D.D. Foundation Trust Society, New Delhi v. ITO(E), New Delhi

ITA NO. 4051/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 4051/DEL/2010 A.Y. : 2007-08 D.D. FOUNDATION TRUST SOCIETY C/O MANU MONGA ADVOCATE 133 LAWYERS CHAMBERS-I DELHI HIGH COURT SHER SHAH ROAD NEW DELHI 110 003 (PAN/GIR : AAACD2803R) VS. INCOME TAX OFFICER (E) WARD-III DELHI 110 092 (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. MANU MONGA ADVOCATE DEPARTMENT BY : SH. H.K. LAL SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 11/6/2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) HAS ERRED IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER TO HOLD THAT ` 1 36 000/- BEING THE DONATION MADE BY TH E ASSESSEE TO OTHER CHARITABLE INSTITUTIONS REPRESENTED THE ASSES SEES INCOME. 3. ASSESSING OFFICER IN THIS CASE NOTED THAT ON P ERUSAL OF THE DETAILS AND INFORMATION IT IS OBSERVED THAT DONATION S AMOUNTING TO ` 1 36 000/- WERE PAID BY THE ASSESSEE OUT OF ITS ACCUMULATED INCOME ITA NO. 4051/DEL/2010 2 AND NOT OUT OF ITS CURRENT INCOME RELEVANT TO F.Y. 2006-07. ASSESSING OFFICER ENQUIRED AS TO WHY THE SAME SHOULD NOT BE TREATED AS APPLICATION OF INCOME FOR PURPOSE OTHER THAN CHARITA BLE ACTIVITIES IN VIEW OF THE PROVISIONS CONTAINED IN SECTION 11(2) O F THE IT ACT. ASSESSEE RESPONDED THAT THEY HAVE PAID DONATIONS F ULLY FOR CHARITABLE PURPOSES AND IT COVERS UNDER 15% AND NOT OUT OF AC CUMULATED INCOME. THIS PROVISION CONTAINED IN SECTION 11(2) OF THE I T ACT IS NOT ATTRACTED. HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIED. HE OPINED THAT SECTION 11(2) CLEARLY MENTIONS THAT PAYMENT / CREDITS BY TRUSTS; ORGANIZATIONS OUT OF ITS ACCUMULATED FUNDS TO OTHE R SUCH ORGANIZATIONS WOULD NOT BE TREATED AS APPLICATION OF INCOME FOR C HARITABLE OR RELIGIOUS PURPOSE. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ASSESSEE INTER-ALIA SUBMITTED THAT DURING THE YEAR UNDER ASSE SSMENT ASSESSEE EARNED LOSS AND ALSO DID NOT RECEIVE ANY DONATION A ND PAID DONATION OF ` 1 36 000/- ABSOLUTELY FOR CHARITABLE PURPOSES FRO M ACCUMULATED OR SET APART INCOME OF PREVIOUS ASSESSMENT YEAR. LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT SATISFIED. HE REFERRED TO THE EXPLANATION BELOW SECOND PROVISO TO SECTION 11(2) AND HELD AS U NDER:- FROM A PLAIN READING OF THE ABOVE IT IS CLEAR THAT THE ASSESSING OFFICER WAS CORRECT IN TREATING THE AMOUNT AS INCOME OF THE APPELLANT AS THE SAID SUM WERE PAID BY THE APPELLANT OUT OF ITS ACCUMULATED INCOME AND NOT OUT OF ITS CURRENT INCOME RELEVANT FOR PREVIOUS YEAR 2006-07. CONTENTION OF THE APPEL LANT WAS THAT THE EXPLANATION MENTIONED ABOVE IS APPLICABLE FOR 8 5% AND NOT FOR 15% IS NOT CORRECT. THE EXPLANATION TALKS OF ANY AMOUNT CREDITED OR PAID OUT OF THE INCOME REFERRED TO IN C LAUSE (A) OR ITA NO. 4051/DEL/2010 3 CLAUSE (B) OF SUB CLAUSE(1) READ WITH EXPLANATION T O THE SUB- SECTION WHICH IS NOT APPLIED BUT IS ACCUMULATED OR SET APART..THUS THE EXPLANATION DOES NOT MAKE ANY DISTINCTION BETWEEN 85% OR 15%. RATHER IT TALKS ABO UT THE AMOUNT WHICH IS ACCUMULATED OR SET APART. THEREFORE AS THE DONATIONS HAVE NOT BEEN MADE OUT OF THE CURRENT YEAR S INCOME THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING T HE SUM AS AN INCOME. ACCORDINGLY THE APPEAL FILED BY THE APPE LLANT STANDS DISMISSED. 