2012 (2) TMI 580 - AT - Income Tax

Summary

Issues Involved:
1. Status of the Assessee Institution
2. Disallowance of Telephone Expenses
3. Applicability of Section 13(1)(d)(i) and 13(1)(c)(ii)
4. Addition on Account of Interest Benefit
5. Eligibility for Deduction u/s 11(1)(a)
6. Deduction for Acquisition of Fixed Assets
7. Claim of Depreciation

Summary:

1. Status of the Assessee Institution:
The Revenue contended that the assessee institution should be assessed as an "association of persons" (AOP). However, the assessee argued that it is an "Artificial Juridical Person" as defined u/s 2(31)(vii) of the IT Act. The Tribunal upheld the assessee's status as an Artificial Juridical Person, citing past consistent assessments and judicial precedents, including the decision from the Hon'ble M.P. High Court in CIT v. Sobhagmal Mishrilal Semlavada (223 ITR 554).

2. Disallowance of Telephone Expenses:
The Revenue challenged the deletion of disallowance of telephone expenses, arguing personal benefit to the Chairperson. The Tribunal found that the expenses were incurred for the society's purposes and not for personal benefit, citing judicial precedents that reasonable compensation for services does not violate sections 11 and 12. The Tribunal affirmed the CIT(A)'s decision to delete the addition.

3. Applicability of Section 13(1)(d)(i) and 13(1)(c)(ii):
The Revenue argued that the assessee violated these sections by providing interest-free loans to another society. The Tribunal upheld the CIT(A)'s finding that both societies had similar educational objectives and no personal benefit was passed to the members. Thus, sections 13(1)(d)(i) and 13(1)(c)(ii) were not attracted, and the assessee was entitled to benefits u/s 11 and 12.

4. Addition on Account of Interest Benefit:
The Revenue's addition of notional interest on loans given to another society was contested. The Tribunal held that such notional income could not be taxed, especially when the loan was given for a charitable cause. The addition was deleted, affirming the CIT(A)'s decision.

5. Eligibility for Deduction u/s 11(1)(a):
The Tribunal found no violation of the provisions of the Act, noting an excess of expenditure over income. The CIT(A)'s decision to allow the deduction u/s 11(1)(a) was upheld.

6. Deduction for Acquisition of Fixed Assets:
The Revenue's denial of deduction for income applied towards the acquisition of fixed assets was challenged. The Tribunal cited its decision in Vichar Bharti Education Society, confirming that such investments should be treated as an application of income u/s 11. The CIT(A)'s decision to allow the deduction was affirmed.

7. Claim of Depreciation:
The Revenue argued that depreciation should not be allowed as the cost of assets was fully claimed as application of income. The Tribunal, referencing judicial decisions including CIT v. Gujrat Samaj, upheld the CIT(A)'s decision to allow the claim of depreciation.

Conclusion:
The appeals of the Revenue were dismissed, and the Cross Objections of the assessee were disposed of as infructuous. The Tribunal affirmed the CIT(A)'s decisions on all grounds, maintaining the assessee's eligibility for various deductions and confirming its status as an Artificial Juridical Person.