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TMI Blog2017 (1) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... no allegation that activities are not charitable in nature. Thus we delete the addition in dispute and accordingly decide the issue in dispute in favour of the assessee and against the Revenue. - I.T.A. Nos. 1824/DEL/2016 & 2025/DEL/2015 - - - Dated:- 9-1-2017 - SHRI H.S. SIDHU, JUDICIAL MEMBER For The Assessee : Sh. Ved Jain, Adv., Sh. Ashish Goel, CA For The Department : S h. Anil Kumar Sharma, Sr. DR ORDER Assessee has filed these Appeals against the separate Orders dated 25.1.2016 and 23.1.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-2, Gurgaon pertaining to assessment year 2011-12 2010-11. 2. The grounds raised by the assessee in ITA NO. 1824/Del/2016 (AY 2011-12) read as under:- 1. On the facts and circumstances of the case, the order passed by learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the addition of ₹ 44,54,602/- made by the learned AO. 3. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 (AY 2011-12) 4. The brief facts of the case are that assessee filed the return of income on 01.08.2011 declaring total income of Rs. NIL. The case was selected for scrutiny under the compulsory clause of Central Action Plan 2012. Notice under section 143(2) was issued on 26.9.2012. After change of jurisdiction, the notices under section 143(2) and 142(1) alongwith a questionnaire was issued on 12.8.2013. In response thereto, assessee s AR appeared and filed the reply. AO observed that the society has made an agreement with M/s Mothers Pride Personal Ltd. to establish a pre-school learning centre/ nursery school. As per the agreement with the assessee and the said company, premise will be made available free of charges during the subsistence of the agreement. In consideration of the above assessee is entitled to 20% of the entire collection which includes registration charges, admission charges, annual charges, quarterly charges, monthly fees, hobby classes and charges of all the activities conducted in the school except transport and refundable security. AO during the assessment proceedings considered the amount received from Mothers Pride Persona Limited of ₹ 51,55, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that this is not the case of the AO that the assessee has made any business of sale or purchase of property. There is no allegation that activities are not charitable in nature. In view of the above, he requested that addition in dispute may be deleted. 8. On the contrary, Ld. DR opposed the aforesaid contention of the Ld. Counsel of the assessee and relied upon the orders of the authorities below and requested that the same may be upheld. 9. I have heard both the parties and perused the relevant records available with me, especially the orders passed by the revenue authorities and the case laws cited by the Ld. Counsel of the Assessee. In this case the assessee is a society registered under Societies Registration Act 1860 and registered under 12AA of the Income Tax Act. Assessee filed the Income tax return for the A.Y. 2011-12 on 01.08.2011 declaring total income of Rs. Nil along with copy of Audit Report, Balance sheet and Income Expenditure Alc. It has been noticed that during the year under consideration the assessee had an agreement with M/s Mothers Pride Education Persona Limited to establish a pre-school learning center nursery school. As per the agreement with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause z aa) of the Memorandum of Association. For the sake of ready reference the relevant clause of the Memorandum of Association reads as under:- z aa) Without prejudice to the generality of the above objects and for effectively carrying out the same, the society shall have power to receive, hold and posses any property including securities of any kind and to construct and maintained any building and to enter into any contract for or in connection with the purpose of the society to raise funds by creating charge over the assets of the society or otherwise for the benefit of the society and to accept the management of any trust or endowment in which the society may be interested. 9.1 My aforesaid view is fully supported by the ITAT, Chennai Bench decision in the case of Anjuman-E-Himayath-E-lslam[2015] 154 ITO 755 (Chennai - Trib.) While determining 'income' of assessee-trust and its 'application of income' for purpose of claiming exemption under section 11 (1)(a), provisions of Chapter-IV i.e. sections 22 to 27 applicable for computing income chargeable to tax under head 'income from house property', will not be attracted. For the sake of convenie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee is towards the charitable activities and as per the objects of the society. The Break up of application of ₹ 69,71,358 is as under: i. Administrative Expenses ₹ 3,48,145/- ii. Interest Bank charges Rs.24,25,411/- iii. Depreciation ₹ 32,31,728/- iv. Maintenance expenses Rs.4,88,307/- v. Blood Donation camp exp. ₹ 1,83,770/- vi. Eye Check up camp exp. ₹ 1,54,149/- vii. Free Books Distribution exp. ₹ 1,39,848/- ₹ 69.71,358/- 9.3 ln respect of Interest expenses of ₹ 24,25,411/- it has been paid on term loan taken to acquire/construction of assets of the society. Further, assessee has also made the repayment of loan to the tune of ₹ 29,51,584 and depreciation of ₹ 32,31, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income, especially in view of the fact that the trust has to augment its income and for that purpose it has put up a construction with borrowed fund. If raising of loan does not stand in the way of its charitable activities, the repayment there after must be treated as application of its income. By repayment of the loan, the trust wiped its liability and the income earned from the property would be available for being utilised for charitable purposes. 