ORDER
Bhargav D. Karia, J.- Heard learned advocate Mr. Kinjal Trivedi for learned Senior Standing Counsel Mr. Amin Mir for the appellant and learned Senior Advocate Mr. S.N.Soparkar with learned advocate Mr. B.S.Soparkar for the respondent.
2. Tax Appeals No. 278 of 2024 and 284 of 2024 are preferred under Section 260A of the Income-tax Act, 1961 [for short, “the Act”] arising out of the cross-appeals being ITA No. 2434/Ahd/2017 and ITA No. 2378/Ahd/2017, decided by the Income Tax Appellate Tribunal, “B” Bench, Ahmedabad [for short, “the Tribunal”] challenging the order dated 16.06.2023 for the Assessment Year 2014-15, proposing the following substantial questions of law:
Tax Appeal No. 278/2024
| (i) |
|
Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal is justified in confirming the order of the Ld. CIT(A) holding that the activities of the assessee were not covered by the proviso to Section 2(15) r.w.s 13(8) of the Act and was eligible for the benefits of Section 11 and 12 of the Act ignoring the guidelines laid down by Hon’ble Supreme Court of India regarding significantly high mark-up in the case of ACIT v. Ahmedabad Urban Development Authority dated 19.10.2022 reported in (NAA) and Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] [2022] 449 ITR 389 (SC)/dated (SC) 03.11.2022 in MA No. 1849 of 2022? |
| (ii) |
|
Hon’ble Income Tax Appellate Tribunal, Ahmedabad has erred in not deciding ground of appeal No. 3 raised by the revenue holding that the issue becomes infructuous once the assessee is held to be entitled to the benefit of Section 11 and Section 12 of Income Tax Act, 1961. |
TAX APPEAL NO. 284/2024
| (i) |
|
Whether Hon’ble ITAT has erred in holding that grants received by the appellant for generic purpose or which are not project specific then these grants are to be considered in the nature of voluntary donation and are to be included as income of the appellant under Section 12(1) of the Act is covered by the decision of Hon’ble Supreme Court of India in the case of Ahmedabad Urban Development Authority (supra) dated 19.10.2022. |
| (ii) |
|
Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was right in reversing the decision of CIT(A) and directing to allow depreciation as per provisions of Section 32 of the Act as against direction of CIT(A) to allow depreciation based on normal commercial principles ignoring the fact that the assesse was assessable as a charitable entity eligible to exemption under Section 11 and 12 of the Act and not under the head business and profession. |
| (iii) |
|
Whether Hon’ble ITAT has erred in setting aside the direction of Ld. CIT(A) to firstly allow the set off deficit carried forward from earlier year then amount applied during the year and after these adjustment to allow appellant accumulation at the rate of 15% under Section 11(1)(a) of Income Tax Act, 1961 wrongly placing reliance on the decision of Hon’ble Supreme court of India in the case of CIT(E) v. Subros Educational Society [2018] (SC)/30 CTR 1. |
| (iv) |
|
Whether Hon’ble ITAT has erred in setting aside the direction of Ld. CIT(A) that application of income shall precede accumulation under Section 11(1)(a) of the Income Tax Act, 1961. |
3. At the outset, learned advocate Ms. Kinjal Trivedi appearing for the appellant candidly submitted that the issue raised in these appeals to the effect that the activities of the assessee were not covered by the proviso to section 2(15) read with section 13(8) of the Act and therefore, the assessee is not eligible for the benefit of sections 11 and 12 of the Act is no more res integra in view of the decision rendered in assessee’s own case.
3.1 It was further submitted that the Tribunal, in the impugned common order passed for both the appeals, followed the decision of the Hon’ble Apex Court in assessee’s own case i.e. Ahmedabad Urban Development Authority (supra) to hold that activities of the assessee for advancement of any other object of general public utility “are for a charitable purpose”. Therefore, the assessee would be entitled to exemption under section 11 of the Act.
4. Learned Senior Advocate Mr. Saurabh Soparkar appearing for the respondent submitted that insofar as Question Nos. (i) and (ii) are concerned, the same are covered in favour of the assessee in terms of Paragraph Nos. 195, 205 and 253 of the above referred decision of the Hon’ble Apex Court.
5. In view of the above submissions, both the appeals, qua Questions No. (i) and (ii) are dismissed.
6. With regard to Question No.(iii) and (iv) in Tax Appeal No. 284 of 2024 regarding allowing set off of a deficit carried forward from an earlier year before applying the amount of deficit of the year under consideration for computing allowance of 15% for the application of the amount of the current year, the brief facts of the case are as under:
6.1 The CIT(Appeals), while computing the deduction under sections 11(1)(a) and 11(1)(d) of the Act, directed the Assessing Officer to verify and apply the rate of depreciation on the basis of the normal commercial principles and not as per section 32 of the I.T.Act.
