2016 (2) TMI 226 - AT - Income Tax

Entitlement to exemption u/s 11 - whether the payment is towards religious purposes and not charitable purposes? - Held that - It is to reiterate that it has not been disputed that the payment was for the purpose of the education of the Fathers, who serve in various schools run by the assessee, as teachers, supervisors and principals, etc. Before the AO, it was because of the wrong admission of the assessee that the addition was made. The two rectification applications filed by the assessee before the AO met with a negative fate qua the assessee, i.e., they were rejected. However, the fact remains that it has not been shown that the payment in question was not towards the education of the Fathers serving in the schools of the assessee. As such, the narration in the table contained at pages 14-15 of the impugned order does not make the payment to be for a religious purpose and not for a charitable one. This narration, by itself, is not determinative of the nature of the expense, particularly when education of the Fathers has not been shown not to be towards education, which is a charitable purpose of the assessee. Therefore, the grievance of the department that the ld. CIT(A), holding powers co-terminus with those of the AO, ought to have held the expenditure not to have been incurred for charitable purposes, is found to be devoid of force, particularly in the absence of any material on record to prove the expenditure to be towards any religious purpose. - Decided in favour of assessee

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Deletion of the addition of Rs. 12,40,475/- made by the AO under section 11(3)(d) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The first issue revolves around whether the CIT(A) was justified in condoning the delay of almost seventeen months in filing the appeal. The Department argued that the assessee's pursuit of alternative remedies did not constitute a sufficient and bona fide cause for the delay. The assessee contended that it was engaged in filing rectification applications under section 154 of the Act, based on legal advice. The CIT(A) condoned the delay, citing decisions such as "Nicco Corporation Ltd. vs. CIT and Others" and "Saurashtra Cement And Chemical Industries Ltd. vs. CIT," which support condonation when a litigant has bona fide pursued an alternative remedy unsuccessfully.

The ITAT upheld the CIT(A)'s decision, noting that the delay should be condoned when the litigant has pursued proceedings bona fide. The ITAT also referenced the Supreme Court's decision in "Collector, Land Acquisition vs. MST Katiji and others," emphasizing that appeals should be decided on merits to meet the ends of justice. The ITAT concluded that the assessee acted in good faith on legal advice and did not intentionally delay the filing of the appeal.

2. Deletion of the Addition of Rs. 12,40,475/-:

The second issue concerns the deletion of the addition of Rs. 12,40,475/- made by the AO under section 11(3)(d) of the Act. The AO had treated this amount as deemed income, arguing that the expenditure was on Community Centres not run by the assessee Trust, thus violating section 11(3)(d). The CIT(A) deleted the addition, stating that the expenditure was out of the current income and not from accumulated income, hence section 11(3)(d) was not applicable.

The ITAT upheld the CIT(A)'s decision, noting that section 11(3)(d) applies to accumulated income under section 11(2) and not to current income. It was established that the expenditure was incurred out of the current year's income, and the AO did not record any finding that the payments were out of accumulated income. The ITAT also referenced CBDT Circular No.8 dated 27.08.2002, which clarifies that payments out of current income to other trusts continue to be treated as application of income.

The ITAT further noted that the expenditure was for the education of Fathers serving in the assessee's schools, which aligns with the charitable purposes of the Trust. The argument that the expenditure was religious and not charitable was dismissed as it did not arise from the assessment or appellate orders. The ITAT concluded that the CIT(A) was correct in holding that the expenditure was for charitable purposes and not religious purposes, and thus, the addition was rightly deleted.

Conclusion:

The ITAT dismissed the Department's appeal, upholding the CIT(A)'s decisions on both condoning the delay and deleting the addition of Rs. 12,40,475/-. The ITAT found that the delay was justifiably condoned and the addition was incorrectly made under section 11(3)(d) as it pertained to current income, not accumulated income. The expenditure was deemed to be for charitable purposes, aligning with the objectives of the Trust.

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