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2016 (2) TMI 226 - ITAT AMRITSAR

2016 (2) TMI 226 - ITAT AMRITSAR - TMI - Entitlement to exemption u/s 11 - whether the payment is towards religious purposes and not charitable purposes? - Held that:- It is to reiterate that it has not been disputed that the payment was for the purpose of the education of the Fathers, who serve in various schools run by the assessee, as teachers, supervisors and principals, etc. Before the AO, it was because of the wrong admission of the assessee that the addition was made. The two rectificatio .....

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ive of the nature of the expense, particularly when education of the Fathers has not been shown not to be towards education, which is a charitable purpose of the assessee.

Therefore, the grievance of the department that the ld. CIT(A), holding powers co-terminus with those of the AO, ought to have held the expenditure not to have been incurred for charitable purposes, is found to be devoid of force, particularly in the absence of any material on record to prove the expenditure to be t .....

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s persuasion of alternative remedies was not a sufficient and bonafide cause of delay in furnishing the appeal. 2. That, on the facts and in the circumstances of the case, the ld. CIT(A) has erred in not appreciating the addition of ₹ 12,40,475/- had been made by the AO on good ground but on erroneous invocation of the provisions of section 11(3)(d) of the Income Tax Act, 1961. The power of the ld. CIT(A) being coterminous with those of AO., the ld. CIT(A) ought to have held that the expen .....

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u/s 11 of the Act. 3. The AO noticed that the assessee had incurred expenses of ₹ 17,31,291/-, debited as Maintenance Expenses of religious nature. Out of these expenses, the assessee was found to have incurred expenses of ₹ 12,40,475/- on Community Centres which were not run by the assessee Trust. These expenses were held to be expenses incurred on Centers out of the working area of the assessee Trust, since these Centers were under the control of other charitable Trusts. The AO opi .....

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ed a rectification application dated 18.07.2005 before the AO. Therein, it was submitted that while calculating income and exemption u/s 11 of the Act, the AO had considered only the amount spent/applied on account of revenue expenditure, but had not considered amounts spent on account of capital expenditure during the year; and that the assessee Trust had spent an amount of ₹ 1,86,74,223.05 on account of capital expenditure, as per its Schedule of Fixed Assets. 5. Vide order dated 28.11.2 .....

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5/- had been made for violation of the provisions of section 11(3)(d) of the Act; that the said section had wrongly been interpreted during the assessment proceedings; and that the AO and the assessee s counsel had simply taken that no donation to other Trusts or Institutions could be given and hence, the addition had been made by the AO, whereas the exact legal position was that donations and contributions to other Trusts and Institutions could not be given out of accumulated income. 8. The abo .....

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inal assessment order dated 08.06.2005. It was belated by about seventeen months. 11. By virtue of order dated 30.01.2009, the ld. CIT(A) condoned the aforesaid delay in the filing of the appeal. The addition made by the AO u/s 11(3)(d) of the Act was deleted. 12. The Department preferred an appeal before the ITAT against the aforesaid order dated 30.01.2009 passed by the ld. CIT(A). 13. The ITAT, vide order dated 21.07.2009, restored the appeal to the file of the ld. CIT(A), observing as follow .....

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nd in the circumstances of the case, the ld. CIT(A) has erred in not appreciating the addition of ₹ 12,40,375/- had been made by the AO on good ground but on erroneous invocation of the provisions of section 11(3)(d) of the Income tax Act, 1961. The power of the ld. CIT(A) being coterminous with those of AO, the ld. CIT(A) ought to have held that the expenditure of ₹ 12,40,735/- was not incurred for charitable purposes. 3. That, it is prayed that the order of the ld. CIT(A) be set-as .....

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ed any documentary evidence supporting the same but the CIT(A) has wrongly condoned the delay of 17 months. Secondly, the learned CIT(A) has also wrongly deleted the addition in dispute without taking into consideration that the assessee did not object to the addition of ₹ 12,40,275/- under section 11(3)(d) of the Income tax Act in respect of the donation made by the assessee trust to another trust on a wrong interpretation of the section. The learned D.R. stated that when there is a conse .....

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e the assessee remained busy in the assessment proceedings by filing an application under section 154 of the Income tax Act, 1961 before the A.O. He further submitted that the addition of ₹ 12,40,475/- has rightly been deleted by the learned CIT(A). He requested that the appeal filed by the Revenue be dismissed. 4. We have heard both the parties and have perused the relevant records available with us. We are of the considered opinion that the learned first appellate authority has condoned .....

