Case Law Details
Improvement Trust Fatehabad Vs ITO (Exemptions) (ITAT Delhi)
Trust cannot claim standard deduction u/s 24(a) for rental income but can c/f the excess of expenditure in the subsequent year
In the given case there are two issues which are raised, first ground of appeal the non-granting of deduction under section 24 (a) being 30% of deduction on rental income from house property to charitable trust and second ground of the appeal which is against not allowing the carry forward of excess of expenditure over income for the year. The claim of the assessee is that if there is a deficit during one assessment year it should be allowed to be carried forward to the next assessment year as the deficit of the earlier years is allowable as application of income in subsequent years.
Therefore, respectfully following the decision of the coordinate bench ITAT do not find any merit in this ground of appeal of the assessee. Accordingly we hold that assessee trust is not eligible for standard deduction at the rate of 30% u/s 24 (a) of the act, out of the rental income chargeable to tax in the hands of the assessee.
ITAT have carefully considered the rival contentions and orders of lower authorities. Hon’ble Bombay High court has dismissed the appeal of the Revenue in DIT(E) v. Gem & Jewellery Exports Promotion Council in ITA(LOD) No. 1113 of 2010 vide judgment dated 15.02.2011 by following the decision of Hon’ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection(IBPS) 264 ITR 110) on the issue of set off of deficit of earlier years against surplus of the impugned assessment year. The Revenue filed an SLP with Hon’ble Supreme Court which was dismissed by Hon’ble Apex Court vide orders dated 09.09.2011 in SLP(Civil) CC 13512/2011. SLP is filed by the Revenue against Hon’ble Bombay High Court judgment but the said SLP also stood dismissed by Hon’ble Apex Court. Further Hon’ble Courts/Tribunal had taken consistent stand that in case of Charitable Trust excess expenditure over income is to be allowed to be carried forward for setting off against income of subsequent years. Thus the deficit of this year is allowable to assessee for set off in subsequent years. Therefore, we allow the carry forward of excess expenditure over income of Rs.1113503/- to be carried forward to subsequent years . Thus, we reverse the orders of lower authorities and allow ground no 2 of the appeal.
Accordingly appeal of the assessee is partly allowed.
FULL TEXT OF THE ITAT JUDGEMENT
1. This is an appeal filed by the assessee against the order of the ld CIT (A), Rohtak dated 04.10.2016 for the Assessment Year 2013-14.
2. The assessee has raised the following grounds of appeal:-
“1. The Ld. CIT (A) has erred while confirming the addition made by A.O. on account of disallowance of 30% deduction on rental income from property held for charitable purposes by not appreciating the provisions of section 11 which does not provide mode of computation of income rather it provides quantam of exemption in respect of property held for charitable/religious purposes.
2. The Ld. CIT (A) has erred in law while confirming the addition made by A.O. on account of reducing the loss by Rs. 293580/- by disallowing 30% deduction of rental income and further not allowing loss/carry forward of loss of Rs. 1113503/-by not appreciating the settled legal position of law that excess application of income of earlier year can be adjusted against surplus of subsequent year.”
3. Assessee is a charitable trust, filed its return of income in 19/09/2013 having an excess of expenditure over income by ₹ 14,07,083/–. The assessment under section 143(3) of the income tax was passed on 11/12/2015 by the learned income tax officer (exemption), Rohtak assessing Nil income. However the learned assessing officer noted that assessee is deriving income from rent of ₹ 9,78,600/– and has claimed a deduction at the rate of 30% amount into ₹ 2,93,580/– and the net rental income is been shown at ₹ 6,85,020/–. AO noted that assessee is registered under section 12AA, accordingly, claiming the benefit of section 11 of the income tax act so the income was to be computed on commercial principle as per the provisions of section 11 and 12 of the act. Assessee was therefore not entitled to claim standard deduction under section 24 (a) of the act as assessee has already claimed all the capital expenditure at the time of acquiring/construction of the property. AO objected the same stating that section 11 does not provide mode of computation of income of a trust and therefore the assessee should be granted deduction at the rate of 30 % from the rental income. Assessee relied upon the decision of coordinate bench in 68 TTJ 44. The AO rejected the contention of the assessee and therefore the above addition was made. Further assessee has shown loss of ₹ 14,07,083 being excess of expenditure over income and asked for its carry forward to be set off in the subsequent year. Assessee was therefore aggrieved with the order of the learned assessing officer in computing the total income of the assessee at Rs. nil.