6.2 The Tribunal, considering the material available on record and the decision of the Coordinate Bench, held that fixed assets served the same special purpose of working of the assessee were to be considered as ‘plant and machinery’ in the working process of the assessee and hence, thereby setting aside the directions of the CIT(A) holding that the assessee is entitled to claim depreciation as ‘plant and machinery’ under section 32 of the Act as the assessee in promoting public objects, is carrying on an activity in the nature of trade, commerce or business but without a commercial motive. The Tribunal accordingly directed the Assessing Officer to allow accumulation under section 11(1)(a) of the Act from the income remaining after deducting amount applied for the objects of the assessee-Trust. The Tribunal also allowed Ground No.9 by observing as under:
“17. Ground No. 9 namely the application of income shall precede accumulation by directing A.O. to allow accumulation u/s. 11(1)(a) of the Act, from income remaining after deducting amount applied for the, objects of the assessee trust. 17.1 In this connection, Ld. Counsel drawn our attention to the decision of the Co-ordinate Bench in the case of Gnyan Dham Vapi Charitable Trust v. DCIT (Exemptions) in ITA No. 2208/Ahd/2018 dated 19-08-2020 observing as follows:
“…8.1 Under s.1 1 of the Act, income derived from property held under trust wholly for charitable or relates purposes shall not be included in the total income subject to certain conditions. On a combined reading of Section 11(1)(a) and Section 11(2) of the Act, it emerges that the trust is allowed to accumulate 15% of its income without any time limit and balance 85% can be set apart for. specified period to five years. In the instant case, the assessee in the assessment year in question as well as in some other assessment years have made spendings in excess of its receipts resulting in certain deficit. Owing to excess spending over receipts, a peculiar situation has arisen in the present case towards the manner of computation of quantum of deficit eligible to be carried forward for set off in subsequent assessment years having regard to statutory permission towards 15% accumulation under s .ll (1) (a)/11(1)(b) of the Act without any time limit.
8.2 To delineate on the issue, it may be pertinent to note that in order to be eligible for claiming exemption, it is essential that the income of the trust is applied for charitable objects. A charitable trust or institution is required to apply at least 85% of income derived from trust property towards charitable purposes. If the income spent on charitable or religious purposes during the previous year falls short of 85% of the income derived during the year, such shortfall may be subjected to tax in certain circumstances. Hence, a statutory obligation has been cast on beneficiary trusts to utilize at least 85% of the income derived from the trust property unless accumulated or set apart for application in subsequent years subject to certain stipulated conditions. Section 11(1)(a) & (b) r.w.s. 11(2) of the Act however grants an entitlement to a charitable trust to retain or accumulate 15% of income derived from property held in trust without any time limit and is thus benevolent in nature. In this backdrop, it is noticed that the situation herein is quite opposite. The assessee in the instant case has, in fact, utilized its income for charitable purposes in excess of its receipts without any accumulations resulting in certain ‘deficits’. The CIT(A) has applied the governing principles of Section 11(1)(a) of the Act to a totally converse situation of excess spending rather than accumulation and has brought it down the entitlement of deficits carry forward.
8.3 Ostensibly, the assessee has not availed the entitlement of accumulation of.15% of income in the instant case. Needless to say, the statutory postulations towards accumulation of 15% of income for indefinite period is an entitlement or a fight of absolute nature vested upon the assessee but, however, cannot be regarded as an obligation envisaged in law. The law applicable to accumulation of incorfie cannot be extended to application thereof. Where an assessee trust has]macjfi. excess application of its income, the option or entitlement vested upon an assessee to accumulate 15% for indefinite period in our view cannot operate as an obligation enforceable against it in the absence of accumulation. The method of computation of deficit to be truncated artificially 15% based on an entitlement (opposed to an obligation) as suggested by first appellate authority is totally devoid of any logic. This would tantamount to application of concession conferred on assessee in a reverse manner and thus put the assessee in a worser position in the event of accelerated application of receipts for salutary purposes. The action directed by CIT(A) has the effect of deprivation of concession granted and is repugnant to the intended outcome. The Pune Bench of Tribunal in Maharshi Karve Stree Shikshan \Samstha Karvenagar v. ITO 1 74 ITD 591 (Pune) has also essentially held that relaxations conferred under s. 11(1)(a)/(b) r.w. Section 11(2) of the Act to the extent of 15% of income would not nullify the entitlement of such absolute nature by way of reduction in quantum of deficit. We thus have no hesitations to quash the observations of the first appellate authority towards exclusion of 15% of income for the purposes of determination of quantum of deficit jo be carried forward for set off in ensuing years in accordance with law.
