2013 (12) TMI 1542 - AT - Income Tax

Exemption under Section 11 - Held that - The assessee-trust has not proved its case for seeking exemption under Section 11 of the Act by producing any details of expenditure incurred by the assessee-trust on various activities undertaken to achieve its objects before the Revenue Authorities as well as before us till the closing of hearing of the present appeals. Therefore, we hold that the learned First Appellate Authority has wrongly deleted the addition made by the Assessing Officer in the assessment order dated 30.12.2008 by passing the impugned order, which deserves to be cancelled and accordingly we cancel the impugned order dated 25.09.2009 passed by learned CIT(A), Jalandhar, by holding that the construction of building of the medical institute for a long period, leaving behind the main object of the assesseetrust, does not qualify the assessee-trust for exemption under Section 11 of the Act and the same has rightly been brought to tax by the Assessing Officer, as per the provisions of the Act by making the additions of ₹ 1,72,80,372/- on account of interest income; ₹ 36,282/- for other receipts; and ₹ 25 crore as capital receipts for the year under consideration. - Decided in favour of revenue.

Issues Involved:
1. Sustaining the addition of Rs. 6.50 crores out of the total addition of Rs. 25 crores made by the Assessing Officer (A.O.) on account of capital receipts.
2. Treating Rs. 10 crores received by the assessee as assistance from the Central Government as income.
3. Sustaining the disallowance of Rs. 1,004,252 out of Rs. 1,098,101 on account of running of vehicles.
4. Deleting the addition of Rs. 1,72,80,372 made by disallowing interest claimed exempt.
5. Deleting the addition of Rs. 36,000 made by disallowing other receipts claimed exempt.
6. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.

Detailed Analysis:

1. Sustaining the addition of Rs. 6.50 crores out of Rs. 25 crores on account of capital receipts:
The CIT(A) sustained the addition of Rs. 6.50 crores, which was invested with Capital Local Area Bank, a non-scheduled bank, thereby infringing Section 13(1)(d). The assessee argued that the investment was made under a bona fide belief that the bank was scheduled and the funds were part of a grant and loan from the government, not the income of the trust. The ITAT, however, found that the investment violated the conditions for exemption under Section 11 and upheld the addition.

2. Treating Rs. 10 crores received as assistance from the Central Government as income:
The CIT(A) treated Rs. 10 crores out of Rs. 25 crores received by the assessee as income, considering it a loan granted by the Central Government. The assessee contended that the amount was a tied-up grant and should not be treated as income. The ITAT upheld the CIT(A)'s decision, noting the de-facto treatment of the grants by the assessee as non-returnable, confirmed by the State Government.

3. Sustaining the disallowance of Rs. 1,004,252 out of Rs. 1,098,101 on account of running of vehicles:
The CIT(A) sustained the disallowance of Rs. 1,004,252, considering the expenditure on vehicles used by the Chairman and Vice Chairman excessive compared to the Director's car. The ITAT found the disallowance justified as the assessee failed to maintain logbooks or provide evidence that the expenses were for charitable purposes.

4. Deleting the addition of Rs. 1,72,80,372 made by disallowing interest claimed exempt:
The CIT(A) deleted the addition of Rs. 1,72,80,372, holding that the interest income was applied for charitable purposes. The ITAT reversed this decision, noting that the assessee had not applied any part of the income for charitable purposes and thus did not deserve exemption under Section 11.

5. Deleting the addition of Rs. 36,000 made by disallowing other receipts claimed exempt:
The CIT(A) deleted the addition of Rs. 36,000, considering it part of the income applied for charitable purposes. The ITAT reversed this decision, finding that the assessee failed to demonstrate the application of income for charitable purposes.

6. Eligibility for exemption under Section 11 of the Income Tax Act, 1961:
The ITAT held that the registration under Section 12AA does not preclude the Assessing Officer from examining the application of income for charitable purposes. The ITAT found that the assessee had not applied any part of its income for charitable purposes and had primarily focused on constructing a building without starting any charitable activities. Thus, the ITAT upheld the Assessing Officer's decision to deny exemption under Section 11.

Conclusion:
The ITAT dismissed the assessee's appeal and allowed the Revenue's appeal, upholding the additions made by the Assessing Officer and denying the exemption under Section 11 of the Income Tax Act, 1961. The ITAT emphasized that the registration under Section 12AA does not automatically entitle the assessee to exemption, and the application of income for charitable purposes must be demonstrated.

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