Income Tax Appellate Tribunal - Mumbai
Lions Club Of Malad Borivali Charity ... vs Cit Exemptions, Mumbai on 27 September, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A" MUMBAI
BEFORE SHRI KULDIP SINGH (JUDICIAL MEMBER) AND
SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
ITA No. 1458/MUM/2022
Assessment Year: 2017-18
Lions Club of Malad Borivali CIT Exemptions,
Charity Trust, 601,6th floor, Cumballa Hills,
PD Lions College, SV Road, Vs. Mumbai-400026.
Sunder Nagar, Malad West,
Mumbai-400064.
PAN No. AAATL 1407 C
Appellant Respondent
Assessee by : Mr. Shankarlal Jain, AR
Revenue by : Ms. Shailja Rai, CIT-DR
Date of Hearing : 24/08/2022
Date of pronouncement : 27/09/2022
ORDER
PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 24.03.2022 passed by the Ld. Commissioner of Income-tax (Exemptions), Mumbai [in short 'the Ld. CIT(E)'] for assessment year 2017-18, raising following grounds:
Lions Club of Malad Borivali 2 ITA No. 1458/M/2022
1. The Ld. CIT (Exemptions) erred in passing the order us 263, passing holding the assessment order as passed as erroneous and prejudicial to the interest of the revenue, without properly considering facts of the case.
2. 2. The Ld. CIT (Exemptions) erred in treating the receipts of Rs.12,12,957/ as donations, without considering its nature Rs.12,12,957/-
that such receipt from the students as per the fees structure provided by the University of Mumbai is to be spent on specified purposes and even not considering amounts spent as application of income.
3. 3. The Ld. CIT CIT (Exemptions) erred in not considering the consistency followed in the method of treatment of such receipts in past more than 40 years.
4. The appellant prays that order passed w/s 263 be cancelled.
2. At the outset, the Ld. Counsel of the assessee submitted that the Registry has pointed out a delay of 7 days in filing the appeal.
The Ld. Counsel submitted that the Trust has e-filed e filed the appeal on 19.05.2022 i.e. on time. However, the hard copy of the said appeal was filed on 23.03.2022.
23.03.2022 Accordingly, there was a delay of 7 days in filing the appeal.
3. We have heard rival submission of the parties on the issue of delay. We find that the appeal was already filed electronically on Lions Club of Malad Borivali 3 ITA No. 1458/M/2022 time and therefore we condoned the delay of 7 days in filing the appeal physically.. The appeal is accordingly admitted for adjudication.
4. In the grounds raised, the assessee is mainly aggrieved with the finding of the Ld. CIT(E) holding the assessment order as erroneous and prejudicial to the interest of the Revenue.
5. Briefly stated d facts of the case are that assessee is a Trust, registered as a charitable organization with Commissioner of Income Tax (Exemption), Mumbai u/s 12A of the Income Tax Act, 1961 (in short 'the Act'). The Trust is also registered u/s 80G of the Act. The Trust st is running and managing a Commerce Degree College, affiliated to Mumbai University, University in the name of "Prahladrai Prahladrai Dalmia Lions" College of Commerce and Economics. The assessee claimed that it collects fees from the students as per fee structure fixed by thee University of Mumbai. As per the said fee structure an amount of ₹500/- per student is collected towards 'development development' and ₹50/-
Lions Club of Malad Borivali 4 ITA No. 1458/M/2022 per student is collected towards 'student student welfare fund'.
fund The assessee filed its return of income in the year under consider e-filed consideration on 27.12.2017 declaring total income at ₹ Nil. The assessee claimed exemption u/s 11 of the Act. The assessment u/s 143(3) of the Act was completed by the Assessing Officer on 30.11.2019, wherein, he accepted the return of income filed by the assessee.
5.1 Subsequently, the Ld. CIT(E) called for the record and after verification, he was prima facie of the view that assessment order dated 30.11.2019 was erroneous in so far as prejudicial to the terest of the Revenue within the meaning of section 263 of the Act interest due to the reason that assessee had directly credited to balance sheet ₹10,75,000/- under sub sub-head head development fund, ₹1,12,350/-
under sub-head head students welfare fund and ₹25,607/ 25,607/- under SMAF fund and the said donation income (i.e. fee received) was not offered to tax in the return of income. The Ld. CIT(E) further observed that by way of directly credited the said total amount of ₹12,12,957/- to Lions Club of Malad Borivali 5 ITA No. 1458/M/2022 balance sheet, the assessee has escaped assessment assessment whereas this amount should have been disallowed by the Assessing Officer.
