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.
