2017 (9) TMI 1031 - AT - Income Tax

Exemption u/s 11 - denial of claim because the assessee transferred the net profit for non-charitable purpose which is clear violation of section 11(1) and 11(1)(b) - Held that - We have noted that assessee is just transferred the above money to the infrastructure development fund as well as general reserve fund to be used for the purpose of the object of the trust of the assessee society and not for any other object other than the object of the society. Therefore, the observation of the Ld. assessing officer to this extent is incorrect. Further more, the assessee has merely passed the accounting entries in books of accounts transferring from the excess of income over expenditure account to these 2 different accounts. Therefore according to us there is no infirmity in the order of the Ld. CIT (A) in holding that assessee has not applied the profit for noncharitable purposes. In the result ground No. 1 of the appeal of the revenue is dismissed. Allowance of the depreciation on fixed assets the cost of which has already been allowed to the assessee as application of funds originally - Held that - Allowance of depreciation on assets on assessee trust allowed. No double deduction. See DDIT versus Indraprastha Cancer Society 2014 (11) TMI 733 - DELHI HIGH COURT Caution money unexplained - Held that - The brief facts of the case is that assessee has received ₹ 3.27 lakhs. During the year on account of caution money which are held by the Ld. assessing officer as business. As the Ld. CIT appeal has already held that assessee is not carry on any business but carrying on activities of education covered under section 2 (15) of the income tax act, which is remained unchallenged the amount of caution fee is also part of the educational activities. Therefore, we do not find any infirmity in the order of the Ld. CIT (A) in holding that caution money is for the educational activities and part of that on which exemption cannot be denied. - Decided against revenue

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Double deduction on account of capital expenditure and depreciation.
3. Treatment of caution money received by the assessee.

Comprehensive, Issue-wise Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The first issue pertains to whether the assessee, a society running an educational institute, is entitled to exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) denied this exemption, arguing that the assessee transferred net profits to non-charitable purposes, violating Sections 11(1) and 11(1)(b). However, the CIT(A) found that the funds were transferred to the infrastructure development fund and general reserve fund, which were used for the society’s charitable objectives. The Tribunal upheld the CIT(A)’s decision, stating, "assessee has not applied the profit for noncharitable purposes." Consequently, this ground of appeal by the revenue was dismissed.

2. Double Deduction on Account of Capital Expenditure and Depreciation:
The second issue concerns whether the assessee can claim depreciation on assets whose cost was already allowed as a deduction. The AO disallowed the depreciation claim, citing it as a double deduction. The CIT(A) allowed the claim, and the Tribunal referred to the Delhi High Court’s decision in DDIT vs. Indraprastha Cancer Society, which supported the assessee’s position. The Tribunal noted, "no contrary judgment has been brought to the notice of this Court," and dismissed the revenue’s appeal, thereby allowing the depreciation claim.

3. Treatment of Caution Money Received by the Assessee:
The third issue involves the treatment of caution money amounting to ?3.27 lakhs received by the assessee. The AO treated this as business income, but the CIT(A) held that the assessee was engaged in educational activities under Section 2(15) of the Income Tax Act, which was unchallenged. The Tribunal agreed with the CIT(A), stating, "caution money is for the educational activities and part of that on which exemption cannot be denied." Thus, this ground of appeal by the revenue was also dismissed.

Conclusion:
In summary, the Tribunal upheld the CIT(A)’s decision on all grounds, affirming that the assessee was entitled to exemption under Section 11, could claim depreciation on assets, and the caution money received was part of its educational activities. The revenue’s appeal was dismissed in its entirety. The order was pronounced in open court on 18/09/2017.