2021 (4) TMI 13 - AT - Income Tax

Maintainability of appeal - low tax effect - Eligibility of exemption u/s 11 - HELD THAT - In this case admittedly the tax effect involved is less than Rs. 50 lakhs. As per CBDT Circular No.3/18 dated 11.07.2018 the Department is precluded from filing the appeal before the Tribunal unless it is covered by any exceptions provided therein. The learned DR is not able to show that this appeal falls under any exceptions provided in that Circular and also admitted that the tax effect involved in this appeal is less than Rs. 50 lakhs and the Circular is applicable to all pending matters before Tribunal High Court and Supreme Court also. Thus as the tax effect involved in this appeal is less than Rs. 50 lakhs and Department appeal is not maintainable. Accordingly this appeal is dismissed.

Summary

Issues:
1. Interpretation of provisions of Section 11 to Section 13 of the Income Tax Act for charitable institutions.
2. Applicability of deductions under Section 24(a) while computing income under Section 11.
3. Consideration of CBDT Circular in determining income of charitable trusts.
4. Review of decisions favoring the department regarding income derived from trust property.
5. Statutory deduction under Section 24(a) and total income computation for public charitable trusts.

Issue 1 - Interpretation of Provisions for Charitable Institutions:
The appeal was filed by the Revenue against the order of CIT(A) dated 27.04.2012, raising concerns about the application of provisions of Section 11 to Section 13 of the Income Tax Act specifically for charitable institutions claiming exemption under Section 11. The Revenue argued that only these specified provisions should be applicable to such institutions.

Issue 2 - Applicability of Deductions under Section 24(a):
The Revenue contended that the income under Section 11(1) refers to income from property held under trust for charitable purposes, emphasizing that deductions under Section 24(a) do not apply while computing income under Section 11. The CIT(A) was criticized for not recognizing this distinction.

Issue 3 - Consideration of CBDT Circular for Charitable Trusts:
The Revenue highlighted the importance of following the CBDT Circular No.5 LXX-6 dated 19.06.1968, which clarifies the method of computing income for charitable trusts. It was argued that the commercial concept of income should be considered for such trusts, as stated in the Circular.

Issue 4 - Review of Decisions Favoring the Department:
The Revenue pointed out that decisions relied upon by the CIT(A) actually favored the department. High Courts have emphasized determining income derived from trust property on commercial principles. References to the CBDT Circular in these decisions supported the department's stance.

Issue 5 - Statutory Deduction and Total Income Computation for Public Charitable Trusts:
The matter was previously disposed of by the Tribunal but was taken up by the Hon'ble Karnataka High Court. Questions were framed regarding the statutory deduction under Section 24(a) and the computation of total income for public charitable trusts. The High Court remitted the issue back to the Tribunal for reconsideration in light of relevant statutory provisions.

In conclusion, the Tribunal dismissed the Revenue's appeal as the tax effect involved was less than Rs. 50 lakhs, falling under the CBDT Circular No.3/18 dated 11.07.2018. The Tribunal held that the appeal was not maintainable as per the Circular, emphasizing the applicability of the tax effect threshold for filing appeals.