Income Tax Appellate Tribunal - Hyderabad
M/S Kalinga Cultural Trust,, Hyderabad vs Department Of Income Tax on 2 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA Nos. 894 & 895/Hyd/2013 and 1067/HYD/2012
Assessment Years: 2006-07, 2007-08 and 2008-09
Asst. Director of Income-tax(Exemptions)-II, ... Appellant
Hyderabad.
Vs.
Kalinga Cultural Trust, ...Respondent
Hyderabad - 500 034
Revenue by : Shri B. Yadagiri
Assessee by : Shri C.S. Subramanyam
Date of Hearing : 02/04/2014
Date of Pronouncement : 06/06/2014
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
These appeals filed by the Revenue are directed against separate orders of CIT(A) for the assessment years 2006-07 to 2008-
09. As identical issues are involved in these appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience.
2. To dispose of these appeals, facts in AY 2008-09 are taken into consideration. The assessee is a registered as a society under the AP (Telangana Area) Public Societies Act 1350 Fasli. The assessee society has been granted registration u/s 12A of the IT Act, 1961 on 23 rd November, 1995 by the CIT, AP-II, Hyderabad. For the AY 2008- 09, it filed return of income declaring income of Rs. 7,03,198/-
2 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13Kalinga Cultural Trust representing shortfall in application of income derived from property held in trust as per section 11 of the Act. The AO passed order u/s 143(3) of the Act on 23/11/2010 holding that the assessee was not entitled to the benefit u/s 11 of the Act. The AO held as follows:
"taking into account all the above defects, I am of the considered view that the society is not entitled to any benefit under section 11 as the funds of the trust/institution has not been applied for its objective. Moreover, this being a residuary trust having carried on business as discussed above, it loses its charitable character."
2.1 learned AR of the assessee contended before the AO that the assessee trust was granted registration u/s 12A of the Act after due consideration of its objects and, therefore, the same cannot be disturbed. It was argued that the activities are genuine and, hence, trust would enjoy the exemption of its income. AR also argued before the AO that propagation of Jagannadh Dharma is an essential part of Odisha culture and the same being one of the objects of the trust, construction of temple by application of funds of the trust is for fulfillment of authorized object. The AO felt that propagation of such philosophy does not justify construction of temple or worship of deity. He was of the opinion that where the dominant purpose was charitable application of some funds for ancillary purpose, such as religious purpose would not justify deduction of exemption u/s 11. He further noted that construction of temple is a religious activity and, therefore, trust having pursued religious activity all along could not be said that it can apply trust funds properly and accordingly trust is not entitled for exemption u/s 11 of the Act.
2.2 Further, the AO noticed that the assessee had not deducted tax at source from contract payments of Rs. 14,39,990/- thereby violating the provisions of section 40(a)(ia) of the Act. He was of the opinion that since the assessee was not entitle to the benefit of section 11, 3 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust such amount is to be added to the assessee's income on account of violation of section 40(a)(ia). The AO, therefore, determined the income of the assessee at Rs. 1,15,51,946/-.
3. On appeal, before the CIT(A), it was submitted that the object of the society has to provide facility and opportunities for cultural meetings, events and activities of people from Orissa. It was submitted that society is engaged in promoting Jagannadh Dharma as part of the objects of the society and, accordingly, construction of temple for lord Jagannadha was to be treated as part of Odissey culture and temple construction and maintenance activity was also a part of Jagannadh Dharma. The AR further submitted that even if any purposes of the trust is held to constitute a religious purpose that by itself would not disentitle the trust from seeking exemption u/s 11 of the Act. The AR relied on the decision of the Hon'ble Cochin Bench of the ITAT in the case of Society of Presentation Sisters Vs. ITO, 121 ITD 422 (TM) . The AR also relied on the following decisions for the proposition that so long as the dominant object is of a general public utility and there is no profit motive, it cannot be said that trust/institution is not established for charitable purposes, even if some profit in the activity carried on by the trust occurs:
i) CIT Vs. Thanthi Trust, 115 Taxman 126 (SC)
ii) CIT Vs. Agricultural Produce and Market Committee, 291 ITR 419 (Bom.)
iii) CIT Vs. Federation of Indian Chamber of Commerce and Industry, 130 ITR 186 (SC) The learned AR also relied on the decision in the case of Nirmal Agricultural Society Vs. IT), 71 ITD 152 (Hyd.) to contend that the intention of the donors and the done at the initial stage should be taken into consideration. A decision in the case of Sthanakvasi Vardhman Vanik Jain Sangh, 260 ITR 366 (Guj.) was also cited for explaining that 4 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust voluntary contribution made with a specific direction is exempt u/s 12 of the Act.
