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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-VII, Chennai, dated 25.03.2014 and pertains to assessment year 2008-09.
The only issue arises for consideration is with regard to carry forward of excess application of income over the income.
Shri Deepak John, the Ld.counsel for the assessee, submitted that the assessee incurred an expenditure of `9,06,971.88 for the assessment year 2007-08. However, this was not allowed as application of income. Therefore, the assessee claimed for the year under consideration exemption under Section 11 of the Income-tax Act, 1961 (in short 'the Act'). The Ld.counsel further submitted that a sum of `15,06,371/- was deducted at source from the interest on fixed deposit in banks. The assessee claimed exemption and request for refund. However, the Assessing Officer rejected the claim of exemption under Section 11 and adjusted the TDS to the extent of `8,08,074/- against the demand raised. On a query from the Bench, what is the source of incurring the expenditure of `9,06,971.88 for the assessment year 2007-08, the Ld.counsel clarified that it is accumulated income of the earlier year. The Ld.counsel, however, could not clarify whether the accumulated income to the extent of 15% was allowed as exemption or not. According to the Ld. counsel, since the assessee is a registered Trust, the assessee is eligible for exemption under Section 11 of the Act. Referring to the judgment of Madras High Court in CIT v. Matriseva Trust (2000) (242 ITR 20), the Ld.counsel submitted that on identical circumstances, the CIT(Appeals) by placing reliance on Gujarat High Court in CIT v.
Shir Plot Sweatamber Murti Pujak Jain Mandal (1995) 211 ITR 293, followed the judgment of Gujarat High Court. A similar view was also taken by Rajasthan High Court in CIT v. Maharana of Mewar Charitable Foundation (1987) 164 ITR 439. Therefore, according to the Ld. counsel, the assessee is eligible for exemption in respect of `9,06,971.88.
On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that each assessment year is separate and distinct. The Income-tax Act does not provide for carry forward of expenditure incurred in one year to another year. Under Section 11 of the Act, the assessee has to apply the income derived from property held in Trust for charitable purpose. The assessee can also accumulate 15% of the income from such property. Therefore, according to the Ld. D.R., the assessee is eligible for exemption of the income which was applied for charitable purpose and also the income accumulated to the extent of 15% of the income from such property. The income accumulated by the assessee to the extent of 15% might have been allowed as exemption under Section 11of the Act. Therefore, there is no question of carry forward of the expenditure incurred by the assessee in the subsequent assessment year. Placing reliance on the decision of this Bench of the Tribunal in the Anjuman-E-Himayath-E-Islam v. ADIT (Exemptions) in dated 02.06.2015, the Ld. D.R. submitted that on identical set of facts, this Tribunal examined the possible source of income and found that the accumulated funds, if any, would be allowed under Section 11(1) of the Act in the year in which it was accumulated. Therefore, the same cannot be claimed as exemption in the year in which it was applied for charitable purpose. The Ld. D.R. clarified that when the income was accumulated and it was allowed under Section 11(1) of the Act as exemption, claiming exemption in the subsequent year in which it was applied for charitable purpose would amount to double deduction. Therefore, the same cannot be allowed once again.
We have considered the rival submissions on either side and perused the relevant material available on record.
In fact, the Tribunal has observed as follows in Anjuman-E- Himayath-E-Islam (supra):-
“4.4 We have heard both the parties and carefully perused the materials available on record. Section-11(1)(a) of the Act provides that “income derived from property held under Trust wholly for charitable or religious purpose” shall not be included in the total income to the extent such income is applied for charitable or religious purpose in India. The Act also provides that upto 15% of such income is accumulated or set apart, then that shall also not be included in the total income. Further Section-11(1)(d) of the Act provides that “income in the form of voluntary contribution made with specific direction that they shall form part of the corpus of the trust or institution” will also not be included in the total income. By virtue of Section-2(24) of the Act the definition of ‘income’ includes any “voluntary contribution received by the trust created wholly or partly of charitable or religious purposes”. Further explanation to section-11(1)(a)(b) r.w.s 12(1) of the Act provides that any “voluntary contribution received other than with specific direction that they shall form part of the corpus of the trust or institution” created wholly for charitable or religious purpose shall be deemed to be the “income derived from property held under trust”. From the above it is clear that, when the assessee trust applies 85% of its income received by way of “voluntary contributions other than the voluntary contributions received with specific directions” and the “income derived from property held under trust”, then such income shall not be included in the total income of the Trust. Further the balance 15% of such income even if accumulated or set apart shall also not be included in the total income of the Trust. Therefore, what is provided under the Act is with respect to ‘application of income’ from the ‘income derived from the property held under the Trust’ and any ‘voluntary contributions received by the Trust other than contributions made with specific directions that they shall form part of the corpus of the trust’. Thus, there is no reference in Section-11 of the Act with respect to application of fund from the ‘corpus’ of the trust, ‘loan’ obtained by the Trust, ‘Sundry creditors’ of the Trust or ‘accumulate fund’ of the Trust for claiming exemption U/s.11 (1) of the Act.
