2012 (10) TMI 433 - AT - Income Tax

Eligibility for benefits of Section 11 - Appeal is made by Revenue against the order of CIT(A) - Donations,Auditorium fee and Building fund - Held that - Assessee has not charged any money by whatever name it is called, i.e. donation, building fund, auditorium fee etc, over and above the prescribed fee for the admission of students, the assessee would be entitled for exemption under S.11, even though the notification under S.10(23C)(vi) of the Act have not been received by it. Claim of Depreciation - Held that - As purchase of capital asset is used to promote the objective of the trust and not for any Business Activity is allowed as application of income, depreciation is not allowable on capital asset. Entire cost of acquisition is treated as application of income and is either written off in the first year or carry-forward to subsequent years itself - issue raised by the Revenue is set aside to the file of the Assessing Officer for fresh consideration after giving reasonable opportunity of hearing to the assessee. Disallowance u/s 13(1)(c) of the Act - Held that the payment of Rs.3,60,000/- per annum as honorarium to the Secretary of society, which was not proved to be in excess of the normal and prevalent remuneration being paid for an identical services contemporaneously, cannot be considered as a benefit to the interested person as would attract the provisions of section 13(1)(c) and debar the appellant from claiming exemption u/s. 11. The assessing officer is therefore directed not to deny exemption u/s. 11 on this ground alone.

Issues Involved:
1. Eligibility for benefits under Section 11 of the Income Tax Act as an alternative to Section 10(23C)(vi).
2. Allowance of depreciation on capital assets.
3. Disallowance under Section 13(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Eligibility for Benefits Under Section 11 as an Alternative to Section 10(23C)(vi):

The first issue pertains to the conclusion of the Commissioner of Income-tax (Appeals) [CIT(A)] that the assessee is eligible for benefits under Section 11 of the Income Tax Act as an alternative to Section 10(23C)(vi). The Revenue contended that obtaining approval from the prescribed authority is mandatory under Section 10(23C)(vi) and that the CIT(A) failed to appreciate that Section 10(23C) is not a replacement of Sections 10(22) and 10(22A).

The Tribunal referenced several decisions, including the case of Dy. Director of Income-tax (Exemption) Hyderabad vs. Exhibition Society, Hyderabad, which directed the assessing officer to verify if any donations, capitation fees, or other charges over and above the prescribed fee were collected by the assessee. If no such charges were collected, the assessee would be entitled to exemption under Section 11, even without the notification under Section 10(23C)(vi).

The Tribunal rejected the assessee's argument that the matter should not be set aside for verification, emphasizing that the Tribunal is empowered under Section 254(1) to pass orders as it deems fit. The Tribunal concluded that the matter should be remitted to the assessing officer for verification to ensure compliance with the prerequisites for exemption under Section 11.

2. Allowance of Depreciation on Capital Assets:

The second issue involves the addition made on account of depreciation claimed by the assessee. The Assessing Officer disallowed the depreciation, arguing that since the purchase of capital assets is treated as an application of income, depreciation is not allowable. The CIT(A), however, allowed the claim.

The Tribunal cited several precedents, including the case of Jaipur Stock Exchange and Mahila Sidh Nirman Yojna, which held that depreciation on fixed assets is necessary to arrive at the income available for application to charitable purposes. The Tribunal directed the Assessing Officer to verify whether the value of the assets was allowed under Section 11. If so, depreciation would not be allowed; otherwise, it should be allowed as per applicable rates.

3. Disallowance Under Section 13(1)(c):

The third issue relates to the disallowance made under Section 13(1)(c) concerning the honorarium paid to the Secretary of the assessee society. The Revenue argued that the payment was excessive and constituted a "benefit" to an interested person, thus attracting the provisions of Section 13(1)(c).

The CIT(A) concluded that the honorarium of Rs. 3,60,000 per annum was not excessive, considering the Secretary's qualifications, experience, and commitment. The Tribunal upheld this conclusion, noting that the Revenue failed to provide evidence that the payment was unreasonable or excessive. The Tribunal found no infirmity in the CIT(A)'s decision and dismissed the Revenue's ground on this issue.

Conclusion:

The Tribunal partly allowed the Revenue's appeal for statistical purposes, remitting the matter to the assessing officer for verification on the first two issues and upholding the CIT(A)'s decision on the third issue.

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