4. After considering the submissions of the assessee, the CIT(A) noticed that the registration granted to the assessee society on 30/12/1995 u/s 12A of the Act was in force during the relevant year. The CIT(A) also noticed that while the objects of the assessee were not amended during the relevant year, even if the same were amended later to add some new objects it cannot be said that the original objectives were discarded altogether so as to say that the assessee's eligibility for being registered u/s 12A was required to be revisited. In this regard, the CIT(A) relied on the decision of Mumbai Bench of ITAT in the case of Mehta Jivraj Makandas & Parekh Govindaji Kalyanji Modh Vanik Vidyarthi Public Trust Vs. DIT(E), 131 ITD 462 (Mum.) The CIT(A) also relied on the decision of the Apex Court in the case of ACIT Vs. Surat City Gymkhana, 300 ITR 214(SC) and noted that the original objects continue to exist and the amended objects also remained charitable and, therefore, the trust continued to be eligible to registration u/s 12A of the Act.
4.1 Further, the CIT(A) held that as regards purposes like 'relief to poor', 'education' or 'medical aid' there cannot be two views that these purposes are not charitable. Further, he held that even if the object 'propagation of Jagannadh Dharma' did not find a place in the original MoU dated 29/12/1994, it is clear that the aims and objectives contained therein are relief to the culture and ethos of Orissa. The CIT(A) further held that even if the new objectives are added to the old charitable objects the charitable character of the assessee trust was not lost. Accordingly, applying the decision of the ITAT, Mumbai in the case of Mehta Jivraj Makaandas & Parekh Govindaji Kalyanji Modh 5 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust Vanik Vidyarthi Public Trust Vs. DIT(E) (supra), the CIT(A) held that the assessee could not have been denied exemption u/s 11 on this count. He further observed that the central theme of the objectives of the oriya culture itself and that Jagannadh Dharma and oriya culture are almost synonymous. The CIT(A) further observed that construction of Jagannadh Temple by the assessee trust was in terms of the objection and undisputedly not only the said temple symbolized oriya culture but also serves as platform for fostering and promoting the cultural and social aspects. It was further emphasized by the CIT(A) that advancement of religion can also be a charitable purpose and for this proposition, he relied on the decision of CIT Vs. Barkate Saifiyah Society, 2132 ITR 492 (Guj.) and the decision in the case of CIT Vs. Social Service Centre, 250 ITR 39 (AP) wherein it has been categorically opined that in our country most of the religious and charitable activities go together. Relying on the decision of Calicut Islamic Cultural Society Vs. ACIT in ITA Nos. 729 & 641/Coch/2006, dated 31/07/2008 and the case of Society of Presentation Sisters Vs. ITO, the CIT(A) held that propagation of Jagannadh Dharma cannot be said to be a non-charitable purpose. Applying the decision of the Mumbai Bench of Tribunal in the case of Mehta Jivraj Makandas & Parekh Govindaji Kalyanji Modh Vanik Vidyarthi Public Trust (supra), the CIT(A) held that the assessee could not have been denied exemption u/s 11 on this count.
4.2 The CIT(A) also held that as regards construction of Jagannath Temple, it is clear that the construction was made only in terms of the aims and objectives of the assessee trust. As regards the decisions in the case of Arsha Vignan Trust Vs. D.P. Sharma, DIT(E) 295 ITR 437(AP), the CIT(A) stated that it is clear that in the light of the decision of Jurisdictional High Court in the case of Social Service 6 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust Centre (supra) this too falls within the ambit of charitable activities. In fact, the CIT(A) observed, in the said decision construction of a church has been held as expenditure towards charitable purposes. Applying the said decision, the CIT(A) held that construction of Jagannath temple by the assessee also amounted to expenditure towards charitable purposes of the assessee.
5. Aggrieved by the order of CIT(A), the revenue is in appeal before us and has raised the following ground of appeal in AY 2008-09:
"1. The order of the learned CIT(A) is erroneous both on facts and in law.
2. The learned CIT(A) ought to have appreciated the fact that propagation of Jagannath Dharma was not part of the objectives of the trust for the relevant assessment year.