4. Therefore assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A. The learned CIT – A dismissed the appeal of the assessee.
5. The assessee has challenged in the first ground of appeal the non-granting of deduction under section 24 (a) being 30% of deduction on rental income from house property. The learned authorised representative reiterated the submissions made before the lower authorities. According to him as per the provisions of the income tax act the charitable trust is eligible for such deduction and the lower authorities of disallowed the same innovate manner without considering the submission of the appellant and simply said that the appellant has not been able to explain why Standard deduction claimed under rental income should be allowed.
6. The learned departmental representative women to support the order is of the lower authorities.
7. We have carefully considered the rival contention and perused the orders of the lower authorities. As per ground number 1 , assessee has stated that on the rental income offered by it, it should be allowed 30% standard deduction. The assessee has earned rental income of ₹ 978600/– and claimed deduction at the rate of 30% amounting to ₹ 293580/–. Assessee is a charitable trust and the computation of income is governed in the case of the assessee by the provisions of section 11, 12 and 13 of the income tax act. These provisions though provide for various types of income on by a charitable trust however, it has nothing to do with the matter of computation of total income as referred to in chapter IV of the act. This issue is squarely covered against the assessee by the decision of the coordinate bench in ITA No ITA No 106/Mum/2016 Nandlal Tolani Charitable vs ITO (E)-2(1), Mumbai where in it has been held that :-
“6. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. We find that the issue involved in the present appeal, i.e. deductibility of deduction u/s 24(a) against rental income in case of a trust / institution claiming benefit of exemption u/s 11 is a recurring issue in assessee’s case for earlier period. The co-ordinate bench of ITAT, Mumbai Bench “B” in assessee’s own case for AY 2005-06 in ITA No.200/Mum/2011 had considered similar issue in the light of provisions of section 24(a) and also section 11 of the Income-tax Act, 1961, and held that income of a trust / institution shall be computed under normal commercial principles without resorting to computation mechanism as provided under respective head of income while determining income available 8 ITA 106/Mum/2016 for application u/s 11 of the Act. The relevant observations of the Tribunal are as under:-
“8. We have heard the rival parties and gone through the material available on record. On a perusal of the Tribunal order dated 30.09.2013 in ITA Nos.6970 & 199/Mum/2011 & ITA No. llll/Mum/2011 for assessment year 2004-05, we find that on identical issue has been decided against the assessee by observing as under:
3.2 The first issue arising in the instant appeals is the validity in law of the assessee’s claim toward repairs and maintenance u/s. 24 of the Act in computing the income from house property let out assesse, and toward which it has (subsequently) a single precise ground. The claim is, by all counts, without merit. This is for the simple reason that the income of a charitable trust or institution, subject to its application for charitable purposes, for which it has been in fact formed (per its Constituting charter) is exempt from tax under Chapter III (ss.10 to 138) of the Act The said income does not form part of the total income of the entity to which it arises or accrues or is received by. It is only the income forming part of the total income u/s. 2(45) of the Act, which is to be classified under the various heads of the income u/s. 14 and, accordingly, subject to the computation provisions of Chapter IV (ss. 14 to 59)of the Act. The expenditure incurred in earning the same is, likewise, and only understandably, not to be taken into account in computing the total income under the Act, which represents trite law, and toward which a separate section (sec. 14 A) has since been inserted by Finance Act, 2001 with retrospective effect from 01.04. 1962. This aspect stands abundantly clarified by the hon’ble apex court in the case of CIT vs. