Case Law Details
St. Johns Marthoma Syrian Church Vs Assessing Officer (ITAT Mumbai)
Unregistered Charitable Trust Can Claim Deduction Under Section 57(iii); Gross Receipts Cannot Be Taxed
Mumbai ITAT held that even if a charitable trust is not registered under sections 12A/12AB and is consequently denied exemption under section 11, it is still entitled to claim deduction of expenditure under section 57(iii) while computing income assessable under the head “Income from Other Sources.” The Tribunal observed that the Revenue cannot tax the gross receipts without allowing legitimate expenditure incurred for earning such income.
The assessee, a public charitable trust, had filed its return declaring Nil income. Since it was not registered under section 12A/12AB during the relevant assessment year, the CPC denied exemption under section 11 and assessed its income at ₹43.07 lakh under section 143(1). The trust contended that, even if exemption under section 11 was unavailable, the expenditure incurred for earning the income ought to have been allowed as a deduction under section 57(iii). However, the CIT(A) rejected the claim on the ground that such deduction had not been claimed in the original return and that the appellate authorities could not modify the return.
The Tribunal disagreed with the CIT(A) and held that appellate authorities possess wide powers to entertain fresh legal claims, even if such claims were not made in the original return, relying on the decisions of the Supreme Court in National Thermal Power Co. Ltd., Jute Corporation of India Ltd., and Goetze (India) Ltd. The ITAT further relied on the Delhi High Court’s decision in Petroleum Sports Promotion Board, which held that once exemption under section 11 is denied, the income must be computed in accordance with the normal provisions of the Act, including allowing deductions under section 57(iii).
Accordingly, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to verify the genuineness of the income and expenditure and allow the eligible deduction under section 57(iii) in accordance with law. The appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal by the assessee arises from the order of Commissioner of Income Tax Appeals Additional/ JCIT(A)-Bhubaneshwar [“the Ld. CIT(A)] vide order dated 26.11.2025, for the assessment year 2020-21, resulted from the appeal against intimation under section 143(1) of the Income Tax Act, 1961 (“the Act”) passed by Central Processing Centre, Bangaluru on 21st March, 2022. The grounds of appeal raised by the assessee are as under:
“1. On the facts and circumstances of the case, the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in upholding the disallowance made by CPC of expenses amounting to Rs. 34,18,281/and thereby confirming the tax demand of Rs. 14,69,450/-.
2. The learned CIT(A) erred in confirming the action of CPC in denying exemption under section 11 of the Income Tax Act, 1961 merely on the ground that the appellant trust was not registered under section 12A/12AB, without appreciating that the denial was purely technical and without proper examination of facts and law.
3. Without prejudice to Ground No. 2, the learned CIT(A) erred in law and on facts in rejecting the appellant’s alternative claim for deduction under section 57(iii) of the Income Tax Act, 1961 solely on the ground that such claim was not made in the original return of income.
4. The learned CIT(A) failed to appreciate that appellate authorities, have powers to admit and adjudicate fresh legal claims and deductions not claimed in the return of income, provided the relevant facts are already on record.
5. The learned CIT (A) failed to consider and apply the provisions of Section 57(iii) of the Act, which mandate that income chargeable under the head “Income from Other Sources shall be computed after allowing deduction of expenses incurred wholly and exclusively for the purpose of earning such income.
6. The learned CIT(A) erred in law in not directing the Assessing Officer to compute the correct taxable income in accordance with law by allowing legitimate expenditure incurred wholly and exclusively for earning income, resulting in taxation of gross receipts instead of real income.
7. The learned CIT (A) failed to recognize that the appellate proceedings are intended to rectify errors and ascertain the correct taxable income as per law, regardless of the form or manner in which the claim was originally made in the return of income.
8. The appellant hereby craves the leave to add to, alter or amplify the aforesaid grounds of appeal, as and when the nest arises at the time of hearing.”
2. The brief facts of the case are, that the assessee is a Public Charitable Trust registered under The Maharashtra Public Trust Act, 1950 with effect from 10thMarch, 2022. The assessee filed its return of income for the relevant assessment year on 15th February, 2021 declaring total income at NIL. The return of assessee was processed u/s. 143(1) and the income of assessee was determined at Rs. 43,07,406/- against the Nil taxable income declared by the assessee.
