2011 (12) TMI 598 - AT - Income Tax

Addition u/s 40(a)(ia) - Claim allowed Expenditure for the objects of the trust - Held that - The payment of tax was to preserve to the corpus of trust and has to be treated as application for charitable purposes.

Issues Involved:
1. Applicability of Section 40(a)(ia) of the Income Tax Act.
2. Expenditure not for the objects of the trust.

Detailed Analysis:

Issue 1: Applicability of Section 40(a)(ia) of the Income Tax Act
2.1 The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 58.00 lakhs made under Section 40(a)(ia) of the Act, arguing that the provisions were not applicable in the instant case.

2.2 The CIT(A) held that Section 40(a)(ia) applies only when income is chargeable under the head "profits and gains of business or profession." Since the appellant trust's income is not chargeable under this head and there was no contractual relationship between the appellant and RSAMB, the provisions of Section 40(a)(ia) were deemed inapplicable. The CIT(A) also noted that the trust is registered under Section 12A, thus supporting the deletion of the addition.

2.3 The Tribunal upheld the CIT(A)'s decision, referencing the Jurisdictional High Court's ruling in CIT vs Krishi Upaj Mandi Samiti, which clarified that contributions to the Agricultural Marketing Board are an application of income and not subject to tax deduction at source. The Tribunal emphasized that the income of a trust should be computed based on commercial principles, not under different heads, making Section 40(a)(ia) inapplicable.

2.4 Following these discussions, the Tribunal concluded that the CIT(A) was justified in deleting the addition of Rs. 58.00 lakhs.

Issue 2: Expenditure Not for the Objects of the Trust
3.1 The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 49,36,880/- on the grounds that the expenditure was not for the objects of the trust.

3.2 The CIT(A) considered judicial precedents indicating that payment of income tax should be seen as an application for charitable purposes, as it preserves the trust's corpus. The cited cases include CIT vs Janaki Ammal Ayya Nadar Trust and CIT vs Trustees of H.E.H. the Nizam's Supplemental Religious Endowment Trust.

3.3 The CIT(A) concluded that the payment of tax is to preserve the trust's corpus and should be treated as an application for charitable purposes, leading to the deletion of the addition.

3.4 The Tribunal agreed with the CIT(A), referencing the Jaipur Bench's decision in ITO vs KUMS, Baran, which held that payment of tax is an application of income. Thus, the Tribunal upheld the deletion of the addition.

Similar Cases:
- ITA No. 245/JU/2010 - KUMS, Anupgarh: The Tribunal followed its findings in the Krishi Upaj Mandi Samiti case, deleting the additions under Section 40(a)(ia) and for expenditures not aligned with the trust's objects.
- ITA No. 246/JU/2010 - KUMS, Rawla: Similar deletions were upheld.
- ITA No. 247/JU/2010 - KUMS, Gharsana: The Tribunal upheld deletions of Rs. 58,57,000/- under Section 40(a)(ia).
- ITA No. 248/JU/2010 - KUMS, Jetsar: Deletions of Rs. 8,50,000/- and Rs. 31,81,354/- were upheld.
- ITA No. 250/JU/2010 - KUMS, Suratgarh: Deletions of Rs. 1,03,11,194/- and Rs. 39,66,760/- were upheld.
- ITA No. 99/JU/2010 - KUMS, Padampur: Deletions of Rs. 1,30,00,000/- and Rs. 80,000/- were upheld.
- ITA No. 101/JU/2010 - KUMS, Gajsingpur: Deletions of Rs. 53,05,000/- and Rs. 6,25,000/- were upheld.
- ITA No. 102/JU/2010 - KUMS, Sri Ganganagar: Deletions of Rs. 1,76,48,145/- and Rs. 1,64,82,000/- were upheld.
- ITA No. 103/JU/2010 - KUMS, Raisinghnagar: Deletions of Rs. 48,45,000/- and Rs. 44,59,789/- were upheld.

Conclusion:
The appeals of the Revenue were dismissed, and the Tribunal consistently upheld the CIT(A)'s decisions across all cases, confirming that the provisions of Section 40(a)(ia) were not applicable and that the expenditures in question were aligned with the objects of the trust. The order was pronounced in open court on 16-12-2011.

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