3. The learned CIT(A) ought to have appreciated the fact that although the predominant objective of the assessee is promotion of Odissi Culture, the predominant activity being pursued by the assessee was construction of a temple, which is of religious nature.
4. The learned CIT(A) ought to have appreciated the fact that construction of Jagannath Temple was not a part of the objectives of the assessee trust and there is no nexus between the assessee's objectives and the activity of construction of Jagannath Temple, which is of religious nature.
5. The learned CIT(A) ought to have appreciated the fact that the case of CIT Vs. Barkat Safiyah Society [1995] 213 ITR 492 (Guj.) is clearly distinguishable from the present case, because in the cited case one of the objectives was to carry out religious activities while in the case of the subject assessee, it is a charitable trust, carrying out religious activities and thus, it is not entitled for exemption u/s 11 of the IT Act, 1961.
6. The learned CIT(A) ought to have appreciated the fact that the case of CIT Vs. Social Service Center [2001] 250 ITR 39 AP High Court is clearly distinguishable from the present case, In the cited case, the Hon'ble Jurisdictional High Court followed the principle of dominant and ancillary purposes as laid down by the Apex court. In the case of the assessee, the only dominant activity was construction of the temple, leaving aside the original objectives of the assessee and under that circumstance, it is not entitled for exemption u/s 11 of the IT Act.7 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13
Kalinga Cultural Trust
7. The learned CIT(A) erred in not appreciating the rationale of the decision of Hon'ble Supreme Court in Upper Ganges Garments Ltd. Vs. CIT (227 ITR 678) and of Hon'ble Andhra Pradesh High Court in Arsha Vijnana Trust Vs. D.P. Sharma IRS, DIT(E) & Others [2007 295 ITR 437) are fully applicable to the facts of the assessee trust in this case.
8. The learned CIT(A) erred in not appreciating that the function hall in the case of the assessee trust, during the previous year, was mostly given on hire to others, thereby used for commercial purpose, which was not the objective of the trust.
9. The learned CIT(A) erred in accepting the claim of the assessee regarding receipt of Rs. 89,43,651/- towards corpus donation, when there is no indication about such nature in the account books of the rust and in the face of various other factual findings given by the AO in para 5.7 of the assessment order.
10. The learned CIT(A) was not justified in not considering the original audit report filed in form No. 10B, as per which no amount was applied for objectives of the trust. He further erred in considering the revised audit report, filed by the assessee during the assessment proceedings which was not correct.
11. The learned CIT(A) erred in deleting the disallowance of Rs. 1,47,485/- towards religious expenses, when the assessee trust was not entitled to benefit of section 11 of the Act.
12. The learned CIT(A) ought to have appreciated the fact that as the assessee was not entitled for exemption, the assessee's income should be computed on the basis of commercial principle and accordingly, provisions of section 40(a)(ia) are applicable in the case of the assessee to payment of a sum of Rs. 14,39,990/- which was of contractual nature.
13. The learned CIT(A) erred in deleting the disallowance of Rs. 9,16,704/- made by the AO out of the administrative and other expenses. The AO found that as the main activity of the assessee was construction of the temple, 50% of the said administrative expenses amounting to Rs. 9,16,704/- was attributable to such construction activity which cannot be allowed deduction.
5.1 In AY 2006-07, ground No. 2 to 5 are pertaining to denial of exemption u/s 11 of the Act. Ground No. 6 is pertaining to deletion of addition u/s 40(a)(ia) of the Act. Ground Nos. 1 & 7 are general in nature.8 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13
Kalinga Cultural Trust 5.2 In AY 2007-08, ground No. 2 to 5 are pertaining to denial of exemption u/s 11 of the Act. Ground No. 6 is pertaining to deletion of addition u/s 40(a)(ia) of the Act. Ground No. 7 is pertaining to deletion of addition made by the AO towards pooja expenses. Ground Nos. 1 & 8 are general in nature.
6. The learned DR relied on the order of the AO while learned counsel for the assessee reiterated the submissions made before the revenue authorities.