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC)t explaining that an income to come within its purview must satisfy the definition of total income u/s. 2(15) (of the Income-tax Act, 1922, which is para material with section 2(45) of the Act), prescribing two conditions. Firstly, it must comprise the total amount of income, profits and gains referred to in section4(l) and, two, must be computed in the manner laid down under the Act. The capital gain being not chargeable u/s.128 of the 1922 Act during the relevant period, the same would not enter the computation mechanism of the total income. This is as the capital gain or loss (which is only negative income) did not form part of the total income of the assessee which could be brought to charge, so that it was not required to be computed. Reference in this context may also be made to the following observation by the tribunal in the case of Pravin Shah Trust vs. Dy. CIT(in ITA No. 4782/Mum/2010 dated 05. 07. 2013): 9 ITA 106/Mum/2016
3.3…. That is, an income exempt u/c. HI of ‘the Act, not forming of the total income, would not enter the computation process determine the quantum of income under the relevant head of each of which has its own computation provisions. ‘
To the same effect and purport are its observationsin the case of LKP Securities Ltd.(in ITA Nos. 638 & W93/Mum/20l2 dated 17.05.2013):
’14 ………….. The income (and loss, which is only negative income) failing under chapter in of the Ad d/iu, uius, exempt from the levy of the tax, would not form part of the computation of the income under Chapter IV of the Act. That in fact is a fundamental premise; the basis of sec. HA of the Act. The Revenue’s case in this regard is unexceptional, and we confirm the same. ‘ In both the decisions, the tribunal relied on the decision in the case of Harprasad & Co. (P.) Ltd. (supra). The reliance by the id. CIT(A) on the Circular issued by the Board (No. 5P(LXX6) dated 19.06.1968), explaining the position In the matter, is also apposite. It stands explained that only the income as reflected in the accounts of the trust/institution that is to be applied or deemed to have been applied for charitable purposes, and which, therefore, has to be computed in the commercial sense. The said Circular has been found by the hon’ble courts of law as representing the correct interpretation of the relevant provisions and the requirement of the la w, as in the case of CIT vs. Programme for Community Organisation [1997] 228 ITR 620 (Ker), since approved by the apex court (reported at [2001] 248 ITR 1 (SC), to which (latter) decision reference stands also made by the Id. CIT(A). This aspect of the matter, i. e., the manner of computation of income of a charitable or religious trust/institution which has to be applied for the said purposes, has been a subject matter of a number of decisions, as by the hon’ble jurisdictional High Court in the case of CIT vs. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom). This is even otherwise patent inasmuch as a trust could only apply the income as available with it, i.e., as arrived at following the accepted principles of commercial accounting. The computation provisions of the Act do not come into play, so that the said computation of the would be de hors the same. This would of course be subject to the specific provisions of the Act, so that where specifically provide for, the income would be computed in the manner as provided; for example ss. 11(4) and 11(4A) specifically provide for the computation of income of a business t/i(/forming part of the property held under trust by charitable trust/institution in accordance with the provisions of the Act, even as pointed out by the hon’ble court in Rao Bahadur Calavala Cunnan Chetty 10 ITA 106/Mum/2016 Charities (supra). The Special Bench of the tribunal in Scientific Atlanta India Technology (P.) Ltd. vs. ACIT [2010] 2 ITR 66 (Trib) (Chennai) (SB) held that the profits of a unit eligible for deduction u/s.10A of the Act, i.e., to the extent not covered by the deduction there-under, would stand to be taxed directly and not enter the computation mechanism inasmuch as the same do not form part of the gross total income, as section 10A falls under Chapter HI of the Act, so that the provisions of Chapter Vl-A and, consequently, s. 80AD would not be applicable thereto. Before parting with the matter, we may also add that the assessee has been allowed ad the expenditure on repairs and maintenance as debited in its accounts, i.e., on actual basis (Rs. 11.97 lacs/PB 1 pg. 39), even as directed by the Id. CIT(A), and which fact was also clarified by us during hearing. Accordingly, the assessee f s ground/s for the claim of the standard deduction u/s.24 fail. We decide accordingly.
