2015 (11) TMI 857 - AT - Income Tax

Eligibility for making claim under Section 11 - payment of advance to the trustee, which is in excess of the market value of the land, would make the assessee ineligible for making claim under Section 11 - according to the Ld. D.R., there was a clear violation of provisions of Section 13(1)(c) - CIT(A) allowed the claim - Held that - Held that - The assessee has received ₹ 4,06,92,078/- being the interest from the Managing Trustee, in addition to the principal amount after cancellation of agreement. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that after cancellation of agreement, the assessee-Trust was returned and compensated by way of interest. Therefore, the transaction between the assessee-Trust and the Managing Trustee cannot be construed as without any adequate security or without any adequate interest. Therefore, this Tribunal is of the considered opinion that the money was in fact advanced in pursuance of the agreement for sale. After cancellation of agreement, the money was returned in its entirety. Since there was delay in repayment of money received as advance for sale of the land, the Managing Trustee has also paid interest to the extent of ₹ 4,06,92,078/-. Therefore, at any stretch of imagination, it cannot be said that the money was diverted for interest of the Managing Trustee. Therefore, this Tribunal is of the considered opinion that there is no violation of Section 13 of the Act. Coming to the receipt of donation from Sri Balaji Charitable and Educational Trust, what was received by the assessee is capital asset by way of three institutions and its infrastructures. It is nobody s case that the assessee s funds were diverted to any other Trust. When the assessee received three institutions for carrying out its charitable activity, it cannot be said that there was a violation of any other provisions of Income-tax Act. In fact, the Assessing Officer himself disallowed the claim of the assessee on the ground that the money was advanced to the Managing Trustee. Since this Tribunal found that there was no violation of Section 13(1)(c) of the Act in respect of the agreement entered between the assessee-Trust and the Managing Trustee for purchase of property and it is not in dispute that the Managing Trustee returned entire amount with interest of ₹ 4,06,92,078/-, the assessee is entitled for exemption under Section 11 of the Act. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, confirmed. - Decided in favour of assessee. Entitlement to depreciation - Held that - Admittedly, the assessee-Trust is registered as charitable institution and it is claiming exemption under Section 11 of the Act. The claim of the assessee under Section 11 of the Act is allowed by the CIT(Appeals) which was confirmed by this Tribunal in the earlier part of this order. It is not the case of the assessee that it is not doing any business. Therefore, this Tribunal is of the considered opinion that the assessee is not entitled for any depreciation under Section 32 of the Act. See Tamil Nadu Cricket Association v. DDIT(Exemptions) 2015 (8) TMI 761 - ITAT CHENNAI wherein held as when the written down value of the asset becomes NIL since the entire cost was allowed as application of income under Section 11 of the Act, this Tribunal is of the considered opinion that there cannot be any further claim for deduction under Section 32 of the Act. - Decided against assessee.

Summary

Issues Involved:
1. Violation of Section 13(1)(c) r.w.s. 13(3) of the Income-tax Act, 1961.
2. Eligibility for exemption under Section 11 of the Income-tax Act, 1961.
3. Receipt of donations from Sri Balaji Charitable and Educational Trust.
4. Claim for depreciation under Section 32 of the Income-tax Act, 1961.

Detailed Analysis:

1. Violation of Section 13(1)(c) r.w.s. 13(3) of the Income-tax Act, 1961:
The Revenue contended that the assessee-Trust, registered under Section 12AA, violated Section 13(1)(c) r.w.s. 13(3) by advancing a loan of Rs. 15,76,00,000 to its Managing Trustee, which was deemed as a misuse of trust funds. The Assessing Officer noted that the loan was given without adequate security, making the Trust ineligible for exemption under Section 11. The CIT(Appeals), however, allowed the assessee's claim on the ground that the loan was for purchasing land to establish a medical college, and the Managing Trustee repaid the amount with interest, thus not violating Section 13(1)(c).

2. Eligibility for exemption under Section 11 of the Income-tax Act, 1961:
The Tribunal upheld the CIT(Appeals)' decision, confirming that the transaction was genuine and the money advanced was repaid with interest. The Tribunal emphasized that the market value of land is subjective and depends on various factors. Since the Managing Trustee repaid the loan with interest, the transaction did not constitute a diversion of funds. Therefore, the Trust did not violate Section 13(1)(c), and the exemption under Section 11 was rightly allowed.

3. Receipt of donations from Sri Balaji Charitable and Educational Trust:
The Revenue argued that the corpus of Rs. 37,83,27,838 received as donations from Sri Balaji Charitable and Educational Trust should be treated as income due to the violation of Section 13(1)(c). The Tribunal, however, found no evidence of fund diversion. The donation was in the form of capital assets (three institutions) for charitable purposes, and since there was no misuse of funds, the exemption under Section 11 was valid.

4. Claim for depreciation under Section 32 of the Income-tax Act, 1961:
The assessee-Trust claimed depreciation of Rs. 5,25,30,554. The Tribunal denied this claim, stating that as a charitable institution claiming exemption under Section 11, the Trust is not eligible for depreciation under Section 32. The Tribunal referenced a similar case (Tamil Nadu Cricket Association v. DDIT(Exemptions)) and reiterated that once the cost of capital expenditure is claimed as an exemption under Section 11, the written down value of the asset becomes NIL, and no further depreciation can be claimed.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, confirming the CIT(Appeals)' decision to allow the exemption under Section 11 but denying the claim for depreciation under Section 32. The order was pronounced on 28th October 2015 at Chennai.