7. We have heard both the parties, perused the material on record and gone through the orders of the revenue authorities. In this case the AO completed the assessment denying exemption u/s 11 by making several additions/disallowances. On appeal, the CIT(A) allowed the exemption u/s 11 of the Act. W e find no infirmity in the order of the CIT(A) relying on the decision of Cochin Bench (TM) in the case of Society of Presentation Sisters Vs. ITO, [2009] 121 ITD 422 (Cochin) (TM) wherein it has been held as follows:
"So for as the provision of s. 11(1)(a) is concerned, no distinction is made between charitable and religious purposes. A charitable institution can have religious purposes; whereas a religious institution may be partly charitable. Even otherwise relief and help to the poor, medical help to the needy, looking after of deity and temples (mosque, church included) are no doubt religious purposes but these are also considered as charitable in India. Therefore, the view taken that exemption under s. 11(1)(a) cannot be allowed to a charitable trust as it is also carrying on some purposes which are termed as 'religious' is totally unwarranted.--Pt. Ram Chandra Shukla vs. Mahadeoji Mahabiriji & Hazrat All Kanpur & Ors. AIR 1970 SC 450 applied; CIT vs. Social Service Centre (2001) 169 CTR (AP) 130 : (2001) 250 ITR 39 (AP), Addl. CIT vs. A.A. Bibijiwala Trust (1975) 100 ITR 516 (Guj) and CIT vs. Barkate Saifiyah Society (1995) 213 ITR 492 (Guj) relied on; Calicut Islamic Cultural Society (ITA Nos.9 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13
Kalinga Cultural Trust 729/Coch/2006 and 641/Coch/ 2006, dt. 31st July, 2008) impliedly approved.
(Para 19) Although there is no distinction between religious or charitable institution as far as s. 11(1)(a) is concerned, such distinction is recognised under s. 13 which is an exception to ss. 11 and 12. Cases which are covered under cls. (a), (b), (c) and (d) of s. 13 would not be entitled to exemption under s. 11 or 12. Clause (a) of above section relates to income from property under a trust for private religious purposes which does not enure for the benefit of the public. Clause (b) deals with cases of charitable institution created or established after the commencement of the Act. It is required to be seen whether such charitable trust or institution is established for the benefit of a particular religious community or caste. If it is so established, then provisions of s. 11 will not be attracted. But for application of above clause, it is to be shown that income of the trust enures and used or applied directly or indirectly for the benefit of the persons referred to in sub-s. (3). Clauses (c) and (d) are applicable to both type of trusts i.e. trust for charitable or religious purposes, unlike in cls. (a) and (b) which were applicable to private religious trust or to charitable trust. The legislature has specifically used in cl. (c) the words "trust for charitable or religious purposes". Clauses (c) and (d) would be applicable to trust which is either for charitable purposes or for religious purposes or partly charitable and partly religious. In other words, if such trust is established only for the benefit of a particular religious community or caste, then the provision of s. 11 would not be applicable. But the position would be different and in case of a trust or institution for religious purposes, wherein certain activities termed as charitable activities are also carried for the benefit of a religious community or caste, cl. (b) would have no application in such a case. In these cases, the Revenue authorities did not make out any case under s. 13(1)(b) or any other clause of the section. There is no finding that trusts in question are charitable institutions created or established for the benefit of any particular religious community or caste. Provision of cl. (b) of s. 13(1) is applicable only to a charitable institution and not to any institution which is created both for charitable and religious purposes. There is no elaboration as to how any particular religious community or caste is to be benefited from the trust in question. No violation of provision of s. 13 has been stated or established. The finding or basis for denial of exemption under s. 11(1)(a) is that trusts are 10 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust partly religious and partly charitable, whereas exemption is permissible to wholly charitable or wholly religious trusts. Such basis is not legally tenable.
(Paras 20 & 21) According to the AO, erection of chapels and convents were religious in nature. Accordingly purpose of the trust was held to be partly religious and partly charitable and exemption denied to the assessee. It is difficult to appreciate or agree with aforesaid conclusion. Erection of chapels and convents cannot be treated purely religious in nature and not charitable. No relevant facts have been brought on record to make out a case justifying denial of exemption under s. 11(1)(a). There is no finding that chapels and convents are to serve a particular community and the purpose would be hit by provisions of s. 13(1)(b). Besides as already recorded a religious purpose can be a charitable purpose and vice versa in India. Therefore, exemption could not be denied to a trust which is partly charitable and partly religious. Maintenance of mosque and church must be treated as charitable purpose. Even if they are treated as religious, there is no justification for denying exemption to the assessee in the light of above discussion. It is nobody's case that purposes are partly charitable and partly non-charitable and, therefore, exemption under s. 11(1)(a) is not available as trusts were created after 1st April, 1962. No adverse inference can be drawn from what is stated by the assessee in letter dt. 27th March, 2006 wherein assessee claimed that its trust is wholly charitable. Facts and circumstances of the case are required to be considered in the light of statutory provisions to decide the case. On consideration of the relevant facts, the assessee is entitled to exemption under s. 11(1)(a).--Ghulam Mohidin Trust vs. CIT (2001) 168 CTR (J&K) 367 : (2001) 248 ITR 587 (J&K), State of Kerala vs. M.P. Shanti Verma Jain (1998) 149 CTR (SC) 279 : (1998) 231 ITR 787 (SC) and East India Industries (Madras) (P) Ltd. vs. CIT (1967) 65 ITR 611 (SC) distinguished.
