Case Law Details
Mahakalp Arogya Vs ITO (ITAT Mumbai)
The appeal was filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi dated 04.08.2022 for AY 2018-19, challenging the denial of deduction under Section 57(iii) of the Income-tax Act amounting to ₹79,68,873. The assessee contended that the deduction related to donations of ₹85,00,000 paid to eligible trusts and institutions as expenditure incurred towards its charitable objects. It also challenged the failure of the CIT(A) to consider its written submissions and judicial precedents relied upon in support of the claim.
During the assessment, the case was selected for limited scrutiny on the issue of deduction claimed against income from other sources. The assessee, engaged in charitable activities, claimed deduction under Section 57 against interest income and income-tax refund, submitting that the donations made to various charitable trusts and institutions constituted expenditure incurred in furtherance of its charitable objects. The Assessing Officer rejected the claim, holding that the assessee had not established any direct connection between the donations and the interest income earned and was therefore not entitled to deduction under Section 57(iii). The CIT(A) dismissed the appeal, reiterating the findings of the Assessing Officer.
Before the Tribunal, the assessee submitted that it was engaged in charitable activities and had incurred the expenditure by way of donations in accordance with its objects. It pointed out that it had not claimed exemption under Sections 11 and 12 of the Act and had therefore rightly claimed deduction under Section 57(iii). The assessee relied upon the decisions in Director of Income Tax (Exemption) Vs. Petroleum Sports Promotion Board, DCIT (Exemption), Bhopal Vs. Shri Vaishnav Polytechnic College Governed by VSK Market Tech Educational Society, and Shri Sanatan Dharm Mandir Sabha Vs. ITO. It also submitted that similar deductions had been allowed in earlier assessment years by the Assessing Officer and by the CIT(A). The Revenue supported the orders of the lower authorities and relied upon Poona Club Ltd. Vs. ACIT.
The Tribunal observed that the assessee was registered under Section 25 of the Companies Act, 1956 and was a public charitable trust engaged in pursuing charitable objects such as education and medical relief. It noted that the assessee had not claimed the benefit of Sections 11 and 12 since Assessment Year 1993-94 and had computed its income under the head “Income from Other Sources.” The Tribunal referred to the Delhi High Court decision in Deputy Director of Income Tax (Exemption) Vs. Petroleum Sports Promotion Board, wherein it was held that expenditure incurred for the purpose of making or earning income is allowable as a deduction under Section 57(iii), and that if income is assessed under the residual head, full effect should be given to Section 57. The High Court had also referred to the Supreme Court decision in CIT Vs. Rajendra Prasad Moody, holding that Section 57(iii) should be construed broadly.
The Tribunal found that the facts of Poona Club Ltd. Vs. ACIT were distinguishable, as the assessee in the present case had not claimed any benefit under Sections 11 and 12 and the expenditure had been incurred for the charitable objects for which it was established. It also considered the decisions of the Indore Tribunal in DCIT (Exemption), Bhopal Vs. Shri Vaishnav Polytechnic College Governed by VSK Market Tech Educational Society and the Delhi Tribunal in Shri Sanatan Dharm Mandir Sabha Vs. ITO, both of which followed the Delhi High Court decision in Petroleum Sports Promotion Board. The Tribunal further noted that the assessee had produced donation receipts and evidence of payments made through cheques demonstrating that the expenditure was incurred towards its objects.
Following the Delhi High Court decision in Petroleum Sports Promotion Board, the Tribunal held that the CIT(A)’s decision was not justified and directed the Assessing Officer to allow the deduction claimed by the assessee under Section 57(iii). Accordingly, the ground of appeal was allowed and the appeal of the assessee succeeded.
Cases Discussed:
- DCIT (Exemption), Bhopal Vs. Shri Vaishnav Polytechnic College Governed by VSK Market Tech Educational Society, (2020) 122 taxmann.com 287 (Indore Tribunal).
- Poona Club Ltd. Vs. ACIT, Circle-4, Pune, (2018) 90 taxmann.com 422 (Pune Tribunal).
- Director of Income Tax (Exemption) Vs. Petroleum Sports Promotion Board, (2014) 111 DTR (Delhi) 55.
- CIT Vs. Rajendra Prasad Moody, (1978) 115 ITR 519 (SC).