According to him, the Assessing Officer has not verified this issue during the course of asses sment proceedings. The Ld. CIT(E) assessment CIT(E after considering the submission of the assessee held that assessee has violated provision of section 11 of the Act because u/s 11 of the Act only corpus donations are excluded for the purpose of application of the funds as prescribed and all other receipts to be considered for application as per the pro provision vision of section 11 of the Act subject to accumulation as per Rules. The Ld. CIT(A) accordingly held the order passed by the Assessing Officer was erroneous in so far as prejudicial to the interest of the Revenue and directed the Assessing Officer to pass a fresh reasoned and speaking assessment order after proper verification of the issues pointed out by him. The relevant para of the impugned order is reproduced as under:
"5. The matter is considered. The core issue on Doth the Development Student Fund is the same. Assessee has collected the amounts Fund and Student Lions Club of Malad Borivali 6 ITA No. 1458/M/2022 at the time of admission from the students as per the norms of University of Mumbai. These amounts are directly being credited to the Balance Sheet without ithout passing through the Income & Expenditure Account. As per the submission of the assesses reproduced abov above, the amount is spent for different purposes as required for the development of infrastructure and the welfare of the student community. As such it is the understanding, understan of, the assessee that the amounts collected are not required to pass through the Income &. Expenditure Account the AO has accepted this reporting of the impugned items, directly into the verification After having applied my mind balance sheet without any verification. on, the issue ssue in question, question, am of the considered view that in accepting assessee's position without any verification. the AO has passed an order which is erroneous in so far as it is prejudicial to the interests of revenue within the meaning of Section 263 of the Act. The reasons for the same are stated in the following paragraphs.
6. As per the Schedule A to the Balance Sheet, the depiction of Development Fund, is as under:
A. Development
a) Sr. College
As per last balance sheet 71,35,926.01
₹71,35,926.01
Add: Received during the 10,75,000
₹10,75,000
year
Less : Utilized during the ₹20,54,453.62)
(₹20,54,453.62)
year
Closing Balance ₹ 61,56,472,.39
As per the provisions of Section 11 of the Act, income from property held under the trust as well as from property held under the trust as well as voluntary donations are Income of the trust, though exempt from tax but are subjected to rules of application under Section ction 11(2) of the Act. The 11(1)(a) as well as accumulation under SSection ption to the rules or application of income is the exception only exception Lions Club of Malad Borivali 7 ITA No. 1458/M/2022 available for corpus donations as per the provisions of Section 11(1)(d) of the Act. It is evident from the nature of amounts collected towards Development Fund or the Welfare Fund that they are not in the nature of corpus donations.
It is also a matter of record that the assessee trust is reporting Education Receipts and various Fees etc. collected in its Return. The relevant Educational Income reported by the assessee include Admission Processing Fees, Eligibility _ Fees, Computer Practicles/Laboratory Fees, Examination Fees, Gymkhana Fees, Library Fees, Tuition Fees, Utility Fees, Group Insurance and so on. The non reporting of Development Fund and Student Welfare Fund, in the light of the provisions of Section 11 of the Act, is conceptually flawed. It begs the question as to how the receipts or collections on account of these funds are any different from other receipts/collections for off the AO to have educational purposes? It was incumbent on the part o examined the same, conducted necessary verifications on whether the collections during the year in these funds, as well as earnings of interest income etc. were reported as part and parcel of gross receipts to which the rules of application of income as well as accumulation application apply. The AO needed to verify whether the amount collected in the funds during the year have been applied jewards charitable purposes to the extent of 85 per cent as per, law? The A needed to further examine whether non application of income less than 85 per cent; out of these funds have been part of accumulation claimed in Form 10 as per the provisions of Section 11(2) of the Act. It also remained to be verified whether the balance in these tunds have been invested in odes specified under the provisions of Section 11(5) of the Act? Non modes allowance of an apparent incorrect verification of all these issues, and allowance Lions Club of Malad Borivali 8 ITA No. 1458/M/2022 claim of non reporting of collections to these funds during the year by enders the assessment order taking itt directly to the Balance sheet, renders framed by the AQ, erroneous in so far as it is prejudicial to the interest inter of revenue, with specific reference to Explanation 2 to Section 263-of 263 the Act. The relevant Explanation 2 is reproduced as under:
2 For thee purposes of this section, it is hereby declared 'Explanation 2-
that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner Commissioner, -
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction inst ction 119; or issued by the Board under section
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.]
