Charitable organizations entitled to deduction of 15% of the gross receipts without fulfilling any condition

It has recently been held by the ITAT Chandigarh in the cases of the Income Tax Officer vs. Bhartiya Vidya Mandir Trust, Ward VI (1), New Rose Garden, Ludhiana (PAN: AAATB4880H) and in ITA No. 1093/Chd./2013 (Assessment Year 2010-11) Bhartiya Vidya Mandir Trust vs. The Income Tax Officer, New Rose Garden, Ward VI(1), Ludhiana (PAN: AAATB4880H) that charitable organizations are entitled to an income tax deduction of 15% of the gross receipts without fulfilling any condition.

Charitable organizations entitled to deduction –The said judgment was passed by the bench comprising of Bhavnesh Saini (Judicial Member), T. R. Sood (Accountant Member) on 30.4. 2015.

Pleaders engaged in the case:

Both the appeals were heard on 27.04.2015. The Assessee was represented by Shri Ashwani Kumar and the Respondent was represented by Shri Manjit Singh, Advocate, ld. DR.

Backgrounds of the case:

The appeal filed by the Department and the Cross Objection field by the assessee were directed against the order of learned CIT (Appeals)-II, Ludhiana dated 11.9.2013 in connection with the assessment year 2010-11.

The assessee society was formed on 7.12.1968 and the same was duly registered before the Registrar of Firms and Societies on 17.12.1968 and under section 12AA of the Income Tax Act through an order dated 4.3.1976.

The Society was approved under section 10(23C) of the Income Tax Act by the Chief Commissioner of Income Tax. During the assessment proceedings, the Assessing Officer observed that the gross receipts stated by the assessee amounted to Rs. 9, 85,33,522/-.

According to section ll (l) (b) of the Income Tax Act, 1961, 85% of the said amount was required to be used for charitable purposes in that particular year. The assessee was required to use Rs.8, 37, 53,494/- for charitable purposes relating to the objects of the society.

The assessee utilized an amount of Rs.7, 39, 11, 839/- for charitable purposes. The Assessing Officer also noted that Rs.60, 14,398/- was debited to the Profit & Loss Account due to depreciation. After excluding the amount of depreciation from the amount of expenses, the total amount used in the year was Rs.6, 78, 97,441/-.

There was a short fall of Rs.1, 58, 56,053/- towards the application of income as per the Income Tax Act. The Assessing Officer also noted that no information in Form No. 10 was sent by the assessee to the Assessing Officer before the due date of filing of return relating to the accumulation of income.

In such circumstances, the Assessing Officer required the assessee to show cause as to why the short fall in application shall not be taxed. The assessee through a reply dated 6.11.2012 stated that the short fall had been calculated wrongly by the assessee in connection with depreciation amounting to Rs.60,14,3987-. As such, the short fall in application of income would be Rs.98, 41,655/- and not Rs. 1, 58, 56,053/-.

The assessee also submitted that the depreciation though not claimed in the return of income could be allowed as per the judgment of the Hon’ble Punjab and Haryana High Court in CIT vs. Tiny Tots Education Society 330 ITR 21 (P&H). It was also stated that even if there were two views on an issue, in absence of a judgment of the Apex Court, the view of the Jurisdictional High Court should be considered.

Regarding the short fall in application of income, the assessee submitted that there was excess utilization of income in the earlier years which was adjusted against the short fall in the current year. The assessee relied upon the judgment in CIT vs. Trustee of Seth Merwarjee Framji Pandey Charitable Trust (2003) 177 Taxman 19 (Bom.). However, the Assessing Officer was not satisfied with the assessee’s contentions.

Regarding the issue of depreciation, the Assessing Officer relied upon the decision of Lissie Medical Institutions vs. CIT, 348 ITR 344 (Ker), wherein, the Hon’ble High Court of Kerala held that depreciation is not application of income if the total cost is treated as application under section ll(l)(b) of the Income Tax Act. In view of this decision, the Assessing Officer held that the depreciation shall not to be considered as application of income. The Assessing Officer established that the assessee had no loss to set off in the current year.

The Assessing Officer did not find the assessee’s contentions to be satisfactory. The Assessing Officer computed the total income of the assessee at Rs.2, 46, 21,680/-.
The assessee challenged the addition before the learned CIT (Appeals) who after considering the submissions of the assessee confirmed the addition and dismissed the appeal filed by the assessee. The appellant relied on the case of CIT vs. Maharana of Mewar Charitable Foundation. The assessee was directed to file evidence of extra utilization which was claimed to be set off during the year. The assessee as well as the department challenged the order of the learned CIT (Appeals) before the ITAT Chandigarh.

The judgment:

Considering the facts recorded by the learned CIT (Appeals) against the assessee it was held that carrying forward of loss cannot be allowed as claimed by the assessee. The Cross Objection of the assessee was dismissed.

The ITAT Chandigarh held that there was no justification to interfere in the order of the learned CIT (Appeals). As a result, the appeal of the Revenue was accordingly dismissed.