5. AGAINST THIS ABOVE ORDER THE ASSESSEE IS IN APP EAL BEFORE US. 6. WE HAVE HEARD RIVAL CONTENTIONS IN LIGHT OF T HE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. HERE WE CAN G AINFULLY REFER THE PROVISIONS OF SECTION 11(1)(A) WHICH READS AS UNDER :- 11. (1) SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63 THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME [( A ) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WH OLLY FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INCOME IS APP LIED TO SUCH PURPOSES IN INDIA; AND WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF FIFTEEN PER CENT OF THE I NCOME FROM SUCH PROPERTY; 7. SECTION 11(2) OF THE ACT READS AS UNDER:- THAT WHERE EIGHTY FIVE PERCENT OF THE INCOME REFER RED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECTION (1) READ WI TH THE EXPLANATION TO THAT SUB-SECTION IS NOT APPLIED OR IS NOT DEEMED TO ITA NO. 4051/DEL/2010 4 HAVE BEEN APPLIED TO CHARITABLE OR RELIGIOUS PURPO SES IN INDIA DURING THE PREVIOUS YEAR BUT IS ACCUMULATED OR SET A PART EITHER IN WHOLE OR IN PART FOR APPLICATION TO SUCH PURPOSES IN INDIA SUCH INCOME SO ACCUMULATED OR SET APART SHALL NOT BE INC LUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME PROVIDED THE FOLLOWING CONDITIONS ARE COMPL IED WITH NAMELY 8. UPON CAREFUL CONSIDERATION OF THE INCOME TAX ACT CITED ABOVE WE FIND CONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE ASSESSEE. IT IS NOTED THAT DURING THE CURRENT ASSESSMENT YEAR ASSE SSEE HAS EARNED LOSS ONLY AND NOT RECEIVED ANY DONATION. THE DONATI ON OF ` 1 36 000/- HAS BEEN PAID TO OTHER CHARITABLE INSTITUTION OUT O F ITS EARLIER ACCUMULATED INCOME TO THE EXTENT PERMISSIBLE IN THOSE YEARS. THE PAYMENT OR DONATION TO OTHER CHARITABLE INSTITUTIONS CANNOT RESULT IN THE SAME BECOMING INCOME OF THE ASSESSEE. THE DON ATIONS HAVE BEEN GIVEN AS UNDER:- AMOUNT OF DONATION AMOUNT OF DONATION AMOUNT OF DONATION AMOUNT OF DONATION TO WHOM DONATED TO WHOM DONATED TO WHOM DONATED TO WHOM DONATED ` 1 10 000/- TO INDIAN CANCER SOCIETY WITH AN OBJECT TO ENABLE CHILDREN AND THEIR FAMILIES FACED WITH CANCER. ` 21 000/- TO MAHARISHI PATANJALI YOGA FOUNDATION WITH AN OBJECT TO PROMOTE YOGA. ITA NO. 4051/DEL/2010 5 ` 5 000/- TO CHETNA CHARITABLE TRUST 8.1 IN THIS REGARD EXPOSITION BY THE HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTION) VS . BAGRI FOUNDATION IS RELEVANT. IN THE ABOVE SAID CASE FACTS OF THE CASE WERE AS UNDER:-0 THE ASSESSEE WAS A TRUST DULY REGISTERED UNDER SE CTION 12AA AND DULY RECOGNIZED UNDER SECTION 80G(5)(VI). FOR THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD SHOWN CERTAIN GRO SS INCOME AND DEDUCTED THEREFROM THE AMOUNT APPLIED FOR CHARI TABLE PURPOSES BY WAY OF DONATION TO ANOTHER CHARITABLE T RUST BLB AS CORPUS DONATION AND TO OTHERS. THE SOURCE OF TH E AMOUNT OVER AND ABOVE THE INCOME OF THE YEAR WAS THE ACCUMULATI ON OF INCOME OF THE PAST. THE ASSESSING OFFICER ADDED THE AMOUNT OF DONATIONS TO THE INCOME OF THE ASSESSEE