3. Aggrieved with the aforesaid order u/s. 143(1), the assessee preferred an appeal before the Ld. CIT(A) agitating with the issue that the CPC had erred in its decision to disallow the deduction of actual expenses incurred by the trust against the income received. The denial of deduction is contrary to the provisions of Section 57(iii) of the Income Tax Act. It was the contention that the actual expenses directly related to the generation of income must be allowed as deduction as per the statutory provisions and established principle of taxation. The Ld. CIT(A) considered the submissions of assessee, however, was not convinced, therefore, had dismissed the appeal of assessee with following observations:
“6. Consideration of issues under appeal and reasons for decision:-
6.1. Brief fact about the case is that the Appellant is a public charitable trust. For the AY-2020-21, the Appellant filed its Return of Income (ROI) on 15.02.2021. The ITR was processed and Intimation order u/s 143(1) was issued on 21.03.2022.the appellant contested the disallowance of deduction u/s 57(iii) of Rs. 43,07,406/-on account of expense incurred on earning income from other sources.
6.2. Grounds 1&2:-
6.2.1. Upon perusal of document available on record it is found that the appellant is a trust not registered u/s 12A/12AA of the act. The CPC has rightfully disallowed the deduction u/s 11 of the act as the appellant himself accepted it in his submission. The relevant part is produced below.
1.4. During AY 2020-21, the trust was not registered under Section 12A of the Income-tax Act, 1961. Consequently, the provision of section 11 of the Income Tax Act, 1961 was not applicable to the trust. However, the trust should have been assessed as an Association of Persons (AOP) and any donations received by the trust are chargeable to tax under the head “Income from Other Sources.
6.2.2. The appellant has not claimed deduction u/s 57(iii) of the act in the ITR so the addition of CPC of Rs 43,07,406/- is justified as neither the AO not the appellate authority have been vested with powers by the statute to modify the filed ITR. Appellant may explore other legal remedies like revising the return with application for condonation, if applicable in its case.
4. The assessee being dissatisfied with the order of Ld. CIT(A) had filed the present appeal before us.
5. At the very beginning of the hearing of the present case, it is noticed that the appeal filed by the assessee is barred by limitation i.e., it is delayed by 38 days. To substantiate the reasons for delay, the Ld. AR of the assessee furnished an affidavit dated 5thMarch, 2026, duly signed by the trustee of the assessee trust, wherein it is stated that upon receipt of unfavorable order passed by the Ld. Commissioner of Income Tax Appeals, the trust was required to seek proper legal guidance regarding appropriate remedy available under the Act. The trustees were unaware about the intricacies of the Act and owing to lack of clarity and the time required to identify and consult a suitable professional advisor, a delay of 38 days had occurred. Upon consultation, the assessee was advised to preferred an appeal before the Hon’ble ITAT. It is further submitted that the delay was on account of genuine and bona fide reasons and the assessee had not derived any undue benefit from the delay. It is submitted that in the interest of justice and equity the delay of 38 days be condoned. The Ld. DR had not objected to the request of the assessee. After considering the reasons for delay, we find it appropriate to condone the delay in present case.
6. Adverting to the issues raised by the assessee, it is observed that the assessee trust was not registered u/s. 12A/12AA of the Act during the year under consideration. Consequently, the deduction u/s. 11 of the Income Tax Act was not allowed to the trust by the CPC. The assessee requested for allowability of eligible expenses under the provisions of Section 57(iii) of the Act. However, the Ld. CIT(A) rejected such contentions of the assessee, stating that neither the assessing officer nor the appellate authority have the vested powers under the statute to modify the ITR filed by the assessee. The assessee was, therefore, advised to revise the return of income.
7. Before us the Ld. AR of the assessee submitted that as per the decision of Hon’ble Apex Court in the case of National Thermal Power Company Limited Vs. CIT (1998) 229 ITR 383 (SC) and Jute Corporation of India Limited Vs. CIT (1991) AIR 241 the appellate authorities are vested with wide powers to entertain the additional claim of the assessee and to allow lawful deductions even if not claimed in the return of income. The Ld. AR also referred to the decision of Hon’ble Apex Court in the case of Goetz India Limited Vs CIT (2006) 157 taxman 1 (SC) and submitted that the limitations with the assessing officer are not applicable to the Appellate Authorities.
8. Regarding the issues of allowability of expenditure u/s. 57(iii) of the Act, the Ld. AR relied on the reason of ITAT “D” Bench, Mumbai in the case of Mahakalp Arogya Pratisthan Vs. ITO vide ITA No. 2368/Mum/2022 for the assessment year 2018-19, wherein an identical issue was decided by the Tribunal and had allowed the appeal of assessee by observing that the assessee is entitled for deductions u/s. 57(iii) of the Act.