4.5. Application of fund by any charitable institution is possible only from the following sources:- i) Voluntary contributions received by the Trust towards its corpus, ii) Other voluntary contributions, iii) Accumulated fund, iv) Amount received by way of loan, v) Sundry creditors, vi) “Income” derived from the “Property” held under the Trust.
[Hon’ble Calcutta High Court has held in the case DCIT VS. Girdharilal Shewnarain Tantia Trust reported in [1993] 199 ITR 15(Cal.) that “The “income” contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable”. Further, Hon’ble Apex High Court has held in the case of J.K.Trust Vs. Ld. CIT /CEPT reported in [1957] 32 ITR 535(SC) that “Property” is a term of the widest import, and subject any limitation or qualification which the context might require, it signifies every possible interest which a person can acquire, hold and enjoy. Business would undoubtedly be property unless there is something to the contrary in the enactment. ]
When the Trust applies its funds from its Corpus, accumulated fund, Sundry creditors or from the loan obtained by the Trust, then such funds which are applied cannot be said to be funds applied from the income of the Trust. Therefore, there cannot be a case where the trust can apply its income more than the income received by it for the purpose of Section-11(1)(a)&(b) of the Act. Thus excess application of fund over and above the income of the Trust can arise only when funds are applied from the Corpus of the Trust, accumulated fund, Loan obtained by the Trust or goods and services received from Sundry Creditors. It can be logical to deduce that when funds are applied from borrowed funds or by way of Sundry creditors the same can be treated as application of fund in the year in which such Loan/Sundry creditors are repaid from the income of the Trust. However when amount is applied from the corpus fund or accumulated fund the same cannot be treated as application of fund for the purpose of Section 11 of the Act, because such fund have already been exempt from the income of the Trust in the year in which it is received or such amount is set aside and therefore once again treating the same as application of fund will amount to double deduction. Similarly voluntary contribution received toward Corpus is exempt from income of the trust in the year in which it is received and therefore when it is utilized for the objects of the Trust it cannot be considered as application of fund otherwise it will amount to double deduction. From the above factual and mathematical matrix it is evident that carry forward of excess application of fund in the commercial principles cannot be allowed as per the provisions of the Act because it would result in notional application of income in the subsequent year. These aspects have not been considered by the Mumbai Bench of the Tribunal, and the unreported decision of the Hon’ble Bombay High Court is also not placed before us.
4.6 Now analyzing the facts of the case before us, it appears that the assessee trust’s gross receipts is `5,11,60,794/- and the assessee trust have spent `5,35,57,149/- which shows that the assessee trust has spent `23,96,355/- more than its income received during the relevant year. This amount of `23,96,355/- may have been taken out from the ‘corpus funds’, ‘accumulated funds’, ‘loan’ obtained by the assessee trust or arising out of ‘Sundry Creditors’. Therefore it is obvious that there is no excess application of income over and above the income received by the trust, hence the question of carry forward of excess application of income does not arise. However the amount applied from the ‘Loan’ or ‘Sundry Creditors’ will be allowed as application of fund in the year in which such ‘Loan’ or ‘Sundry Creditors’ are repaid. It is pertinent to mention that if the amount is applied from the ‘Corpus fund’ or ‘accumulated fund’ it will not be treated as application of fund because ‘Corpus fund’ and ‘accumulate fund’ are already exempt from the income of the Trust and once again if it is treated as application of fund it would amount to double deduction. Therefore the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commercial principles. However if the excess amount of `23,96,355/- is applied from the borrowed fund or from Sundry Creditors, the same shall be allowed as application in the year in which such Loan or Sundry Creditors are repaid from the income of the Trust as discussed herein above. Needless to mention that the income of the Trust refers to ‘income derived from the property held under the Trust’ and any ‘voluntary contributions received by the Trust other than contributions made with specific directions that they shall form part of the corpus of the trust’ i.e., item Nos.(ii) and (vi) mentioned hereinabove. This ground raised by the assessee is accordingly disposed off.”
In view of the above order of this Tribunal on identical set of facts, this Tribunal do not find any reason to interfere with the order of the lower authority. It is also made clear that as observed at para 4.5 of the order of the Tribunal extracted above, the six sources of income as enumerated could be the only possible income. All the income would be entitled for exemption under Section 11 of the Act provided the same is applied for charitable activity. The assessee is also eligible to accumulate to the extent of 15% of income from such property. If any income, which could not be applied for charitable purpose and such income does not exceed more than 15%, then the Assessing Officer would have allowed the claim of the assessee in the year in which it was not utilized for charitable purpose.
Therefore, it is for the assessee to explain before the Tribunal the income of the assessee for the earlier assessment year and what was applied for charitable purpose and how much exemption was allowed by the Assessing Officer. Unfortunately, the details of such income and application of income in the earlier year is not available on record. Therefore, this Tribunal has no other choice except to presume that the income of the assessee was already allowed in the earlier year. Hence, nothing remains to carry forward. If that is the situation, this Tribunal is of the considered opinion that there is no occasion for the assessee to carry forward the income to the subsequent year. In the absence of any details, this Tribunal finds no reason to interfere with the order of the lower authority. Accordingly, the order of the CIT(Appeals) is confirmed.
In the result, the appeal of the assessee is dismissed.