HOLDING T HAT OWING TO THE EXPLANATION APPENDED TO SECTION 11(2) WITH EFFE CT FORM THE ASSESSMENT YEAR 2003-04 ANY DONATION MADE OUT OF I NCOME ACCUMULATION OR SET APART DURING THE PERIOD OF ACCU MULATION OR THEREAFTER TO ANY TRUST OR INSTITUTION REGISTERED UNDER SECTION 12AA WAS LIABLE TO BE ADDED IN THE INCOME OF THE D ONOR TRUST. ON APPEAL THE COMMISSIONER (APPEALS) DELETED THE AD DITION HOLDING THE DONATION BY THE ASSESSEE TO BLB TRUST WAS MADE OUT OF EXCESS OF INCOME OVER EXPENDITURE AND NOT OUT OF AMOUNT ACCUMULATED UNDER SECTION 11(1)(A). THE TRIBUNAL AF FIRMED THE ORDER OF THE COMMISSIONER (APPEALS). 8.2 ON REVENUES APPEAL THE JURISDICTIONAL HIGH COUR T HELD AS UNDER:- (HEAD NOTES ONLY):- IT IS CLEAR FROM SECTION 11(1)(A) THAT THE INCOME APPLIED FOR CHARITABLE PURPOSES IS NOT TO BE INCLUDED IN THE TO TAL ITA NO. 4051/DEL/2010 6 INCOME FOR THE RELEVANT YEAR. IN C.I.T. V SHRI RAM MEMORIAL FOUNDATION. THE COURT HAS HELD THAT WHEN A DONOR-TRUST WHICH IS ITSELF A CHARITABLE AND RELIGIOUS TRUST DONATES IT S INCOME TO ANOTHER TRUST THE PROVISIONS OF SECTION 11(1)(A) C AN BE SAID TO HAVE BEEN MET BY SUCH DONOR TRUST AND THE DONOR T RUST CAN BE SAID TO HAVE APPLIED ITS INCOME FOR RELIGIOU S AND CHARITABLE PURPOSES NOTWITHSTANDING THE FACT THAT THE DONATION IS SUBJECT TO A CONDITION THAT THE DONEEE T RUST WILL TREAT THE DONATION AS TOWARDS ITS CORPUS AND CAN ON LY UTILIZE THE ACCRUING INCOME FROM THE DONATED CORPUS FOR RELI GIOUS AND CHARITABLE PURPOSES. FROM THE SAME IT FOLLOWS THAT IF THE ASSESSEE TRUST EITHER ITSELF USES ANY PART OF I TS INCOME FOR CHARITABLE PURPOSES OR DONATES THE SAME TO ANY OTHER CHARITABLE TRUST SUCH INCOME IS EXEMPT FROM INCLUSION IN THE TOTAL INCOME OF THE ASSESSEE TRUST FOR THE REL EVANT YEAR. THE EMPHASIS IS ON UTILIZING THE INCOME IN TH E RELEVANT YEAR AND ACCUMULATION IS PERMITTED ONLY TO A MAXIMUM EXTENT OF 15 PER CENT. AS LONG AS SUCH ACCUMULATION IS NOT MORE THAN 15 PER CENT SUCH ACCUMULATION IS ALSO EXEMPT FROM INCLUSION IN THE TOTA L INCOME. HOWEVER IF MORE THAN 15 PER CENT WOULD O F THE INCOME IS ACCUMULATED UNDER SECTION 11(1)9A) THE S AME WOULD NOT BE EXEMPT FROM INCLUSION IN THE TOTAL INC OME FOR THE RELEVANT YEAR. NO CONDITIONS ARE PRESCRIBED FOR THE ACCUMULATION U P TO 15 PER CENT PERMITTED UNDER SECTION 11(1)(A). SECTION 11(2) ITA NO. 4051/DEL/2010 7 PERMITS ACCUMULATION IN EXCESS OF 15 PER CENT ALSO BUT SUBJECT TO CERTAIN CONDITIONS. HOWEVER THE EXPLANATION TO SECTION 11(2) WITH EFFE CT FROM 1.4.2003 PROVIDES THAT THE AMOUNT ACCUMULATED CANNOT BE DONATED TO ANOTHER TRUST. HOWEVER THE SAID EXPL ANATION DOES NOT PLACE A TOTAL EMBARGO ON DONATIONS BY ONE TRUST TO ANOTHER. IT DOES NOT PROHIBIT THE TRUST FROM DONATING ITS ENTIRE INCOME IN A RELEVANT YEAR TO ANOTHER TRUST A S IT THE LAW AS NOTICED BY THE DIVISION BENCH IN SHRI RAM MEMORI AL FOUNDATIONS CASE (SUPRA). THE EMBARGO IS ONLY ON THE INCOME OF THE TRUST NOT APPLIED IN THE RELEVANT YEA R BUT ACCUMULATED OR SET APART BEING DONATED TO ANOTHER TR UST. THE EXPLANATION TO SECTION 11(2) IS NOTHING BUT AN ADDITIONAL CONDITION ATTACHED TO ACCUMULATION IN EX CESS OF 15 PERCENT PERMITTED UNDER