Madras High Court
The Anjuman - E - Himayat - E - Islam vs Hcl Technologies Ltd
Author: M. Duraiswamy
Bench: M.Duraiswamy, R.Hemalatha
T.C.A.No.46 of 2021 and
C.M.P. No.845 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 19.04.2021
DELIVERED ON : 26.04.2021
CORAM:
THE HON'BLE MR. JUSTICE M.DURAISWAMY
AND
THE HON'BLE MRS. JUSTICE R.HEMALATHA
T.C.A.No.46 of 2021 and
C.M.P. No.845 of 2021
The Anjuman - E - Himayat - E - Islam,
No.16, B. N. Reddy Road,
T. Nagar, Chennai - 600 017.
PAN : AAATA4337Q ... Appellant
v.
The Assistant Director of Income Tax,
Exemptions - IV,
Chennai. ... Respondent
Appeal preferred under Section 260A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal, "A"
Bench, Chennai dated 02.06.2015 in I.T.A.No.2271/Mds/2014 for the
Assessment Year 2009-2010.
Page 1/30
https://www.mhc.tn.gov.in/judis/
T.C.A.No.46 of 2021 and
C.M.P. No.845 of 2021
For Appellant : Mr. G. Baskar
For Respondent : Mr. J. Narayanasamy,
Senior Standing Counsel
JUDGMENT
M. DURAISWAMY, J.
Challenging the order passed in I.T.A.No.2271/Mds/2014 in respect of the Assessment Year 2009-2010 on the file of the Income Tax Appellate Tribunal, "A" Bench, Chennai, the assessee has filed the above appeal.
2. The brief case of the assessee is as follows:-
(i) According to the appellant, it is a society carrying on charitable activities in the nature of education, medical relief and relief to the poor.
It runs Orphanages, Schools, Colleges, Industrial Training Centre and AHI Academy for Women. The society was registered under section 12AA of the Income Tax Act, 1961 vide order of the Commissioner of Income Tax dated 02.07.1975. For the Assessment Year 2008-2009, the appellant filed a return of income on 30.09.2009. In the said return, Page 2/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 the appellant had claimed set off of excess application of income of the previous Assessment Year 2008-2009 to the tune of Rs.1,00,70,474/-. The same was processed under section 143(1) on 06.02.2011. The return of income was taken up for scrutiny and statutory notices were issued. In response to the same, the appellant furnished the details as called for in the notice.
(ii) The Assessing Officer, by order dated 14.12.2011, under section 143(3), disallowed the deduction under sections 23 and 24 of the Income Tax Act; restricted the excess application of income of previous Assessment Year 2008-2009 to Rs.23,96,355/- as against Rs.1,00,70,474/- claimed by the assessee on the ground that excess applications should be computed with reference to the gross receipts and not with reference to the minimum application of 85%; and disallowed the claim of depreciation on fixed assets to the extent of Rs.13,71,516/- as the cost of capital assets were already claimed as application of income. The taxable income was computed as Rs.13,03,861/-. Page 3/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021
(iii) Aggrieved over the Assessment Order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who by order dated 18.07.2014, while upholding the order of assessment, disallowed depreciation, enhancing the assessment by directing the Assessing Officer to completely disallow the set off of excess application of income for the Assessment Year 2008-2009. While arriving at the said conclusion, the Commissioner of Income Tax (Appeals) held that there was no concept of carry forward provided in Chapter III of the Act.
(iv) According to the appellant, the Commissioner of Income Tax (Appeals) failed to follow the ratio laid down by the Hon'ble Division Bench of this Court reported in (2000) 242 ITR 20 [Commissioner of Income Tax v. Matriseva Trust]. Further, the appellant submitted that the observations made by the Commissioner of Income Tax (Appeals) about the decisions of the Hon'ble High Court's are in absolute contempt of the High Court and disregard of judicial hierarchy. Page 4/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021
(v) Aggrieved over the order passed by the Commissioner of Income Tax (Appeals), the assessee preferred an appeal before the Income Tax Appellate Tribunal and the Tribunal also dismissed the appeal.
