Income Tax Appellate Tribunal - Mumbai
Nandlal Tolani Charitable Trust, ... vs Department Of Income Tax
आयकर अपील य अ धकरण "बी" यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI ी संजय अरोड़ा,लेखा सद य एवं ी अ मत शु ला, या यक सद य के सम ।
BEFORE SHRI SANJAY ARORA, A.M. AND SHRI AMIT SHUKLA, J.M. आयकर अपील सं./I.T.A. Nos. 6970 & 199/Mum/2011 ( नधारण वष / Assessment Year: 2004-05) Asst. CIT, Central Circle 17 & 28, Nandlal Tolani Charitable Trust, बनाम/ Aaykar Bhavan, Mumbai 10-A, Bhakhtawar, NCPA Mar, Vs. Nariman Point, Mumbai-400 021 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAATN 0043 Q (राज व / Revenue) : ( नधा रती/Assessee) & आयकर अपील सं./I.T.A. No. 1111/Mum/2011 ( नधारण वष / Assessment Year: 2004-05) Nandlal Tolani Charitable Trust, Asst. CIT, Central Circle 17 & 28, बनाम/ 10-A, Bhakhtawar, NCPA Mar, Aaykar Bhavan, Mumbai Nariman Point, Mumbai-400 021 Vs. थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAATN 0043 Q ( नधा रती/Assessee) : (राज व / Revenue) राज व क ओर से/Revenue by : Shri O. P. Singh नधा रती क ओर से / Assessee by : Shri S. M. Agarwal सनु वाई क तार ख / : 30.07.2013 Date of Hearing घोषणा क तार ख / : 30.09.2013 Date of Pronouncement आदे श / O R D E R Per Sanjay Arora, A. M.:
This is a set of two Appeals by the Revenue and one appeal by the Assessee for the assessment year (A.Y.) 2004-05, arising out of separate orders by the Commissioner 2 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust of Income Tax (Appeals)-39, Mumbai ('CIT(A)' for short), i.e., disposing the asessee's appeals in respect of its assessment as well as reassessment for the said year, vide orders dated 29.10.2010 and 15.07.2011 respectively. While the assessee is in appeal only in respect of its original assessment, the Revenue is in appeal also for its subsequent reassessment.
2. It would be relevant to recall the background facts of the case, as well as delineate the issues arising thus, for our adjudication. The appellant is a Charitable Trust registered under the Bombay Public Trust Act, engaged in charitable objects, as promotion of education, medical relief, and for other objects of general public nature. It filed its return of income for the year on 01.11.2004, claiming exemption u/s. 11(1)(a) of the Income Tax Act, 1961('the Act' hereinafter) at Rs.67,87,249/-, though restricted to the extent of available income, i.e., Rs.57,30,186/-. The assessee had claimed deduction u/s. 24(a) of the Act in the sum of Rs.20,54,703/- at the rate of 30% of the rental income. On being questioned in its respect, it was explained by the assesse that it had taken the annual value of the house property on the basis of rent received (Rs.6950568 / page 36 of PB 1) as provided u/s. 22 of the Act, and after deducting municipal tax (Rs.101558/-), arrived at the annual value of Rs.68.49 lacs, on which the statutory deduction u/s. 24(a) was claimed to arrive at the property income. The same did not find acceptance by the Assessing Officer (AO), in whose view the income of a charitable institution or trust from any source is to be computed not under any head of income but as per its regular accounts. The same found confirmation by the ld. CIT(A). With reference to the decisions in the case CIT vs. Programme for Community Organization [2001] 248 ITR 1 (SC) and CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad.), it was explained by him that the income which is to be applied for charitable purposes and, consequently, is subject to exemption u/s. 11, is that which is available, so that the same is to be considered and arrived at in the commercial sense. Accordingly, the entire receipt less the actual expenditure, viz. municipal taxes, expenses toward repair and maintenance of building, etc., i.e., the net income so arrived, is to be considered for 3 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust exemption u/s. 11. No separate deduction u/s. 24, as claimed, would be exigible. Aggrieved, the assesse is in second appeal before us, and which forms sole issue thereof.
