2014 (6) TMI 357 - AT - Income Tax

Claim of exemption u/s 11 of the Act Educational institution Held that - Following The ADIT(Exemptions)-III Versus M/s Vasavi Academy of Education, Hyderabad 2010 (1) TMI 1094 - ITAT HYDERABAD - if donations are received compulsorily for the admission of students, by whatever name it may be called, i.e. donation, building fund, auditorium fund, etc. over and above the prescribed fee, from the students, the assessee would not be entitled for exemption either under S.10(23C) or under S.11 of the Act also in T.M.A. Pai Foundations and others Vs. State of Karnataka & Others 2002 (10) TMI 739 - SUPREME COURT it has been held that the institution which are collecting capitation fees for admission of students over and above the fees prescribed cannot be construed as charitable/education institution - the fees collected over and above the prescribed fee for admission of the student has to be constructed as capitation fee - lower authorities have not examined the collection of capitation fee thus, the matter is required to be remitted back to the AO for fresh adjudication Decided in favour of Revenue. Claim of depreciation Held that - Following Jaipur Stock Exchange. Versus Assistant Commissioner Of Income-Tax 2006 (6) TMI 153 - ITAT JAIPUR-A - depreciation on fixed assets is an allowable deduction, which is necessary to arrive at the income available for application to charitable purpose thus, the matter is remitted back to the AO for fresh adjudication and he is directed to verify in respect of each asset on which depreciation claimed, whether the value of such asset was in fact allowed u/s 11, and if it was so allowed, the depreciation would not be allowed in respect of such asset Decided in favour of Revenue. Disallowance of provision for doubtful debts Held that - No material is placed by either party regarding the nature of the claim of the assessee - If it is a Balance Sheet item as claimed by the assessee, there cannot be any disallowance on this count - The assessment year order also silent about this, as the addition has been simply made on this account without much discussion thus, the AO is directed to make any addition, if it is only a Balance Sheet item relating to financial year 2002-03, relevant to AY 2003-04 Decided in favour of Revenue.

Summary

Issues involved:
1. Claim for exemption under S.11 of the Income Tax Act.
2. Allowability of depreciation claimed by the assessee.
3. Disallowance of provision towards doubtful debts.

Analysis:

1. Claim for exemption under S.11:
The main issue in this appeal concerns the assessee's claim for exemption under S.11 of the Income Tax Act. The Tribunal referred to previous judgments and highlighted that if donations are received compulsorily for student admissions over and above prescribed fees, the assessee may not be eligible for exemption under S.10(23C) or S.11. Citing cases like T.M.A. Pai Foundations and Islamic Academy of Education, the Tribunal emphasized that capitation fees could impact the charitable status of educational institutions. The Tribunal set aside lower authorities' orders and directed the assessing officer to investigate whether the assessee collected capitation fees and decide the issue accordingly, emphasizing that any extra money collected could affect exemption eligibility.

2. Allowability of depreciation:
Another issue involved the addition made on account of depreciation claimed by the assessee. The Assessing Officer argued that since the purchase of capital assets is considered an application of income, depreciation may not be allowable if the entire acquisition cost is written off in the first year. The Tribunal referred to various precedents, indicating that depreciation on fixed assets is essential to determine income available for charitable purposes. It directed the Assessing Officer to verify if the value of assets was previously allowed under S.11 before allowing depreciation, emphasizing that if the value was not allowed, depreciation should be permitted as per applicable rates.

3. Disallowance of provision towards doubtful debts:
The final issue pertained to the disallowance of the assessee's claim for provision towards doubtful debts. The CIT(A) noted that this was a balance sheet item not debited to the Profit and Loss Account, thus no disallowance was warranted. The Tribunal directed the Assessing Officer to reexamine the issue, emphasizing that if the provision was a balance sheet item for a previous financial year, no addition should be made for the current assessment year. The Assessing Officer was instructed to review the issue in compliance with the law and after providing a fair opportunity for the assessee to present their case.

In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes, addressing the various issues raised in the appeal and providing detailed directions for further assessment and consideration.