(vi) Aggrieved over the order passed by the Income Tax Appellate Tribunal, the assessee has filed the above appeal.
3.The appeal was admitted on the following substantial questions of law:
“ (i) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in disallowing depreciation claimed, on the wrong premise that the cost of the assets were already claimed as application of income?
(ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the Commissioner of Income Tax (Appeals) was right in not allowing set off to excess application of income of previous Assessment Years?
(iii) Whether the Income Tax Appellate Tribunal was justified in passing an order in total Page 5/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 non-consideration of the binding decisions of this Hon'ble Court on the issues under consideration and further endorsing the objectionable remarks of the Commissioner (Appeals) regarding the judgments of this Hon'ble Court?"
4. Heard Mr. G. Baskar, learned counsel appearing for the appellant and Mr. J.Narayanasamy, learned Senior Standing Counsel appearing for the respondent.
5. So far as the 1st question of law is concerned, the learned counsel on either side submitted that the same was decided against the revenue and in favour of the assessee in the Judgment dated 02.03.2021 made in T.C.A. No.975 of 2010 [The Commissioner of Income Tax - III v. M/s. SRA Systems Ltd., Chennai], wherein this Court held as follows:
“...
4.When the appeal is taken up for hearing, Mr.R.Sivaraman, learned counsel appearing for the respondent submitted that the Question of Law no.1 is covered by the decision of the Hon'ble Supreme Court reported in [2018] 93 taxmann.com 33 (SC) [Commissioner of Income-tax, Central – III Vs. HCL Technologies Ltd.], an un-reported judgment of the Division Bench of this Court Page 6/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 dated 10.01.2019 made in T.C.A.Nos.1257 & 1258 of 2009 [Commissioner of Income Tax, Chennai Vs. M/s.Sak Soft Ltd.] and the Question of Law no.2 is covered by the decision of this Bench dated 19.01.2021 made in T.C.A.Nos.1470 to 1472 of 2010 [Commissioner of Income Tax, Chennai Vs. M/s.S.R.A. Systems Ltd., No.100, Valluvar Kottam High Road, Nungambakkam, Chennai] and the Question of law no.3 is covered by the decision of the Division Bench of this Court dated 18.03.2020 made in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., (formerly known as Visteon Powertrain Control Systems India Private Limited, Keelakaranai Village, Malrosapuram Post, Maraimalai Nagar, Chengalpattu District- 603 204 Vs. The Deputy Commissioner of Income Tax, Company Circle – I (3), 121, Nungambakkam High Road, Chennai – 600 034].
5.It would be appropriate to extract the relevant portions of the judgments relied upon by the learned counsel for the respondent.
(i)[2018] 93 taxmann.com 33 (SC) [Commissioner of Income-tax, Central – III Vs. HCL Technologies Ltd.] “...
19.In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
20.Even in the common parlance, when the object Page 7/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well.
21.On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover.”
(ii)Following the ratio laid down by the Hon'ble Supreme Court, the Division Bench of this Court, by order dated 10.01.2019 in T.C.A.Nos.1257 & 1258 of 2009 [Commissioner of Income Tax, Chennai Vs. M/s.Sak Soft Ltd.] decided the Question of law against the Revenue and in favour of the assessee.
(iii)Un-reported judgment of this Bench dated 19.01.2021 dated T.C.A.Nos.1470 to 1472 of 2010 [Commissioner of Income Tax, Chennai Vs. M/s.S.R.A. Systems Ltd., No.100, Valluvar Kottam High Road, Nungambakkam, Chennai], this Bench held as follows:-
“...
