TMI Blog2015 (6) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... .T.A.T., Chandigarh Bench in the case of Budhewal Cooperative Sugar Mills Ltd. Vs. The A.C.I.T. (OSD) [2013 (5) TMI 802 - ITAT CHANDIGARH] in which it was held that the assessee can raise additional ground and make claim during the assessment proceedings. The learned CIT (Appeals) also relied upon Explanation-5 to section 32 of the Act, which provides "for the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income". The learned CIT (Appeals), therefore, noted that the depreciation has to be allowed to the assessee whether it is claimed while computing total income or not. He has also relied upon the order of the I.T.A.T., Bangalore Bench in the case of Rakesh Singh Vs. ACIT, [2012 (11) TMI 503 - ITAT BANGALORE ] in support of his findings. The learned CIT (Appeals), therefore, following the above decisions and Explanation-5 to section 32 of Income Tax Act directed the Assessing Officer to allow the claim of depreciation. In principle, the Revenue did not agitate the allowing of depreciation to the assessee. Therefore, nothing survi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application amounting to ₹ 1,58,56,0537- may not be taxed. The assessee vide his reply dated 6.11.2012 submitted that the short fall had been computed wrongly by the assessee in as much as the amount of depreciation amounting to ₹ 60,14,3987- although debited to the Profit Loss Account had not been taken in the computation. Therefore, the short fall in application of income would amount to ₹ 98,41,655/- and not ₹ 1,58,56,053/-. The assessee further submitted that the depreciation though not claimed in the return of income was allowable in view of the judgement of the Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Tiny Tots Education Society 330 ITR 21 (P H) and CIT Vs. Market Committee, Pipli (2011) 238 CTR 103 (P H). The assessee submitted that even if there were two views on this issue, as the final verdict of the Apex Court is not there., the view of the Jurisdictional High Court is to be considered. With regard to the short fall in application of income, the assessee submitted that there was excess utilization of income during the earlier years which had been adjusted against the short fall in the utilization during current year. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . receipts of the trust Rs.9,85,33,522/- ii) Income applied towards objects of the trust Rs.7,39,11,839/- iii) Amount of income not applied towards Objects of the trust/set apart Rs.2,46,21,683/- iv) 85% of the total income of the trust Rs.8,37,53,500/- 6. The Assessing Officer asked the assessee to explain why this amount may not be taxed. The assessee vide his reply dated 28.12.2012 requested the Assessing Officer to allow the depreciation in the light of the judgement of the Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Tiny Tots Education Society. The assessee also relied upon the case of A.L.N Rao Charitable Trust reported in 216 ITR 697(SC), wherein, the Hon'ble Supreme Court has held that there was a blanket exemption of 25% of total income from the unspent amount of the trust. The assessee claimed that in view of this judgement, 15% of its total income from unspent amount was exempt. The Assessing Officer once again found the assessee's submissions unsatisfactory. Regarding the claim of depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arisen that if the Trust takes a loan for the purposes of incurring expenditure for charitable and religious purposes in a particular year and the said loan is repaid out of the income of the subsequent year, the said repayment would be entitled to the exemption from tax u/s 11(1)(a) of the Act. But if the Trust instead of taking a loan, incurs the expenditure for charitable and religious purposes out of the corpus of the Trust and seeks to reimbursement of the said amount out of the income of the subsequent year, the Trust would not be entitled to claim exemption in respect of such reimbursement u/s 11(1)(a) of the Act. A construction which leads to such anomaly should be avoided. The 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, would amount to applying the income of the Trust for charitable or religious purposes in the subsequent year in which such adjustment had been made and would have to be excluded from the income of the Trust u/s 11(1)(a) of the Act. The similar issue of adjustment of expenditure incurred earlier against the surplus of the subsequent ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of income assessable u/s 11 to 13 of the Act. The Hon'ble High Court held that income derived from the Trust property is to be computed on commercial principles. Accordingly, excess of expenditure incurred by the Trust for charitable and religious purposes in earlier years against the income earned by the Trust in subsequent year would have to be regarded as application of income of the Trust in subsequent year. The Court also held that section 11 being the benevolent provision and had to be liberally construed. From the above citations, it is very much clear that the appellant has rightly claimed the set off of extra expenditure than the income of earlier years against the surplus for the year under appeal and this ground of appeal be adjudicated accordingly. 