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TMI Blog2017 (3) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts of the undertaking; i e; only if there any income which is hidden from the books of accounts. In assessee’s case, issue in question is disallowance of provision for gratuity. The provision for gratuity has already disclosed in the books of account. The total income to be determined even after disallowance of provision for gratuity is Nil. Disallowance of provision for gratuity will not result in a situation where income determined by the Assessing Officer is in excess of the income as shown in the accounts of the assessee. Commissioner of Income Tax has erred in invoking section 263 since the order passed by the Assessing Officer u/s 143(3) was not prejudicial to the interest of the revenue. In the return of income, the assessee had declared total income at Nil. Even after disallowance or provision for gratuity, the total income is Nil as there is already excess utilization or ₹ 16.32 crorcs. Hence, the order passed by the Assessing Officer cannot be said to be prejudicial to the interest or the revenue. - Decided in favour of assessee - ITA No. 127/Coch/2016 - - - Dated:- 17-3-2017 - SHRI ABRAHAM P GEORGE, AM AND GEORGE GEORGE K, JM Assessee By : Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions of the assessee are not at all convincing. As already mentioned in column 17B(i) of Form 3CD the tax audit has reported that the expenditure claimed by the assessee include provision for gratuity amounting to ₹ 44,96,547/- which is not allowable as per section 40A(7) of the Income Tax Act. Since the Assessing Officer has omitted to disallow this amount in the assessment resulted in under assessment of income by ₹ 44,96,547/-. Regarding the applicability of section 11(4) of the Income Tax Act any income determined in excess of the income as shown in the account should be deemed to be applied to purposes other than charitable purposes. Further, income applied to purposes other than charitable purpose is not eligible for exemption u/s 11 of the Income Tax Act. 3 Aggrieved by the order passed u/s 263, the assessee has filed the present appeal before this Tribunal. The ld counsel for the assessee submitted that even after making the disallowance of provision for gratuity, there would not be any income for the AY 2011-12 as the application of income for charitable purpose is in far excess of gross income and therefore, there is no prejudice caused to the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1 In the instant case, the assessee is running a hospital and medical college, both of which fall under the terms charity within the definition of charitable purposes as defined in section 2(15) of the I T Act. Section 11(4) is attracted only in a situation where the property held under trust includes a business undertaking . Since the assessee is not having any business undertaking , section 11(4) will not be attracted to the facts and circumstances of the case. Hence, the CIT erred in invoking the provisions of section 11(4) of the I T Act. An identical issue was considered by the ITAT Ahmedabad Bench in the case of Gujarat Industrial Development Corporation vs ACIT reported in 129 ITD 73. The relevant portion of the finding reads as follows: 12. Before we conclude let us see whether at all there was an element of ''business'' in the activity of this Corporation. The definition of the Term Business as per section 2(13) is as under : Section 2(13) ''business'' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; 13. The fervent argument of ld.CIT Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o purposes other than charitable purposes. In respect of such an income the undertaking cannot claim that the same should also not be included in the exempted total income. Applying this test on the present set of facts of the case, it is evident that though the Assessing Officer has computed the profits on transfer of land or plots but it was not the case that the profits so generated were not within the main provisions of section 11 of the Incometax Act. Even if the assessee has earned premium price on lease of plot and land for sale but if the entire expenditure and the profit earned therefrom was exclusively used for the laid down objects then to be covered by the main Section 11. In the present case the undisputed fact was that the same was utilized for the purposes of the object of the trust. Rather, it is also worth to note that the surplus, if any, remained with the assessee has to be invested as per the guidelines and the norms set out under GID Act. Therefore, we are of the conscientious view that even if this undertaking may come within the purview of business undertaking but being no excess income was found utilised other than for the purposes of the object of the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permits accumulation of income to the extent of 25%. Thus, tinder s. 1l(1), accumulation of income up to 25% as well as the application of rest of income wholly for charitable or religious purposes, is not liable to be included in the total income of the trust. Sub-s. (2) of s. 11 deals with cases where application of income wholly for charitable or religious purposes falls short of 75% of the income. It permits exclusion of such income if the trust complies with certain formalities and invests such income in Government or approved securities. Sub-s. (3) of s. 11 deals with the income of a trust which is applied to purposes other than charitable or religious purposes. Such income is not entitled to exclusion. It is deemed to be taxable income of the person in receipt thereof. Sub-s. (4) of s. 11 then provides : (4) For the purposes of this section, 'property held under trust' includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts. The income spoken of in sub- s. (4) appears to us to be the gross income and not the net income of the business undertaking. The net income is computed after granting the admissible deductions. The deductions admissible from income of a business undertaking are not always the same as application of income wholly for charitable or religious purposes. They may or may not be admissible deduction from business income under the provisions relating to assessment of income. Yet they are entitled to exclusion under sub-s. (1) of s. 11 because they represent application of income wholly for charitable or religious purposes. 10 Here, the ITO has to scrutinise the accounts and see if there is suppression of income or manipulation of accounts with a view to conceal income. He could see whether there are items which are deemed to be income under some provision of the I.T. Act and which have not been accounted for in the books of the undertaking, or there may be some receipts which are really in the nature of income and which have not been reflected in the accounts. This interpretation of sub-s. (4) of s. 11 is in consonance with the legislative intent as disclosed by the Finance Min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an expenditure covered by sub-s. (3), with the result that it will be an application of income not liable to be excluded under sub-s. (1) of s. 11. It will not be deemed income under sub-s. (4). 14 In our opinion, the amount of ₹ 9,547 which was admittedly spent by the trust for charity and donations did not attract s. 11(4). It has to be dealt with under s. 11(3). The Tribunal was justified in remanding the case to the ITO for passing a fresh order. 15 We answer the first question in the affirmative, in favour of the assessee and against the Department and the second question in the negative, in favour of the assessee and against the Department. There will be no order as to costs. 4.3 Considering the above, the Commissioner of Income tax has erred in invoking the provisions of sub section (4) of section 11 of the Income Tax Act 1961 on the assessee. 4.4 Lastly, according to us, The Commissioner of Income Tax has erred in invoking section 263 since the order passed by the Assessing Officer u/s 143(3) was not prejudicial to the interest of the revenue. In the return of income, the assessee had declared total income at Nil. Even after disallowance or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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