The second issue arising, i.e., per the Revenue's appeal, is against the original assessment, in respect of donation of Rs.24 lakhs to Tolani Education Foundation (TEF) by assessee-trust during the relevant year. The assessee had, it was observed by the AO, received Rs.120 lakhs from TEF during the year, of which Rs.60 lakhs had been appropriated toward rent and the balance Rs.60 lakhs accounted for as donation towards corpus. It was a clear case of round tripping, i.e., of 'A' donating to 'B' and 'B' donating to 'A' and, thus, only an eye-wash. Reference was made by him to Explanation to section 11(2) of the Act (inserted by Finance Act, 2002 w.e.f. 01.04.2003), which was with a view to check such round tripping transactions. Further, the donation to TEF was again towards the corpus of the donee-fund, so that it was not liable to be spent for the latter's objects. The same could not, therefore, be regarded as an application of income for charitable purposes. He, accordingly, added Rs.24 lakhs as well as Rs.60 lakhs to the assessee's income, i.e., as reflected per its income and expenditure account.
In appeal, it was explained by the assessee that it had not received any donation of Rs.60 lakhs from TEF, and which had since been admitted to be a mistake by the AO, rectifying his order dated 15.12.2006 under section 154 by deleting the addition of Rs.60 lakhs vide order dated 12.03.2007. As regards the donations by the assessee, it had in fact given donation for a total of Rs.47,05,691/- during the relevant previous year, as under:
i) Tolani Education Society conducting Commerce & Management Science Colleges at Andheri, Mumbai Rs.22,70,000/-
ii) Tolani Education Foundation conducting Nautical Science and Maritime Engineering Colleges at Pune Rs.24,00,000/- iii) Other Sundry donations Rs. 35,691/-
With reference to the decisions in the case of CIT v. Sarladevi Sarabhai Trust (No. 2) [1988] 172 ITR 698 (Guj.) and CIT vs. Shri Ram Memorial Foundation [2004] 269 ITR 4 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust 36 (Del), it was submitted that when one charitable trust donates a sum to another toward the latter's charitable objects, it is proper application of income in the hands of the donor-
trust. Merely because the donee-trust does not spend it in the year of receipt itself would not operate to disentitle the donor-trust to exemption u/s. 11(1). Also, the position would not alter when the donation, as in the instant case, is towards the donee's corpus, so that it can utilize only the income from the said corpus donation (which is to be invested in specified securities) for charitable purposes. In view thereof, the ld. CIT(A) deleted the addition of Rs.24 lakhs, so that, aggrieved, the Revenue is in appeal.
Subsequent to the assessment on 15.12.2006, it was found by the Revenue that the assessee had in fact given donation for Rs.60 lakhs, and not Rs.24 lakhs only to TEF during the relevant previous year, as under (refer pg. 22/ PB 2):
Receipt No. Date Cheque No. Amount 414 21.11.2003 030771 30,00,000 410 15.09.2003 030765 15,00,000 409 12.09.2003 030764 15,00,000
As the donation of Rs.24 lakhs to TEF had been already added to income, the balance Rs. 36 lakhs was similarly proposed for addition. While conceding to the factual position, it was explained by the assessee in the reassessment proceedings that it had properly accounted the entire donation in its books, i.e., Rs.24 lakhs as donation; Rs.20.80 lakhs as scholarship (TEF); and Rs.15.20 lakhs toward capital expenditure, which in fact was incurred by TEF on its behalf. The amount of Rs.36 lakhs (i.e., Rs.20.80 lakhs plus Rs. 15.20 lakhs ) had been, accordingly, claimed as expenditure, duly debited to the income an expenditure account for the year, while Rs.24 lakhs is an application of income, operating to exempt the income to that extent under section 11(1)(a). The AO was not impressed. The assessee had been issued three receipts for an aggregate of Rs. 60 lakhs by TEF, and towards corpus donation. No details of scholarship or capital expenditure were furnished during the course of assessment proceedings. The explanation being now furnished is only an after-thought, on being called upon to explain the balance admitted 5 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust payment of Rs.36 lakhs. The entire amount of Rs.60 lakhs was toward corpus donation and, likewise, thus liable to be disallowed inasmuch as the same was only a capital receipt in the hands of the donee and, further, not liable to be applied towards its objects, which would only be the income arising there-from. The balance Rs. 36 lacs was, accordingly, also assessed as income vide order dated 31/12/2007. The same did not find favour with the ld. CIT(A) in appeal. The assessee had been able to prove, with evidences, that in fact only Rs. 24 lakhs has been given as corpus donation, and the balance had been given for grant of scholarship (Rs.20.80 lakhs) and reimbursement of expenses (Rs.15.20 lakhs). The addition of Rs. 36 lacs was, therefore, not justified, and was directed to be deleted by him. Aggrieved, the Revenue is in appeal.