Finally, the reliance by the assessee on the decision in the case of IAC, Mumbai vs. Saurashtra Trust [2007] 1061 TO 1 (Mum) (SB) is, under the circumstances, misplaced. The said decision is, firstly, sansany reference to any precedents; nay, even without a discussion of the law in the matter. This aspect would in fact become clear in view of the questions referred to and answered by tribunal. As a reading of its order would show (refer para 1), are not directly connected with the issue before us. decision, thus, would be of no assistance to the assessee, w/jffi fve having even otherwise decided the matter following the precedents in the matter, so that the decision in the case of of Baroda v. H.C Shrivastava[2002] 256 TTR 385 (Bom), advocating judicial discipline with reference to the decision by the apex court in CCE v. Dunlop India Ltd. AIR 1985 SC 330, only supports the same. The decision in the case of Ameen Education Society v. DIT (Exemption) (in IT A No. 575/Bang./2011 dated 28/9/2012, also at [2012] 26 taxmann.com 250 (Bang.)) is again only in respect of the specific provision of sec. 11(1 A) of the Act, i.e., qua capital gain, and, thus, not applicable. We have already clarified that our decision is based on and represents the general position of law, so that it would be subject to the specific provisions of the Act, giving example of ss. 11(4) and 11(4A). It may be relevant to state that the decision by the apex court in Harprasad & Co. (P.) Ltd. (supra), referred to earlier, is also in respect of capital gains.”
9. No contrary decision was brought to our notice by the learned AR. In view of this fact, we confirm the order of the CIT(A) disallowing the claim of the assessee u/s. 24(a) of the Act. Thus, the ground taken by the assess fails.”
7. In this view of the matter and consistent with the view taken by the co-ordinate bench, we are of the considered view that there is no error in the orders of authorities below and hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the assessee.”
Therefore, respectfully following the decision of the coordinate bench we do not find any merit in this ground of appeal of the assessee. Accordingly we hold that assessee trust is not eligible for standard deduction at the rate of 30% u/s 24 (a) of the act, out of the rental income chargeable to tax in the hands of the assessee.
8. Now we come to ground number two of the appeal which is against not allowing the carry forward of excess of expenditure over income for the year. The claim of the assessee is that if there is a deficit during one assessment year it should be allowed to be carried forward to the next assessment year as the deficit of the earlier years is allowable as application of income in subsequent years. The AO and the learned CIT – A has dismissed the argument of the assessee.
9. We have heard the parties on this issue.
10. We have carefully considered the rival contentions and orders of lower authorities. Hon’ble Bombay High court has dismissed the appeal of the Revenue in DIT(E) v. Gem & Jewellery Exports Promotion Council in ITA(LOD) No. 1113 of 2010 vide judgment dated 15.02.2011 by following the decision of Hon’ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection(IBPS) 264 ITR 110) on the issue of set off of deficit of earlier years against surplus of the impugned assessment year. The Revenue filed an SLP with Hon’ble Supreme Court which was dismissed by Hon’ble Apex Court vide orders dated 09.09.2011 in SLP(Civil) CC 13512/2011. SLP is filed by the Revenue against Hon’ble Bombay High Court judgment but the said SLP also stood dismissed by Hon’ble Apex Court. Further Hon’ble Courts/Tribunal had taken consistent stand that in case of Charitable Trust excess expenditure over income is to be allowed to be carried forward for setting off against income of subsequent years. Thus the deficit of this year is allowable to assessee for set off in subsequent years. Therefore, we allow the carry forward of excess expenditure over income of Rs.1113503/- to be carried forward to subsequent years . Thus, we reverse the orders of lower authorities and allow ground no 2 of the appeal.
11. Accordingly appeal of the assessee is partly allowed.
Order pronounced in the open court on 14/01/2020.
Author Bio