9.4 From the above, I noticed that Expenditure incurred on blood donation camps, Free books distribution are purely charitable in nature and therefore these are to be considered application of income. Administrative expenses are basically includes printing stationery, conveyance expenses, office maintenance expenses which are necessary for running office of the trust. In view of the above, it is not the case of the AO that the assessee has made any business of sale or purchase of property. There is no allegation that activities are not charitable in nature. 9.5 In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, I delete the addition in dispute and accordingly decide th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased and constructed the property after taking term loan from the bank and made the agreement with the Mother Pride Education Persona P Ltd. in respect of rental income. There is no case of any transfer of funds to the members of the society. He further stated that the rental income from the property is in the charitable objects of the Trust as mentioned in the Clause z aa) of the Memorandum of Association. He relied upon the order of the Hon ble Jurisdictional High Court in the case of Director of Income Tax (Exemption) vs. Span Foundation (2009) 17 DTR 283 (Del) and Hon ble Uttarakhand High Court decision in the case of CIT vs. Jyoti Prabha Soceity (2009) 310 ITR 162. He further stated that the source from which the money is received is lease and license fee but its application is for the purposes of charitable activities covered u/s. 2(15) of the Act. in respect of interest expenses of ₹ 33,94,280/- it has been paid on term loan taken to acquire/ construction of assets of the society. He further stated that assessee has also made the repayment and depreciation of ₹ 33,94,280/- are the application of income for charitable purposes. He relied upon the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. However, while computing the total assessed income added the interest income of ₹ 17,503/- , without giving any justification for the same. In the present case, assessee purchased and constructed the property after taking term loan from the bank and made the agreement with the Mothers Pride Education Persona P Ltd in respect of rental income. There is no case of any transfer of funds to the members of the society. Further, rental income from the property is in the charitable objects of the trust as mentioned in the clause (z aa) of the Memorandum of Association. Further a perusal of income expenditure shows that application made by the assessee is towards the charitable activities and as per the objects of the society. The issue is squarely covered in favour of assessee by the judgment of Jurisdictional High Court in the case of DIRECTOR OF INCOME TAX (EXEMPTION) Versus SPAN FOUNDATION [(2009) 17 DTR 283 (Del), (2009) 178 TAXMAN 436 (Del)] wherein Assessee trust having constructed a building out of borrowed funds, application of rent derived from the said building to repay the borrowed funds has to be treated as application of income for charitable purposes and the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abhoomi Press Trust [2000] 242 ITR 703 (Karn.) wherein it has been held that repayment of loan for the construction of the building by the assessee for the purpose of augmenting its fund shall qualify as income applied for charitable purpose. The existing scheme of section 11 as well as section 10(23C) provides exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc. is claimed and such amount of notional deduction remains to be applied for charitable purpose. Break up of application of ₹ 79,10,968/- is as under: I. Administrative Expenses ₹ 3,95,692/- ii. Interest Bank Charges ₹ 33,94,2801- III. Depreciation ₹ 36,55,891/- IV. Blood Donation camp expenses ₹ 1,93,6701- v. Eye Check up camp expenses ₹ 1,16,985/- vi. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son as to why the borrowing made for the construction of the building and repayment of the loan could not be treated as an application of income. It is not the case of the Assessing Officer that the asses- See by constructing the commercial complex contravened the objects of the trust. There is no provision in the Act, which disentitles the assessee-trust from claiming repayment of loan as application of income, especially in view of the fact that the trust has to augment its income and for that purpose it has put up a construction with borrowed fund. If raising of loan does not stand in the way of its charitable activities, the repayment there after must be treated as application of its income. By repayment of the loan, the trust wiped its liability and the income' earned from me property would be available for being utilised for charitable purposes. 15.3 I further note that Depreciation has been held to be an application of income in following judgments: I. CIT Vs Tiny Tots Education Society [2011] 330 ITR 16 (P H) II. DIT Vs Vishwa Jagriti Mission [2013] 83 DTR 47 (Del). III. CIT Vs Sheth Manilal Ranchhoddas Vishram Bhawan Trust [1992] 198 ITR 598 (Guj). IV. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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