Commissioner of Income-tax, Bikaner Vs. Krishi Upaj Mandi Samiti, Raisinghnagar

IT : Where assessee, a charitable trust, incurred expenditure in excess of income in previous year relevant to assessment year for charitable purposes, out of accumulated charity fund, it could not be denied benefit of exemption under section 11(1)(a) in respect of income of previous year relevant to assessment year, which had been admittedly applied for charitable purposes

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[2016] 69 taxmann.com 425 (Rajasthan)

HIGH COURT OF RAJASTHAN

Commissioner of Income-tax, Bikaner

v.

Krishi Upaj Mandi Samiti, Raisinghnagar*

Sangeet Lodha AND Kailash Chandra Sharma, JJ.

D.B. IT Appeal Nos. 47, 48, 50 & 51 of 2013†

APRIL  26, 2016 

Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under (Application of income) - Assessment year 2008-09 - Whether where assessee, a charitable trust, incurred expenditure in excess of income in previous year relevant to assessment year for charitable purposes, out of accumulated charity fund, it could not be denied benefit of exemption under section 11(1)(a) in respect of income of previous year relevant to assessment year, which had been admittedly applied for charitable purposes - Held, yes [Para 10] [In favour of assessee]

FACTS

HELD

CASE REVIEW

CIT v. Maharana of Mewar Charitable Foundation's [1987] 164 ITR 439/[1986] 29 Taxman 476 (Raj.) (para 14) followed.

CASES REFERRED TO

Akhey Ram Ishwari Prasad Trust v. CIT [2004] 266 ITR 281/[2003] 130 Taxman 827 (Raj.) (para 3), CIT v. Maharana Mewar Charitable Foundation [1987] 164 ITR 439/[1986] 29 Taxman 476 (Raj.) (para 3), CIT v. Shri Plot Swetamber Murti Poojak Jain Mandal [1995] 211 ITR 293 (Guj.) (para 3), DIT v. Raghuvanshi Charitable Trust [2011] 197 Taxman 170/[2010] 8 taxmann.com 142 (Delhi) (para 8) and CIT v. Institute of Banking Personnel [2003] 131 Taxman 386/264 ITR 110 (Bom.) (para 8).

K.K. Bissa  for the Appellant. Rajesh Choudhary  for the Respondent.

ORDER

Sangeet Lodha, J. - These appeals arising out of the common order dated 4.12.12 passed by the Income Tax Appellate Tribunal (ITAT), Jodhpur Bench, Jodhpur, allowing the appeals preferred by the assessees, questioning the legality of the orders passed by the Commissioner of Income Tax (Appeals) [CIT (A)], affirming the order passed by the Assessing Officer (A.O.), rejecting the claim of assessees for exemption under Section 11(1)(a) of the Income Tax Act, 1961 (for short "the Act"), involving identical substantial question of law, were heard together and are being disposed of by this common order.

2. The relevant 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 the assessment year in question. It was also not in dispute that the excess expenditure was incurred by the assessees for charitable purposes out of surplus in Public Deposit Account (PD Account). Keeping in view a Bench decision of this court in "Akhey Ram Ishwari Prasad Trust v. CIT" [2004] 266 ITR 281/[2003] 130 Taxman 827 (Raj.) the A.O. issued notices to the assessees under Section 143(2) of the Act, to justify their claim for deduction under Section 11 (1)(a) of the Act.

3. In reply, the assessees pleaded that 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 v. Maharana Mewar Charitable Foundation" [1987] 164 ITR 439/[1986] 29 Taxman 476 (Raj.) and a decision of the Gujarat High Court in case of "CIT v. Shri Plot Swetamber Murti Poojak Jain Mandal" [1995] 211 ITR 293.

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 by transferring the fund from interest bearing PD account to the non interest bearing PD account and thus, the excess expenses having been incurred from charity fund/accumulated fund for earlier years, the assessees are not entitled to exemption under Section 11(1) (a) of the Act and accordingly, assessed the income of the assessees during the previous year relevant to the assessment year as taxable income.

5. Aggrieved by the assessment orders, the appeals preferred by the assessees before the 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'ble Apex Court in Goetze [India] Ltd [supra] has clarified that the issue as regards making of fresh claim for deduction otherwise than filing revised return is limited to the powers of assessing authority and does not impinge on the power of the tri u/s 254 of the I.T.Act. Following this ratio, we are satisfied that when the appellate authority including the ld. CIT(A), entertains a new claim as such, the judgement rendered by the Hon'ble Apex Court in Goetze [India] Ltd [supra] does not 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 APPEAL NO.47/13

"Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of Rs.2,76,65,446/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961?"

D.B.INCOME TAX APPEAL NO.48/13

"Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of Rs.1,57,89,828/- as application of income under section 11 (1)(a) of the Income Tax Act, 1961?"

