2016 (5) TMI 168 - AT - Income Tax

Exemption under Section 11 - disallowance of claim as the assessee is hit by the proviso to Section 2(15) rws 13(8) - Held that - We find that there is no change in the facts for the year under consideration as well as it was for the Assessment Year 2009-10. Accordingly, we hold that the provisions of proviso to Section 2(15) of the Act are not applicable in the case of the assessee. Though the assessee has contended that the surplus is arising only from the interest income and other income in the nature of penalty and other charges and not from the activity of acquisition of land and providing the infrastructure facilities for industrial development however, since the authorities below have not examined the issue from the point of the application of income in terms of Section 11 of the Act. Therefore, we direct the Assessing Officer to verify whether the assessee satisfies the provisions of section 11 so far as the application of income is concerned for availing the exemption under Section 11 of the Act. Addition on account of lump-sum lease charges received - Held that - Assessing Officer did not accept the contention of the assessee and observed that the lease is for a long period which amounts to transfer of the land to the allottee and therefore the entire lump-sum lease rental received by the assessee during the year was considered as revenue receipt of the assessee. It is pertinent to note that the land allotted on lease is not a outright sale giving absolute title and ownership to the allottee. Only when a conveyance deed is executed on payment of unearned premium and until and unless the land is converted into freehold by executing a conveyance deed after payment of unearned premium the allottee gets absolute legal title of ownership of the land. The lease transaction does not give an absolute ownership or title as it can be cancelled and re-entered. Further the assessee has been consistently following the accounting policy of recognizing the lease rental proportionate to the lease period and therefore the consistent accounting method followed by the assessee for a considerable long time cannot be disturbed when there is nothing on record to suggest that the accounting method followed by the assessee resulted avoidance of tax. Accordingly, we set aside the orders of the authorities below qua this issue and delete the additions made by the Assessing Officer. - Decided in favour of assessee Disallowance of depreciation to assessee trust - Held that - Depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. See DCIT Vs. Jyothi Charitable Trust 2015 (7) TMI 859 - ITAT BANGALORE - Decided in favour of assessee

Issues Involved:

1. Jurisdiction and authority of the Deputy Director of Income Tax (Exemptions), Circle 17(1), Bangalore.
2. Status of the appellant as 'Association of Persons'.
3. Eligibility for exemption under Section 11 of the Income Tax Act.
4. Addition of ?1,74,00,000 based on the audit report.
5. Levy of interest under Sections 234A and 234B.
6. Revenue's grounds regarding depreciation on assets.

Issue-wise Detailed Analysis:

1. Jurisdiction and Authority of Deputy Director of Income Tax (Exemptions), Circle 17(1), Bangalore:

The appellant challenged the jurisdiction of the Deputy Director of Income Tax (Exemptions), Circle 17(1), Bangalore, arguing that the order passed under Section 143(3) after the withdrawal of registration under Section 12A was without jurisdiction and bad in law. The Tribunal found that the registration under Section 12A was restored by the jurisdictional High Court, and the Deputy Director had the authority to pass the order.

2. Status of the Appellant as 'Association of Persons':

The appellant contended that the assessment made in the status of 'Association of Persons' was incorrect. The Tribunal did not specifically address this issue in the detailed analysis, focusing instead on the exemption under Section 11 and related matters.

3. Eligibility for Exemption under Section 11 of the Income Tax Act:

The primary issue was whether the appellant was eligible for exemption under Section 11, given the proviso to Section 2(15) read with Section 13(8). The Tribunal noted that the appellant was constituted under the Karnataka Industrial Area Development Act, 1966, for industrial development and infrastructure. The Tribunal referred to its previous decision for the Assessment Year 2009-10, where it was held that the proviso to Section 2(15) was not applicable to the appellant, as the activities were charitable in nature and not driven by profit motive. The Tribunal directed the Assessing Officer to verify the application of income under Section 11 for the year under consideration.

4. Addition of ?1,74,00,000 Based on the Audit Report:

The Assessing Officer added ?1.74 Crores based on the audit report, which pointed out the understatement of income. The appellant argued that the amount was already included in the rent receipts and accounted for proportionately over the lease period. The Tribunal found that the appellant's consistent accounting method of recognizing lease rentals proportionately should not be disturbed and deleted the addition.

5. Levy of Interest under Sections 234A and 234B:

The Tribunal noted that the levy of interest under Sections 234A and 234B is consequential and mandatory, and did not provide detailed analysis on this issue.

6. Revenue's Grounds Regarding Depreciation on Assets:

The Revenue argued that allowing depreciation on assets, the cost of which was already claimed as application of income, amounted to double deduction. The Tribunal referred to various judgments, including the decision of the co-ordinate bench in the case of DCIT Vs. Jyothi Charitable Trust, which allowed depreciation as it does not amount to double deduction. The Tribunal upheld the CIT (Appeals) decision allowing depreciation.

Conclusion:

The Tribunal partly allowed the appeal of the assessee, holding that the proviso to Section 2(15) was not applicable, and deleted the addition of ?1.74 Crores. The appeal of the Revenue regarding depreciation was dismissed, affirming that depreciation does not amount to double deduction. The levy of interest under Sections 234A and 234B was upheld as consequential and mandatory.

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