5.As the issue of allowability of deduction under Section 10A is common to all the three Assessment Years, all the three Tax Appeals are taken up together and disposed of by this common judgment. For the Page 8/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 Assessment Year 2000-01, the assessee had filed its return of income on 29.11.2000. The assessee claimed that it was eligible for deduction under Section 10B. The return was processed on 28.03.2002. Subsequently, the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment on account of the assessee Company being ineligible for deduction under Section 10A. Subsequently, a notice dated 22.03.2007 was issued under Section 148 and after giving an opportunity of hearing, the scrutiny assessment order was passed on 17.12.2007, disallowing the entire claim of deduction under Section 10B. Further, the expenditure incurred for the renovation and repairs of the rented premises of the assessee Company was disallowed by the Assessing Officer on the ground that such expenses were in the nature of capital expenditure. The Assessing Officer in his re-assessment order noted that in terms of Section 10B(ii) an undertaking in order to be eligible for deduction under Section 10B must not be formed by splitting up or reconstruction of a business already in existence. Further, the Assessing Officer held that deduction under Section 10B was not available to the assessee Company in view of the provisions of Section 10B(iii) which stipulate that eligible business is not formed by transfer to a new business of plant and machinery previously used for any purpose. The Assessing Officer found that the assessee had not complied with both these conditions, hence, it was not entitled to any deduction under Section 10B.
6.For the Assessment Year 2002-03, in the case of the assessee Company itself, the Income Tax Appellate Tribunal “C” Bench, Chennai had dealt with the applicability of Clauses (ii) and (iii) of Section 10A(2) in its order dated 16.05.2008 in I.T.A.No.2255/Mds/06. The Tribunal, after taking into consideration the decision of Page 9/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 Apex Court reported in 107 ITR 195 [Textile Machinery Corporation Limited Vs. CIT] held as follows:
“... this is not a case of setting up of a new business, but only transfer of business place of existing business to a new place located in STPI area and thereafter, getting the approval from the authorities, the assessee become entitled to deduction under Section 10A. Merely because by shifting the business from one place to another and keeping some of the plant and machinery as those are bearing charge of financial institution, does not violate Clause (ii) and (iii) of Sub Clause (2) to Section 10A of the Income Tax Act.”
7.The order passed by the Income Tax Appellate Tribunal was challenged by the Department in T.C.A.No.1916 of 2008 and the Hon'ble Division Bench of this Court by its judgment dated 26.10.2018 confirmed the order of the Income Tax Appellate Tribunal dated 16.05.2008 made in I.T.A.No.2255/Mds/06 for the Assessment Year 2002-03 and dismissed the appeal. In view of the judgment of the Hon'ble Division Bench of this Court, it is clear that the applicability of Clauses (ii) and (iii) of Sub Clause (2) to Section 10B of the Act, the impugned order passed by the Income Tax Appellate Tribunal is proper. In view of the order passed by the Income Tax Appellate Tribunal dated 16.05.2008 in I.T.A.No.2255/Mds/06 and the judgment passed by the Hon'ble Division Bench of this Court on 26.10.2018 in Tax Case Appeal No.1916 of 2008, the assessee Company would be entitled to deduction under Section 10A and disallowance made by the Assessing Officer was not correct. Since the order passed under Section 263 itself has been set aside, the cause of action for re-assessment does not survive.” Page 10/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021
(iv)Un-reported judgment of a Division Bench of this Court dated 18.03.2020 made in T.C.A.No.228 of 2011 [M/s.Comstar Automative Technologies Private Ltd., (formerly known as Visteon Powertrain Control Systems India Private Limited, Keelakaranai Village, Malrosapuram Post, Maraimalai Nagar, Chengalpattu District- 603 204 Vs. The Deputy Commissioner of Income Tax, Company Circle – I (3), 121, Nungambakkam High Road, Chennai – 600 034], the Division Bench held as follows:
“...
27.Therefore the law has been settled by the said decision of the Hon'ble Apex Court, where in clear terms, it has been held that, the deductions either under Section 10A or 10B would be made while computing the gross total income of the eligible undertaking (like the Assessee) under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI of the Act.
