2012 (8) TMI 990 - AT - Income Tax

Exemption under section 11 - Income Tax Officer is not justified in refusing benefits under section 11 of the Act - it is not the case of the Assessing Officer that there was a bar in the trust deed or in the objects for taking unsecured loans Allowability of depreciation on assets as application of income under section 11

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Allowability of depreciation on assets.
3. Treatment of repayment of loan as application of income.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:

The Revenue challenged the exemption under Section 11, arguing that the assessee violated Section 36A(3) of the Bombay Public Trust Act by not obtaining permission from the Charity Commissioner to raise loans. The Assessing Officer (AO) denied the exemption, citing the Bombay High Court judgment in CIT v/s Pruthvi Trust, which held that unauthorized activities by a trust could lead to forfeiture of exemption.

The assessee contended that the loan was interest-free and taken to meet excess expenditure, and that the provisions of the Bombay Public Trust Act were complied with later. The Commissioner (Appeals) agreed with the assessee, distinguishing the Pruthvi Trust case as it involved unauthorized business activities, unlike the present case where the loan was for charitable purposes.

The Tribunal upheld the Commissioner (Appeals)'s decision, stating that once registration under Section 12AA is granted, the AO cannot deny exemption under Section 11 unless there is a violation of Section 13 or cancellation of registration under Section 12AA(3). The Tribunal found no bar in the trust deed against taking unsecured loans and dismissed the Revenue's appeal on this ground.

2. Allowability of Depreciation on Assets:

The AO disallowed the depreciation claim of Rs. 19,48,496 on the grounds that it amounted to double deduction, as the cost of the assets was already allowed as application of income. The AO relied on the Supreme Court judgment in Escorts Ltd. v/s Union of India.

The assessee argued that the issue was settled by the Bombay High Court in CIT v/s Institute of Banking Personnel Selection, which allowed depreciation as a legitimate deduction in computing the real income of the trust. The Commissioner (Appeals) upheld the assessee's claim, distinguishing the Escorts Ltd. case as it dealt with scientific research expenses, not applicable to Section 11.

The Tribunal affirmed the Commissioner (Appeals)'s decision, citing the binding precedent of the Bombay High Court. It also referred to the Punjab & Haryana High Court judgment in CIT v/s Market Committee, Pipli, which supported the assessee's position and held that depreciation does not amount to double deduction. The Revenue's appeal on this ground was dismissed.

3. Treatment of Repayment of Loan as Application of Income:

The AO disallowed the repayment of a loan amounting to Rs. 2,91,57,058 as application of income, arguing it resulted in double deduction. The assessee cited CBDT Circular No. 100 and judgments from various High Courts, including the Gujarat High Court in CIT v/s Shri Plot Swetamber Murti Pujak Jain Mandal, which held that repayment of loans taken for charitable purposes should be considered as application of income.

The Commissioner (Appeals) agreed with the assessee, noting that the CBDT Circular and judicial precedents supported the view that loan repayment is an application of income. The Tribunal upheld this decision, dismissing the Revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal on all grounds, affirming the Commissioner (Appeals)'s decisions. The cross objection by the assessee was dismissed as infructuous. The order was pronounced on 10th August 2012.

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