8. The submissions of the assessee were forwarded to the Assessing Officer, who has submitted his report dated 30.8.2013, which reads as under : Vide his letter dated 18.06.2013, the counsel of the assessee has submitted that income was assessed at the ₹ 2,46,21,680/- as against Nil Income wherein the AO negated the claim of the appellant of excess utilization of income in earlier years against su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upto 85% of the income in those years and this excess application of income had been claimed to be carried forward to the subsequent years. The appellant has claimed that the short fall in the application of income in the current year is adjustable against carry forward of expenses from the earlier years. In order to appreciate the full facts of the case, during the course of appellate proceedings, the AR of the appellant was requested to file evidence of excess utilization brought forward which was claimed to be set off against short fall during the current year. The appellant vide his reply dated 05.07.2013, submitted the following details:- Income Expenditure % Required to be incurred Excess Depreciation O/Balance Excess C/f A.Y. 01-02 28728418 22197779 77.27 75% 651466 Nil 1884141 2535607 A.Y. 02-03 36850001 40351003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss amount of application over and above this requirement was claimed to be eligible for carry forward even though the total expenditure was less than the total income in each year. 4.6 The actual excess amount applied in these years works out as under:- Income Expenditure % Excess A.Y. 01-02 28728418 22197779 77.27 Nil A.Y. 02-03 36850001 40351003 109.5 3501002 A.Y. 03-04 46552799 44821832 96.28 Nil A.Y. 04-05 55789036 49101523 88.01 Nil A.Y. 05-06 62925625 54785893 87.06 Nil A.Y. 06-07 69119941 72972492 105.46 3780551 A.Y. 07-08 71646870 63035045 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1970-71 should be set off against the surplus of income over expenditure relating to the assessment year 1971-72 in computing the taxable income of the latter assessment year. 4.8 Similarly, in the case of CIT Vs. Institute of Banking reported 264 ITR 110, the facts were as under: The assessee is a charitable trust. For the accounting year ending December 31, 1984 (assessment year 1984-85) a return of income was filed on June 28, 1985, by the asses see declaring a deficit of ₹ 74.97 lakhs. In the revised return filed by the asses see on April 3, 1986, the deficit was increased to ₹ 89.18 lakhs. During the assessment year in question the assessee had carried forward the deficit of the earlier years and had adjusted the deficit of the earlier years against the surplus of the subsequent years which was disallowed by the Assessing Officer on the ground that such carry forward was applicable only to income assessable under the head Profits and gains of business and such carry forward and adjustment was not permissible in case of income assessable under section 11 to section 13 of the Income-tax Act as the income of the charitable trust was not assessable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the cases there was actual deficit, i.e. expenditure was more than the income. As discussed above, in the appellant's case there is no actual deficit. It is thus evident that the appellant's claim of carry forward of excess utilization pertaining to the earlier years for set off against income of current year is not in accordance with the provisions of law and is not supported by any of the case laws relied upon by the appellant. This ground of appeal is accordingly dismissed. 10. After considering the rival submissions, we do not find any merit in this ground of Cross Objection of the assessee. The assessee claimed before the learned CIT (Appeals) that there was excess utilization during the earlier years over and above the amount applied upto 85% of the income in those years and excess application of income had been claimed to be carry forward to the subsequent years. The assessee further claimed that the short fall in the application of income in the current year is adjustable against carry forward of expenses from the earlier years. The learned CIT (Appeals) directed the assessee to file evidence of excess utilization brought forward which was claimed to be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry forward as claimed by the assessee. Therefore, we do no find any merit in this ground of Cross Objection of the assessee. The same is accordingly dismissed. 12. In the result, the Cross Objection of the assessee is dismissed. 13. In the Departmental appeal, the Revenue challenged the order of the learned CIT (Appeals) in allowing credit for 15% of the gross receipts in working the short fall of the amounts spent when the assessee had not fulfilled the requirements by giving a notice under section 11(2)(a) of the Income Tax Act for accumulation of income intended to be applied for charitable purposes in future years. 14. The assessee challenged the order of the Assessing Officer before the learned CIT (Appeals) against the denial of credit for 15% of the gross receipts i.e. an amount of ₹ 1,47,80,028/-. The facts are same as noted above while disposing of the Cross Objection of the assessee. It was submitted that as per the provisions of section 11 of the Act, if a charitable trust incurred 85% of its income for the objectives of the trust, the balance 15% is free to be set apart/accumulated without any conditions and nothing is taxable . The assessee explaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income is applied for such religious or charitable purposes, the same will get out of the tax net but so far as the income which is not so applied during the previous year is concerned at least 25 per cent, of such income or ₹ 10,000, whichever is higher, will be permitted to be accumulated for charitable or religious purpose and it will also get exempted from the tax net. Then follows sub-section (2) which seeks to lift the restriction or the ceiling imposed on such exempted accumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down by sub-section (2) of section 11 are fulfilled meaning thereby the money so accumulated is set apart to be invested in the Government securities, etc., as laid down by clause (b) of sub-section (2) of section 11 apart from the procedure laid down by clause (a) of section 11(2) being followed by the assessee-trust. To highlight this point we may take an illustration. If ₹ 1,00,000 are earned as the total income of the previous year by the trust from property held by it wholly for charitable and religious purposes and if ₹ 20,000 are actually applied duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year from its properties are given exemption from income-tax: (i) that part of the income of the previous year which is actually spent for