2019 (3) TMI 1345 - AT - Income Tax

Exemption u/s 11 - charitable activity - investment in immovable property - HELD THAT - It is a fact that section 11(5)(x) authorizes investment in immovable property. AO has not considered the investment in land and flat has been done for charitable purposes. He has not accepted the explanation of assessee that investment in immovable property has been done as preliminary steps towards establishment of University. AO was under the impression that in order to qualify for charitable purpose, the trust has to spend the amount on charitable activities only. Section 11(5)(x) clearly authorize investment in immovable property for claiming exemption u/s 11. If the findings of the AO are accepted then no investment would be qualified u/s 11(5). Since the investment in immovable property is permitted as per section 11(5)(x) of the Act, therefore, there was no necessity for the assessee to prove that it was done so for charitable purposes. Section 11(5) provides that accumulated amount u/s 11(2) has to be kept in specified moods of investment which include investment in immovable property. It does not provide such immovable property must be meant for any specific purposes. Therefore, there is nothing wrong committed by assessee so as to violate any provisions of law. Assessee has explained that out of the addition in question as made by AO, the amount was in fact towards corpus donation. The assessee produced confirmation and bank account and relevant details to prove it was a corpus donation. Therefore, it could not be added to the income of the assessee. CIT(A) correctly directed to delete the addition. The Revenue did not challenge the deletion of addition on account of corpus donation. Therefore, findings of fact recorded by CIT(A) are confirmed. If the corpus donation is excluded nothing would survive against the assessee so as to make any addition. There is no merit in Departmental appeal. Same is accordingly dismissed. Expenditure incurred by the trust/charitable institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking section 11 - HELD THAT - assessee rightly contended that the authorities below have failed to appreciate that income has to be computed commercially even in cases covered u/s 11 13 and resultant loss, if any, arising due to surplus application of income has to be computed and carry forward to the next year to be set off therein. AO has not given any findings on the same. CIT(A) without examining the issue in detail dismissed the claim of assessee because section 11 provides for exemption of income of charitable organization. However, it is a fact that assessee claimed carry forward of the losses for subsequent year as per law which should have been appreciated and should be considered in favour of the assessee. The issue is covered by above judgment referred above. We, accordingly, set aside the orders of the CIT(A) and restore this issue to the file of the AO with direction to allow the claim of assessee after verifying the facts on record. The AO shall give reasonable sufficient opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Violation of Section 11(5)(x) regarding investment in immovable property.
2. Application of less than 85% of receipts for charitable purposes.
3. Carry forward of loss to subsequent assessment years.

Detailed Analysis:

Issue 1: Violation of Section 11(5)(x) regarding investment in immovable property

The Revenue contended that the assessee trust violated Section 11(5)(x) by investing in land and flats without producing evidence that these investments were for charitable purposes. The Assessing Officer (AO) disallowed the investment amount, treating it as non-charitable. The assessee argued that the investments were preliminary steps towards establishing a university, which is a charitable activity under the trust's objectives. The CIT(A) accepted the assessee's explanation, noting that Section 11(5)(x) authorizes investment in immovable property without specifying the immediate use for charitable purposes. The Tribunal upheld the CIT(A)'s decision, emphasizing that the law permits investment in immovable property for claiming exemption under Section 11.

Issue 2: Application of less than 85% of receipts for charitable purposes

The AO argued that the assessee applied less than 85% of its receipts for charitable purposes, thus disqualifying it from exemptions. The assessee countered that the amount in question was a corpus donation, which should not be included in the computation of applied income. The CIT(A) agreed, noting that the assessee provided sufficient evidence, including confirmation from the donor and bank statements, to prove that the ?2,25,50,000/- was a corpus donation. The Tribunal confirmed this finding, stating that the AO's failure to accept the corpus donation as such was incorrect, and upheld the CIT(A)'s directive to re-compute the income by allowing the claimed exemption.

Issue 3: Carry forward of loss to subsequent assessment years

The assessee claimed a loss of ?4,15,70,160/- to be carried forward to the next assessment year. The AO did not address this issue, and the CIT(A) dismissed the claim, stating that the income of charitable trusts is not assessable under "Profit and Gains of business." The Tribunal found that the CIT(A) failed to consider judicial precedents and the commercial computation of income for charitable trusts. Citing the Supreme Court's decision in the case of Subros Educational Society, the Tribunal held that excess expenditure incurred in earlier years could be set off against income in subsequent years. The Tribunal set aside the CIT(A)'s order and directed the AO to verify the facts and allow the carry forward of losses accordingly.

Conclusion:

The Tribunal dismissed the Departmental appeal, upholding the CIT(A)'s decision on the first two issues. It allowed the assessee's cross-objection for statistical purposes, directing the AO to verify and allow the carry forward of losses. The judgment emphasizes compliance with Section 11(5)(x) regarding investments and acknowledges the legitimacy of corpus donations and the carry forward of losses for charitable trusts.