Kittur Rani Channamma Memorial ... vs Assessee

Assessee by : Shri Sanjay S. Mudnur - CA Department By : Shri M.R. Bangari - D.R. Date of hearing : 12/06/2015. Date of pronouncement : 12/06/2015.

ORDER

PER N.K. BILLAIYA

These bunch of appeals were heard together and are disposed of

by this common order for the sake convenience and brevity.

2. At the very outset, the counsel for the assessee stated that the

appeal filed on 23/09/2013 is being pressed. Learned DR did not 2 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

object to this. So, we have decided to proceed with the original

grounds of appeal filed along with Form No. 36 on 23/09/2013.

3. The first two grievance of the assessee relates to the treatment

of receipts from sale of Women's Day flags and books of eminent

women as Revenue receipts.

4. Briefly stated the facts of the case are that the assessee is

running a residential school at Kittur. Assessee is a charitable trust

within the meaning of sec. 2(15) of the Act claiming exemption u/s.11.

4.1 While scrutinizing the return of income, the Assessing Officer

noticed that during the year under consideration, the assessee trust

has shown receipts on account of school fees and other fees at

Rs.2,89,45,292/- out of which Rs. 2,19,70,929/- has been claimed as

revenue expenditure, thereby showing a surplus of Rs. 69,74,363/-.

The assessee trust is also running a Memorial Committee wherein it has

shown receipts by way of interest income and miscellaneous income of

Rs. 32,88,226/- and has spent a sum of Rs. 13,35,910/- as revenue

expenditure and has shown a surplus of Rs. 19,52,316/-. The combined

surplus was shown at Rs. 89,26,679/-. On perusing the statement of

income, the Assessing Officer noticed that the assessee has shown 3 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

accumulated income at Rs. 1,99,33,333/- for specific purposes. The

assessee was asked to explain the difference. Assessee filed a revised

statement which was accepted. As per revised statement, the

assessee has stated that it has spent a sum of Rs. 46,54,344/- towards

capital expenditure. The balance after accumulation of Rs.42,72,335/-

has been claimed as exempt as per the provisions of sec. 11(1) of the

Act.

4.2 On perusing the balance sheet of the assessee, the Assessing

Officer found that the assessee has received a sum of Rs. 29,03,109/-

on account of sale of Women's Day Flags and the same has been

credited to the capital fund. The assessee was asked to explain why

this amount received on account of sale of flags is capital in nature

and why this amount should not be treated as revenue receipt. It was

explained that the committee has been specifically directed and

permitted by the Govt. of Karnataka for distributing flags of Kittur Rani

Channamma which is commemorated as Women's Day. Necessary

documents/orders from the Govt. of Karnataka were supplied. It was

explained that the intention of the Govt. was clear about creation of

separate capital fund out of sale proceeds received on account of sale

of flags.

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ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

4.3 This explanation of the assessee was dismissed by the Assessing

Officer, who was of the firm belief that there is no specific direction

to treat the sale of flags as capital receipts. Drawing support from the

provisions of sec. 2(24)(iia), the Assessing Officer was of the opinion

that all voluntary contributions received by the trust in whatever

manner is income of such trust. The Assessing Officer observed that in

the case in hand, the income is from the sale of flags and, therefore,

cannot be termed as contribution towards corpus of the trust. The

Assessing Officer proceeded by treating the entire amount of

Rs. 29,03,109/- as revenue receipt. After allowing the deduction of

Rs. 46,582/- towards printing of these flags, Rs. 28,56,527/- is treated

as revenue receipt.

4.4 The Assessing Officer further found that the assessee has

collected Rs. 5,134/- on account of sale of books of eminent women

and the same was also treated as capital receipt. The assessee was

asked to justify the same. The assessee explained that sale proceeds

are towards recovery of cost of books and no element of profit is

involved. This explanation of the assessee was not accepted by the

Assessing Officer, who treated the net amount of Rs. 4,679/- as

revenue receipt.

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ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

4.5 Proceeding further, the Assessing Officer noticed that the

assessee has claimed depreciation amounting to Rs. 21,52,373/-. The

Assessing Officer was of the view that the entire cost of capital assets

amounting to Rs. 2,33,06,839/- have already been claimed towards

application of income. The claim of depreciation is not allowable as

per the decision of Hon'ble Supreme Court in the case of Escorts Ltd.

& another Vs. Union of India & others (199 ITR 43). The claim of

depreciation was, accordingly, disallowed.

4.6 The Assessing Officer further denied the claim of set off of the

excess utilization towards objects of the trust of the earlier years

against the receipt of the current year. Aggrieved by this, the

assessee carried the matter before the Ld. CIT(A) but without any

success.

5. Aggrieved by this, assessee is before us.

6. Counsel for the assessee drew our attention to the order of the

Govt. of Mysore. It is the say of the counsel that pursuant to this order

of the Govt., the assessee trust proceeded by selling flags on Women's

Day. Counsel further pointed out that this fund shall be utilized mainly

for incurring recurring and non-recurring expenditure connected with 6 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

the Kittur Rani Channamma Memorial Primary & High School for Girls

at Kittur in Belgaum. Therefore, the sale receipts from the flags have

been treated as capital receipts. Insofar as the receipt from sale of

books is concerned, the counsel stated that the same has been reduced

from the stock of books, thereby treating the same as revenue receipt.

