The Bombay High Court clarified that before bringing any income to tax, the Income Tax Authorities must take into consideration the expenditure incurred by a trust. Since the Authorities had totally missed this aspect before finalising the assessment, the petitioner-trust has a strong case in its favour for staying the entire demand without a mandatory deposit.
As the petitioner is an Educational Trust, which is fully funded by the State Government, the Court took a lenient view and quashed the order passed by the CIT (Exemption), which directed a deposit of 15% of the demand as a condition precedent for granting a stay pending disposal of the appeal.
The Division Bench comprising Justice B.P. Colabawalla and Justice Amit S. Jamsandekar observed that it is factually correct that the petitioner is neither registered under Section 12A of the Income Tax Act nor has filed Schedule IE-3: Income and Expenditure statement [applicable for Trusts claiming exemption under Section 10(23C)(iiiab)].
However, what the CIT (Exemption) has missed is that the Assessing Officer has brought gross receipts to tax and not the income of the petitioner, when the petitioner had claimed income of Rs. 1.83 Crores and also set out the expenditure of Rs. 1.84 Crores in its ITR, added the Bench.
Briefly, the petitioner, a fully State-funded educational institution, claimed exemption under Section 10(23C)(iiiab) of the Income Tax Act while filing its ITR. Alternatively, it claimed that even if the exemption is not available, then only income, after deduction of expenditure, and not gross receipts, can be taxed. The I-T authorities, however, taxed gross receipts, ignoring expenditure, finding that the petitioner’s claim for registration under Section 12A was factually incorrect.
Since the petitioner did not fill out Schedule IE-3 (Income and Expenditure statement applicable for trusts claiming exemption under Section 10(23C)(iiiab) or 10(23C)(iiiac) in the ITR, the CIT (Exemption) did not grant a full stay but directed a deposit of 15% of the demand in 12 equal monthly instalments, as a condition precedent for granting a stay pending disposal of the appeal.
Appearances:
Advocates Sanket Bora, Vidhi Punmiya, and Amiya Das, for the Petitioner/ Taxpayer
Advocate A.K. Saxena, for the Respondent/ Revenue
