2017 (9) TMI 965 - AT - Income Tax

Exemption u/s 11 - disallowing /adding rent (s) paid to trustees - excessive payments to specified persons u/s 13(3) - Held that - The CIT(A) has taken 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. - No disallowance. Corpus fund addition in assessee s income - Held that - Such a corpus is not assessable as taxable income as per case law DIT(E) vs. N. H. Kapadia Education Trust (2012 (5) TMI 236 - ITAT AHMEDABAD) and ITO vs. Sardar Vallabhbhai Education Society (2012 (10) TMI 283 - ITAT AHMEDABAD ). The Revenue is unable to point out any distinction on facts or law therein. We therefore decline the instant substantive ground as well. Treating development fund as assessee s taxable income - Held that - It is no more in dispute that this assessee is a registered trust(supra). Learned counsel for the assessee takes us to pages 16 to 18 of the paper book indicating it to have utilized the impugned development fund in relevant previous year. A co- ordinate bench in ITO vs. J. D. Tytler School Society (2014 (1) TMI 974 - ITAT DELHI) holds that such a development fund forming part of student fee as utilized in their amenities and welfare is in the nature of capital receipt not assesseable as income. We therefore find no reason to upset CIT(A) s above extracted conclusion. This fifth substantive ground is accordingly rejected. Expenditure on donation to Delhi Public School as part of expenditure - Held that - There is again no discussion in assessment order. We however find that hon ble jurisdictional high court s decision in Sarla Devi Sarabhai Trust s case (1988 (3) TMI 53 - GUJARAT High Court) already decides the very issue in assessee s favour. We therefore affirm the CIT(A) s conclusion under challenge. The Revenue fails in its sixth substantive ground as well. Considering assessee s investment in fixed assets as application of income as well as its deduction - Held that - Satya Vijay Patel Hindu Dharmashala Trust v. CIT 1971 (12) TMI 8 - GUJARAT High Court wherein it has been Held that the amount spent by the trustee in the construction of the new dharamshala was an application of income towards the charitable purposes of the trust - Decided against revenue Disallowing depreciation to assessee trust - double deduction - Held that - 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 Revenue appeal dismissed.

Issues Involved:
1. Registration of the trust under Section 12AA of the Income Tax Act.
2. Addition on rent paid to trustees and applicability of Section 13.
3. Addition to the corpus fund as income of the trust.
4. Addition to the development fund as income of the trust.
5. Expenditure on donation to another charitable trust.
6. Investment in fixed assets as application of income.
7. Depreciation on fixed assets claimed as deduction under Section 11.

Detailed Analysis:

1. Registration of the Trust under Section 12AA:
The Revenue argued that the assessee trust was not registered under Section 12AA of the Income Tax Act. However, the tribunal found that the trust had been registered since 27.02.2003, and there had been no change in its status. Therefore, the Revenue's plea was dismissed.

2. Addition on Rent Paid to Trustees and Applicability of Section 13:
The Revenue challenged the lower appellate order that reversed the Assessing Officer's disallowance of rent paid to trustees. The CIT(A) found the rent reasonable based on a government-approved valuer's report and the fact that similar rents were paid in previous years without disallowance. The tribunal affirmed the CIT(A)'s findings, noting the absence of any comparative analysis by the Assessing Officer and upheld the deletion of the disallowance.

3. Addition to the Corpus Fund as Income of the Trust:
The Revenue contested the CIT(A)'s decision to delete the addition of ?94,60,000 to the corpus fund as income. The tribunal upheld the CIT(A)'s decision, referencing case law that such corpus funds are not taxable income.

4. Addition to the Development Fund as Income of the Trust:
The Revenue sought to treat the development fund of ?32,69,000 as taxable income. The CIT(A) found that the development fund was utilized for its intended purpose and should not be included as income. The tribunal agreed with this conclusion, citing a precedent that such funds are capital receipts and not assessable as income.

5. Expenditure on Donation to Another Charitable Trust:
The Revenue argued against considering the donation of ?48,73,831 to another trust as an application of income. The CIT(A) and the tribunal found that donations to another charitable trust are considered an application of income under Section 11(1)(a), referencing the Gujarat High Court's decision in Sarla Devi Sarabhai Trust.

6. Investment in Fixed Assets as Application of Income:
The Revenue contended that the investment in fixed assets should not be considered as an application of income. The CIT(A) and the tribunal upheld that such investments are allowable as application of income under Section 11(1)(a), referencing various judicial decisions that support this view.

7. Depreciation on Fixed Assets Claimed as Deduction under Section 11:
The Revenue argued that claiming depreciation on fixed assets, which were already considered for deduction, amounted to double deduction. The tribunal referred to multiple judicial decisions, including the Gujarat High Court's ruling, which allowed such claims. The tribunal noted that the legislative amendment denying double deduction came into effect prospectively from 01.04.2015 and upheld the CIT(A)'s decision to allow the depreciation claim.

Conclusion:
The tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all substantive grounds. The judgment emphasized the importance of comparative analysis, proper valuation, and adherence to judicial precedents in determining the reasonableness and applicability of income and expenses for charitable trusts.

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