17.2. Ld. Senior Counsel further relied upon Pune Bench decision in the case of Maharshi Karve Stree Shikshan Samstha Karvenagar v. ITO wherein it has been held as follows:
“IT: Exemption, under section 11(1) (a) i.e. 15 percent of income, is absolute exemption and application of section 11 (2) does not extend to nullify said absolute exemption if Where in relevant assessment year application of income, is more than receipts of year, excess application of income i.e., expenditure in hands of assessee, can be carried forward to succeeding year”
17.3. Respectfully following the above ratio of the decisions of the Co-ordinate Benches of the Tribunals, we hereby set aside the order passed by the Ld. CIT(A) and held that when application of income is more than receipts of year, excess application of income i.e., expenditure in the hands of the assessee can be carried forward to succeeding Year. Thus the ground no. 9 raised, by the assessee is hereby allowed.”
7. Learned Senior Advocate Mr. Saurabh Soparkar appearing for the respondent submitted that the issue raised in Question No.(iii) and (iv) by the Revenue is no more res integra in view of the decision of this Court in case of CIT (Exemptions) v. Dawat Properties Trust (Gujarat) wherein, in similar facts this Court has held as under:
“6. Considering the submissions made by the learned Senior Advocate Mr.Bhatt for the appellant Revenue, we are of the opinion that the CIT (Appeals) as well as the Tribunal have arrived at concurrent findings of fact by applying the decision of this Court in case of Sheth Manilal Ranchhoddas Vishram Bhavan Trust (supra) and in case of Shri Plot Swetambar Murti Pujak Jain Mandal (supra), wherein it is held that, there is nothing in language of Section 11(1)(a) of the Act, 1961 to indicate that the income from the trust property should have been applied for charitable or religious purposes only in the year in which such income is received and the deficit incurred by the Trust due to excess spending on the object of the trust during the particular year or excess expenditure incurred in earlier years or in the current year by the trust cannot be permitted to be set off against the income of subsequent years.
7. It was held in case of Sheth Manilal Ranchhoddas Vishram Bhavan Trust (supra) that, ‘income’ referred to in Section 11(1)(a) of the Act, 1961 was to be computed in accordance with normal rules of the accounting. Hence, depreciation has rightly been allowed as expenditure in the facts of the case.
8. Therefore, the Tribunal, applying the aforesaid decisions of this Court, has held that the expenditure incurred in the earlier year can be set off from the income of the subsequent years and utilization of such income for meeting the expenditure of the earlier year would amount to such income being applied for charitable or religious purpose.
9. This Court in case of Shri Plot Swetambar Murti Pujak Jain Mandal (
supra) has held that the income derived from Trust property has to be computed on commercial principles and consequently deficit arising out of expenditure over income for the previous year can be set off against the surplus of income over expenditure of the subsequent year. The Tribunal has also relied upon the decision of the Apex Court in case of
CIT (Exemption) v.
Subros Education Society (2018) 303 CTR 1 (SC), wherein, the Supreme Court has affirmed the judgment of the Delhi High Court to the effect that any excess expenditure incurred by the Trust / Charitable Institution in earlier assessment year could be allowed to be set off against the income of subsequent years.
10. In view of the above analysis and concurrent findings of fact arrived at by both the authorities and in view of the settled legal position, we are of the opinion that there is no error in the impugned orders passed by the Tribunal giving rise to any question of law, much less any substantial question of law, proposed or otherwise. The present Tax Appeals are therefore, summarily dismissed.”
8. In view of the above decision of this Court, Tax Appeal No. 284/2024 qua Question No.(iii) and (iv) is also dismissed.
9. Tax Appeals No. 285 of 2024 and 283 of 2024 arise out of the cross-appeals being ITA No. 370/Ahd/2019 and ITA No. 221/Ahd/2019, decided by the Income Tax Appellate Tribunal, “B” Bench, Ahmedabad [for short, “the Tribunal”] challenging the order dated 23.06.2023 for the Assessment Year 2015-16.
10. Similarly, Tax Appeals No. 326 of 2024 and 325 of 2024 arise out of the cross-appeals being ITA No. 04/Ahd/2020 and ITA No. 1736/Ahd/2019, decided by the Income Tax Appellate Tribunal, “D” Bench, Ahmedabad [for short, “the Tribunal”] challenging the order dated 26.07.2023 for the Assessment Year 2016-17.
11. The Questions raised in these four appeals are similar to those raised in Tax Appeals No. 278/2024 and 284/2024 for the Assessment Year 2014-15. In view of the reasons assigned in the order rendered in the said appeals, these appeals also stand dismissed
