9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (2) TMI 23 - AT - Income TaxExemption u/s 11 - denial of exemption as funds of the society have been diverted for the personal benefit of the specified persons - assessee made payment to Rambagh Polo Club for corporate membership which has nothing to do with the objects of the society - HELD THAT - CIT(A) had rightly upheld the decision of the AO by holding that taking a corporate membership in a private club cannot be linked to the objects of the trust /society in any manner. The trust exists for some other purposes and gets benefits under the tax laws for genuine pursuit of its objects towards good of the society and not for the business like expansion through entertainment for guests in private club and networking etc. for which normally businesses use such memberships. We also found support from the decision of Hon'ble Supreme Court in the case of CIT vs United Glass Manufacturing Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT wherein it was held that club membership fees is purely a business expenses and allowable u/s 37 of the I.T. Act which applies to deductions allowable against business profits. There is no such provision in trust cases for such expenses under the Governing Sections 11 to 13 of the Act . Therefore, the ld. CIT(A) had rightly upheld the decision of the AO to disallow the expenses against membership charges to Rambagh Gold Club. The provision of Section 164 specifically deals with the charge of tax where the shares of the beneficiary is unknown. Section 164(2) deals with charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or religious purposes. From the plain reading of this proviso, it is evident that where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of the Section 13(1)( c) or 13(1)(d) then tax is chargeable on the relevant income or part of the relevant income at the maximum marginal rate (MMR). Thus in that eventuality, even in case there is violation of Sec 13, the entire income of the trust is not liable to be taxed at MMR but only the relevant part of the income which violates sec 13 attracts the MMR. Therefore, we find reason to interfere in the order of the ld. CIT(A). Hence, the ground Nos. 1 and 2 of the Revenue are dismissed. Disallowances of depreciation - HELD THAT - Although it was submitted by the ld.AR of the assessee that it had not claimed cost of fixed asset as application of income as there was very meager surplus in earlier years and it only claimed depreciation of fixed asset. However, this fact has not been verified by the AO as to whether the assessee has claimed the cost of fixed assets as application of income in the previous year or not. Therefore, in our view and in the interest of equity and justice, this issue is restored back to the file of the AO with the direction to verify the facts of the earlier years as to whether the assessee had claimed the cost of fixed assets as application of income or has claimed depreciation and then pass the afresh assessment order on the issue in question by providing reasonable opportunity of being heard to the assessee. Thus Ground No. 3 of the Revenue is allowed for Statistical purposes. Addition u/s 40A(3) - HELD THAT - We noticed that the payment was made for acquiring the fixed assets and it was also made to labour contractors who had to make payments to the labourers. All the payments were capitalized in the books of account and no expenditure was claimed as Revenue expenditure. When no expenditure was claimed in the profit and loss account then the provision of section 40A(3) cannot be applied. In this respect, we also rely on the CBDT Circular No.34 dated 5-03-1970 wherein it has clearly been stated that section 40A(3) applies only to Revenue expenditure and not to capital expenditure. Similar disallowance was mad by the AO in Assessment Year 2014-15 which was deleted by the ld. CIT(A) vide order dated 28-12- 2018 against which the Revenue has not filed any further appeal before ITAT. In this case, no new facts or circumstances have been brought before us by the Revenue in order to controvert or rebut the findings so recorded by the ld. CIT(A). Therefore, we find no reason to interfere with the order of the ld. CIT(A) on this issue. Hence, we dismiss the Ground No. 4 of the Revenue by upholding the order of the ld. CIT(A).
Issues Involved:
1. Exemption under Section 11 of the Income Tax Act, 1961. 2. Disallowance of depreciation. 3. Addition under Section 40A(3) of the Income Tax Act, 1961. Detailed Analysis: 1. Exemption under Section 11 of the Income Tax Act, 1961: The Revenue challenged the CIT(A)'s decision to allow exemption under Section 11, arguing that payments made to Rambagh Polo Club for corporate membership were not aligned with the society's objectives and were for personal benefit. The CIT(A) had allowed the exemption, holding that only the income portion violating provisions should be taxed at the Maximum Marginal Rate (MMR). The Tribunal upheld the CIT(A)'s decision, citing legal precedents that only the income violating Section 13 should be taxed at MMR, not the entire income. The Tribunal found no reason to interfere with the CIT(A)'s order, thus dismissing the Revenue's grounds. 2. Disallowance of Depreciation: The Revenue contested the CIT(A)'s deletion of disallowance of depreciation amounting to ?1,23,30,183/-, arguing that the assets had already been claimed as application of income in earlier years, and the amendment in Section 11(6) effective from AY 2015-16 disallowed such claims. The CIT(A) had relied on the Supreme Court judgment in CIT vs Rajasthan and Gujarati Charitable Foundation, which allowed depreciation claims despite the amendment. However, the Tribunal restored the issue to the AO for verification of whether the cost of fixed assets had been claimed as application of income in previous years, directing a fresh assessment. 3. Addition under Section 40A(3) of the Income Tax Act, 1961: The Revenue argued that the CIT(A) erred in deleting the addition of ?89,37,519/- under Section 40A(3) for cash payments made to contractors. The CIT(A) had observed that the payments were for capital expenditure, not revenue, and thus Section 40A(3) did not apply, citing CBDT Circular No.34. The Tribunal upheld the CIT(A)'s decision, noting that similar disallowances in previous years had not been contested further by the Revenue and that no new facts were presented to challenge the CIT(A)'s findings. Conclusion: The Tribunal dismissed the Revenue's appeal regarding the exemption under Section 11 and the addition under Section 40A(3), while remanding the issue of depreciation disallowance back to the AO for verification. The appeal was partly allowed for statistical purposes, with no order as to costs.
|
