Charitable Trust Tax Could Be Levied On 2Public Charitable Trust Only On Its To Totalincomecomputedaftertakinginto Account All Deductions Including Thoseavailab v. Assessee Nas Approached This Court

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE M.I.ARUN LT.A. NO.534 OF 2013 BETWEEN: M/S CUTCHI MEMON UNION.NO.62-63, 1 FLOOR|CHICK BAZAR ROADSHIVAJINAGARBANGALORE —- 560 OO1 — ADPELLANT. (BY SRI.ASHOK A KULKARNI, ADV.,) AND: THE DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS)CIRCLE —- 17(1), BANGALORE. ... RESPONDENT (BY SRI.K.V.ARAVIND, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,196L ARISING OUT OF ORDER DATED 14.08.2013 PASSED IN ITA]NO.8/78/BANG/2012 FOR THE ASSESSMENT YEAR 2007-08,PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDERPASSED BY THE ITAT, BANGALORE IN ITA NO.878/BANG/2012|DATED 14.08.2013 AND SUITABLY MODIFYING IT AS SOUGHTI NJTHE APPEAL.| THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax)Act, 1961 (hereinafter referred to as the Act for short)Nas been preferred by the assessee. Tne subject matter of the appeal pertains to the Assessment year 2007-08. The appeal was admitted by a bench of this Court videorder dated 07.02.2014 on the following substantialquestions of law:| (I)Whether on the facts and tn the'circumstances of the case a_ Statutoryageauction as provided in Section 24(a)of the Act Is not to be reckoned while|determining the amount available for|application towards charity, for the|purpose of levying tax in considering theapplicability of Section 11 to a public|Charitable trust as was done in theassessment order?circumstances of the case a_ Statutoryageauction as provided in Section 24(a)of the Act Is not to be reckoned while|determining the amount available for|application towards charity, for the|purpose of levying tax in considering theapplicability of Section 11 to a public|Charitable trust as was done in theassessment order? (iI)Witnout prejudice and in the alternative|whether even in the case of a public|whether even in the case of a public| Charitable trust tax could be levied on 2public charitable trust only on its to total|Incomecomputedaftertaking|into account all deductions including those|available under Section 24(a) as well as whet is to be excluded under Section 11 of the Act? 2 |Facts leading to filing of the appeal brieflystated are that the assessee is a religious and charitabletrust. Tne assessee filed return of Income on 06.09.200/7for Assessment Year 2007-08 declaring ‘NIL’ income.The assessee had shown income from the HouseProperty at Rs.1,00,93,959/- and income from othersources at Rs.1,45,294/-. The total taxable incomeshown in the statement of income was Rs.99,48,665/-..It is the case of the assessee that it had utilized theincome derived from the property for the purposesenumerated under Section 11 of the Act. Therefore, notax was paid and income was declared as ‘NIL’ for thepurpose of payment of tax. The Assessing Officer by an 2 |Facts leading to filing of the appeal brieflystated are that the assessee is a religious and charitabletrust. Tne assessee filed return of Income on 06.09.200/7for Assessment Year 2007-08 declaring ‘NIL’ income.The assessee had shown income from the HouseProperty at Rs.1,00,93,959/- and income from othersources at Rs.1,45,294/-. The total taxable incomeshown in the statement of income was Rs.99,48,665/-..It is the case of the assessee that it had utilized theincome derived from the property for the purposesenumerated under Section 11 of the Act. Therefore, notax was paid and income was declared as ‘NIL’ for thepurpose of payment of tax. The Assessing Officer by an orderdated30.11.7009.disallowedtheclaim.ofdeduction of the claim of assessee for an amount ofRs.43,25,983/- under Section 24(a) of the Act on theground that the income of the trust has to be computedin a commercial manner and not as per the Act. Theclaim for depreciation was also disallowed. The assesseethereupon filed an appeal before the Commissioner ofIncome Tax (Appeals), who by an order’ dated2/.04.2012, by placing reliance on decision of CalcuttaHigh Court inCIT VS. JAYASHREE CHARITY TRUST,159 ITR 280 (Cal)and decision of Gujarat High CourtInCIT VS. GANGA CHARITY TRUST FUND, 162 ITR|612 (Guj)set aside the order of the Assessing Officerand allowed the appeal preferred by the assessee. Being.aggrieved, the revenue approached the Income TaxAppellate Tribunal (hereinafter referred to as theTribunal’ for short). The Tribunal by an order dated14.08.2013 allowed the appeal preferred by therevenue. In the aforesaid factual background, the assessee Nas approached this court. 3.)Learned counsel for tne assessee has referredto the expression ‘income’, and ‘total income’ as definedunder Section 2(24) and Section 2(45) of the Act. Ourattention has also been invited to Section 139(4A) of theAct as well as Rule 12(g) of the Rules. It is submitted.that the Rules, the form and provisions provide fordeduction under Section 24 of the Act and therefore, theassessee is entitled to deduction under Section 24(a) ofthe Act. It is further submitted that under the Act, tax, ifany, can be levied only on total income as computedunder the Act after excluding from such total income the.amounts, which are not includible under Chapter III ofthe Act. It is further submitted that total income of thetrust has to be computed as per provisions of the Act1.e., Dy taking into account the statutory deductions like30% of the annual rental value in respect of rentalincome. It is also urged that the Tribunal was notjustified in levying tax on public charitable trust to deny the benefit of statutory deductions. It is also argued thatthere is no provision in the Act that if the property of theassessee is held for charitable purposes, no deductionunder Section 74 is available. It is further submitted thatSection 24 allows deduction of 30% of rental income. InSupport of his submissions, learned counsel has placedrellanceON|the|decisions.ofSupremeCourt|InGCOMMISSIONER OF INCOME-TAX VS. RAJASTHAN|ANDGUJARATICHARITABLEFOUNDATION,,(2018) 402 ITR 441 (SC), ‘COMMISSIONEROFINCOME-TAX,CENTRAL-I,CALCUTTAYS,JAYASHREE CHARITY TRUST’, 159 ITR 280 (Cal),‘COMMISSIONROFINCOME-TAXVS,GANGACHARITY TRUST FUND’, 162 ITR 612 (Guj),‘COMMISSIONER OF INCOME-TAX VS. INSTITUTEOF BANKING PERSONNEL SELECTION (IBPS)‘,(2003) 131 TAXMAN 386 (BOM.).