addition of 4,12,96,462/-.

charging of interest u/s.234B of the I.T.Act, 1961, no arguments were

made by the ld A.R of the assessee at the time of hearing. We hold that

charging of interest u/s.234B is consequential and, accordingly, dispose of

this ground of appeal.

Now, we take up the appeal of the Revenue.

the CIT(A) to allow the carry forward and set off of the deficit from earlier

financial years in the computation of income for the assessment year 2011-

carry forward and set off of the deficits relating to the earlier financial year

on the ground that the assessee did not have any accumulated surplus

funds at its disposal as the expenses exceeded its receipts. According to

the Assessing Officer, the transfer could not be treated as legitimate

application of income u/s.11 of the Act since the same had been paid out

of “current year’s income.

going concern continue seamlessly from financial year to financial year and

it is impossible and statutory unheard of insist on an artificial segregation

8 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 of funds to extract and quarantine these for a given financial year for

application of these to such given financial year. The CIT(A) also observed

that if the returns of income have been filed by the assessee trust within

the statutory timeframes stipulated u/s.139 of the act, there is no reason

to deny the assessee the benefits of the set off of the deficits relating to

the earlier financial year from the assessed income for the impugned

assessment year. Hence, the CIT (A) allowed the carry forward and set

off of the deficits from earlier years.

appeal before us.

and set off of the deficit is covered by the decision of the Cuttack Bench of

the Tribunal in the case of the assessee in ITA Nos.522 & 523/CTK/2013

for the assessment years 2009-2010 & 2010-2011, wherein, following the

decision of the Tribunal in IT(ss)A No.76,77,78,82,83,84/CTK/2009 and

ITA No.172 & 173/CTK/2012 order dated 21.12.2012, the Tribunal has held

the Revenue has not disputed the fact that deficit in year was on account

of amount spent in construction/purchase of the building, is for charitable

purposes and, therefore, the assessee is entitled to set off of the same i.e.

year-wise deficit or loss as may be adjusted against the receipt/income of

9 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 a subsequent year. The facts being similar in the year under consideration,

the appeal filed by the revenue is to be dismissed.

authorities and materials available on record. In the instant case, the

undisputed facts are that the Assessing Officer did not allow carry forward

And set off of the deficits relating to earlier financial year on the ground

that the assessee did not have any accumulated surplus funds at its

disposal as the expenses exceeded its receipts.

adjustment of expenditure incurred earlier against the surplus of the

subsequent year had come up before the Hon’ble Mumbai High Court in the

case of CIT vs Institute of Banking reported in 264 ITR P. 110 (Bom.)

wherein the Assessing Officer did not allow carry forward of excess

expenditure to be set off against the surplus of subsequent year on the

ground that in the case of charitable trust, their income was assessable

under self contained code mentioned in section 11 to 13 of the Income Tax

Act and that the income of the charitable trust was not assessable under

the head "Profits and gains from business profession" u/s 28 in which the

provisions of carry forward of losses was relevant. That in a case of

charitable trust, there was no provision for carry forward of the excess of

10 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 expenditure of earlier years to be adjusted against income of the

subsequent years. Their Lordships have held that there is no merit in this

argument of the Department. Income derived from the trust property has

also got to be computed on commercial principals and if commercial

principals are applied then adjustment of the expenditure incurred by the

Trust for charitable or religious purposes in earlier years against the income

earned by the Trust in subsequent year will have to be regarded as

application of income of the Trust for charitable or religious purposes in

subsequent year in which adjustment has been made having regard to the

benevolent provisions contained in section 11 of the Act and that such

adjustment will have to be excluded from the income of the Trust u/s 11(1)

(a) of the Act.

the order of the order of the Hon’ble Bombay High Court in the case of

Institute of Banking (supra). Hence, we confirm the order of the CIT(A)

and dismiss the ground of appeal of the Revenue.

11 ITA No. 118/CT K/ 2015 ITA No. 379/CT K/ 2015 Asse ssment Year :20 11- 12 Copy of the Order forwarded to : 1. The Appellant : /Assessee : Kalinga Relief & Charitable Trust, Plot No.383, 384, KIIT Campus-1, Patia, Bhubaneswar 2. The Respondent./Revenue: JCIT, Range-2, Aayakar Bhavan, Bhubaneswar 3. The CIT(A)-II, Bhubaneswar 4. Pr.CIT-II, Bhubaneswar. 5. DR, ITAT, Cuttack 6. Guard file. BY ORDER, //True Copy//

SR.PRIVATE SECRETARY ITAT, Cuttack