- Shri Sanatan Dharm Mandir Sabha Vs. ITO, Ward 41(2), ITA No. 5791/Del/2019.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal filed by the assessee is directed against the order passed by the NFAC, Delhi dated 04.08.2022 for A.Y. 2018-19. The assessee has raised the following grounds before us:
“1.DENIAL OF DEDUCTION UNDER SECTION 57(iii) OF THE ACT OF RS.79,68,873/-
On the facts and in the circumstance of the case and in law, the learned Commissioner of Income-tax (Appeals) ICIT(Appeals)] erred in upholding the denial of the deduction by the learned Assessing Officer for a sum of Rs.79,68,873/- under Section 57(iii) of the Act for the donations of Rs.85,00,000/- paid by the appellant to the eligible trusts and Institutions as “Expenditure on the objects of Trust.
The learned CIT(Appeals) erred in not considering the claims and contentions of the Appellant as contained in the written submissions furnished by the appellant in justification of the claim for the deduction for donations paid and also considering the various case laws cited and referred to in the said submissions.
The Appellant prays that the learned Assessing Officer be directed to grant deduction under Section 57 (iii) of the Act for a sum of Rs.79,68,873/- and reduce the total income of the Appellant accordingly.
The appellant hereby craves the leave to add to, alter or amplify the aforesaid grounds of appeal, as and when the need arises/ at the time of hearing.”
2. During the year under consideration the case of the assesse was selected for limited scrutiny assessment on the issue of claim of deduction made from income from other sources. The assesse is engaged in the charitable activities. During the year under consideration the assesse has claimed deduction of Rs.79,68,873/- u/s 57 of the Act against the interest income and Income Tax refund etc. under the head other sources income. In support of his claim the assesse submitted that they have granted donation to various charitable trust/institution as part of charitable activities carried on by it and such donation paid was of the nature of expenditure incurred on the object of the trust, therefore, same has been claimed u/s 57(3) of the Act. However, the A.O has not agreed with the submission of the assesse. The A.O was of the view that the assesse was not entitled for claiming deduction of Rs. 85,00,000/- lacs paid as donation to various charitable activities u/s 57(iii) of the Act. The AO further stated that assesse has not proved that donation made during the year was directly connected to the interest income earned of Rs.79,68,873/-, therefore, the claim of deduction made u/s 57(iii) of the Act was rejected.
3. The assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assesse reiterating the facts reported by the Assessing Officer.
4. During the course of appellate proceedings before the ld. Counsel has contended that assesse is engaged in various charitable activities and the assesse has incurred the expenditure in the form of donation for charitable activities as per the object of the assesse. The ld. Counsel further submitted that assesse has not claimed any deduction u/s 11 & 12 of the Act, therefore, the assesse has rightly claimed deduction u/s 57 (iii) of the Act. The ld. Counsel also referred the judicial pronouncements in the case of Director of Income Tax (Exemption) Vs. Petroleum Sports Promotion Board (Delhi) (2014) 111 DTR (Delhi) 55 and in the case of DCIT (Exemption) Bhopal Vs. Shri Vaishnav Polytechnic College Govn by VSK Market Tech Educational Society (2020) 122 com 287 (Indore Tribunal) and in the case of Shri Sanatan Dharm Mandir Sabha Vs. ITO, Ward 41(2) vide ITA No. 5791/Del/2019. The ld. Counsel also referred the various pages of paper book pertaining to evidences of providing donations for various charitable activities during the year under consideration. The ld. Counsel also submitted that in the assessment order 2005-06 to 200708, the claim of deduction was allowed by the assessing officer and also submitted that in the assessment year 2014-15& 2017-18, the ld. CIT(A) has decided the appeal in favour of the assesse.
