2019 (1) TMI 1260 - AT - Income Tax

Tribunal affirms CIT(A) decisions, allows deficit carry-forward & benefits under sections 11(1)(a); 10(23C)(vi) issue deemed academic.

Maharshi Karve Stree Shikshan Samstha Karvenagar Versus The Income Tax Officer, Ward 11 (1) And The Dy. Commissioner of Income Tax, (Exemptions) Circle, Pune

The tribunal upheld the CIT(A)'s decisions, dismissing the Revenue's appeal. The assessee was allowed to carry forward the deficit and claim benefits ... Claim of exemption u/s 10(23C)(vi) - exemption u/s 11 - 15% of receipts are to be taken into consideration - Held that:- We find that the Hon'ble Supreme Court in DIT Vs. Raghuvanshi Charitable Trust and Ors. [2010 (7) TMI 158 - DELHI HIGH COURT] had held that exemption under section 11(1)(a) i.e. of 15% of income was absolute exemption and application of section 11(2) of the Act does not extend to nullify absolute exemption. As further been held in the case of Programme for Community Organization [2000 (11) TMI 4 - SUPREME COURT] that a charitable trust was entitled to accumulate 15% of the receipts without considering the expenditure and application made on the objects of trust. CIT(A) applying the said proposition has allowed the claim of assessee. We find no merit in the grounds of appeal raised by Revenue in this regard and we uphold the method of computation of deficit applied by CIT(A) in line with the provisions of section 11(1)(a) of the Act. Whether in the instant assessment year the application of income was more than the receipts of the year, can the excess application of income i.e. expenditure in the hands of assessee, be carried forward to the succeeding year? - Held that:- In view of the settled position of jurisdictional High Court, which has been applied by the CIT(A), we find no merit in the issue raised by the Revenue in this regard and the same is dismissed. Once the grounds of appeal raised by Revenue are dismissed, then admittedly, there is no taxable income in the hands of assessee trust. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by Revenue. Since the income of assessee has been held to be eligible for exemption under sections 11 to 13 of the Act, we hold that the alternate claim made by assessee of exemption under section 10(23C)(vi) becomes academic in nature. AR for the assessee stressed that the said deduction has been allowed to the assessee in preceding and subsequent assessment years. We are of the view that in view of our decision with regard to Revenue’s appeal, the grounds of appeal raised by assessee at present become academic and we keep the issue of allowability of deduction under section 10(23C)(vi) of the Act alive, which shall be adjudicated upon at the relevant time, if relevant time arises. Issues Involved:1. Re-opening of the case under section 148 of the Income-tax Act, 1961.2. Denial of exemption under section 10(23C)(vi) of the Income-tax Act, 1961.3. Claim for carry forward of deficit in the case of a trust.4. Entitlement to claim benefit under section 11(1)(a) of the Income-tax Act, 1961.5. Allowance of excessive carry forward of deficit after making an allowance of 15% gross receipts under section 11(1)(a) of the Income-tax Act, 1961.Detailed Analysis:1. Re-opening of the Case under Section 148:The assessee argued that the re-opening of the case under section 148 was based on a mere change of opinion and lacked tangible material, thus rendering the re-assessment order under section 147 null and void. However, the judgment does not provide a detailed ruling on this issue, focusing instead on the substantive tax matters.2. Denial of Exemption under Section 10(23C)(vi):The Assessing Officer had denied the exemption under section 10(23C)(vi) on the grounds that the assessee trust, which ran multiple institutions, did not apply for exemption for each institution separately. The CIT(A) upheld this denial, and the assessee appealed against this decision. However, the tribunal found that since the income of the assessee was held to be eligible for exemption under sections 11 to 13, the issue of exemption under section 10(23C)(vi) became academic and was not adjudicated upon in this judgment.3. Claim for Carry Forward of Deficit:The Revenue challenged the CIT(A)'s decision to allow the assessee trust to carry forward its deficit. The CIT(A) had allowed the carry forward based on the principle that the income derived from trust property should be computed on commercial principles, which permit the adjustment of expenses incurred for charitable purposes in earlier years against income earned in subsequent years. This position was supported by several judicial precedents, including CIT Vs. Institute of Banking Personnel Selection (264 ITR 110) (Bom) and DIT Vs. Raghuvanshi Charitable Trust (44 DTR 223) (Del).4. Entitlement to Claim Benefit under Section 11(1)(a):The CIT(A) held that the assessee trust was entitled to accumulate 15% of its gross receipts under section 11(1)(a), and the balance 85% had to be applied to the objects of the trust. This interpretation was supported by the Supreme Court decisions in CIT Vs. Rao Charitable Trust (216 ITR 697) and Programme for Community Organization (248 ITR 1), which established that the 15% exemption is absolute and not contingent on the application of section 11(2).5. Allowance of Excessive Carry Forward of Deficit:The CIT(A) also allowed the trust to carry forward the deficit resulting after making an allowance of 15% of gross receipts. This decision was based on the principle that excess application of income in one year could be carried forward to subsequent years, as supported by the Bombay High Court in CIT Vs. Institute of Banking Personnel Selection and the Delhi High Court in DIT Vs. Raghuvanshi Charitable Trust.Conclusion:The tribunal upheld the CIT(A)'s decisions on all counts, dismissing the Revenue's appeal and recognizing the assessee's entitlement to carry forward the deficit and claim benefits under section 11(1)(a). The issue of exemption under section 10(23C)(vi) was deemed academic given the findings on sections 11 to 13. The judgment reinforces the principle that charitable trusts can carry forward deficits and accumulate 15% of gross receipts, aligning with established judicial precedents.