3. We have heard the parties, and perused the material on record. 3.1 We shall proceed issue-wise. We may, however, before proceeding in the matter, at the outset, clarify that though the total addition made and being contested by the Revenue qua donations is Rs.60 lacs, in effect the same has been made only for Rs.44,94,470/-, assessing the income at the said figure, as against the net loss (or excess of expenditure over income) as per the income and expenditure account at Rs.15,05,526. This is for the simple reason that the excess of expenditure over income, as claimed and allowed, includes or is only after including sums, in value higher than the said excess, which are admittedly claimed as or qualify as an application of income, claimed exempt u/s.11(1)(a). That is, the sums debited by the assessee to the income and expenditure account include donations for Rs.47.06 lacs, including corpus donation of Rs.24 lacs disallowed, which are admittedly an application of income. Even otherwise, it is nobody's case that the trust is required to spend on its objects for charitable purposes more than its income, being, rather, unfeasible.
3.2 The first issue arising in the instant appeals is the validity in law of the assessee's claim toward repairs and maintenance u/s. 24 of the Act in computing the income from house property let out by the assesse, and toward which it has (subsequently) raised a 6 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust single, precise ground. The claim is, by all counts, without merit. This is for the simple reason that the income of a charitable trust or institution, subject to its application for charitable purposes, for which it has been in fact formed (per its constituting charter) is exempt from tax under Chapter III (ss.10 to 13B) of the Act. The said income does not form part of the total income of the entity to which it arises or accrues or is received by. It is only the income forming part of the total income u/s.2(45) of the Act, which is to be classified under the various heads of the income u/s.14 and, accordingly, subject to the computation provisions of Chapter IV (ss. 14 to 59) of the Act. The expenditure incurred in earning the same is, likewise, and only understandably, not to be taken into account in computing the total income under the Act, which represents trite law, and toward which a separate section (sec. 14A) has since been inserted by Finance Act, 2001 with retrospective effect from 01.04.1962. This aspect stands abundantly clarified by the hon'ble apex court in the case of CIT vs. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC), explaining that an income to come within its purview must satisfy the definition of total income u/s. 2(15) (of the Income-tax Act, 1922, which is para materia with section 2(45) of the Act), prescribing two conditions. Firstly, it must comprise the total amount of income, profits and gains referred to in section 4(1) and, two, must be computed in the manner laid down under the Act. The capital gain being not chargeable u/s.12B of the 1922 Act during the relevant period, the same would not enter the computation mechanism of the total income. This is as the capital gain or loss (which is only negative income) did not form part of the total income of the assessee which could be brought to charge, so that it was not required to be computed. Reference in this context may also be made to the following observation by the tribunal in the case of Pravin Shah Trust vs. Dy. CIT (in ITA No. 4782/Mum/2010 dated 05.07.2013):
'3.3 ....... That is, an income exempt u/c. III of the Act, not forming part of the total income, would not enter the computation process to determine the quantum of income under the relevant head of income, each of which has its own computation provisions.' 7 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust To the same effect and purport are its observations in the case of LKP Securities Ltd. (in ITA Nos. 638 & 1093/Mum/2012 dated 17.05.2013):
`14 ....... The income (and loss, which is only negative income) falling under Chapter III of the Act and, thus, exempt from the levy of the tax, would not form part of the computation of the income under Chapter IV of the Act. That in fact is a fundamental premise; the basis of sec. 14A of the Act. The Revenue's case in this regard is unexceptional, and we confirm the same.' In both the decisions, the tribunal relied on the decision in the case of Harprasad & Co. (P.) Ltd. (supra). The reliance by the ld. CIT(A) on the Circular issued by the Board (No.5P(LXX6) dated 19.06.1968), explaining the position in the matter, is also apposite. It stands explained that only the income as reflected in the accounts of the trust/institution that is to be applied or deemed to have been applied for charitable purposes, and which, therefore, has to be computed in the commercial sense. The said Circular has been found by the hon'ble courts of law as representing the correct interpretation of the relevant provisions and the requirement of the law, as in the case of CIT vs. Programme for Community Organisation [1997] 228 ITR 620 (Ker), since approved by the apex court (reported at [2001] 248 ITR 1 (SC)), to which (latter) decision reference stands also made by the ld. CIT(A). This aspect of the matter, i.e., the manner of computation of income of a charitable or religious trust/institution which has to be applied for the said purposes, has been a subject matter of a number of decisions, as by the hon'ble jurisdictional High Court in the case of CIT vs. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom). This is even otherwise patent inasmuch as a trust could only apply the income as available with it, i.e., as arrived at following the accepted principles of commercial accounting. The computation provisions of the Act do not come into play, so that the said computation of the income would be de hors the same. This would of course be subject to the specific provisions of the Act, so that where specifically provided for, the income would be computed in the manner so provided; for example ss. 11(4) and 11(4A) specifically provide for the computation of income of a business undertaking forming part of the property held under trust by a charitable trust/institution in 8 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust accordance with the provisions of the Act, even as pointed out by the hon'ble court in Rao Bahadur Calavala Cunnan Chetty Charities (supra). The Special Bench of the tribunal in Scientific Atlanta India Technology (P.) Ltd. vs. ACIT [2010] 2 ITR 66 (Trib) (Chennai) (SB) held that the profits of a unit eligible for deduction u/s.10A of the Act, i.e., to the extent not covered by the deduction there-under, would stand to be taxed directly and not enter the computation mechanism inasmuch as the same do not form part of the gross total income, as section 10A falls under Chapter III of the Act, so that the provisions of Chapter VI-A and, consequently, s. 80AB would not be applicable thereto.