On the other hand, the ld. D.R has supported the order of lower authorities and also placed reliance on the decision in the case of Poona Club Ltd. Vs. ACIT, Circle-4 Pune (2018) 90 taxman.com 422 (Pune Tribunal)
5. Heard both the sides and perused the material on record. The assesse company has been registered u/s 25 of the Company Act, 1956. It is undisputed fact that assesse is a public charitable trust engaged in pursuing various charitable objects and activities. The assesse has been engaged in pursuing various charitable activities as contained in the memorandum of association i.e Education, medical relief etc. The assesse has not claimed any benefits of Sec.11-12 of the Act in the return of income filed from the assessment year 1993-94 onwords. Without claiming benefit of Sec. 11 of the Act the assesse has computed its total income under the head income from other sources. The assesse claimed deduction u/s 57(iii) of the Act stating that donation paid were in the nature of expenditure on the object of the trust. The assesse has placed reliance on the decision of Hon’ble Delhi High Court in the case of Deputy Director of Income Tax (Exemption) Vs. Petroleum Sport Promotion Board (2014) 111 DTR (Del) 55 wherein it is held that any expenditure incurred for the purpose of making or earning income is allowable as a deduction. With the assistance of the ld. Representatives we have perused the judicial pronouncements referred as supra. The relevant operating para 7 of the judgment is reproduced as under:
“7. The learned standing counsel for the Revenue submitted that the order of the Tribunal is untenable since it indirectly confers the benefit of s. 11 upon the assessee. We are, however, not inclined to accept the contention. The CIT(A) has actually not held so. He never examined the question whether the assessee was eligible for the exemption under s. 11 since there was no ground before him, taken by the assessee, to that effect All that the assessee claimed before the CIT(A) 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 1.c. promotion of sports and. therefore, the AO 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(A). 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 s. 57(iii), any expenditure incurred for the purpose of making or earning the income is allowable as a deduction. It is open to the IT authorities to deny the exemption under s. 11 of the Act in the absence of registration under s. 12A and if they do so, then the assessment has to be completed in accordance with the provisions of the IT Act; if the income is assessed under the residual head full play must be allowed to s. 57(1). Though prima facie it would appear that the phraseology employed in s. 57(1) is different from s. 37(1). It has been held by the Supreme Court in CIT us. Rajendra Prasad Moody 1978 CTR (SC) 141: (1978) 115 ITR 519 (SC) that s. 57(1) must be construed broadly and the somewhat wider language of s. 37(1) should not affect the interpretation of s. 57(111). 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 assessec 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 asst. yr. 2002-03 the assessee was exempt from tax under s. 10(23); from the asst. yr. 2006-07 It has been granted registration as a charitable institution under s. 12A making it eligible for the exemption under s. 11.”
We observe that as per the decision of Hon’ble Delhi High Court as supra all expenses incurred by the assesse for charitable object for which it was established are allowable as deduction u/s 57(iii) of the Act. The ld. D.R relied on the decision of ITAT, Pune in the case of Poona Club Ltd. Vs. ACIT (2018) 90 taxman.com 422 (Pune). We find that the fact of that case is distinguishable from the fact of the case of the assesse as in the case of the assesse they have not claimed any benefit u/s 11 and 12 of the Act and the expenses were incurred by the assesse for the charitable object for which it was established. The Hon’ble Delhi High Court in the case of Petroleum Sport Promotion Board as supra has also considered the decision of Hon’ble Supreme Court in the case of CIT Vs. Rajendra Prasad Modi 115 ITR 519 (SC) wherein held that Sec. 57(iii) must be construed broadly and the some what wider language of Sec. 37(1) do not affect the interpretation of Sec.57(iii) of the Act. We have also considered the decision of ITAT, Indore in the case of DCIT (Exemption) Bhopal Vs. Shri Vaishnav Polytechnic College Govn by VSK Market Tech Educational Society (2020) 122 taxman.com 287 (Indore Tribunal) and the case of Shri Sanatan Dharm Mandir Sabha Vs. ITO, Ward 41(2) vide ITA No. 5791/Del/2019 wherein the decision of Hon’ble Delhi High Court as discussed supra was followed. We have also perused the paper book wherein the assesse has enclosed supporting evidences i.e donation receipts and evidences of payment made by cheques etc. were placed to demonstrate that expenditure were incurred for the object of the assesse. Looking to the above facts and circumstances and after following the decision of Hon’ble Delhi High Court in the case of Petroleum Sport Promotion Board we consider that decision of ld. CIT(A) is not justified, therefore, we direct the A.O to allow the claim of deduction made by the assesse. Therefore, ground of appeal of the assesse is allowed.
6. In the result, the appeal of the assesse is allowed.
Order pronounced in the open court 10.01.2023
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