7. As mentioned above, a plain reading of the Explanation 2 makes it abundantly clear that in the instant case there are critical gaps and errors committed by the AO in non verification of the impugned issues.
assessment order dated Accordingly, I am satisfied that the assessment 30/11/2019 is erroneous in so far as it is prejudicial to the interests of revenue within the meaning of Section 263 of the Act. Hence, by virtue he provisions of Section 263 of powers vested in the undersigned vide tthe Lions Club of Malad Borivali 9 ITA No. 1458/M/2022 of the Act, I deem it appropriate to set aside the assessment order dated 30/11/2019 with a direction to the AO to reframe the assessment order as under:
(i) The collections in the impugned funds made during the year is to be 11 of the Act.
taken as income under the provisions of Section 11 )Necessary verification of the spends out of the collections during the
(ii)Necessary year may be made, and allowance to the extent applied for charitable purpose may be given
(iii) The AO may verify whether the investment of balance in the funds have been een made in the modes specified in Section 11(5) of the Act, and take necessary action in terms of the Law in case of default.
(iv) The AO may verify whether the interest income arising or accruing on the balance in the impugned funds have been reported as income, or directly taken to the Balance Sheet? Necessary action in this regard may be taken to include the interest income in the gross receipts if directly taken to the balance sheet.
(v) The AO may not allow application of income out of the balance ought forward from the earlier years as no accumulation of these brought funds have been sought in Form 10 read with section 11(2) of the Act.
8. The AO is directed to pass a reasoned and Speaking order after mention, the AO proper verification of the above issues. Needless to mention, shall give the assessee ass ing heard. The AO adequate opportunity of being may further note that his/her intervention in the consequential proceedings is limited to the above issue only, and the AO is directed not to travel beyond this limited scop scope."
Lions Club of Malad Borivali 10 ITA No. 1458/M/2022
6. Before us, the Ld. Counsel of the assessee submitted that assessee is following this practice of directly crediting the fees development welfare fund and other fund to received against the development, the balance sheet and therefore in view of rule of consistency, consiste the Assessing Officer accepted the contention of the assessee in the assessment order. Further, he referred to page 4 of the Paper Book filed which contains details of the Schedule A to balance sheet of the assessee filed for year under consideration. The Ld. Counsel submitted that assessee during the year has incurred amount of ₹20,54,453/- as compared to amount of ₹10,75,000/ 10,75,000/- received against the development fund and therefore, assessee has already incurred expenditure in excess of amount received against the development fund. The said expenditure has not been claimed by the assessee and therefore, the assessee fulfils fulfils requirement of section 11 of the Act.
Lions Club of Malad Borivali 11 ITA No. 1458/M/2022
7. We have heard rival submissions of the parties and perused the relevant material on record. The main ground of the assessee is that in view of rule of consistency, the assessee is entitled for deduction u/s 11 of the Act without satisfying provision of accumulation of funds as provided u/s 11 of the Act. The Ld. Counsel referred the decision of the Tribunal Rajkot Bench in the case of Gujarat State Lion Conservation Society v. Commissioner of Income-
Income tax (Exemption) on) [2022] 141 taxmann.com 269 (Rajkot-Trib.) (Rajkot and submitted that in such case practice followed by the assessee of crediting Government grant directly to balance sheet was accepted in earlier years and therefore, in view of doctrine of consistency, the Tribunal bunal directed to accept the same in subsequent years. The relevant para of the decision of the Tribunal (supra) is reproduced as under :
9. Without prejudice to the above, further, we note that even for the "9.
earlier and subsequent years, the assessee was in receipt of government grant, however, no addition on this aspect has been made by the Revenue. The assessee has appended copies of the order by Lions Club of Malad Borivali 12 ITA No. 1458/M/2022 Income Tax Appellate Tribunal in his own case for assessment year 2012-13 ord under section 143(3) of 13 and also copy of the assessment order the Act for assessment year 2013- 2013 14, wherein no addition on the assessee has been made by the Revenue in any of the earlier years. The assessee utilises the above grants for the purpose of carrying out the fencing of the railway line to the forest. Though strictly speaking, principle of res judicata does not apply to income tax proceedings, but settled principle of law that if there is no change in the it is also well-settled facts of thee assessee from the previous years, principle of consistency demands that settled issue should not be re agitated. The counsel for re-agitated.
the assessee has submitted that the assessee Trust is in receipt of government grant in the earlier years as well. However, iit is for the first time that this issue has been raised by the Revenue with no change in facts from the earlier years. In the earlier years, the Revenue had accepted the same as income of the assessee as being eligible for accumulation under section 11 of the Act. The Gujarat High Court in the case of CIT v. SBJ VON Compounders (P.) Ltd[2013] 37 (P.) taxmann.com 353 (Gujarat) has held that claim of assessee in respect of valuation of stock which was accepted in preceding assessment year was to be accepted in current year also following doctrine of consistency.
9.1 In view of the above, we are of the considered view that Principal law in holding that the order passed by CIT has erred in facts and in law the AO is erroneous and prejudicial to the interest of revenue."
revenue.