28.Here is the case in hand, the total income was first arrived at by the Revenue through the Assessing Officer in the Assessment order by computing the total income by way of brought forward or carry forward the depreciation allowance of the earlier Assessment years and set off the unabsorbed depreciation first and making the return Nil, thereby leaving the Assessee in a position where it could not claim an deduction under Section 10B as there was no income after set off of carry forward depreciation and unabsorbed depreciation from earlier years.
29.This method of computing the income in the present case made by the Revenue is totally against the said law as has been declared by te Hon'ble Apex Court in the aforesaid decision in Commissioner of Income-tax v.Page 11/30
https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 Yokogawa India Ltd., (cited supra).
30.Therefore we have no hesitation to hold that, the decision of the ITAT, which is impugned herein, would not stand in the legal scrutiny, in view of the law having been declared by the Hon'ble Apex Court. Therefore, we are of the view that, the Substantial Question of Law raised in this Appeal is covered by the said decision, therefore, it can be answered accordingly.”
6.Mr.KIarthik Ranganathan learned Senior Standing Counsel appearing for the appellant fairly submitted that the issues involved in the present appeal are covered by the decision relied upon by the learned counsel for the respondent.
7.In view of the submissions made by the learned counsel on either side, we are convinced that the Questions of Law involved in the present appeal are covered by the decisions relied upon by the learned counsel for the respondent, cited supra. Following the decisions of the Hon'ble Supreme Court and the decisions of this Court, the Questions of Law are decided against the Revenue and in favour of the assessee. The appeal is liable to be dismissed. Accordingly, the Tax Case Appeal is dismissed. No costs.”
6. Therefore, following the judgment made in T.C.A.No.975 of 2010 [cited supra], the 1st question of law is decided in favour of the assessee and against the Revenue.
Page 12/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021
7. With regard to the 2nd and 3rd questions of law, Mr. G. Baskar, learned counsel appearing for the appellant-assessee, in support of his contentions, relied upon the following judgments:-
(i) (2018) 402 ITR 441 [Commissioner of Income TAx-III, Pune v. Rajasthan & Gujarati Charitable Foundation, Ponna], wherein the Hon'ble Supreme Corut held as follows:-
" 1. These are the petitions and appeals filed by the Income Tax Department against the orders passed by various High Courts granting benefit of depreciation on the assets acquired by the respondents-assessees. It is a matter of record that all the assessees are charitable institutions registered under Section 12A of the Income Tax Act (hereinafter referred to as ‘Act’). For this reason, in the previous year to the year with which we are concerned and in which year the depreciation was claimed, the entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable puruposes under Section 11(1)(a) of the Act. The view taken by the Assessing Officer in disallowing the depreciation which was claimed under Section 32 of the Act was that once the capital expenditure is treated as application of income for charitable purposes, the assessees had virtually enjoyed a 100 per cent write off of the cost of assets and, therefore, the grant of depreciation would amount to giving double benefit to the assessee. Though it appears that in most of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed the same and the High Courts have accepted the decision of the Page 13/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 ITAT thereby dismissing the appeals of the Income Tax Department. From the judgments of the High Courts, it can be discerned that the High Courts have primarily followed the judgment of the Bombay High Court in ‘Commissioner of Income Tax v. Institute of Banking Personnel Selection (IBPS)’ [(2003) 131 Taxman 386 (Bombay)]. In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner:
“3. As stated above, the first question which requires consideration by this Court is: whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years? In the case of CIT v. Munisuvrat Jain 1994 Tax Law Reporter, 1084 the facts were as follows. The assessee was a Charitable Trust. It was registered as a Public Charitable Trust. It was also registered with the Commissioner of Income Tax, Pune. The assessee derived income from the temple property which was a Trust property. During the course of assessment proceedings for assessment years 1977-78, 1978-79 and 1979- 80, the assessee claimed depreciation on the value of the building @2½% and they also claimed depreciation on furniture @ 5%. The question which arose before the Court for determination was : whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as application of income in the year of acquisition? It was held by the Bombay High Court that section 11 of the Income Tax Act Page 14/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 makes provision in respect of computation of income of the Trust from the property held for charitable or religious purposes and it also provides for application and accumulation of income. On the other hand, section 28 of the Income Tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business ahll be computed in accordance with section 30 to section 43C. That, section 32(1) of the Act provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. It further provides for deduction subject to section 34. In that matter also, a similar argument, as in the present case, was advanced on behalf of the revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income Tax Act and not under general principles. The Court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income Tax Act The Court rejected the argument on behalf of the revenue that section 32 of the Income Tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section Page 15/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforesatated judgment of the Bombay High Curt, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department.