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e him and then pass the order under the law on the issue in dispute. 14. The ld. CIT(A), vide order dated 13.12.2013 once again condoned the delay in the filing of the appeal. On merits, the addition of ₹ 12,40,475/-, made by the AO u/s 11(3)(d) of the Act, was deleted. 15. It is the aforesaid order dated 13.12.2013 passed by the ld. CIT(A), which brings the department in appeal again before this Bench in this second round. 16. The first issue raised by the Department by way of Ground no.1 .....

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plication before the AO for rectification of the perfectly justified assessment order, this definitely was not a good and sufficient cause for the ld. CIT(A) to have condoned the inordinate delay of almost seventeen months in the filing of the appeal. It has been submitted that the ld. CIT(A) has gone wrong in observing that the time taken by the assessee in pursuing unsuccessful proceedings before the AO was a sufficient cause for not filing the appeal in time. 18. On the other hand, the ld. co .....

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, 168 ITR 231 (Guj.) and Delhi Cloth & General Mills Co. Ltd. vs. CIT , 165 ITR 599 (P&H). 20. I have heard the parties and have perused the material on record with regard to this issue. The issue is as to whether the ld. CIT(A) was justified in condoning the delay of almost seventeen months in filing the appeal where the assessee was pursing applications filed u/s 154 of the Act, by way of unsuccessful alternate remedy. In Nicco Corporation Ltd. (supra), as rightly considered by the ld. .....

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t. 21. In line with these decisions, it is seen that in the present case, the assessee, in pursuing the two miscellaneous applications filed before the AO, was advised by its counsel and as such, the ld. CIT(A) is correct in holding that there was reasonable cause for the delay incurred in filing the appeal against the original assessment order. Otherwise too, in the case of Collector, Land Acquisition vs. MST Katiji and others , 167 ITR 471 (SC), it has been held that an appeal should be dispos .....

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n the filing of the appeal, in the circumstances. Moreover, even lack of due diligence cannot be ascribed to the assessee, as the assessee, in filing and pursuing the two rectification applications before the AO, acted in good faith on legal advise, which fact has not been disputed. Since the addition in the assessment order was based on the misplaced admission of the assessee, the assessee cannot be said to have erred in filing the rectification applications before the AO rather the filing an a .....

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since the powers of the ld. CIT(A) were co-terminus with those of the AO, the ld. CIT(A) ought to have held that the expenditure of ₹ 12,40,475/- has not been incurred for charitable purposes. 24. The facts are that while checking the expenses debited under the head Maintenance Expense of religious nature, the AO noticed that the assessee had incurred expenses of ₹ 17,31,291/- and out of these expenses, expenses to the extent of ₹ 12,40,475/- stood incurred on Community Center .....

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CIT(A) deleted this addition. 25. The ld. DR has contended that the ld. CIT(A) has erred in deleting the addition rightly made by the AO and for doing so, the ld. CIT(A) has gone wrong in following the order dated 30.01.2009 of his predecessor. It has been submitted that the ld. CIT(A) has also erred in holding that section 11(3)(d) of the Act has no application; that the ld. CIT(A) has further gone wrong in placing reliance on the fact that similar expenditure, as the one under consideration, w .....

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reproduced at pages 14-15 of the impugned order; that once the expenditure is religious in nature, it cannot, obviously, be said to be charitable expenditure and the ld. CIT(A) has failed to take this aspect of the matter into account; and that, therefore, the order under appeal on this score is not sustainable in the eye of law and the same be set aside and the addition be restored. 26. On the other hand, while placing strong reliance on the impugned order in this regard, the ld. counsel for t .....

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, the expenditure of ₹ 12,40,475/- was not incurred out of any accumulate income. It has been submitted that as noted by the AO himself, the amount of ₹ 12,40,475/- was included as amount spent at Community Centre and Varanasi Ashram for the purpose of education of the Fathers who serve the Society in various Schools run by it, as the Teachers, Supervisors, Principals, etc. It has been contended that the acceptance of the addition by the assessee during the assessment proceedings was .....

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imilar expenditure was allowed by the AO in many subsequent years under scrutiny assessment, under similar facts and circumstances, which facts have not been demonstrated to be dis-similar from those present for the assessment year under consideration, the ld. CIT(A) cannot be said to have committed any error in taking those scrutiny assessment orders for subsequent years into consideration. 28. Besides, it has also been urged that the argument of the department that the expenditure was of a rel .....

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nder section 11(3)(d), which was introduced w.e.f. assessment year 2003-04, the accumulation is not allowed for being given to any other charitable institution, which is not the case here, as in the present case, the donation was given out of the current income of the assessee, there being no accumulated income of the assessee. 29. I have heard the parties on this issue in the light of the material available on record. The AO held the amount of ₹ 12,40,475/-, expanded by the assessee on Co .....