(Paras 22, 24, & 26.3) Conclusion :
No distinction is made between charitable and religious purposes in s. 11(1)(a) and, therefore, a trust which is partly religious and partly charitable, is entitled to exemption under s. 11(1)(a); even otherwise, maintenance of mosque and church is to be treated as 11 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust charitable purpose and not purely religious purpose and, therefore, exemption under s. 11(1)(a) could not be denied to the assessee trusts which exist for various charitable purposes besides maintenance of chapels and mosques, on the ground that they are partly charitable and partly religious trusts, once no case is made out for application of provisions of s. 13."
In view of the above decision, we are of the opinion that AO was not correct in denying exemption u/s 11 in assessee's case and registration granted to assessee u/s 12A is intact. The learned CIT(A) has rightly appreciated the facts and held that the assessee is entitled to exemption u/s 11. W e uphold the order of the CIT(A) on this issue and grounds raised by the revenue on this issue in AY 2008-09 (Ground Nos. 2 to 7), in 2006-07 and 2007-08 (Ground Nos. 2 to 5 are dismissed.
8. Ground No. 8 in AY 2008-09 is directed that the CIT(A) erred in not appreciating that during the year the function hall was used for commercial purposes, which was not the assessee's objective.
9. The AO held that the assessee was advancing arguments keeping in view the amended provisions of section 2(15) which would disentitle the assessee if it carries on any trade, commerce or business. The CIT(A) held that even if any income was generated out of such activities, earning of such income was only an ancillary activity.
He observed that as held in several judicial pronouncements, generation of such additional income could not itself prove that the motive of the assessee was to earn profits. In this regard he cited the decisions in the cases of CIT Vs. Thanti Trust, 115 Taxmann 126 SC and DIT Vs. Bharat Diamond Bourse 259 ITR 280 SC. He also observed that it is not the case of that the income generated from hiring the function hall was used for any non-charitable purpose or for 12 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust any objects other than the assessee's objects. He also held that since the hall was being rented in the regular course of activities of the assessee to augment income for the furtherance of its objects, it could not have been considered as a separate business as would require maintenance of separate books of account in terms of Sec. 11(4A) of the Act. He countered the allegation of the A.O and held that exemption cannot be denied to the assessee on this count.
10. Aggrieved, the revenue is in appeal before us.
11. We have heard both the parties, perused the record and gone through the orders of the revenue authorities. According to the learned AR the hall was constructed as a suitable venue for carrying out and sustaining the activities of the assessee keeping in view its present and future needs. Spare capacity utilization ought not to have been viewed by the A.O as carrying out commercial activity. The submission of the learned AR is that the CIT(A) has taken a rational view and the same may be upheld.
11.1 In the case of CIT vs. Narayana Guruviah Chetty's Estate & Charities 326 ITR 662 Mad), the Hon'ble Madras High Court held as follows:
Section 11 of Income-tax Act, 1961 - Charitable or religious trust - Income from property held under Assessee-trust running kalyan mandapam on rental basis was entitled to exemption under section 11 as mandapam was being used for charitable purposes [Assessment years 1996-97 to 1999-2000] ClT v. Sri Narayana Guruviah Chetty's Estate & Charities [2008J 220 CTR (Mad.) 310.
The Assessing Officer denied exemption to the assessee-trust under section 11 on the ground that the assessee was running a kalyana mandapam which was not n activity either as per the objects of the trust or incidental thereto. The kalyana mandapam was rented out n 13 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust substantial rent which sustained the commercial nature of the activity. The Tribunal after considering the various clauses contained in the will and also following the earlier order in respect of the very same assessee dated 27-12-2004, in IT Appeal No. 103 (Mad.) of 1998 allowed the assessee's claim.