4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income- tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the Trust. The ITO held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The Appeal was rejected. The Tribunal, however, took the view that when the ITO stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as ‘application of income’ of the Trust in the year in which the income was spent in Page 16/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department.”
2. After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.
3. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in ‘Lissie Medical Institutions v. Commissioner of Income Tax’.
4. It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.
5. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the Page 17/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 depreciation as well. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters.
(ii) (2017) 398 ITR 721 [Director of Income-Tax Exemption III, Chennai v. Medical Trust of the Seventh Day Adventists] wherein the Division Bench of this Court held as follows:-
" ..............28. T.C.A.No.949 of 2015 has been filed by the assessee raising the following two substantial questions of law:-
1. Whether on the facts and circumstances of the case, the Tribunal was right in disallowing the claim of depreciation on assets acquired by way of application of funds in the earlier years, contrary to judgments of several High Courts?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the excess application of the earlier year could not be set off against the income of the current year contrary to the judgment of this Honourable Court in the case of Matriseva Trust (2000) 242 ITR 20(Mad)?
29. Learned senior counsel appearing for M/s.St. Thomas Orthodox Syrian Cathedral Parish Trust, the assessee, Mrs. Pushya Sitaraman would contend that the excess application of earlier years was liable to set off against the income of the current year and relied on the decision of the jurisdictional High Court in the Page 18/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 case of Commissioner of Income Tax Vs. Matriseva Trust [(2000) 242 ITR 20]. While Sri. J.Narayanaswamy, learned counsel appearing for the Department does not seriously object to the argument advanced on merits, he would raise a technical objection to the effect that in the present case, the claim was made under a revised return. The original return of income was filed only on 31.10.2007 beyond 31.10.2006 when it was due and as such would debar the consideration of the claim made in the revised return.
37. Substantial question of law 1 is answered in favour of the assessee and question 2 is answered in favour of the assessee by way of remand. No costs.
(iii) (2018) 303 CTR 1 (SC) [Commissioner of Income Tax (Exemption) v Subros Educational Society] wherein the Hon'ble Supreme Court held as follows:-
1. In this application filed by the Income Tax Department it is stated that Civil Appeal No. 5171 of 2016 arises out of Special Leave Petition (C)... CC No. 8982/2016 was tagged with other appeals and the batch matters were decided by this Court on 13.12.2017. However, the following question was also raised in the instant appeal which was not the subject matter of those appeals:Page 19/30
https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 “(a) Whether any excess expenditure incurred by the trust/charitable institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking Signature Not Verified Section 11 of the Income Tax Act, 1961?” Digitally signed by ASHWANI KUMAR Date:
2018.04.17 15:25:43 IST Reason:
2. To this extent, Mr. K. Radhakrishnan, learned senior counsel appearing on behalf of the applicant/appellant is correct. Therefore, we have heard him on the aforesaid question of law as well but did not find any merit therein.
The miscellaneous application is dismissed.
(iv) (2000) 242 ITR 20 [Commissioner Of Income-Tax v. Matriseva Trust] wherein the Division Bench of this Court held as follows:-
1. At the instance of the Revenue, the following questions have been referred to us for our consideration :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the donation of Rs. 31,050 made by the assessee to another institution, would tantamount to application of income for Page 20/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 charitable purposes, thus satisfying the requirements of Section 11 ? and (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the deficiency of funds of this year could be set-off against the earlier year's surplus ?"
