2016 (8) TMI 76 - AT - Income Tax

Exemption u/s 11 and u/s 10(23C) (vi) - Held that - Notwithstanding the breach/es if any by the assessee as alleged by the Revenue its entire income would continue to be exempt u/s.10(23C)(vi) of the Act for the current year. The ld. DR on being queried thus in the matter during the hearing by the Bench could not furnish any satisfactory answer. There is thus in our view no merit in bringing the income of the assessee partially to tax by denying/disallowing exemption u/s. 10(23C)(vi) qua specific expenses viz. penalty etc. as done by the Revenue. Coming to the Revenue s appeal there can equally be no question of allowance of capital expenditure in determining the assessee s income under the Act by considering it as applied for charitable purposes to that extent. This is as the assessee s entire income being exempt u/s. 10(23C)(vi) (save to the extent of 4, 83, 910/- derived as rental income by letting out of hall for marriage purposes) does not fall to form part of the total income as defined u/s. 2(45) of the Act. There is accordingly no question of considering its application towards charitable purposes and allowing deduction in its respect on that basis. To this extent we are in agreement with the Revenue s plea which is against the allowance of both the capital expenditure as well as the depreciation thereon in computing the assessee s income under the Act. The assessee s income would thus stand to be arrived at on the basis of principles of commercial accountancy (as is the case for a charitable institution registered u/s. 12A). The issue we may though clarify becomes academic in view of the assessee s entire income (other than the rental income supra) being exempt u/s. 10(23C)(vi). There is under the circumstances no scope for application of the decision in CIT vs. Institute of Ranking Personnel Selection 2003 (7) TMI 52 - BOMBAY High Court . The non-exempt income would stand to be brought to tax. We decide accordingly.

Summary

Issues:
1. Allowance of exemption u/s 11 and u/s 10(23C) (vi) of the Income Tax Act.
2. Disallowance of exemption in respect of payment of penalty to AICTE and rental income.
3. Disallowance of capital expenditure and depreciation.
4. Confirmation of disallowance of expenses incurred on Amrut Mahotsav.

Analysis:

Issue 1: Allowance of exemption u/s 11 and u/s 10(23C) (vi) of the Income Tax Act:
The appeal by the Revenue challenged the order of the CIT (A) in allowing exemption u/s 11 and u/s 10(23C) (vi) of the Act. The assessee, a Public Charitable Trust engaged in educational activities, was granted registration u/s 10(23C) (vi) with retrospective effect for the assessment year 2008-09. The CIT (A) allowed exemption for educational fee received, hall rental income, and deleted disallowance of capital expenditure and depreciation. The Tribunal found that the assessee's income would continue to be exempt u/s 10(23C) (vi) despite alleged breaches, and there was no merit in partially taxing the income by denying exemption for specific expenses like penalty.

Issue 2: Disallowance of exemption in respect of payment of penalty to AICTE and rental income:
The Revenue challenged the confirmation of disallowance of rental income and penalty levied by AICTE. The AO had disallowed the penalty amount of ?63 lakhs and rental income, but the CIT (A) confirmed the disallowance of expenses incurred on Amrut Mahotsav. The Tribunal held that the entire income of the assessee, except for rental income, was exempt u/s 10(23C) (vi), and there was no scope for disallowing the exemption for specific expenses like penalty.

Issue 3: Disallowance of capital expenditure and depreciation:
The Revenue's appeal also involved the disallowance of capital expenditure and depreciation. The Tribunal agreed with the Revenue that there was no question of allowing capital expenditure or depreciation as the entire income of the assessee was exempt u/s 10(23C) (vi). The Tribunal decided that the income would be computed based on commercial accountancy principles, and the disallowance of capital expenditure and depreciation was upheld.

Issue 4: Confirmation of disallowance of expenses incurred on Amrut Mahotsav:
The CIT (A) confirmed the disallowance of expenses incurred on Amrut Mahotsav. The Tribunal agreed with this decision, stating that the disallowance was justified as the expenses were not considered for charitable purposes and did not qualify for exemption under the Act.

In conclusion, the Tribunal allowed the assessee's appeal and cross-objection, while partly allowing the Revenue's appeal. The order pronounced on 29/07/2016 upheld the exemption u/s 10(23C) (vi) for the assessee's income, except for specific instances where disallowance was confirmed.