Held that as the order of the Tribunal was based on consideration of the relevant clause in the will and also the interpretation of such clauses by the jurisdictional High Court in ClT v. Samvuktha Gowda Saraswatha Sabha [20001 245 ITR 242 (Mad.) and the Supreme Court in Asstt. ClT v. Thanthi Trust [200112471TR 785,the Tribunal's view was to be upheld.
11.2 In CIT vs. Agricultural Produce and Market Committee (2007) 291 ITR 419 (Bom),it was held that so long as the dominant object is of general public utility and there is no profit motive, it cannot be said that the trust/institution is not established for charitable purpose, even if there is some profit in the activity carried on by the trust/institution.
11.3 In view of the above discussion, we uphold the order of the CIT(A) on this issue and dismiss the ground raised by the revenue in this regard.
12. As regards ground No. 9 in AY 2008-09 regarding deletion of amount of Corpus donations of Rs. 89,43,651/-, it is observed that the assessee received corpus donations of Rs.89,43,651/- during the year. The A.O did not accept the claim of the assessee that these are exempt as corpus donations u/s.12. The A.O added an amount of Rs.80,39,569/- described as "Temple construction and building fund" and another amount of Rs.3,05,000/- described as "Building construction"
13. In appeal, the CIT(A) deleted the addition accepting the assessee's submission that donations were received with a specific 14 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust mention that those were meant for the construction of a monument/edifice which very well included the construction of a temple. He found as a fact that the assessee has also maintained a separate bank account styled as "Kalinga Cultural Trust Corpus Fund" which established the intention of receiving such donations as corpus donations. He also held that the A.O has not established that the confirmation letters were not genuine.
14. Aggrieved, the revenue is in appeal before us.
15. We have heard both the parties and perused the record. Before us, the assessee submits that since the above amounts are capital in nature, the same cannot be treated as income, especially when the assessee-society is assessed under normal provisions of the Act. Alternatively, if the above are considered to be incomes of the appellant, the corresponding payments of Rs.80,39,569 towards temple and Rs.3,05,000/- towards building, as confirmed by the learned Assessing Officer ought to be allowed as expenditures from the above receipts.
15.1 The Rajasthan High Court in Sukhdeo Charity Estate vs. ITO 192 ITR 615 Raj, on which reliance placed by the assessee, held that, voluntary contributions received for 'specific purpose' are not assessable as income. The above proposition has been accepted by the Hyderabad bench of the Tribunal in Society for Integrated Development in Urban & Rural Areas vs. DC IT 90 ITD 493 Hyd. It has been so held by the Hyderabad bench of the Hon'ble Tribunal in the case of Nirmal Agricultural Society vs. ITO 71 ITD 152 Hyd. It is submitted that in this case it has also been held that even when the assessee had been assessed as AOP and deprived of Section 11 benefits, the AO could assess only net income of the assessee and not gross receipts.
15 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13Kalinga Cultural Trust 15.2 In view of the above discussion, we uphold the action of the CIT(A) on this issue and dismiss the ground raised by the revenue.
16. As regards Gr.No.10 in AY 2008-09 regarding the action CIT(A) erred in not considering the original audit report, the A.O found that the assessee initially filed an audit report in which the amount applied for the objects of the trust was shown at Rs.NIL. Subsequently the assessee filed a revised audit report in which the amount was shown at Rs.l,04,18,108/-. The A.O observed that the second report cannot be held as correct in the face of the first report. He stated that this was a case of misrepresentation of facts.
17. In appeal the CIT(A) held that the revised report has not been shown to be incorrect. He held that the mere fact that there existed an earlier report cannot lead to the conclusion that the revised report is not reliable.
18. Aggrieved, the revenue is in appeal before us.
19. We have heard both the parties and perused the record. The grievance of the assessee before us is that the ground of appeal taken by the Department is ill conceived. The earlier report showed that amount spent on the objects of the trust as NIL. On facts, it is obvious that such a mention was made by mistake. The CIT(A) has rightly held that the A.O has neither shown that the revised report filed was incorrect or that the assessee not applied its income for charitable or religious purposes. Hence, we confirm the order of the CIT(A) on this issue.
