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2016 (7) TMI 707 - RAJASTHAN HIGH COURT

2016 (7) TMI 707 - RAJASTHAN HIGH COURT - [2017] 390 ITR 59 - Entitlement for exemption under Section 11 (1)(a) - Held that:- The assessees are entitled to claim set off of the expenditure incurred in excess of the income in the earlier years against the income of subsequent year, merely because the assessees have incurred the expenses in excess of income, may be out of accumulated fund, the question of denying the benefits of exemption to the assessees under Section 11 (1)(a) of the Act, in res .....

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exemption under Section 11 (1)(a) of the Act during the relevant assessment year is absolutely justified and does not warrant any interference by this court. - Decided against revenue - D.B. Income Tax Appeal Nos. 47, 48, 50 & 51 of 2013 - Dated:- 26-4-2016 - Sangeet Lodha And Kailash Chandra Sharma, JJ. For the Petitioner : K. K. Bissa For the Respondent : Rajesh Choudhary ORDER Sangeet Lodha, J. 1. These appeals arising out of the common order dated 4.12.12 passed by the Income Tax Appellate T .....

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nt facts in nutshell are that assessees, Agriculture Produce Market Committees, filed Return of Income for the assessment year 2008-09, claiming the status as Charitable Trust. Indisputably, the income derived during the previous year relevant to assessment year 2008-09, was applied by the assessees for charitable purposes, however, the expenditure incurred by the assessees towards the charitable aims and objects, were found to be in excess of the income earned in the previous year, relevant to .....

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the issue stands decided in their favour by ITAT, Jodhpur Bench, in ITA No.385/JU/2009. The assessees also placed reliance upon a decision of this court in the matter of CIT vs. Maharana Mewar Charitable Foundation (164 ITR 439) and a decision of the Gujarat High Court in case of CIT vs. Shri Plot Swetamber Murti Poojak Jain Mandal , (1995) 211 ITR 263. 4. The A.O. arrived at the finding that the expenses in excess of the income in the previous year relevant to the assessment year, were incurred .....

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CIT (A) failed. Aggrieved thereby, the assessees carried the matters in further appeals, which have been allowed by the ITAT vide orders impugned, relying upon its earlier decision dated 1.9.09 rendered in ITA No.385/JU/2009. The operative portion whereof quoted in the order impugned, reads as under: 6. We have heard the parties and have carefully perused the material on record with reference to Sub-rule)(6) of Rule 18 of Appellate Tribunal Rules, 1963 and the precedents cited at bar. The Hon&# .....

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impinge his power to entertain the claim for deduction otherwise than by filing revised return before the assessing authority. The ld. CIT(A),therefore, cannot be said to have committed any error in entertaining the claim for deduction made before him as such. Hence, these appeals by the Revenue. 6. These appeals were admitted by a coordinate Bench of this court on the following substantial questions of law arising for consideration out of the order impugned passed by the ITAT: D.B.INCOME TAX A .....

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Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of ₹ 8,86,27,401/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961? D.B.INCOME TAX APPEAL NO.51/13 Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of ₹ 2,45,20,984/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961? 7. Learned counsel appearing for the Revenue .....

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essment year 1971-72. Learned counsel submitted that the facts of the instant case are different inasmuch as the assessees herein have incurred the expenditure out of surplus in PD account as on 31.3.08, which is corpus fund of the Trust out of earlier years savings and therefore, the assessees were not entitled for exemption under Section 11(1)(a) of the Act. Learned counsel would submit that as a matter of fact, the question of law arising in the instant appeals stands squarely covered by a Be .....

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t before this Court, learned counsel submitted that no appeal was filed against the said decision of the ITAT and the same has attained finality. 8. On the other hand, learned counsel appearing for the respondent submitted that the controversy involved in these appeals stand covered by decision of this Court in Maharana Mewar Charitable Foundation's case (supra), the decision of Gujarat High Court in Shri Plot Swetamber Murti Poojak Jain Mandal's case (supra), a decision of Delhi High Co .....

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on that the assessee having incurred expenses during the previous year relevant to the assessment year in excess of the income earned, from the charity fund, is not entitled to exemption, the relevant provisions of Section 11(1)(a) of the Act have not been considered and earlier Bench decision of this court in Maharana Mewar Charitable Foundation's case (supra), which is a binding precedent, has not even been taken note of. Learned counsel would submit that the decision rendered by this cour .....

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e relevant period. It is also not in dispute that the expenditure in excess of the income of the previous year relevant to the assessment year was incurred by the assessees by transferring the fund from interest bearing PD account to non interest bearing PD account. But then, merely because, the assessees have incurred the expenditure in excess of the income in the previous year relevant to the assessment year for the charitable purposes, out of the accumulated charity fund, they cannot be denie .....

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f this court after due consideration of the provisions of Section 11(1)(a) and the various decisions of different High Courts categorically held : 8. We are unable to accept the aforesaid contention of Shri Arora. In our view, there is nothing in the language of Section 11(1)(a) which lends support to the contention of Shri Arora that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year and utilisation of such income for meeting the expenditure of t .....

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it is applied for charitable or religious purposes. The said application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if the expenses for charitable and religious purposes have been incurred in the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for .....

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n the said circular, the Central Board of Direct Taxes has expressed the view that the repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable and religious purposes. In other words, according to the said circular, if the trust wants to spend more money on charitable and religious purposes, then, in a particular year, it can take a loan and the said loan can be repaid out of the income of the subsequent year and .....

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be entitled to exemption from tax under Section 11(1)(a) of the Act. But if the trust, instead of taking a loan incurs expenditure for charitable and religious purposes out of the corpus of the trust and seeks to reimburse 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 under Section 11(1)(a) of the Act. In our opinion, a construction which leads to such an anomaly must be avoided. .....xxxxxx......... .....

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on's case (supra), this court has categorically observed that if only income of the assessee during the relevant assessment year applied for charitable and religious purposes, is excluded and the expenditure incurred in previous assessment year in excess of the income earned, is not permitted to be adjusted against the income of the succeeding year, it will create an anomalous situation inasmuch as, if the Trust takes a loan for the purposes of incurring expenses for charitable and religious .....

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rt opined that a construction which leads to such an anomaly must be avoided. 13. It is pertinent to note that the view taken by this court in Maharana of Mewar Charitable Foundation's case (supra), has been consistently followed by different High Courts as well. 14. Keeping in view the law laid down by this court in Maharana of Mewar Charitable Foundation's case (supra), this court is of the considered opinion that if the assessees are entitled to claim set off of the expenditure incurr .....

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