2018 (7) TMI 748 - AT - Income Tax

Benefit of exemption u/s. 11 denied - assessee had given gifts to another Trust under the name of M/s. PMR Bangaru Subbammal Educational Trust - dealing with unregistered trust - Held that - The land had been made available to M/s. PMR Bangaru Subbammal Educational Trust, which is a Trust that does not have registration u/s. 12AA of the Act. It is also an undisputed fact that the assessee trust has given loans, which are interest free to M/s. PMR Bangaru Subbammal Educational Trust, that the objects of the assessee-trust and that of M/s. PMR Bangaru Subbammal Educational Trust are identical, would not make M/s. PMR Bangaru Subbammal Educational Trust as having registration u/s. 12AA of the Act. M/s. PMR Bangaru Subbammal Educational Trust must on its own independent status claim and have the registration u/s. 12AA of the Act. In the absence of such registration, dealing with such an unregistered trust would affect the exemption available to the assessee. Where violation of sub-section (2) of section 13 takes place the benefit, directly or indirectly, to any person referred to sub-section(3) of Section 13, then the First provisions of section 13(1) clearly states that nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof, which clearly shows that provisions of the section-11 and section-12 are no more available in such cases. Assessing Officer was right in denying the benefit of section-11 in respect of the income of assessee as there has been violation of the provisions of the sections 13(1)(c) and 13(1)(d) read with section 13(2) of the Act. In the circumstances, the order of the CIT(Appeals) on this issue stands reversed and the order of the ld. Assessing Officer is restored. - Decided in favour of assessee. Issue of depreciation in respect of charitable trust is squarely covered by the decision of the Apex Court in the case of Rajasthan & Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT , the ld. Assessing Officer is directed to allow the assessee s claim of depreciation.

Summary

Issues:
1. Claiming of depreciation by a charitable trust.
2. Denial of exemption under section 11 of the Act due to alleged violations by the trust.

Claiming of Depreciation:
The appeal was filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals) regarding the claiming of depreciation by a charitable trust registered under section 12AA of the Act for the assessment year 2009-10. The issue of depreciation was found to be covered by a decision of the Supreme Court, leading to the direction for the Assessing Officer to allow the claim of depreciation by the trust. Consequently, the Cross Objections filed by the assessee on this issue were allowed.

Denial of Exemption under Section 11:
The Revenue's appeal focused on the denial of exemption under section 11 of the Act to the charitable trust due to various alleged violations. These violations included giving gifts to an unregistered trust, payment of electricity bills of trustees, incurring personal expenses of trustees, and advertisement expenses related to political parties. The CIT(A) had initially ruled in favor of the assessee, but the Revenue argued that the violations under sections 13(1)(c) and 13(1)(d) of the Act warranted denial of exemption under section 11. The Karnataka High Court and Madras High Court judgments were cited in support of the assessee's position that only violative income should be taxed. However, the Tribunal found that the violations indeed affected the exemption available to the trust. The trust's dealings with an unregistered trust and other violations led to the reversal of the CIT(A)'s order, with the Assessing Officer's decision being upheld. Therefore, the Revenue's appeal was allowed, and the Cross Objections filed by the assessee were also allowed.

In conclusion, the judgment addressed the issues of claiming depreciation by a charitable trust and the denial of exemption under section 11 of the Act due to violations. The decision provided detailed analysis and legal reasoning, ultimately resulting in the reversal of the CIT(A)'s order and upholding the Assessing Officer's decision in favor of the Revenue.