2014 (3) TMI 1014 - AT - Income Tax

Eligibility to claim exemption u/s 11 in respect of receipts towards building and development funds - Held that - The present assessee has been imparting education starting from nursery to PUC which has been admitted by the AO in the assessment order. Therefore, the question of attributing that the assessee allegedly collected capitation fees in the guise of building fund or development fee doesn t arise. Taking into account the facts and circumstances of the issue as deliberated upon and also in conformity with the judicial views especially (i) the ruling of the Hon ble Jurisdictional High Court in the case of Bharatiya Samskriti Vidyapith Trust (2013 (11) TMI 1594 - KARNATAKA HIGH COURT) and (ii) ACIT v. M/s. JSS Mahavidyapeetha (2013 (4) TMI 761 - ITAT BANGALORE), we are of the view that the authorities below were not justified to deny the claim of the assessee for exemption u/s 11 of the Act in respect of building fund as well as college development fund . - Decided in favour of assessee Amount advanced to Kaveri Charitable Trust - whether amounts to application of income for the purposes of s. 11 - Held that - Hon ble Delhi High Court has, in the case of DIT (Exemption) v. ACME Educational Society reported in (2010 (7) TMI 159 - DELHI HIGH COURT) on an identical issue to that of the present one, held that the interest-free loan given by the assessee-society to the other society did not violate section 13(1)(d) read with section 11(5) of Act, 1961, as the loan was neither an investment nor a deposit . Moreover, both societies had similar objects and were registered under section 12A of the Act and had approvals under section 80G . In conformity with the judgment of the Hon ble Delhi High Court (supra), we are of the view that the assessee is entitled to exemption.- Decided in favour of assessee Denial of claim of depreciation as application of income u/s. 11 - Held that - The amount of depreciation debited to the account of charitable institution is to be deducted to arrive at an available income from charitable or religious purposes. Following the decision of the jurisdictional High Court, we, therefore, hold that the depreciation is to be deducted to arrive at income available to charitable and religious purposes . See ACIT v. Sri Adichunchanagiri Shikshana Trust 2013 (11) TMI 123 - ITAT BANGALORE - Decided in favour of assessee

Issues Involved:
1. Eligibility for exemption under section 11 of the Act for building and development funds.
2. Eligibility for exemption under section 11 if funds were applied towards the object of the institution.
3. Justification for denying the claim of depreciation as application of income under section 11.
4. Liability to be charged interest under section 234B of the Act.
5. Application of income for the purposes of section 11 concerning the amount advanced to another charitable trust.

Detailed Analysis:

I. Eligibility for Exemption under Section 11 of the Act for Building and Development Funds:
The primary issue was whether the assessee-trust was eligible to claim exemption under section 11 of the Act for the amounts collected as building and development funds. The assessee argued that these contributions were voluntary and formed part of the corpus, thus eligible for exemption under section 11(1)(d). The authorities, however, concluded that these were capitation fees linked directly to admissions, thus not voluntary contributions. The Tribunal, considering the facts and judicial precedents, including the Karnataka High Court's decision in Bharatiya Samskriti Vidyapith Trust, ruled in favor of the assessee, stating the contributions were voluntary and eligible for exemption under section 11.

II. Eligibility for Exemption under Section 11 if Funds were Applied Towards the Object of the Institution:
The alternative argument was whether the assessee was eligible for exemption if the funds were applied towards the institution's objectives. Since the Tribunal decided the primary issue in favor of the assessee, this alternative ground became superfluous and was not adjudicated.

III. Justification for Denying the Claim of Depreciation as Application of Income under Section 11:
The authorities had denied the claim of depreciation on the grounds that it constituted a double deduction. However, the Tribunal referenced the jurisdictional High Court's ruling and previous Tribunal decisions, which allowed depreciation as a deduction to determine the income available for charitable purposes. Thus, the Tribunal ruled in favor of the assessee, allowing the claim of depreciation.

IV. Liability to be Charged Interest under Section 234B of the Act:
The issue of charging interest under section 234B was raised for all assessment years. The Tribunal held that the levy of interest under section 234B is mandatory and consequential in nature. Therefore, this ground of appeal was dismissed.

V. Application of Income for the Purposes of Section 11 Concerning the Amount Advanced to Another Charitable Trust:
For the assessment year 2007-08, the issue was whether the amount advanced to another charitable trust, Kaveri Charitable Trust, amounted to the application of income for section 11 purposes. The Tribunal, aligning with the Delhi High Court's decision in DIT (Exemption) v. ACME Educational Society, held that such an advance did not violate section 13(1)(d) and was neither an investment nor a deposit. Thus, the assessee was entitled to exemption, and this issue was decided in favor of the assessee.

Conclusion:
The Tribunal ruled in favor of the assessee on most issues, allowing exemption under section 11 for the building and development funds, permitting the claim of depreciation, and recognizing the application of income for advances to another charitable trust. The issue of interest under section 234B was dismissed as it is mandatory and consequential. The appeals for the assessment years 2006-07, 2007-08, and 2008-09 were partly allowed.

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