20. As regards the Gr.No.11 in AY 2008-09 and ground No. 7 in AY 2007-08 pertaining to deletion of disallowance of pooja 16 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust expenses, the A.O made disallowance of Rs.99,144/- being "Vinayaka Chaturdhi and Durgashtami expenses and a further disallowance of Rs.48,341/- being pooja expenses. The total disallowance comes to Rs.l,47,485/-. This disallowance was made on the count that the expenditure is of religious nature and because the computation of income in the assessment was made under normal provisions after denying exemption u/s.l1. The learned CIT(A) deleted the disallowance because he restored the exemption under Sec.l1. Aggrieved, the revenue is in appeal before us.
21. We have heard both the parties and perused the record. We are of the view that this disallowance will not survive once the assessee's claim for exemption u/s 11 is allowed. Even otherwise, there is no case for the disallowance because once the income from the pooja activity is included, the connected expenditure is to be allowed. Hence, we confirm the order of the CIT(A) and dismiss the ground raised by the revenue in all the appeals under consideration.
22. As regards Gr.No.12 in AY 2008-09 and ground No. 6 in AY 2006-07 and 2007-08 regarding deletion of disallowance u/s.40(a)(ia) , it is seen that the A.O disallowed Rs.14,39,990/- u/s.40{a)(ia). The details of disallowance u/s 40{a)(ia) were not provided by the A.O. Hence, the appellant is unable to rebut the claim of A.O and also not in a position to provide a detailed section- wise break up to establish that the liability under Chapter XVII-B was complied with.
23. On appeal, the learned CIT(A)deleted the disallowance because he allowed the assessee's claim for exemption.
24. We have heard both the parties and perused the record.
17 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13Kalinga Cultural Trust As held in earlier ground, this disallowance will not survive once the assessee's claim for exemption u/s.11 is allowed. Even otherwise, the disallowance was made without affording an opportunity to the assessee to rebut the assumption of the A.O that the items of expenditure comprised in the impugned amount are liable for disallowance u/s.40(a)(ia). The A.O ought to have afforded opportunity to the assessee before making the disallowance. Accordingly, we confirm the action of the CIT(A) on this count in all three appeals under consideration.
25. As regards Gr.No.13 in AY 2008-09 regarding deletion of disallowance out of Adm. expenses: Rs.9,16,704/-, the Assessing Officer made an adhoc disallowance of Rs.9,16,704 ( being 50% of administrative and other expenditure of Rs.18,33,408) on the ground that the main activity of the assessee was construction of temple and since the expenditure cannot be bifurcated, 50% was being disallowed. This disallowance is made because of denial of exemption under Sec.11 and consequent computation of income under normal provisions.
26. On appeal, the learned CIT(A) deleted the disallowance because he allowed the assessee's claim for exemption.
27. We have heard both the parties and perused the record. This disallowance will not survive once the assessee's claim for exemption u/s.l1 is allowed. Even other wise, there is no case for separate disallowance because expenditure debited by the assessee is normal administrative expenditure and there is no finding that such expenditure was not incurred or that the same was not vouched etc. Accordingly, we uphold the action of the CIT(A) on 18 ITA Nos. 1067/Hyd/2012, 894 & 895/H/13 Kalinga Cultural Trust this issue and dismiss the ground of appeal of the revenue.
28. In the result, appeals filed by the Revenue in ITA No. 1067/H/12 and 894 & 895/H/13 are dismissed.
Pronounced in the open court on 06/06/2014.
Sd/- Sd/-
(B. RAMAKOTAIAH) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 06/06/2014.
kv
Copy to:-
1) ADIT (E) - II, Hydreabad.
2) Kalinga Cultural Trust, Plot No. 1269, Road No. 12, Banjara
Hills, Hyderabad - 34.
3) The CIT(A)-IV, Hyderabad
4) The DIT(E), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
Description Date Intls
S.No
1. Draft dictated on Sr.P.S./P.S
2. Draft placed before author Sr.P.S/PS
Draft proposed & placed JM/AM
3 before the second Member
4 Draft discussed/approved by JM/AM
second Member
5 Approved Draft comes to the Sr.P.S./P.S
Sr.P.S./PS
6. Kept for pronouncement on Sr.
P.S./P.S.
7. File sent to the Bench Clerk Sr.P.S./P.S
8 Date on which file goes to the
Head Clerk
9 Date of Dispatch of order