2019 (7) TMI 425 - AT - Income Tax

Exemption u/s 11 - Depreciation claim of assessee trust - HELD THAT - Since the question of law involved in this issue is no longer res Integra and in view of the decisions in the cases of Indraprastha Cancer Society 2014 (11) TMI 733 - DELHI HIGH COURT and Rajasthan and Gujarati Charitable Foundation, Poona 2017 (12) TMI 1067 - SUPREME COURT we are of the considered opinion that there is nothing illegality are regularity in the findings returned by the Ld. CIT(A) while deleting the addition made on account of depreciation - Decided in favour of assessee Surplus of hostel receipts - assessee has been running the hostel along with the educational institution, which activity AO found to be a business activity and not charitable activity within the definition of section 2 (15) - HELD THAT - As following the decision of the Hon ble Karnataka High Court in the case of Karnataka Lingayat education society 2015 (5) TMI 260 - KARNATAKA HIGH COURT we are of the considered opinion that the findings of the authorities below that the running of hostel facility amounts to business activity or that the surplus generated has to be considered as business income, cannot be sustained. We therefore allow the claim of the assessee and direct the assessing officer to delete the addition made on this score. Disallowance of expenses incurred on a travel by the top official and office bearer of the society - CIT(A) confirmed the findings of AO to the effect that the travel by chartered flight is definitely unreasonable expenditure particularly by an assessee who enjoys tax benefit for charitable activities - HELD THAT - Neither the impugned order nor the assessment order show that the assessee had justified the claim with any evidence to show the purpose of travel or the circumstances forcing the official of the assessee to travel by chartered flight. For want of evidence we find it difficult to take a different view from the view taken by the authorities below. We therefore confirm the same and dismiss the relevant ground of assessee s appeal. As contended on behalf of the assessee that the 85% of the total receipt of ₹ 49,37,48,941/- for applicability of section 11 comes only ₹ 41,96,86,599/- whereas the total sum utilised by the assessee was ₹ 48,01,53,736/- much more than the statutory requirement, the disallowance of this travel expense does not impact the assessee at all. Appeal of the assessee is allowed in part.

Summary

Issues Involved:
1. Disallowance of depreciation claimed by the assessee.
2. Treatment of surplus hostel receipts as business income.
3. Disallowance of expenses incurred on travel by the top official and office bearer of the society.

Disallowance of Depreciation:
The Assessing Officer disallowed depreciation claimed by the assessee, treating it as application of income. The CIT(A) deleted this addition based on various judicial decisions, including a High Court ruling. The ITAT upheld the CIT(A)'s decision, citing precedents and legal principles. The ITAT concluded that the depreciation was a legitimate deduction, aligning with the real income computation principles. The ITAT dismissed the revenue's appeal on this issue.

Treatment of Surplus Hostel Receipts:
The Assessing Officer treated surplus hostel receipts as business income, not charitable activity. The CIT(A) agreed, reducing the disallowance but confirming the business income treatment. The ITAT, referencing a Karnataka High Court decision and other Tribunal rulings, held that hostel facilities' surplus is part of educational activities, not business income. The ITAT directed the deletion of the addition on this issue.

Disallowed Travel Expenses:
The expenses related to air travel by the society's official via a chartered flight were disallowed by both authorities as unreasonable for a charitable entity. The ITAT upheld this decision due to lack of evidence justifying the business purpose of the travel. The ITAT dismissed the assessee's appeal on this issue, noting the absence of evidence supporting the necessity of the chartered flight. However, the ITAT acknowledged the statutory compliance of the assessee in terms of fund utilization.

This detailed analysis of the judgment covers the disallowance of depreciation, treatment of surplus hostel receipts, and disallowed travel expenses, providing a comprehensive understanding of the legal issues and their resolution in the ITAT Delhi case.