2019 (4) TMI 553 - AT - Income Tax

Depreciation claim of assessee trust - assessee is registered under section 12A - double deduction - HELD THAT - As decided in assessee s own case 2017 (9) TMI 965 - ITAT AHMEDABAD we find that this issue is no more res integra as hon ble jurisdictional high court s decision in CIT vs. Seth Manilal Ranchhodlal Bhavan Trust 1992 (2) TMI 51 - GUJARAT High Court . Benefit of section 11 & 12 for the rent paid to the trustees - contravention to the provisions of section 13(1)(c)(ii) - HELD THAT - As decided in assessee s own case 2017 (9) TMI 965 - ITAT AHMEDABAD CIT-A taking into account an approved valuer s report as well as all corresponding documents indicating all relevant particulars indicating the assessee to be utilizing vacant space alongwith land and building whilst concluding that the payments in question cannot be held as excessive ones. It has further come on record that the assessee had been paying similar rents in preceding assessment years as well. It places on record assessment order(s) pertaining to earlier assessment years not showing any such disallowance. The Revenue fails to rebut all these findings with the help of any cogent evidence on record. Addition on account of capital expenditure - amount utilized for Requiring Fixed assets - HELD THAT - As decided in assessee s own case 2017 (9) TMI 965 - ITAT AHMEDABAD higher authorities that the amount utilized for Requiring Fixed assets is allowable as application of income as per sec. 11(1)(a) of the Act. There are two separate issues one is pertaining to application of income and other is computation of income. In application of income of trust, amount applied for acquiring fixed assets is considered as eligible, therefore this ground of appeal is allowed and AO is directed to allow amount of investment in the fixed assets as part of application of income as per sec. 11(1)(a) - Revenue appeal dismissed.

Summary

Issues Involved:
1. Deletion of depreciation addition by the Assessing Officer (AO).
2. Deletion of development fund addition by the AO.
3. Benefit of sections 11 and 12 of the Income Tax Act for rent paid to trustees.
4. Deletion of capital expenditure addition by the AO.

Detailed Analysis:

1. Deletion of Depreciation Addition:
The first issue raised by the Revenue pertains to the deletion of the addition made by the AO on account of depreciation amounting to ?3,51,79,106. The assessee, a society engaged in educational and healthcare activities, is registered under section 12A of the Income Tax Act and claims exemptions under section 11. The AO disallowed the depreciation, arguing that the assessee was claiming double benefit by applying income for fixed assets and also claiming depreciation on those assets. The CIT(A) deleted this addition, and the tribunal upheld this decision, referencing previous decisions where similar issues were adjudicated in favor of the assessee. The tribunal noted that the legislative amendment to Section 11(6) by the Finance Act, 2014, denying such double deduction claims, is prospective and not applicable to the assessment year in question.

2. Deletion of Development Fund Addition:
The second issue involves the deletion of an addition of ?41,66,000 related to the development fund. The assessee had received a one-time development fee from students, treating it as a corpus fund under section 11(1)(d). The AO considered this receipt as voluntary contribution and treated it as income. The CIT(A) deleted this addition, and the tribunal upheld the decision, noting that the development fund was utilized for the intended purpose, as evidenced by the audited balance sheet. The tribunal referenced a co-ordinate bench decision that such development funds, forming part of student fees and utilized for their amenities, are capital receipts and not assessable as income.

3. Benefit of Sections 11 and 12 for Rent Paid to Trustees:
The third issue concerns the AO's disallowance of exemptions under sections 11 and 12 due to rent payments to trustees, which the AO argued violated section 13(1)(c)(ii). The CIT(A) deleted this addition, and the tribunal upheld the decision, noting that the AO did not provide a comparative analysis of the rent payments against market rates. The CIT(A) relied on an approved valuer's report and other documents indicating that the payments were not excessive. The tribunal also noted that similar rent payments in preceding years had not been disallowed, and there was no cogent evidence to rebut these findings.

4. Deletion of Capital Expenditure Addition:
The fourth issue involves the deletion of an addition of ?8,10,86,589 related to capital expenditure. The AO disallowed this amount, arguing that the assessee was claiming both the expenditure on fixed assets and depreciation on those assets, amounting to double deduction. The CIT(A) deleted this addition, and the tribunal upheld the decision, referencing various judicial precedents that allowed the amount spent on acquiring fixed assets as application of income under section 11(1)(a). The tribunal noted that the AO failed to distinguish between application of income and computation of income, and the legislative amendment denying such double deduction claims was not applicable to the assessment year in question.

General Grounds:
The issues raised in ground Nos. 5 and 6 were general and did not require separate adjudication, leading to their dismissal.

Conclusion:
In conclusion, the tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all counts. The order was pronounced in open court on 29/03/2019.