2017 (2) TMI 1242 - AT - Income Tax

Exemption u/s 11 - addition on account of hostel surplus fee receipts by treating it as business income in the hands of the assessee u/s. 11(4)/11(4A) - disallowance of depreciation - Held that - As perused the records especially the order of the Ld. CIT(A) and the order of the Hon ble High Court of Delhi in the case of Director of Income Tax (Exemption) vs. Indraprastha Cancer Society 2014 (11) TMI 733 - DELHI HIGH COURT wherein held that where a charitable institution, which has purchased capital assets and treated amount spent on purchase of capital asset as application of income, is entitled to claim depreciation on same capital asset utilized for business.- Decided in favour of assessee.

Summary

Issues:
1. Addition of hostel surplus fee receipts as business income under sections 11(4)/11(4A).
2. Disallowance of depreciation claimed by the assessee.

Analysis:
1. The assessee, a charitable society/trust, filed an appeal against the order of the CIT(A) confirming the addition of ?25,37,255 as business income on account of hostel surplus fee receipts. The assessee contended that the lower authorities erred in law and on facts by treating the receipts as business income without observing the principles of natural justice. The counsel argued that the addition was unjustified and relied on a decision of the Hon'ble High Court to support the contention that depreciation on capital assets utilized for business can be claimed by a charitable institution. The ITAT, after considering the arguments and the cited precedent, held in favor of the assessee, stating that the issue was similar to the precedent, and deleted the additions, allowing the appeal.

2. The second issue pertained to the disallowance of ?1,01,41,449 on account of depreciation claimed by the assessee. The counsel for the assessee argued that the disallowance was not justified, and the authorities failed to appreciate the law on the issue, including the principle that the view favoring the assessee should prevail where there are two views. The ITAT, after considering the arguments and the precedent cited by the assessee, concluded that the issue was squarely covered by the precedent. Following the precedent, the ITAT deleted the disallowance, allowing the appeal of the assessee.

In conclusion, the ITAT Delhi allowed the appeal of the assessee, deleting the additions made by the lower authorities regarding the hostel surplus fee receipts and the disallowance of depreciation. The decision was based on the interpretation of relevant legal provisions and the application of precedents established by the Hon'ble High Court, ensuring justice and fairness in the assessment of the charitable institution's income and expenses.