2012 (11) TMI 100 - AT - Income Tax

Expenditure for development of surrounding area of the temple - exemption u/s. 11 of the Income Tax Act Held that - assessee had shown work in progress of temple at Rs.34,18,480/- towards expenditure of objects of Trust - objects of the Trust are to spread or promote education or learning in all its branches in such a manner as the Trust may think fit - if such Trust is established only for the benefit of the particular religious community or cast, then the provision of Sec. 11 would not be applicable. But the position would be different in a case of Trust or a Institution for religious purpose wherein certain activity termed as charitable activity are also carried out for the benefit of religious community, or caste, clause (b) would have no application in such a case - CIT(A) has confined the exemption excluding the proportionate consultancy charges to the actual cost of the temple - no dispute that surrounding area of the temple is being used by students of all the community and caste for their activities like meditation, yoga lessons, jogging, physical exercise etc - Decided in favor of assessee. Addition on account of retention money - assessee submitted that retention money was the deduction from the interim payment made to a contractor during the pursuance of the contract - amount was deducted as a security for rectification of all the defects pointed out in the course of construction - terms of payment relating to retention money allow the assessee to retain certain amount of payment till a future date, but in no way mitigate the liability of the assessee which arises as soon as the billed amount is admitted by it - in favour of the assessee

Summary

Issues:
1. Whether the expenditure for the development of the surrounding area of the temple qualifies for exemption under section 11 of the Income Tax Act.
2. Whether the addition of Rs. 70,97,365 made on account of retention money, which was not payable during the previous year, is justified.

Issue 1 - Expenditure for Temple Area Development:
The first appellate order directing the Assessing Officer (AO) to allow the expenditure for the temple's surrounding area development under section 11 was challenged by the revenue. The contention was that the expenditure was for the Trust's objects and should not qualify for exemption. The AO disallowed the amount spent on temple construction, leading to an addition. The Commissioner of Income Tax (Appeals) (CIT(A)) deleted this addition, stating that the temple's surrounding area was used for student activities. The CIT(A) reasoned that the expenditure was in line with the Trust's objectives of promoting education. The Tribunal upheld the CIT(A)'s decision, emphasizing that the temple's area was utilized by students from various communities for beneficial activities. The Tribunal found no fault in the CIT(A)'s order and upheld it, citing relevant case law.

Issue 2 - Addition of Retention Money:
The AO added Rs. 70,97,365 as retention money not payable in the previous year. The CIT(A) disagreed, stating that the amount was reflected in the contractor's bill and accepted by the assessee, proving its application for Trust purposes. The Tribunal agreed with the CIT(A), noting that the contractors billed only the payable amount after retention. The Tribunal upheld the CIT(A)'s decision, emphasizing that the acceptance of the bill indicated the income's application for Trust purposes. The terms of payment regarding retention money did not absolve the assessee's liability. Consequently, the Tribunal rejected the grounds related to this issue, deciding in favor of the assessee.

In conclusion, the Tribunal dismissed the appeal, upholding the CIT(A)'s orders on both issues. The judgment was pronounced on 24th May 2012 by the Appellate Tribunal ITAT, Pune, with detailed reasoning provided for each issue discussed.