D.B.INCOME TAX APPEAL NO.50/13

"Whether on the facts and in the circumstances of the case, the ITAT has been justified in allowing the claim of Rs.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 Rs.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 contended that the ITAT has seriously erred in allowing the appeal relying upon its earlier decision dated 1.9.09 rendered in ITA No.385/JU/2009. Learned counsel would submit that the said decision of the ITAT was based on decision of this Court in the Maharana Mewar Charitable Foundation's case (supra), wherein the assessees had claimed set off of expenditure incurred in the previous year relating to the assessment year 1970-71 against the surplus of income over expenditure relating to assessment 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 Bench decision of this Court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), wherein this Court held that where the expenditure incurred is in excess of the income earned out of charity fund/accumulated fund of earlier years, the assessees are not entitled for exemption under Section 11(1)(a) of the Act. On being asked by the Court whether the decision of the ITAT rendered in ITA No.385/JU/2009 and other connected appeals preferred by inter alia the assessees herein, was appealed against 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 Court in 'DIT v. Raghuvanshi Charitable Trust' [2011] 197 Taxman 170/[2010] 8 taxmann.com 142 and a decision of Bombay High Court in the matter of 'CIT v. Institute of Banking Personnel' [2003] 131 Taxman 386/264 ITR 110. Learned counsel would submit that the conclusion arrived at by this court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), is not supported by any reasons. Learned counsel submitted that in the said case, while arriving at the conclusion 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 court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), taking into consideration the facts of that particular case, is not applicable to the facts of the present cases.

9. We have considered the rival submissions and gone through the decisions relied upon by the learned counsel appearing for the parties.

10. Indisputably, the assessees have incurred expenditure for charitable purposes during the previous year relevant to the assessment year 2008-09 in excess of the income derived during the 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 denied benefits of exemption under Section 11(1)(a) of the Act in respect of the income of the previous year relevant to the assessment year, which has been admittedly applied for charitable purposes.

11. In Maharana of Mewar Charitable Foundation's case (supra), while dealing with the issue regarding claim for set off of the expenses incurred over the income, in the previous assessment year, against the surplus of the income over expenditure, relating to the subsequent assessment year, a Bench of 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 the earlier year would not amount to such income being applied for charitable or religious purposes. In our opinion, the words used in Section 11(1)(a) must be given their natural meaning. The word "applied" as defined in Chambers' Dictionary means "to put to use" or "to turn to use". According to the Oxford Dictionary, the word "applied" means "to make use" or "to put to practical use".

When the income of a trust is used or put to use to meet the expenses incurred for religious or charitable purposes, 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 charitable and religious purposes in the year in which the expenses incurred for charitable and religious purposes had been adjusted.

9. In this context, it may be mentioned that the Central Board of Direct Taxes has issued a Circular dated January 24, 1973, wherein the Central Board of Direct Taxes has considered the question as to whether where a trust incurs a debt for the purpose of the trust, the repayment of the debt would amount to an application of income for the purposes of the trust. In 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 the repayment of the said loan out of the income of the subsequent year would amount to application of income for charitable and religious purposes under Section 11(1)(a) of the Act.

10. If the contention of Shri Arora is accepted, it would lead to an anomalous situation, namely, if the trust takes a loan for the purposes of incurring expenses 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 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.

17. The aforesaid discussion leads to the conclusion that the Tribunal was right in directing that the deficit of Rs.59,770 arising out of the excess of expenditure over income during the previous year relevant to the assessment 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.' (Emphasis added)

12. As noticed above, in Maharana of Mewar Charitable Foundation'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 purposes in a particular year and the said loan is repaid out of the income of subsequent year, the said repayment would be entitled for exemption under Section 11(1)(a) 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 income of subsequent year, the Trust would not be entitled to claim exemption in respect of such reimbursement under Section 11(1)(a) of the Act. The court 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 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 respect of the income in previous year relevant to the assessment year, which was admittedly applied for charitable purposes, does not arise.

15. Coming to the decision of Shri Akhey Ram Ishwari Prasad Trust's case (supra), heavily relied upon by the Revenue, it is to be noticed that the said decision of a coordinate Bench of this court, affirming the finding of the ITAT, is not preceded by the consideration of the provisions of Section 11(1)(a) of the Act and earlier decision of this court in Maharana of Mewar Charitable Foundation's case (supra) having direct bearing on the facts of the case, was not even brought to the notice of the court. With ustmost respect, in our considered opinion, the decision rendered by a Bench of this court in Shri Akhey Ram Ishwari Prasad Trust's case (supra), taking into consideration the facts of the particular case, in no manner lays down the law that in all cases where the expenditure are incurred by the assessees in excess of the income earned during the previous year relevant to the assessment year, such income though applied for charitable purposes, shall not be entitled for exemption under Section 11 (1)(a) of the Act.

16. Moreover, it is not disputed before this court that the decision of the ITAT on the issue involved in the cases of the assessees herein relating to earlier assessment years, has been accepted by the Revenue and therefore, as a matter of fact, the Revenue is precluded from questioning the legality thereof by taking a different stand.

17. It is not out of place to mention here that the income of the assessees, which are Agriculture Produce Market Committees, constituted under the statute engaged in marketing of the agriculture produce stands exempted by virtue of provisions of Section 10(26AAB) w.e.f. 1.4.09.

18. In view of the discussion above, in our opinion, the decision of the ITAT in holding the assessees entitled to claim 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.

19. In the result, the appeals fail, the same are hereby dismissed. No order as to costs.

SUNIL

*In favour of assessee.

†Arising out of order of Tribunal dated 4-12-2012.