2017 (4) TMI 67 - AT - Income Tax

Not allowing the accumulation of the 15% and the income was allowed u/s.11(1)(a) - Held that -CIT(A) has relied on the decision of Hon ble Supreme Court in the case of A.I.N. Rao Charitable Trust (1995 (10) TMI 2 - SUPREME Court) wherein, it is held that exemption available u/s.11(1)(a) i.e. 15% of income is unfettered and not subject to any conditions. In the case before us, assessee has claimed 15% accumulation u/s.11(1)(a) of the Act. Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) and reject ground of appeal taken by department. Disallowance of dividend income from investment in UTI units as exempt u/s.10(33) - Held that - Dividend income on shares and mutual funds and long term capital gain on sale of shares an exempt u/s 10(34),10(35) and 10(38) respectively and cannot be brought to tax by applying section 11 and 13 of the Act. In view of the order passed by the co-ordinate bench we allowed this issue in favour of the assessee and delete the addition confirmed by the CIT(A) in question. Assessee is entitled to carry forward the excess application to the subsequent years.

Summary

Issues Involved:
1. Accumulation of 15% of income under section 11(1)(a) of the Income Tax Act.
2. Exemption under section 10(33) on dividend income.
3. Carry forward of current year's excess application to subsequent years.
4. Carry forward of brought forward excess application.

Issue-wise Detailed Analysis:

Issue No. 1: Accumulation of 15% of Income under Section 11(1)(a)
The assessee challenged the CIT(A)'s confirmation of the Assessing Officer's decision not to allow the accumulation of 15% of income as permitted under section 11(1)(a). The assessee argued that this issue was covered by the ITAT Mumbai decision in ADIT(E) 1(2) Vs. Sayaji Ubakhin Memorial Trust. The Tribunal observed that the CIT(A) had allowed the accumulation of income, referencing the Supreme Court's decision in the case of A.I.N. Rao Charitable Trust, which held that the exemption of 15% of income under section 11(1)(a) is unconditional. Consequently, the Tribunal allowed the assessee's claim, ruling in favor of the assessee and deleting the addition confirmed by the CIT(A).

Issue No. 2: Exemption under Section 10(33) on Dividend Income
The assessee contested the CIT(A)'s confirmation of the disallowance of dividend income from UTI units as exempt under section 10(33). The Tribunal referred to the ITAT Mumbai decision in ACIT (Exemption)-I(1) Vs. Jamshetjee Tata Trust, which held that dividend income exempt under section 10(34), 10(35), and 10(38) cannot be taxed under sections 11 and 13. The Tribunal followed the precedent set by the Delhi High Court in CIT Vs. Divine Light Mission and other similar rulings, stating that income exempt under section 10 cannot be overridden by sections 11 to 13. Hence, the Tribunal ruled in favor of the assessee, deleting the addition confirmed by the CIT(A).

Issue No. 3: Carry Forward of Current Year's Excess Application
The assessee challenged the CIT(A)'s confirmation of the Assessing Officer's decision not to carry forward the excess application of ?20,93,366. The Tribunal referred to the Bombay High Court's decision in CIT Vs. Institute of Banking, which held that excess expenditure in earlier years can be adjusted against the income of subsequent years for charitable purposes. The Tribunal also cited the ITAT decisions in ADIT (E) 1(2) Vs. Sayaji Ubakhin Memorial Trust and ITO(E) Vs. Shri Sadguru Seva Trust, which supported the carry forward of excess application. Accordingly, the Tribunal ruled in favor of the assessee, allowing the carry forward of the excess application.

Issue No. 4: Carry Forward of Brought Forward Excess Application
The assessee also challenged the CIT(A)'s confirmation of the Assessing Officer's decision not to allow the brought forward excess application of ?7,41,31,385. The Tribunal found this issue similar to Issue No. 3 and applied the same legal principles. By following the Bombay High Court's decision in CIT Vs. Institute of Banking and the ITAT decisions in ADIT (E) 1(2) Vs. Sayaji Ubakhin Memorial Trust and ITO(E) Vs. Shri Sadguru Seva Trust, the Tribunal ruled in favor of the assessee, permitting the carry forward of the brought forward excess application.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, ruling in favor of the assessee on all issues and deleting the additions confirmed by the CIT(A). The order was pronounced in the open court on 29th March 2017.