9. Per contra, the Ld. DR strongly supported the orders of revenue authorities.
10. We have considered the rival submissions, perused the materials available on record and the jurisprudence relied upon by the assessee. Admittedly, in present case the assessee is a charitable trust duly registered under the Maharashtra Public Trust Act. The assessee has claimed the expenditure incurred as application of income u/s. 11 of the Act, which was denied by the CPC, as the assessee was not holding an approval for registration u/s. 12A/12AB of the Act. The assessee raised this issue before the Ld. CIT(A) and had alternatively claimed the deduction under the provisions of Section 57(iii) of the Act. The applicable provisions of section 57(iii) are extracted as under:
“The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely:-
(i) [***]
(ii) [***]
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income;
(iv) [***]”
11. On this issue raised, the assessee referred to the judgment of Hon’ble Delhi High Court in the case of DDIT Vs. Petroleum Sports Promotion Board (2014) 111 DTR Delhi 55, wherein the Hon’ble High Court on the aforesaid issues had held as under:
“The learned standing counsel for the revenue submitted that the order of the Tribunal is untenable since it indirectly confers the benefit of Section 11 upon the assessee. We are, however, not inclined to accept the contention. The CIT (Appeals) has actually not held so. He never examined the question whether the assessee was eligible for the exemption under Section 11 since there was no ground before him, taken by the assessee, to that effect. All that the assessee claimed before the CIT (Appeals) was that the entire expenditure should be allowed as a deduction since it was incurred for the very objects for which the assessee was established in 1979 i.e. promotion of sports and, therefore, the assessing officer was not justified in restricting the allowance of expenditure to Rs.1,20,000/- only for all the three years.
It was this claim that was accepted by the CIT (Appeals). The objection of the learned standing counsel for the revenue that since the grants were assessed under the residual head, there was no scope for allowing the expenditure incurred on the promotion of the sports activities is not acceptable since even under Section 57(iii), any expenditure incurred for the purpose of making or earning the income is allowable as a deduction. It is open to the income-tax authorities to deny the exemption under Section 11 of the Act in the absence of registration under Section 12A and if they do so, then the assessment has to be completed in accordance with the provisions of the Income Tax Act; if the income is assessed under the residual head full play must be allowed to Section 57(iii). Though prima facie it would appear that the phraseology employed in Section 57(iii) is different from Section 37(1), it has been held by the Supreme Court in CIT vs. Rajendra Prasad Moody, 115 ITR 519 that Section 57(iii) must be construed broadly and the somewhat wider language of Section 37(i) should not affect the interpretation of Section 57(iii). The assessee in the present case was created in 1979 with the object of promoting sports; there was no other object and all its constituents were giving grants/ funds only for that purpose. In truth and reality the assessee was merely acting as a custodian or conduit to the constituents for the purpose of promoting sports activity inside and outside the country. The expenditure incurred by the assessee is only for the purpose of promoting the sports events and activities and in this respect there is no challenge to the finding of fact recorded by the Tribunal. If such expenditure is not allowed, it may amount to taxing the gross receipts of the assessee and not the income, which is not permissible under the income tax law. Moreover, upto the assessment year 2002-03 the assessee was exempt from tax under Section 10(23C); from the assessment year 2006-07 it has been granted registration or a charitable institution under Section 12A making it eligible for the exemption under Section 11.”
12. Coming to the facts of present case, wherein the assessee’s claimed under section 11 was denied by the Ld. AO as well as by the Ld. CIT(A), and rightly so, as the assessee was not holding the valid registration u/s. 12A/12AB. However, the provisions of section 57(iii) cannot be denied to the assessee, as per observations of the Hon’ble Delhi High Court in the case of DDIT Vs. Petroleum Sports Promotion Board (supra).
13. We, thus, in terms of aforesaid deliberations, deem it apt to set aside the order of Ld. CIT(A) and direct the Ld. AO to allow the claim of deduction by the assessee, as claimed before the Appellate Authorities, which is well within powers of appellate authorities and acceptable in terms of decision of Hon’ble Apex Court in the case of Goetz India (supra).
14. The claim of assessee, however, has to be allowed after factual verification. Therefore, the Ld. AO is directed to verify the veracity of income as well as expenditure of the assessee and allow the entitled claim in accordance provisions of section 57(iii) of the Act.
15. In result, the appeal of assessee is allowed, in above terms.
Order pronounced in the open court on 02-07-2026.
Author Bio