2. During the assessment year 1984-85, the assessee-trust had donated a sum of Rs. 31,050 to another charitable trust known as the service trust. The assessee-trust claimed exemption under Section 11 of the Act, which Was rejected by the Income-tax Officer. On appeal, the Commissioner (Appeals) had allowed the claim of the assessee. The Tribunal had confirmed the order of the Commissioner (Appeals).
3. With regard to the first question, this court in the decision reported in CIT v. Thanthi Trust [1982] 137 ITR 735, had held that the trust which has applied the money for charitable purposes was entitled to exemption without having to show how the money had been dealt with by the transferee institution. This court has answered the question referred there in favour of the assessee and against the Revenue.
4. Following the aforesaid decision of this court and for the reasons stated therein, we answer the first question referred to us in favour of the assessee and against the Revenue.
5. With regard to the second question, the Tribunal has held that the trust is entitled to set off the amount of excess application of the last year against Page 21/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 the deficiency of Rs. 82,516 of the present assessment year.
6. When similar questions came up before the Rajasthan High Court and the Gujarat High Court in the case of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 and CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [19951 211 ITR 293, respectively, both the Rajasthan High Court and the Gujarat High Court have answered the questions in favour of the assessee and against the Revenue.
8. Mr. J. Narayanasamy, learned Senior Standing Counsel appearing for the respondent-revenue submitted that though there is no dispute with regard to the ratio laid down by the Hon'ble Division Bench of this Court in the Judgment reported in (2000) 242 ITR 20 [cited supra], the Tribunal has rightly held the issues against the assessee and in favour of the Revenue. Further, the learned Senior Standing Counsel submitted that the disallowance of deduction under sections 23 and 24 of the Income Tax Act was proper.
9. On a careful consideration of the materials available on record and the submissions made by the learned counsel on either side, it could be seen that the appellant is a Trust registered under section 12AA Page 22/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 which runs an orphanage and other educational institutions. The appellant, in the earlier assessment, i.e. 2008-2009, had made excess application of income towards its objects. The appellant calculated the excess application by deducting the 85% of its income from the total application of its income towards its objects. The Income Tax Officer determined the excess application by deducting 100% of its income from the total application of income towards its objects. The Income Tax Officer allowed carry forward and set off of such excess application of income of assessment and disallowed the set off of excess application pertaining to the Assessment Year 2008-2009 and thereby enhanced the income of assessment for the Assessment Year 2009-2010. The appellant computed the rental income as per sections 22 to 27 of the Act. On such computed income, application for charitable purposes was determined. The Income Tax Officer took into consideration the gross rental receipt and did not consider the claim of depreciation.
10.1 As per the Income Tax Act, "income" means "net income", which is taxable. Income from property should be computed as per Page 23/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 sections 22 to 27 of the Act and the income from business have to be computed under sections 28 and 44 of the Act. Such computed income is exempted from tax under sections 11 and 13, if 85% of the same is spent on the charitable objects. Once the income is computed and determined 85% of such computed income should be utilized for charitable objects.
10.2. Section 11(1)(a) of the Act provides that "income derived from property held under Trust wholly for charitable or religious purpose" shall not be included in the total income to the extent such income is applied for charitable or religious purpose in India. The Act also provides that upto 15% of such income is accumulated or set apart, then, that shall also not be included in the total income.
10.3. Section 11(1)(d) of the Act provides that income in the form of voluntary contribution made with specific direction that they shall form part of the corpus of the Trust or Institution will also not be included in the total income.
10.4 Section 2(24) of the Act defines "income", which includes any "voluntary contribution received by the Trust created wholly or Page 24/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 partly of charitable or religious purposes". Further, explanation to section 11(1)(a)(b) read with section 12(1) of the Act provides that any voluntary contribution received other than with specific direction that they shall form part of the corpus of the Trust or Institution created wholly for charitable or religious purpose shall be deemed to be the "income derived from property held under Trust".
