2015 (3) TMI 929 - AT - Income Tax

Entitlement to the benefit under section 11 - AO while completing the assessment noticed that the assessee-trust advanced interest-free loans to certain other trusts treating such advances are in violation of the provisions of section 13(1)(d) read with section 11(5) - CIT(A) allowed the benefit - Held that - Respectively following cases of Mamallan Educational Trust 2015 (3) TMI 966 - ITAT CHENNAI and Young Men's Christian Association 2015 (3) TMI 967 - ITAT CHENNAI we hold that advancement of interest free loans to other charitable institutions registered under section 12A of the Act having similar objects are not in violation of the provisions of section 13(1)(d) read with section 11(5) of the Act. In this case, admittedly the other charitable institutions to whom interest free loans were given by the assessee are registered under section 12A/12AA of the Act having similar objects. In such circumstances, there is no violation of the provisions of section 13(1)(d) read with section 11(5) of the Act in the case of the assessee by advancement of such interest free loans to such charitable institutions, we sustain the order of the Commissioner of Income-tax (Appeals) on this issue. - Decided against revenue. Disallowance of depreciation - Held that - As relying on ITO v. Coimbatore Stock Exchange Ltd. 2013 (6) TMI 903 - ITAT CHENNAI we allow the grounds of appeal of the assessee on this issue in allowing the claim of depreciation as a part of utilisation of the assessee. - Decided against revenue. Corpus donations - whether the corpus donations shall not be included in the total income as per the provisions of section 11(1)(d) of the Act? - Held that - The Commissioner of Income- tax (Appeals) was of the view that since ₹ 82,70,000 out of corpus donations there is no specific directions/purposes for which it has to be used he has construed that it should form part of income though they are corpus donations. This finding of the Commissioner of Income-tax (Appeals) appears to be not correct. Section 11(1)(d) stipulates that voluntary contributions made with a specific direction that it shall form part of corpus of trust should not be treated as income of the previous year. The provision did not say that the purpose for which such donation is given should be specified. The requirement of the section will be satisfied once the donation is specifically for the corpus fund. In the circumstances, we hold that the entire corpus donations of ₹ 1,77,70,000 received by the assessee shall not form part of the income of the assessee as they are given towards the corpus fund. - Decided in favour of assessee.

Issues Involved:
1. Entitlement to benefit under section 11 of the Income-tax Act.
2. Disallowance of depreciation while working out the application of income.
3. Inclusion of corpus donations in the total income.

Issue 1: Entitlement to Benefit Under Section 11 of the Income-tax Act
The primary issue in the Revenue's appeal was whether the assessee was entitled to the benefit under section 11 of the Income-tax Act. The Assessing Officer denied this benefit, arguing that the assessee-trust advanced interest-free loans to other trusts, which violated section 13(1)(d) read with section 11(5) of the Act. However, the Commissioner of Income-tax (Appeals) held that these loans were given to charitable organizations registered under section 12A/12AA, and thus, were outside the purview of section 13(1)(c) and 13(1)(d). The Tribunal supported this view, citing similar decisions in cases like Mamallan Educational Trust and Young Men's Christian Association, and the Delhi High Court's decision in DIT (Exemption) v. Acme Educational Society. The Tribunal concluded that advancing interest-free loans to other charitable institutions registered under section 12A with similar objectives does not violate section 13(1)(d) read with section 11(5), and thus, upheld the Commissioner of Income-tax (Appeals)'s order.

Issue 2: Disallowance of Depreciation
The assessee's appeal raised the issue of whether depreciation should be disallowed while computing the application of income under section 11(1)(a). The Tribunal referred to its consistent stance, as seen in ITO v. Coimbatore Stock Exchange Ltd., that depreciation can be claimed as an application of income. The Tribunal cited various precedents, including decisions by the Bombay High Court and the Karnataka High Court, which supported the allowance of depreciation for charitable trusts. The Tribunal concluded that the Commissioner of Income-tax (Appeals) was justified in allowing the claim of depreciation as part of the application of income, and thus, allowed the assessee's appeal on this issue.

Issue 3: Inclusion of Corpus Donations in Total Income
The final issue was whether the corpus donations received by the assessee should be included in the total income. The Assessing Officer included Rs. 1,77,70,000 as income, while the Commissioner of Income-tax (Appeals) excluded only Rs. 95,00,000, considering it as corpus donations for a specific purpose. The Tribunal clarified that under section 11(1)(d), voluntary contributions with a specific direction to form part of the corpus should not be included in the total income. The Tribunal found that the Commissioner of Income-tax (Appeals) erred in including Rs. 82,70,000 as income due to the lack of specific directions for its use. The Tribunal held that the entire corpus donation of Rs. 1,77,70,000 should not form part of the income, thereby allowing the assessee's appeal on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, holding that the assessee was entitled to the benefit under section 11, could claim depreciation as an application of income, and that the entire corpus donations received should not be included in the total income.

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