7. Per contra, learned DR strongly supported the orders of the

Revenue authorities.

8. We have carefully perused the orders of the authorities below. A

careful reading of the assessment order shows that the A.O's decision

is simply based on the fact that no direction letters were given by the

donors by which receipts from sale of flags can be treated as capital

receipt. The Revenue authorities have ignored the application of sale

proceeds of flags of Women's Day when the Govt. has specifically

ordered for utilization of the funds for the purposes of maintenance of

school buildings. Thus, it can be safely concluded that the intentions

were clear that the sale proceeds have to be treated as capital

receipts. A similar view was taken by the Coordinate Benches of the

Tribunal Mumbai in the case of DDIT(E)1(2) Vs. Swati Education Trust

in I.T.A.No. 2981/Mum/2009. It is not the case of the Revenue that 7 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

the sale proceeds have not been fully utilized for the specific purpose,

for which it was permitted by the Govt. of Karnataka.

8.1 On the other hand, we find that the sale proceeds have been

utilized for specific purpose of maintenance of school building and

other infrastructure, thereby fulfilling the requirement of sec. 11(1)(d)

of the Act. Since in the case of the assessee, no such violation of

corpus being utilized for objects of the trust has been noticed or

established by the Assessing Officer, it cannot be held that the sale

proceeds of flags on Women's Day are not in the nature of capital

receipts. We, therefore set aside the findings of the Ld. CIT(A) and

direct the Assessing Officer to treat the sale proceeds as a capital

receipt.

8.2 Insofar as the treatment of sale proceeds of books as capital

receipt is concerned, we find that the revenue authorities have not

properly appreciated the facts. The surplus has been reduced from

the stock, thereby treating the same as revenue receipt. Therefore,

no separate addition is called for and the same is directed to be

deleted.

8.3 Insofar as the disallowance of depreciation is concerned, this

issue is squarely covered in favour of the assessee and against the 8 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

Revenue by the decision of the Hon'ble High Court of Bombay in the

case of CIT vs. Institute of Banking Personnel Selection (264 ITR 110).

Therefore, respectfully following the decision of the Hon'ble Bombay

High Court, the claim of depreciation is allowed.

9. The last grievance of the assessee relates to whether excess of

expenditure in the earlier years can be adjusted against the income of

the subsequent year and whether such adjustment should be treated as

application of income in subsequent year for charitable purposes.

10. In our considered opinion, income derived from the trust

property has also got to be computed on commercial principles and if

commercial principles are applied, then adjustment of expenditure

incurred by the trust for charitable and religious purposes in the

earlier years against the income earned by the trust in the subsequent

year will have to be regarded as application of income of the trust for

charitable and religious purposes in the subsequent years in which

adjustment has been made having regard to the benevolent provisions

contained in sec. 11 of the Act and that such adjustment will have to

be excluded from the income of the trust u/s. 11(1)(a) of the Act. Our

view is also supported by the judgment of the Hon'ble Gujarat High 9 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

Court in the case of CIT Vs. Shri Plot Swetamber Murti Pujak Jain

Mandal (211 ITR 293). Accordingly, we direct the Assessing Officer to

allow the set off of earlier years excess expenditure to the income of

the assessee for the current year.

11. In the result, appeal of the assessee is allowed, thereby making

ground No.7 of the appeal as of academic interest.

I.T.A.No. 417/PNJ/2013

12. As we have allowed the appeal of the assessee in I.T.A.No.

269/PNJ/2013, this appeal of the assessee becomes infructuous.

S.A.No. 13/PNJ/2014

13. Since we have allowed the appeal of the assessee vide I.T.A.No.

269/PNJ/2013, the stay application of the assessee becomes

infructuous.

14. In the result, appeal in I.T.A.No. 269/PNJ/2013 is allowed and

I.TA.No.417/PNJ/2013 & S.A.No. 13/PNJ/2014 are dismissed as

infructuous.

(Order Pronounced in the open Court on 12 t h June, 2015).

Sd/- sd/- (GEORGE MATHAN) (N.K. BILLAIYA) Judicial Member Accountant Member

Dated :15 t h June, 2015. 10 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

vr/- Copy to: 1. The Appellant 2. The Respondent 3. The ld.CIT 4. The CIT(A) 5. The D.R 6. Guard file. By order

Assistant Registrar I.T.A.T., Panaji 11 ITA No. 269 & 417/PNJ/2013 S.A.No. 13/PNJ/2014

Date Initial

Original dictation pad is enclosed in the file

1. Draft dictated on 12.06.2015 Sr.PS

2. Draft placed before author 12.06.2015 Sr.PS

3. Draft proposed & placed 12/06/2015 JM/AM before the second member

4. Draft discussed/approved by 15/06/2015 JM/AM Second Member

5. Approved Draft comes to the 15/06/2015 Sr.PS Sr.PS/PS

6. Date of pronouncement 12/06/2015 Sr.PS

7. File sent to the Bench Clerk 15/06/2015 Sr.PS

8. Date on which file goes to the Head Clerk

9. Date of dispatch of Order