charitable or religious purposes in that year; and (ii) out of the unspent accumulated income of the previous year 25 per cent, of such total property income or ₹ 10,000, whichever is higher, can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such 25 per cent, of the income or ₹ 10,000, whichever is higher, will also get exempted from income-tax. That exhausts the operation of section 11(1)(a). Then follows sub-section (2) which naturally deals with the question of investment of the balance of accumulated income which has still not earned exemption under subsection (1)(a). So far as that balance of the accumulated income is concerned, that also can earn exemption from income-tax meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by subsection (1)(a) of section 11 would get lifted if additional accumulated income beyond 25 per cent, or ₹ 10,000, whichever is higher, as the case may be, is invested as laid down by sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted income which is to be invested. But on a conjoint reading of the aforesaid two provisions of sections 11(1) and 11(2), this is the only result which can follow. It is also to be kept in view that under the earlier Income-tax Act of 1922, exemption was available to charitable trusts without any restriction upon the accumulated income. There was a change in this respect under the present Act of 1961. Under the present Act, any income accumulated in excess of 25 per cent, or ₹ 10,000, whichever is higher, is taxable under section 11(1)(a) of the Act, unless the special conditions regarding accumulation as laid down in section 11(2) are complied with. It is clear, therefore, that if the entire income received by a trust is spent for charitable purposes in India, then it will not be taxable, but if there is a saving, that is to say, an accumulation of 25 per cent, or ₹ 10,000, whichever is higher, it will not be included in the taxable income. Section 11(2) quoted above further liberalizes and enlarges the exemption. A combined reading of both the provisions quoted above would clearly show that section 11(2), while enlarging the scope of exemption, removes the restrictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow 15%) of gross receipts as per second part of Section 11(1)(a) of the Income Tax Act. This exemption of 25% is not dependent on any other condition except that the trust or society should be registered u/s 12AA of the Income Tax Act. The only issue to be examined here is whether the provisions of section 11(1) (a) and 11(2) have been since amended and if so, whether the aforesaid decision would apply to the amended provisions also? 5.8 The provisions of section 11(1)(a) and 11 (2) as they were in force in the year 1968-69 relevant to AY 69-70, i.e the year to which the case of A.L.N. Rao Charitable Trust (supra) relates have been reproduced in the order of the Hon'ble Supreme Court itself as under: These provisions as they stood at the relevant time read as under: 11. (1) Subject to-the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India ; and, where any such income is accumulated for application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided the following conditions are complied with, namely - (a) such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5): Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded: Provided further that in respect of any income accumulated or set apart on after the 1st day of april, 2001, the provisions of this sub-section shall have effect as if for the words ten years at both the places where they occur, the words five years had been substituted. 5.10 It is apparent from the reading of provisions referred to above that section11 (a) was almost identical during the AY 69-70 and during AY 20010-11. As regards the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... {s.4(3)(i)}. Conditionally exemption - (a) if a notice in From No. 10 is given to the 1TO in accordance with rule 17 and income so accumulated {minus accumulation permitted under (b), below} is invested in Government securities, or other approved securities, the accumulation up to a period of ten years is exempt [s. 11(1)(a), latter part, read with s. 11(2)}; and (b) if conditions at (a) are not fulfilled, accumulation to the extent of 25 per cent of the income from the property or ₹ 10,000/- whichever is higher, is exempt. In computing the 25 per cent., the income from such property for the relevant previous year or the immediately preceding previous year, whichever is higher, may be taken [s. 11(1) (a), latter part, read with the Explanation]. Conditionally exempt - (a) if a notice in Form No. 10 is given to the 1TO in accordance with rule 17 and income so accumulated accumulation permitted under (b), below] is invested in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not find any justification to interfere in the order of the learned CIT (Appeals). This ground of Departmental appeal is accordingly dismissed. 16. On ground No.2 of the Departmental appeal, the Revenue challenged the order of the learned CIT (Appeals) in allowing claim of depreciation, which was subsequently claimed during the course of assessment proceedings. 17. The learned CIT (Appeals) allowed the claim of depreciation by following the decision of Hon'ble Jurisdictional High Court. The Revenue is not aggrieved against this finding. The only issue raised in the ground of appeal is that the said claim of depreciation was raised subsequently during the course of assessment proceedings. The learned CIT (Appeals) followed the decision of I.T.A.T., Chandigarh Bench in the case of Budhewal Cooperative Sugar Mills Ltd. Vs. The A.C.I.T. (OSD) in ITA No.1077/Chd/2012 dated 24.5.2013, in which it was held that the assessee can raise additional ground and make claim during the assessment proceedings. The Tribunal followed the decision of the Hon'ble Punjab Haryana High Court in the case of CIT Vs. Ramco International. The learned CIT (Appeals) also relied upon Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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