11. On a combined reading of all these provisions, it is clear that when the assessee-Trust applies 85% of its income received by way of voluntary contributions other than the voluntary contributions received with specific directions and the income derived from property held under Trust, then, such income shall not be included in the total income of the Trust. Further, the balance 15% of such income even if accumulated or set apart shall also not be included in the total income of the Trust.
12. The Tribunal, while dismissing the appeal, observed that when the Trust applies its fund from its corpus, accumulated fund, Page 25/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 sundry creditors or from the loan obtained by the trust, then, such funds which are applied cannot be said to be funds applied from the income of the Trust. Further, the Tribunal held that there cannot be a case where the Trust can apply its income more than the income received by it for the purpose of section 11(1)(a) and (b) of the Act.
13. In the Judgment reported in (2000) 242 ITR 20 [cited supra], the Hon'ble Division Bench of this court, while deciding the substantial questions of law as to the set off of the deficiency of funds of this year against the earlier year surplus is concerned, categorically decided the same in favour of the assessee and against the Revenue. Though the appellant-assessee relied upon the said Judgment before the Income Tax Appellate Tribunal, the Tribunal did not consider the same. The Commissioner of Income Tax (Appeals), went beyond its jurisdiction and commented on the Judgments of the High Courts. The relevant portion of the order of the Commissioner of Income Tax (Appeals) reads as follows:-
"Perusal of the above Judgments of the Hon'ble Page 26/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 High Courts reveals that some of the High Courts simply followed the decision of other High Court and allowed the set-off without appreciating the issues of set-off"
14. It is needless to say that the Commissioner of Income Tax (Appeals) is bound by the Judgments/Orders of the High Courts. The Commissioner of Income Tax (Appeals) was not sitting over appeal on the Judgments of the Hon'ble High Courts. If the Judgments/Orders of the High Courts are applicable to the facts and circumstances of the case pending before the Commissioner of Income Tax (Appeals), he must follow the Judgments/Orders of the Hon'ble High Courts without any deviation. The observation made by the Commissioner of Income Tax (Appeals) is unwarranted and cannot be appreciated in any manner.
15. The Tribunal and the Commissioner of Income Tax (Appeals) should have followed the ratio laid down by the Hon'ble Division Bench of this Court in the Judgment reported in (2000) 242 ITR 20 [Commissioner of Income Tax v. Matriseva Trust]. But, the Tribunal and the Commissioner of Income Tax (Appeals) did not consider the Page 27/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 said Judgment while deciding the appeals. Hence, we are of the considered view that the orders passed by the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) are liable to be set aside. Accordingly the same are set aside and the matter is remitted back to the Assessing Officer to decide the matter afresh taking into consideration the ratio laid down in the Judgment of the Hon'ble Division Bench of this court reported in (2000) 242 ITR 20 [Commissioner of Income Tax v. Matriseva Trust] after giving opportunity of hearing to the appellant-assessee.
With these observations, the Tax Case Appeal is allowed. No costs. Consequently, the connected Miscellaneous Petition is closed.
[M.D., J.] [R.H., J.]
Index: Yes/No 26.04.2021
Internet : Yes
Rj
Page 28/30
https://www.mhc.tn.gov.in/judis/
T.C.A.No.46 of 2021 and
C.M.P. No.845 of 2021
To
1.The Assistant Director of Income Tax, Exemptions - IV, Chennai.
2. The Income Tax Appellate Tribunal, Chennai, ''A'' Bench.
Page 29/30 https://www.mhc.tn.gov.in/judis/ T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 M. DURAISWAMY, J.
and R.HEMALATHA, J.
Rj Judgment in T.C.A.No.46 of 2021 and C.M.P. No.845 of 2021 26.04.2021 Page 30/30 https://www.mhc.tn.gov.in/judis/