SECTION 11(2). IT CANNOT BE HELD AS A CONDITION ON ACCUMULATION UP TO 15 PER CENT AS PROVIDED FOR IN SECTION 11(1)(A) ALSO. THERE IS N O RATIONAL CLASSIFICATION FOR IMPOSING THE RESTRICTION AS CONTA INED IN THE EXPLANATION TO THE ACCUMULATION UPTO 15 PER CENT AL SO WHEN THERE IS NO SUCH RESTRICTION TO DONATING THE ENTIRE INCOME OF A YEAR TO ANOTHER CHARITABLE TRUST. IF THE LEGISLAT URE INTENDED TO COMPLETELY BAN/ DISCOURAGE INTER SE DONA TION BETWEEN TRUSTS IT WOULD HAVE CHANGED THE POSITION AS EXISTING IN LAW AS NOTICED IN SHRI RAM MEMORIAL FOUNDATIONS CASE (SUPRA). THE LEGILATURE DID NOT D O SO. EVEN AFTER THE INSERTION OF THE EXPLANATION IF A TRUST DONATES ITS ENTIRE INCOME FOR A YEAR TO ANOTHER CHA RITABLE TRUST IT WOULD STILL BE ENTITLED TO EXEMPTION UND ER SECTION ITA NO. 4051/DEL/2010 8 11(1)(A). IT DEFIES LOGIC AS TO WHY SUCH DONATION S CANNOT BE PERMITTED OUT OF 15 PER CENT ACCUMULATION PERMITTED U NDER SECTION 11(1)(A) ITSELF. THERE IS HOWEVER RATIO NALE FOR IMPOSING THE RESTRICTION AS CONTAINED IN THE EXPLANA TION TO ACCUMULATIONS IN EXCESS OF 15 PER CENT. SUCH ACCUMULATIONS BUT FOR THE CONDITIONS IMPOSED IN SECT ION 1(2) AND IN THE EXPLANATION AFORESAID WOULD HAVE B EEN ELIGIBLE TO BE TAXED. ONE OF THE CONDITIONS IN SECT ION 11(2)(A) IS THE PURPOSE FOR WHICH ACCUMULATION IN EX CESS OF 15 PER CENT IS BEING MADE IS TO BE NOTIFIED; ANOTHE R CONDITION IS OF THE ACCUMULATION BEING PERMITTED FOR A PERIOD NOT EXCEEDING 10 YEARS; YET ANOTHER CONDITIO NS IS AS TO THE MODES IN WHICH THE ACCUMULATION CAN BE INVEST ED. THERE ARE NO SUCH RESTRICTIONS ON ACCUMULATION UNDE R SECTION 11(1)(A). THE SCHEME OF THE SECTION INDICAT ES THAT THE ADDITIONAL CONDITION BY WAY OF THE AFORESAID EX PLANATION IS ALSO INTENDED TO APPLY ONLY TO ACCUMULATIONS IN EXCESS OF 15 PER CENT UNDER SECTION 11(2) AND NOT TO ACCUMULA TIONS UPTO 15 PER CENT UNDER SECTION 11(1)(A). THE EXPLA NATION IS NOT FOUND TO BE INTENDED TO TAKE AWAY SOMETHING FROM THE ACCUMULATION UPTO 15 PER CENT PERMITTED WITHOUT ANY CONDITION WHATSOEVER UNDER SECTION 11(1)(A). IT ALSO FOLLOWED THAT EVEN IF THE DONATIONS BY THE ASSESSEE WERE TO BE OUT OF ACCUMULATIONS FROM PREVIOUS YEARS AND NOT OUT OF SURPLUS RESERVES THE SAME WOULD STILL N OT BE LIABLE TO BE INCLUDED IN THE TOTAL INCOME AS ASSESSE D BY THE ASSESSING OFFICER AND THE ORDERS OF THE COMMISSIONER (APPEALS) AND THE TRIBUNAL WOULD STILL BE UPHELD. IT WAS ITA NO. 4051/DEL/2010 9 NOBODYS CASE THAT THE SAID ACCUMULATIONS WERE BEYON D THE ACCUMULATION OF 15 PER CENT PERMITTED IN SECTION 11(1 )(A). 9. NOW JUDGING THE PRESENT CASE ON THE ANVIL OF THE AFORESAID JURISDICTIONAL HIGH COURT EXPOSITION WE FIND THAT T HERE IS CONSIDERABLE COGENCY IN THE ASSESSEES SUBMISSIONS THAT REVENUE A UTHORITIES HAVE TOTALLY ERRED IN HOLDING THE DONATIONS GIVEN BY TH E ASSESSEE ON THE FACTS AND CIRCUMSTANCES OF THE CASE REPRESENT THE INCOME OF THE ASSESSEE. ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AN D DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/02/2011. SD/- SD/- [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 11/02/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES