Commissioner Of Income Tax, Bikaner v. Krishi Upaj Mandi Samiti, Raisinghnagar(D.b.income Tax Appeal

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPURORDER 1.COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13) 2.COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, GAJSINGHPUR(D.B.INCOME TAX APPEAL NO.48/13) 3.COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI(GRAIN), SRI GANGANAGAR(D.B.INCOME TAX APPEAL NO.50/13) 4.COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, PADAMPUR(D.B.INCOME TAX APPEAL NO.51/13) Dated:-26[th] April, 2016. HON'BLE MR.JUSTICE SANGEET LODHAHON'BLE MR.JUSTICE KAILASH CHANDRA SHARMA Mr.K.K.Bissa, for the appellants.Mr.Rajesh Choudhary, for the respondents. -'BY THE COURT : (PER HONBLE MR.SANGEET LODHA,J.) 1.These appeals arising out of the common order dated4.12.12 passed by the Income Tax Appellate Tribunal (ITAT),Jodhpur Bench, Jodhpur, allowing the appeals preferred by theassessees, questioning the legality of the orders passed by theCommissioner of Income Tax (Appeals) [CIT (A)], affirming theorder passed by the Assessing Officer (A.O.), rejecting the claim COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) of assessees for exemption under Section 11(1)(a) of theIncome Tax Act, 1961 (for short “the Act”), involving identicalsubstantial question of law, were heard together and are beingdisposed of by this common order. 2.The relevant facts in nutshell are that assessees,Agriculture Produce Market Committees, filed Return of Incomefor the assessment year 2008-09, claiming the status asCharitable Trust. Indisputably, the income derived during theprevious year relevant to assessment year 2008-09, was appliedby the assessees for charitable purposes, however, theexpenditure incurred by the assessees towards the charitableaims and objects, were found to be in excess of the incomeearned in the previous year, relevant to the assessment year inquestion. It was also not in dispute that the excess expenditurewas incurred by the assessees for charitable purposes out ofsurplus in Public Deposit Account (PD Account). Keeping in viewa Bench decision of this court in “Shri Akhey Ram Ishwari PrasadTrust vs. CIT”, (2004) 266 ITR 281, the A.O. issued notices tothe assessees under Section 143(2) of the Act, to justify theirclaim for deduction under Section 11 (1)(a) of the Act. 3.In reply, the assessees pleaded that the issue standsdecided in their favour by ITAT, Jodhpur Bench, in ITANo.385/JU/2009. The assessees also placed reliance upon a COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters)3 decision of this court in the matter of “CIT vs. Maharana MewarCharitable Foundation” (164 ITR 439) and a decision of theGujarat High Court in case of “CIT vs. Shri Plot Swetamber MurtiPoojak Jain Mandal”, (1995) 211 ITR 263. 4.The A.O. arrived at the finding that the expenses in excessof the income in the previous year relevant to the assessmentyear, were incurred by transferring the fund from interestbearing PD account to the non interest bearing PD account andthus, the excess expenses having been incurred from charityfund/accumulated fund for earlier years, the assessees are notentitled to exemption under Section 11(1) (a) of the Act andaccordingly, assessed the income of the assessees during theprevious year relevant to the assessment year as taxableincome. decision of this court in the matter of “CIT vs. Maharana MewarCharitable Foundation” (164 ITR 439) and a decision of theGujarat High Court in case of “CIT vs. Shri Plot Swetamber MurtiPoojak Jain Mandal”, (1995) 211 ITR 263. 4.The A.O. arrived at the finding that the expenses in excessof the income in the previous year relevant to the assessmentyear, were incurred by transferring the fund from interestbearing PD account to the non interest bearing PD account andthus, the excess expenses having been incurred from charityfund/accumulated fund for earlier years, the assessees are notentitled to exemption under Section 11(1) (a) of the Act andaccordingly, assessed the income of the assessees during theprevious year relevant to the assessment year as taxableincome. 5.Aggrieved by the assessment orders, the appeals preferredby the assessees before the CIT (A) failed. Aggrieved thereby,the assessees carried the matters in further appeals, which havebeen allowed by the ITAT vide orders impugned, relying upon itsearlier decision dated 1.9.09 rendered in ITA No.385/JU/2009.The operative portion whereof quoted in the order impugned,reads as under: “6.We have heard the parties and have carefully perusedthe material on record with reference to Sub-rule)(6) ofRule 18 of Appellate Tribunal Rules, 1963 and the COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters)4 precedents cited at bar. The Hon'ble Apex Court in Goetze[India] Ltd [supra] has clarified that the issue as regardsmaking of fresh claim for deduction otherwise than filingrevised return is limited to the powers of assessingauthority and does not impinge on the power of the tri u/s254 of the I.T.Act. Following this ratio, we are satisfied thatwhen the appellate authority including the ld. CIT(A),entertains a new claim as such, the judgement rendered bythe Hon'ble Apex Court in Goetze [India] Ltd [supra] doesnot impinge his power to entertain the claim for deductionotherwise than by filing revised return before the assessingauthority. The ld. CIT(A),therefore, cannot be said to havecommitted any error in entertaining the claim for deductionmade before him as such.” Hence, these appeals by the Revenue. 6.These appeals were admitted by a coordinate Bench of thiscourt on the following substantial questions of law arising forconsideration out of the order impugned passed by the ITAT: D.B.INCOME TAX APPEAL NO.47/13 “Whether on the facts and in the circumstances of thecase, the ITAT has been justified in allowing the claim ofRs.2,76,65,446/- as application of income under section 11(1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.48/13 “Whether on the facts and in the circumstances of thecase, the ITAT has been justified in allowing the claim ofRs.1,57,89,828/- as application of income under section 11(1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.50/13 “Whether on the facts and in the circumstances of thecase, the ITAT has been justified in allowing the claim ofRs.8,86,27,401/- as application of income under section 11(1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.51/13 “Whether on the facts and in the circumstances of thecase, the ITAT has been justified in allowing the claim ofRs.2,45,20,984/- as application of income under section 11(1)(a) of the Income Tax Act, 1961?” 7.Learned counsel appearing for the Revenue contended that “Whether on the facts and in the circumstances of thecase, the ITAT has been justified in allowing the claim ofRs.1,57,89,828/- as application of income under section 11(1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.50/13 “Whether on the facts and in the circumstances of thecase, the ITAT has been justified in allowing the claim ofRs.8,86,27,401/- as application of income under section 11(1)(a) of the Income Tax Act, 1961?” D.B.INCOME TAX APPEAL NO.51/13 “Whether on the facts and in the circumstances of thecase, the ITAT has been justified in allowing the claim ofRs.2,45,20,984/- as application of income under section 11(1)(a) of the Income Tax Act, 1961?” 7.Learned counsel appearing for the Revenue contended that the ITAT has seriously erred in allowing the appeal relying uponits earlier decision dated 1.9.09 rendered in ITANo.385/JU/2009. Learned counsel would submit that the saiddecision of the ITAT was based on decision of this Court in theMaharana Mewar Charitable Foundation's case (supra), whereinthe assessees had claimed set off of expenditure incurred in theprevious year relating to the assessment year 1970-71 againstthe surplus of income over expenditure relating to assessmentyear 1971-72. Learned counsel submitted that the facts of theinstant case are different inasmuch as the assessees herein haveincurred the expenditure out of surplus in PD account as on31.3.08, which is corpus fund of the Trust out of earlier yearssavings and therefore, the assessees were not entitled forexemption under Section 11(1)(a) of the Act. Learned counselwould submit that as a matter of fact, the question of law arisingin the instant appeals stands squarely covered by a Benchdecision of this Court in ShriAkhey Ram Ishwari Prasad Trust'scase (supra), wherein this Court held that where the expenditureincurred is in excess of the income earned out of charity COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) fund/accumulated fund of earlier years, the assessees are notentitled for exemption under Section 11(1)(a) of the Act. Onbeing asked by the Court whether the decision of the ITATrendered in ITA No.385/JU/2009 and other connected appealspreferred by inter alia the assessees herein, was appealedagainst before this Court, learned counsel submitted that noappeal was filed against the said decision of the ITAT and thesame has attained finality. 8.On the other hand, learned counsel appearing for therespondent submitted that the controversy involved in theseappeals stand covered by decision of this Court in MaharanaMewar Charitable Foundation's case (supra), the decision ofGujarat High Court in Shri Plot Swetamber Murti Poojak JainMandal's case (supra), a decision of Delhi High Court in 'Directorof Income Tax Vs. Raghuvanshi Charitable Trust' and otherconnected matters, [2011] 197 TAXMAN 170 [Del] and adecision of Bombay High Court in the matter of 'CIT Vs. Instituteof Banking Personnel' (2003) 131 Taxman 386. Learned counselwould submit that the conclusion arrived at by this court in ShriAkhey Ram Ishwari Prasad Trust's case (supra), is not supportedby any reasons. Learned counsel submitted that in the said case,while arriving at the conclusion that the assessee havingincurred expenses during the previous year relevant to the COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) assessment year in excess of the income earned, from thecharity fund, is not entitled to exemption, the relevant provisionsof Section 11(1)(a) of the Act have not been considered andearlier Bench decision of this court in Maharana MewarCharitable Foundation's case (supra), which is a bindingprecedent, has not even been taken note of. Learned counselwould submit that the decision rendered by this court in ShriAkhey Ram Ishwari Prasad Trust's case (supra), taking intoconsideration the facts of that particular case, is not applicable tothe facts of the present cases. 9. We have considered the rival submissions and gonethrough the decisions relied upon by the learned counselappearing for the parties. 10.Indisputably, the assessees have incurred expenditure forcharitable purposes during the previous year relevant to theassessment year 2008-09 in excess of the income derived duringthe relevant period. It is also not in dispute that the expenditurein excess of the income of the previous year relevant to theassessment year was incurred by the assessees by transferringthe fund from interest bearing PD account to non interestbearing PD account. But then, merely because, the assesseeshave incurred the expenditure in excess of the income in theprevious year relevant to the assessment year for the charitable COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) purposes, out of the accumulated charity fund, they cannot bedenied benefits of exemption under Section 11(1)(a) of the Actin respect of the income of the previous year relevant to theassessment year, which has been admittedly applied forcharitable purposes. 11.In Maharana of Mewar Charitable Foundation's case(supra), while dealing with the issue regarding claim for set offof the expenses incurred over the income, in the previousassessment year, against the surplus of the income overexpenditure, relating to the subsequent assessment year, aBench of this court after due consideration of the provisions ofSection 11(1)(a) and the various decisions of different HighCourts categorically held : “8. We are unable to accept the aforesaid contention ofShri Arora. In our view, there is nothing in the language ofSection 11(1)(a) which lends support to the contention ofShri Arora that the expenditure incurred in the earlier yearcannot be met out of the income of the subsequent yearand utilisation of such income for meeting the expenditureof the earlier year would not amount to such income beingapplied for charitable or religious purposes. In our opinion,the words used in Section 11(1)(a) must be given theirnatural meaning. The word “applied” as defined inChambers' Dictionary means “to put to use” or “to turn touse”. According to the Oxford Dictionary, the word“applied” means “to make use” or “to put to practical use”.Shri Arora. In our view, there is nothing in the language ofSection 11(1)(a) which lends support to the contention ofShri Arora that the expenditure incurred in the earlier yearcannot be met out of the income of the subsequent yearand utilisation of such income for meeting the expenditureof the earlier year would not amount to such income beingapplied for charitable or religious purposes. In our opinion,the words used in Section 11(1)(a) must be given theirnatural meaning. The word “applied” as defined inChambers' Dictionary means “to put to use” or “to turn touse”. According to the Oxford Dictionary, the word“applied” means “to make use” or “to put to practical use”. When the income of a trust is used or put to use to meetthe expenses incurred for religious or charitable purposes,it is applied for charitable or religious purposes. The saidapplication of the income for charitable or religiouspurposes takes place in the year in which the income isadjusted to meet the expenses incurred for charitable orreligious purposes. In other words, even if the expensesfor charitable and religious purposes have been incurred inthe earlier year and the said expenses are adjusted againstthe income of a subsequent year, the income of that yearcan be said to have been applied for charitable andreligious purposes in the year in which the expensesincurred for charitable and religious purposes had beenadjusted. 9. In this context, it may be mentioned that the CentralBoard of Direct Taxes has issued a Circular dated January24, 1973, wherein the Central Board of Direct Taxes hasconsidered the question as to whether where a trust incursa debt for the purpose of the trust, the repayment of thedebt would amount to an application of income for thepurposes of the trust. In the said circular, the CentralBoard of Direct Taxes has expressed the view that therepayment of the loan originally taken to fulfill one of theobjects of the trust will amount to an application of theincome for charitable and religious purposes. In otherwords, according to the said circular, if the trust wants tospend more money on charitable and religious purposes,then, in a particular year, it can take a loan and the saidloan can be repaid out of the income of the subsequentyear and the repayment of the said loan out of the income of the subsequent year would amount to application ofincome for charitable and religious purposes under Section11(1)(a) of the Act. 10. If the contention of Shri Arora is accepted, it wouldlead to an anomalous situation, namely, if the trust takes aloan for the purposes of incurring expenses for charitableand religious purposes in a particular year and the saidloan is repaid out of the income of the subsequent year,the said repayment would be entitled to exemption fromtax under Section 11(1)(a) of the Act. But if the trust,instead of taking a loan incurs expenditure for charitableand religious purposes out of the corpus of the trust andseeks to reimburse the said amount out of the income ofthe subsequent year, the trust would not be entitled toclaim exemption in respect of such reimbursement underSection 11(1)(a) of the Act. In our opinion, a constructionwhich leads to