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1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) such person sp .....

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t 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 Ist day of April, 2001, the provisions of this subsection shall have effect as if for the words- ten years at both the places where they occur, the words five years had been substituted. Explanation - Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-s .....

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ter. Section 11(3)(d) read as under: (3) Any income referred to in sub-section (2) which- (a)…… (b)….. (c)….. (d) is credited or paid to any trust or institution registered u/s 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) { or sub-clause (via) of clause (23C) of section 10, shall be deemed to be the income o .....

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under Trust, as provided therein, shall not be included in the total income of the previous year of the person in receipt thereof. Both sections 11(1)(a) and 11(1)(b) talk of application of income accumulated or set apart for application for charitable or religious purposes. 31. In the present case, it has nowhere been the case of the department that there was any accumulation or setting apart of income by the assessee. It remains undisputed that the expenditure was incurred out of the current .....

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and remains undisputed. Hence, the ld. CIT(A) cannot be said to have committed any error whatsoever in adopting the line of reasoning taken by the ld. CIT(A) in passing the order dated 30.01.2009, in framing the impugned order. Rather, it would not be inappropriate to reproduce here the aforesaid para 3.2 of the order dated 30.01.2009: 3.2 The income and expenditure account of the appellant shows current year s income on account of interest, school fees and misc. income. The expenditure on accou .....

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e would not be included in the total income on satisfaction of certain conditions. Section 11(3)(d), which deems payments made to other trusts etc. as deemed income of the assessee, applies to income accumulated u/s 11(2), and would, therefore, not be applicable in respect of the current year s payment to another religious institution. In para 21 of the Circular no. 8 dated 27.08.2002, the CBDT has explained the implication of insertion of section 11(3)(d) and the Explanation inserted below sect .....

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to any trust or institution registered u/s 12AA or to any fund or institution referred to in sub-clause (iv) or sub-clause (for sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, either during the period of accumulation or thereafter, shall not be treated as application of income for charitable or religious purposes. Thus, payment to other trusts and institutions out of income from property held under trust in the year of receipt will continue to be treated as application of inco .....

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or other medical institution referred to in sub-clause (iv) or (v) or (vi) or (via) of clause (23C) of section 10, such payment or credit shall be deemed to be the income of the person making such payment or credit, of the previous year in which such payment or credit is made. It has been clarified above that only payments out of accumulated income would not be treated as application of income of the charitable institution and that such payments out of accumulated income would alone be deemed t .....

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discussed above, the addition made by the AO was uncalled for. 32. It would also be appropriate to reiterate the contents of para 21 of the CBDT Circular No.8 dated 27.08.2002, explaining the implication of section 11(3)(d) and the Explanation to section 11(2) of the Act. As per this para, inter-alia, payment to other Trusts and Institutions out of income from property held under Trust in the year of receipt will be continued to be treated as application of income, but any such payment out of ac .....

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2) of the Act, before invoking the provisions of section 11(3)(d). Therefore, obviously, the AO wrongly invoked the provisions of section 11(3)(d) without bringing on record anything with regard to the provisions of section 11(2) of the Act. In this regard, the Ground taken by the department states that the powers of the ld. CIT(A) being co-terminus with those of the AO, the erroneous invocation of the provisions of section 11(3)(d) of the AO ought to have been rectified by the ld. CIT(A), holdi .....

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e, as teachers, supervisors and principals, etc. The assessee runs several educational schools in Punjab under the name of Mount Carmel School. The assessee is registered under section 12A(a) of the Act, besides being registered with the Registrar of Societies, Punjab. The registration continues hitherto. The fact that the objects of the society are charitable stands accepted by the department in all the subsequent years. The assessee has not been shown to have carried out any activity which is .....

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been shown that the purpose of education of the Fathers, who serve in the various schools of the assessee as teachers, supervisors and principals, etc., is not a purpose towards education. The ld. DR has referred to the chart/table at pages 14-15 of the impugned order, giving details of the expenses. The third column therein narrates the recipient in each case. The ld. DR contends that this narration shows the recipient to be religious Community Centre, religious Ashram and monastery. Thus, as p .....

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ld. CIT(A) has erred in not holding that the expenditure was not incurred for charitable purposes, in the instance of the provisions of section 11(3)(d) of the Act having been wrongly applied by the AO. That being so, this argument is available to the department at this stage. 36. Now, coming to the issue per se, i.e., as to whether the payment is towards religious purposes and not charitable purposes, it is to reiterate that it has not been disputed that the payment was for the purpose of the .....

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