Before parting with the matter, we may also add that the assessee has been allowed all the expenditure on repairs and maintenance as debited in its accounts, i.e., on actual basis (Rs. 11.97 lacs/PB 1 pg. 39), even as directed by the ld. CIT(A), and which fact was also clarified by us during hearing. Accordingly, the assessee's ground/s for the claim of the standard deduction u/s.24 fail. We decide accordingly.
Finally, the reliance by the assessee on the decision in the case of IAC, Mumbai vs. Saurashtra Trust [2007] 106 ITD 1 (Mum) (SB) is, under the circumstances, misplaced. The said decision is, firstly, sans any reference to any precedents; nay, even without a discussion of the law in the matter. This aspect would in fact become clear in view of the questions referred to and answered by the tribunal. As a reading of its order would show (refer para 1), the same are not directly connected with the issue before us. The said decision, thus, would be of no assistance to the assessee, with we having even otherwise decided the matter following the binding precedents in the matter, so that the decision in the case of Bank of Baroda v. H.C. Shrivastava [2002] 256 ITR 385 (Bom), advocating judicial discipline with reference to the decision by the apex court in CCE v. Dunlop India Ltd. AIR 1985 SC 330, only supports the same. The decision in the case of Al Ameen Educational Society v. DIT (Exemption) (in ITA No. 575/Bang./2011 dated 28/9/2012, also at [2012] 26 taxmann.com 250 (Bang.)) is again only in respect of the specific provision of sec. 11(1A) of the Act, i.e., qua capital gain, and, thus, not applicable. We have already clarified that our decision is based on and represents the general position of law, so that it would be subject to the specific provisions of the Act, 9 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust giving example of ss. 11(4) and 11(4A). It may be relevant to state that the decision by the apex court in Harprasad & Co. (P.) Ltd. (supra), referred to earlier, is also in respect of capital gains.
3.3 We may next consider the add-back of the donations for Rs. 24 lacs and Rs. 36 lacs, forming part of the total sum of Rs. 60 lacs paid by the assesse to TEF, a charitable institution under the same management, during the relevant year, by the Revenue in the assessment and reassessment proceedings respectively.
The basis of the Revenue's disallowance qua these sums, payment details of which stand listed at para 2 / page 4 of this order, are as:
(a) the same are toward corpus donations to the done-fund, i.e., per the receipts issued their respect. As such, it is only the income there-from, and not the said funds, which are liable to be spent for the objects of the recipient, so that the same would not qualify as toward application of income u/s. 11(1)(a);
(b) no explanation toward the same as being for scholarship and reimbursement of capital expenditure, as claimed during the reassessment proceedings, stood furnished in the assessment proceedings, so that the same is only an after-thought.
We have given our careful consideration to the matter. Firstly, there is no case of any round tripping inasmuch as, admittedly - vide order u/s. 154 dated 12/3/2007 assessing the income at Rs. 8,94,470/-, no donation has been received from TEF, so that there are no cross donations. Also, there is no question of considering the rent of Rs. 60 lacs received from TEF as a donation, and neither is it the Revenue's case of the rent arrangement being not genuine. Two, the Explanation to s. 11(2), even as clarified by the Notes to Clauses introducing the relevant Bill, is only in respect of sums accumulated or set apart for application, and not sums applied for charitable purposes during the relevant year, including by way of donation to any other charitable trust with similar objects; the relevant part of the said note reading as under:
'......Thus, the payment to the other trust or institution out of income from property held under trust in the year of receipt will continue to be treated as an application of income. However, any such payment out of the accumulated income shall not be treated as an application of income, and shall be taxed accordingly.' 10 ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust In fact, consequential amendments stand also made to the Act by way of insertion of clause (d) to s. 11(3) and proviso to s. 11(3A), all to the same effect and purport. The said provision/s would have no application in the instant case as, without doubt, each of the three sums comprising the total amount of Rs. 60 lacs paid by the assesse to TEF stand paid during the relevant year. We may now discuss each of the three sums separately.