— aOn the other hand, learned counsel for therevenue submitted that Income of the trust has to be aOn the other hand, learned counsel for therevenue submitted that Income of the trust has to be computed as per the commercial principles and theamount is required to be expended for the purposes ofthe trust. It is also argued that every receipt is anincome and only the amount, which is applied for thepurposes of the trust is eligible for deduction. It is alsoargued that wherever Section 11 is applicable, theprovisions of Section 14 of the Act are not attracted. Itis also submitted that the charging provision shouldprovide for deduction and not the form or the Rules. It is”also urged that decision relied upon by the learnedcounsel for the assessee have no application to the factsituation of the case. 5.|We have considered the submissions madeby learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite to take.note of relevant statutory provisions: 2(24)" Income” includes-. (i) profits and gains; (1) dividend; (iia) voluntarycontributionsreceived by a trust created wholly orpartly for.charitableOrreligiousDUFDOSES Orby af)Institution established wholly or partly for such.DUFDOSeS OFby af)association Orinstitution referred to in clause (21) orclause (23), or by a fund or trust orinstitution referred to in sub-clause (iv)or sub- clause (v) or by any universityor other educational institution referredto in sub-clause (ililad) or sub-clause(iliae) or sub-clause (via) of clause(23C) of section 10 (or by an electoraltrust). Explanation.- For the purposes ofthis sub-clause, ‘trust”™ includes anyother legal obligation.; 2(45)" total Income" means the.total amount of Income referred to In.section 5, computed in the manner laid-down in this Act; 11(1)(a)Income derived fromproperty held under trust wholly for.Charitable or religious purpose, to the.extent to which such income Is appliedto such purposes in India, and, where.any such income is accumulated or set.apart for application to such purposesin India, to the extent to which theincome so accumulated or set apart is_not in excess of [fifteen] percent of the.income from such property. 24(a)a sum equal to thirty per|cent of the annual value; 139(4A)Every person in receipt:of income derived from property heldunder trust or other legal obligationwhollyforCharitableOFreligiouspurposes or in part only for sucn-purposes, or of income being voluntarycontributions referred to in sub-clause.(lla) of clause (24) of Section 2, snall,—if the total income in respect of wnicn>he is assessable as a representativeassessee. (the total income for this. purpose being computed under this Actwithout giving effect to the provisionsof Sections 11 and 12) exceeds themaximumamountWhIChISnotChargeable to income- tax, furnish areturn of such Income of the Previous.year in the prescribed form and verifiedin the prescribed manner and settingforth such other particulars as may be,prescribed and all the provisions of thisAct shall, so far as may be, apply as ifit were a return required to befurnished under sub-Section (1). 6.|Tne object of Section 11 of the Act is to grantimmunity to the income of a charitable trust fromincome tax. The immunity however, is confined to theextent to which such income its applied to such purposesin India. The exemption will be denied if the income isnot actually applied for charitable purposes. Thisexclusion from immunity, which has been granted bySection 11 of the Act has to be confined to the real|income of the trust. The application or accumulation can 6.|Tne object of Section 11 of the Act is to grantimmunity to the income of a charitable trust fromincome tax. The immunity however, is confined to theextent to which such income its applied to such purposesin India. The exemption will be denied if the income isnot actually applied for charitable purposes. Thisexclusion from immunity, which has been granted bySection 11 of the Act has to be confined to the real|income of the trust. The application or accumulation can only be of real income which has actually been receivedby an assessee. It is pertinent to note that Central Boardof Direct Taxes has issued a Circular No.5-P dated19.05.1968, which provides that the word ‘income’ inSection 11i(1la) of the Act must be understood icommercial sense and the entire income of the trust In/the commercial sense has been spent for the purpose ofcharity. The real income of the trust is exempt to theextent to which some income is applied to suchpurposes in India. The aforesaid view has been taken byCalcutta High Court in JAYASHREE CHARITY TRUSTSupra as well aS GANGA CHARITY TRUST supra withwhich we respectively agree. However, from perusal ofthe order passed by the Commissioner of Income Tax(Appeals) as well as the Tribunal, we find that neitherthe Commissioner of Income Tax (Appeals) nor theTribunal has examined the case of the assessee on the'touchstone of aforesaid well settled legal principles. Weare therefore, in the facts of the case left with no option but to quash the order of the Tribunal and remit thematter to the Tribunal afresh for consideration in thelight of observations made supra. Since, the matter isbeing remitted to the Tribunal, therefore, it is notnecessary for us to answer the substantial questions oflaw. In the result, the appeal is disposed of. Sd/-—JUDGE. Sd/-—JUDGE.