2017 (7) TMI 1129 - HC - Income Tax

Exemptions u/s 10(23C)(iv) - genuineness of the activities of the trust or institution and also attainment of objects of the trust - Held that - In the present case capital expenditure had not been charged to profit and loss account. The third proviso to section 10(23C) of the Act provides for applies its income or accumulates it for application wholly or exclusively to the objects for which it is established . Thus the amount was spent by the assessee towards the object. It was further recorded by the Tribunal after examining the matter that the amounts spent by the assessee were clearly the application of its income in nature which had been spent to achieve the objects of the assessee. The assessee had been granted approval under section 10(23C)(iv) of the Act and thus there was no question of disallowing of any amount of this nature. As decided in the case of Commissioner of Income-tax Versus Red Rose School 2007 (2) TMI 575 - ALLAHABAD HIGH COURT CIT has to satisfy himself about the genuineness of the activities of the trust or institution and also about the objects of the trust or the institution - on being satisfied he will either grant the certificate or would reject - thus Revenue has not been able to point out any error in the order passed by the Tribunal so no substantial question of law arises - appeal is dismissed.

Summary

Issues:
1. Appeal against order denying exemption under section 10(23C)(iv) of the Income-tax Act, 1961.
2. Disallowance of capital expenditure.
3. Validity of approval under section 10(23C)(iv).
4. Application of income towards achieving objects.

Analysis:

Issue 1:
The appellant-Revenue filed an appeal challenging the denial of exemption under section 10(23C)(iv) by the Assessing Officer. The Commissioner of Income-tax (Appeals) granted the exemption based on the approval granted by the prescribed authority for previous assessment years. The Tribunal upheld this decision, emphasizing that the expenditure by the assessee was an application of income towards achieving its objectives. The Tribunal found no grounds to disallow the claimed exemption.

Issue 2:
The Assessing Officer disallowed credit for capital expenditure, which was allowable to an exempted entity. The Commissioner of Income-tax (Appeals) allowed this claim, treating the capital expenditure as an application of income. The Tribunal concurred, stating that the expenditure was spent to achieve the assessee's objectives, and as the assessee had approval under section 10(23C)(iv), disallowing such expenditure was unwarranted.

Issue 3:
The validity of approval under section 10(23C)(iv) was a crucial aspect. The Commissioner of Income-tax (Exemptions) had granted approval for previous assessment years, and Circular No. 7 of 2010 clarified the validity of such approvals until withdrawn. The Tribunal noted the approval granted to the assessee under section 10(23C)(iv) and deemed it valid, supporting the assessee's claim for exemption.

Issue 4:
The Tribunal referenced judgments like CIT v. Red Rose School and St. Francis Convent School v. CBDT to establish the importance of assessing the genuineness of trust/institution activities and objectives. However, in the present case, the findings of fact by the Commissioner of Income-tax (Appeals) and the Tribunal supported the application of income by the assessee towards its objects. The Tribunal found no errors in the order and dismissed the appeal, as no substantial question of law arose.

In conclusion, the judgment upheld the exemption under section 10(23C)(iv) and the treatment of capital expenditure as an application of income, based on the approval granted to the assessee. The decision was supported by legal precedents emphasizing the importance of assessing trust/institution activities and objectives.