The sum of Rs. 24 lacs is admittedly a corpus donation (also refer ledger accounts in the books of the donor and the donee - pages 24, 26 / PB 2). The law in the matter is by now well settled, so that donation by one charitable trust to another would entitle the donor fund to claim exemption qua application of income u/s. 11(1). As pointed out by the hon'ble court in Sarladevi Sarabhai Trust (No. 2) (supra), it would make no difference if the donation is toward the corpus of the donee-fund, so that it is only the income therefrom, and not the donation sum itself, that is liable to be spent for or utilized for the charitable purposes of the recipient. The word 'application' has a wider connotation than the word 'spent', so that an application of income of the donor trust could not be denied. Again, the corpus fund may not necessarily be invested in specified securities but could also be toward capital expenditure, which again qualifies as an application of income. The objection, thus, raised by the Revenue is not maintainable. Coming to the donations for Rs. 36 lacs; the same have been explained as:
- Rs. 20.80 lacs toward scholarship to students Marine Engg. of TEF
- Rs. 15.20 lacs as reimbursement of capital expenditure Our first observation is that the Revenue having accepted the donation of Rs. 24 lacs, comprised in the sum of Rs. 30 lacs paid vide cheque no. 30771 dtd. 21/11/2003 (supra), as a corpus donation, it cannot retract to deny the same treatment to the balance Rs. 6 lacs of the said cheque, or the amounts similarly donated vide the other two cheques supra. In fact, the sums stand ostensibly debited and reflected in the assessee's accounts, including the income & expenditure account, forming part of its return of income (pgs. 37 - 43/ PB
1), so that there is no question of not recognizing the same as such.11
ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust Coming to the specifics, the amount of Rs. 20.80 lacs is paid to TEF for the scholarship to students of Tolani Maritime Institute, being run by it, i.e., the payee-trust. The same is clearly an application of income to that extent and, in fact, stands reflected in the income & expenditure account itself (pgs. 23, 25/PB 2 & pg. 39/PB 1). No doubt, as it appears, the donation is not to set up any scholarship fund, but for scholarship to be granted to the individual students, forming part of the regular expenditure of the done- trust and, as such, not a corpus donation, as stated in the relevant receipt. However, this would not materially impact; rather, only enhances the assessee's case inasmuch as one of the Revenue's objections was of the same being toward the corpus of the donee. The same would, therefore, without doubt, qualify for exemption u/s. 11(1)(a).
As regards the amount of Rs. 15.20 lacs, the same is again by way of corpus donation toward funding the capital expenditure of TEF on construction of Executive Residency and hostel building. There is no question of TEF having spent the money on assessee's behalf, since reimbursed by the assessee, which would be so where the buildings under reference either belong to the assessee or are being constructed by it. As such, as far as the assesse-trust is concerned, it is donation to another trust and, thus, only an application of income (refer pgs. 22, 23 & 27/PB 2). So, however, we are unable to find any reflection of the same in the assessee's annual accounts (pgs. 37 - 43/PB 1), including the income and expenditure account (pg. 39), showing the sources and application of, including the expenditure incurred on administration or otherwise for generating, the revenue. The assessee's claim, therefore, though acceptable in principle, would be required to be shown with reference to its accounts. The AO shall verify the incurring of the said payment with reference to the assessee's accounts, and subject to his returning a positive finding in its' respect, we confirm the treatment of the said sum as toward application of income. We decide accordingly.
4. In the result, the assessee's and the Revenue's appeal qua assessment (ITA Nos. 1111 and 199 of 2011) are dismissed, and the Revenue's appeal qua reassessment (ITA No. 6970/Mum/2011) is partly allowed for statistical purposes.
12ITA Nos. 6970,199 & 1111/Mum/2011 (A.Y. 2004-05) Nandlal Tolani Charitable Trust प रणामतः नधा रती / राज व क अपील (ITA Nos. 1111 and 199 of 2011) खा रज / राज व क अपील (ITA Nos. 6970 of 2011) सां यक य उ े य के लए आं शक वीकृत क जाती है ।
Order pronounced in the open court on September 30, 2013
Sd/- Sd/-
(AMIT SHUKLA) (SANJAY ARORA)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated : 30.09.2013
A.K. Patel, PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंब
ु ई /
DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मंब
ु ई / ITAT, Mumbai