such an anomaly must be avoided. .....xxxxxx...........xxx 17. The aforesaid discussion leads to the conclusion thatthe Tribunal was right in directing that the deficit ofRs.59,770 arising out of the excess of expenditure overincome during the previous year relevant to theassessment year 1970-71 should be set off against thesurplus of income over expenditure relating to theassessment year 1971-72 in computing the taxable incomeof the latter assessment year.” (emphasis added) 12.As noticed above, in Maharana of Mewar CharitableFoundation's case (supra), this court has categorically observed COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) 17. The aforesaid discussion leads to the conclusion thatthe Tribunal was right in directing that the deficit ofRs.59,770 arising out of the excess of expenditure overincome during the previous year relevant to theassessment year 1970-71 should be set off against thesurplus of income over expenditure relating to theassessment year 1971-72 in computing the taxable incomeof the latter assessment year.” (emphasis added) 12.As noticed above, in Maharana of Mewar CharitableFoundation's case (supra), this court has categorically observed COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) that if only income of the assessee during the relevantassessment year applied for charitable and religious purposes, isexcluded and the expenditure incurred in previous assessmentyear in excess of the income earned, is not permitted to beadjusted against the income of the succeeding year, it will createan anomalous situation inasmuch as, if the Trust takes a loan forthe purposes of incurring expenses for charitable and religiouspurposes in a particular year and the said loan is repaid out ofthe income of subsequent year, the said repayment would beentitled for exemption under Section 11(1)(a) but if the Trustinstead of taking a loan incurs expenditure for charitable andreligious purposes out of the corpus of the Trust and seeks toreimburse the said amount out of income of subsequent year,the Trust would not be entitled to claim exemption in respect ofsuch reimbursement under Section 11(1)(a) of the Act. Thecourt opined that a construction which leads to such an anomalymust be avoided. 13.It is pertinent to note that the view taken by this court inMaharana of Mewar Charitable Foundation's case (supra), hasbeen consistently followed by different High Courts as well. 14.Keeping in view the law laid down by this court inMaharana of Mewar Charitable Foundation's case (supra), thiscourt is of the considered opinion that if the assessees are COMMISSIONER OF INCOME TAX, BIKANER VS. KRISHI UPAJ MANDI SAMITI, RAISINGHNAGAR(D.B.INCOME TAX APPEAL NO.47/13 & three other connected matters) entitled to claim set off of the expenditure incurred in excess ofthe income in the earlier years against the income of subsequentyear, merely because the assessees have incurred the expensesin excess of income, may be out of accumulated fund, thequestion of denying the benefits of exemption to the assesseesunder Section 11 (1)(a) of the Act, in respect of the income inprevious year relevant to the assessment year, which wasadmittedly applied for charitable purposes, does not arise. 15.Coming to the decision of Shri Akhey Ram Ishwari PrasadTrust's case (supra), heavily relied upon by the Revenue, it is tobe noticed that the said decision of a coordinate Bench of thiscourt, affirming the finding of the ITAT, is not preceded by theconsideration of the provisions of Section 11(1)(a) of the Act andearlier decision of this court in Maharana of Mewar CharitableFoundation's case (supra) having direct bearing on the facts ofthe case, was not even brought to the notice of the court. Withustmost respect, in our considered opinion, the decisionrendered by a Bench of this court in Shri Akhey Ram IshwariPrasad Trust's case (supra), taking into consideration the facts ofthe particular case, in no manner lays down the law that in allcases where the expenditure are incurred by the assessees inexcess of the income earned during the previous year relevant tothe assessment year, such income though applied for charitable purposes, shall not be entitled for exemption under Section 11(1)(a) of the Act. purposes, shall not be entitled for exemption under Section 11(1)(a) of the Act. 16.Moreover, it is not disputed before this court that thedecision of the ITAT on the issue involved in the cases of theassessees herein relating to earlier assessment years, has beenaccepted by the Revenue and therefore, as a matter of fact, theRevenue is precluded from questioning the legality thereof bytaking a different stand. 17.It is not out of place to mention here that the income ofthe assessees, which are Agriculture Produce MarketCommittees, constituted under the statute engaged in marketingof the agriculture produce stands exempted by virtue ofprovisions of Section 10(26AAB) w.e.f. 1.4.09. 18.In view of the discussion above, in our opinion, thedecision of the ITAT in holding the assessees entitled to claimexemption under Section 11 (1)(a) of the Act during the relevantassessment year is absolutely justified and does not warrant anyinterference by this court. 19.In the result, the appeals fail, the same are herebydismissed. No order as to costs. (KAILASH CHANDRA SHARMA),J. (SANGEET LODHA),J.