7.1 We find that in the Tribunal (supra), income of the assessee was eligible for accumulation ccumulation u/s 11 of the Act iin earlier year(s) year and therefore, following rule rule of consistency, was allowed to eligible for Lions Club of Malad Borivali 13 ITA No. 1458/M/2022 accumulation. In the case, it is otherwise. The fee receipts (income) which was credited directly to Balance Sheet was never considered application of fund by the assessee in earlier for accumulation or application years. Even if same was allowed as income in earlier due to mistake, same may be rectified as held by the Hon'ble Supreme Court in the case of Distributors (Baroda) Pvt. Ltd. v. UOI in (1985) AIR 1585 SCR Supl. CO 778 that to perpetuate an error is no heroism and rectify is the compulsion of judicial conscience. In the instant case, we find that the receipt of development welfare fund are admittedly not part of the corpus fund and therefore, under the provisions of section tion 11 of the Act, the assessee see was required to consider those th receipts for the purpose of application of 85 per cent of the income as prescribed in section 11(1) of the Act and if not applied then such accumulated income is to invested in terms of section 11(2) of the Act.
Lions Club of Malad Borivali 14 ITA No. 1458/M/2022 7.2 The relevant provision of section 11(1) & 11(2) are reproduced as under:
Section 11(1)
11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income_ "(a) income derived from property' held under trust wholly for charitable or religious purposes, to the extent to which such income is applied' to such purposes in India; and, where any such apart for application to such income is 'accumulated or set apart purposes in India, to the extent to which the income so accumulated or set apart" is not in excess of [fifteen] per cent of the income from such property;
(b) income derived from property held under trust in part" only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income" is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of "(fifteen]per cent of the income from such property;
(c) income "(derived] from property held under trust trust-
st day of April, 1952, for a charitable (1) created on or after the 1st promote international welfare in which purpose which tends to promote India is interested, to the extent to which such income is applied to such purposes outside India., and Lions Club of Malad Borivali 15 ITA No. 1458/M/2022 (4) for charitable or religious purposes, created before the Ist income is applied day of April, 1952, to the extent to which such income to such purposes outside India:
Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;
"[(d) income in the form of voluntary contributions made with a voluntary specific direction that they shall form part of the corpus of the 17 L, subject to the condition that such trust or institution 17-L, voluntary contributions are invested or deposited in one or more section (5) maintained of the forms or modes specified in sub-section specifically for such corpus].] Section 11(2) "eighty five) per cent of the income referred to in clause Where "eighty-five) sub section (1) read with the Explanation to
(a) or clause (b) of sub-section section is not applied, or is not deemed to have been that sub-section applied, tocharitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated Or ser apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:] '[(a) such person furnishes a statement in the prescribed form and in the prescribed" manner% to the Assessing O fficer, stating Officer, the purpose for which the income is being accumulated or set Lions Club of Malad Borivali 16 ITA No. 1458/M/2022 apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years;
(b) the money so accumulated or set apart is invested or deposited osited in the forms or modes specified in sub sub-section section (5);
(c) the statement referred to in clause (a) is furnished on or sub section (1) of section 139 before the due date specified under sub-section year:"
for furnishing the return of income for the previous year:"
7.3 The assessee has not complied those provisions of the Act. The claim of the assessee that as per rules of University of Mumbai, the assessee was allowed to incur the amount received for development fund against creating infrastructure facility and therefore, it was separately transferred to said fund and expenditure has been incurred out of that. In our opinion, there is no conflict between the rules laid down by the Mumbai University directing the assessee to dispose the amount received from the students agai against nst development fee/fund. It was the onus of the assessee to make entries and apply the funds in consonance with the provisions of Income-tax Income Act and Rules. The assessee cannot choose its own option of interpretation of provisions of the law.
law The claim of the assessee is that it was only Lions Club of Malad Borivali 17 ITA No. 1458/M/2022 a technical default and not escapement of income, income but we find that claim is not in accordance with law, therefore, not eligible for Act. We find that before us, the assessee has exemption u/s 11 of the Act.
inquiry was carried out by the also failed to substantiate that any inquiry Assessing Officer on the issue of application of development fund u/s 11 of the Act. In the circumstances, we do not find any error in the finding of the Ld. CIT(E) in invoking the provision of section 263 of the Act and hold that the order of the Assessing Officer is erroneous in so far as prejudicial to the interest of the Revenue.
Accordingly, we reject the contention contention of the assessee and dismiss the grounds raised by the assessee in this regard.
8. In the result, the appeal filed by the assessee is dismissed.
Order pronounced unced in the th open Court in 27/09 /09/2022.
(KULDIP
KULDIP SINGH)
SINGH OM PRAKASH KANT)
(OM KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 27/09/2022
Rahul Sharma, Sr. P.S.
Lions Club of Malad Borivali 18
ITA No. 1458/M/2022
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Sr. Private Secretary)
ITAT, Mumbai