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TMI Blog2022 (8) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... es u/s. 143(2) and 142(1) of the Act. In response to the said notices the authorized representative on behalf of the assessee appeared before the AO and furnished various details as called. Considering the same the AO denied exemption u/s. 11 and determined the total income of the assessee at Rs.13,57,70,750/- by recording reasons from paras 8 to 12 at page 12 of its order dated 30-03- 2015 passed u/s. 143(3) of the Act. The CIT(A) following its own order for A.Y. 2011-12 allowed the exemption u/s. 11 of the Act. Having not satisfied with the order of CIT(A), the Revenue is before us. 5. Heard both the parties and perused the material available on record. We note that a similar issue on identical facts came up before this Tribunal in assessee's own case in ITA No. 2439/PUN/2017 and vide order dated 16-09-2020, considering the order for A.Ys. 2010-11 and 2011-12 remanded the issue to the file of AO for deciding the issue afresh as per directions as rendered by this Tribunal in A.Ys. 2010-11 and 2011-12. The ld. DR placed on record report dated 01-08-2022 enclosing factual report in the case of assessee, objects of assessee and order giving effect to the directions of this Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any person refer- red to in sub- section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution: Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub- clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub- section (3) in so far as such use or application relates to any period before the 1st day of June, 1970 ;" A bare perusal of the above provisions of section 13(1)(c)(ii) show that in case any income or property of the trust is used either directly or indirectly for the benefit of trustee or any person referred to sub-section (3) of section 13, the benefits granted to the trust u/s. 11 shall be forfeited. However, the first proviso to section 13(1)(c) provides an exception. According to first proviso benefit derived by the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the exclusive use by the author of the trust and his legal heirs. 9. In case the shops under question are part of the property which was in possession of the author of the trust deed at the time of execution, then the assessee clearly falls within the exception as mentioned in proviso to section 13(1)(c)(ii) of the Act. 10. The assessee has raised an alternate plea by way of additional ground to restrict the addition to the extent of violation made u/s. 13(1)(c)(ii) and 13(2)(b) of the Act. The Co-ordinate Bench of the Tribunal in the case of Sinhgad Technical Education Society Vs. ACIT in ITA No. 320/PUN/2010 for assessment year 2006- 07 decided on 14-12-2016 has held that there cannot be denial of exemption in toto u/s. 11 of the Act. The benefit of exemption shall not be available to the extent there is violation of provisions of section 13(1)(c) and the same be brought to tax at the maximum marginal rate. In case the Assessing Officer comes to the conclusion that shops are not part of the property as mandated in the Trust Deed, the addition has to be made to the extent of violation of provision of section 13(1)(c)(ii) and 13(2)(b) of the Act. The Assessing Officer befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. The said amount of Rs. 423.28 lakhs is a part of the total expenditure incurred of Rs. 544.54 lakhs. The AO has also observed that the expenditure on the objects Expenditure Account for the year ended 31.03.2012 shall reveal that the expenditure has been classified under various heads. Based on such classification, the AO has inferred that the expenditure is incurred for the commercial adventure, which is not correct. A closer look at the expenditure shall reveal that the expenditure is in relation to the trust property or in the nature of administrative and other expenses. If there is property held in trust, then exemption to a Trust under Section 11 can be granted when the source of its income is some property, which is held under Trust or under any other legal obligation for religious or charitable purposes. The exemption will be allowed if the source of income, viz. the property, is held upon a Charitable Trust. The word 'Property' is used in the widest import indicating all that a person has dominance over. As held by the Bombay High Court in the case of A.J. Patel v. CIT (1974) 97 ITR 683, even the right to exploit either side of the bridge as advertising space ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying out the objects and purposes of the Trust must be considered as application for charitable purposes. Even Income tax and wealth tax paid by a Trust are to be deducted in computing the income. This is on account of the fact that exemption under Section 11 is based on application of the income for religious or charitable purposes. To the extent of the tax paid, the income is not available for application to such purposes, and has therefore necessarily to be deducted. Payments on account of Income Tax and Wealth Tax are not expenditure by themselves for the purpose of the Trust, but an incidence of the income or accumulation of income, and as such, must be deducted from the income of the Trust [CIT vs. Trustees of H.E.H. the Nizam's Supplemental Religious Endowment Trust, (1981) 127 ITR 378 (A.P.)]. Further, in the case of CIT vs. Baroda Industrial Development Corporation Limited, (1986) 24 Taxman 36, the Gujarat High Court held that the Income Tax liability of a Charitable Trust has to be deducted as a necessary outgoing before the net income capable of obligation for the purpose of the Trust under Section 11(1)(a) of the Income-tax Act could be ascertained. A similar vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No.2 is allowed." 9. Heard both the parties and perused the material available on record. We note that the case of the AO is that the expenditure incurred on other than the object is Rs.423.38 lakhs which was incurred for the purpose of commercial adventure. He also found that the said amount is part of total expenditure incurred to an extent of Rs.544.54 lakhs. The contention of ld. AR is that the AO nowhere held the said expenditure incurred into violating the objects of trust and no adverse remark as held by the assessee violated the provisions of section 13 of the Act while incurring the said expenditure. We note that the CIT(A) by placing reliance on the decision of Hon'ble High Court of Kerala in the case of St. George Forana Church reported in 170 ITR 62 held that where surplus funds were utilized for additions to a building, which was let out and the income thereof applied for charitable or religious purposes, the utilization of such surplus was held to amount to application of income for religious or charitable purposes. Further, we note that the CIT(A) placed reliance on the decision of Hon'ble High Court of Jharkhand in the case of Karimla Trust reported in 302 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... send maintenance. It is akin to a donation In kind in the form of allowing the other trust to run the school. This shall be in any case an application of income. 3. The Bombay High Court had in CIT vs. Trustees of Jadi Trust (1982) 133 ITR 494, and the Calcutta High Court had in CIT vs. Hindustan Charity Trust (1983) (139 ITR 913), held that the donation made by one Trust to another Trust, both Trusts being established for Charitable purposes, would amount to an application of Income or Charitable purposes by the donor Trust and the same would be entitled to exemption under Section 11. Reiterating this View, the Gujarat High Court held in the case of CIT Vs. Sarladevi Sarabhai Trust, (No.2) (1988) 172 ITR 698 that such a donation would constitute application for religious or charitable purposes, even if it was towards the corpus of the other Trust. Similar is the decision of the Delhi High Court in CIT v. Shri Ram Memorial Foundation (2004) 269 ITR 35. (iii) I have considered the submission of the appellant and gone through the provision of Section 60 of the I.T. Act. I find force in the argument of the appellant on the simple reason that the provisions of section 11 to 13 are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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