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TMI Blog2017 (11) TMI 1421X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Year 1970-71. Therefore, the Assessee is entitled to accumulate this income and claim exemption from income tax Under Section 11(1)(a). Any educational institution which is required to be run they have to have a surplus fund for educational activity to sustain the consistency in the efficiency and very purpose of collecting donation is to sustain activity of institution. Merely, because surplus fund it cannot be envisaged as profit, the institution has not crossed one crore limit and they are well within their prescribed limit. The income was received by the trust which is reflected in the books of accounts. In our view, the view taken by the authority is required to be reversed and it is required to be looked into the foundation of the ratio laid down by the Supreme Court in the case of Queen s Education Society (supra) where funds which has been surplus is within a corpus fund and it has been kept as reserve fund which is not in dispute and they have not crossed the limit of one crore. Depreciation claim - Held that:- In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned Counsel for the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite of the fact that assessee failed to discharge its onus of furnishing the evidence of use of the assets. (2) Appeal No. 107/2009 (i) Whether in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in allowing the benefit of section 11(1) as charitable trust to the assessee despite of the fact that the huge surpluses earned was withdrawn by way of payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where the same had already been claimed as application of income in the previous years. (iii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of the Act despite of the fact that the assessee failed to prove the justification of these expenses. (iv) Whether, in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in deleting the addition of disallowance of interest u/s. 36(1)(iii) despite of the fact that assessee failed to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 70/2010 (i) Whether in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in allowing the benefit of section 11(1) as charitable trust to the assessee despite of the fact that the huge surpluses earned was withdrawn by way of payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where the same had already been claimed as application of income in the previous years. (iii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of the Act despite of the fact that the assessee failed to prove the justification of these expenses. (iv) Whether, in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in deleting the addition of disallowance of interest u/s. 36(1)(iii) despite of the fact that assessee failed to discharge its onus of furnishing the evidence of use of the assets. (6) Appeal No. 126/2011 (i) Whether in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely in allowing the benefit of section 11(1) as charitable trust to the assessee despite of the fact that the huge surpluses earned was withdrawn by way of payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whether, in the facts and circumstances of the case the ITAT was justified in law in allowability of depreciation of assets u/s 32 even where the same had already been claimed as application of income in the previous years. (iii) Whether, in the facts and circumstances of the case the ITAT was justified in law in deleting addition made for foreign travelling expenses u/s 37 of the Act despite of the fact that the assessee failed to prove the justification of these expenses. (iv) Whether, in the facts and circumstances of the case the ITAT was justified in law and has acted perversely in deleting the addition of disallowance of interest u/s. 36(1)(iii) despite of the fact that assessee failed to discharge its onus of furnishing the evidence of use of the assets. (v) Whether on the facts and in the circumstances of the case, the ITAT was justified in holding that the provisions of Section 60 of Income Tax Act, 1961 cannot be invoked in the present case de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of provision of Sec.13(1)(c) and 13(2) of the IT Act? (iv) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT is right in confirming the decision of ld. CIT(A) in allowing foreign traveling expenses inspite of the fact that the assessee society failed to prove that these expenses were incurred for the objects of society? (v) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT is right in holding that the assessee is eligible to claim deduction of depreciation of ₹ 62,73,413/- on the assets which were claimed as application u/s 11 at the time of purchase? (vi) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT is right in allowing the depreciation without appreciating the fact that the application of 100% expenditure of the capital assets is already allowed as capital expenditure hence further allowance of depreciation on the same capital asset would amount to double allowance? (vii) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT is right in allowing the depreciation without appreciating the fact that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment. 4. The facts of the case are that the respondent assessee namely Mahima Shiksha Samiti is engaged in imparting education, medical facility and other general public utility and for this purpose the assessee is running two educational institutions i. Seedling Public School, Jawahar Nagar and ii. Seeding Modern High School, Mahaveer Nagar. 4.1 The assessee is a society registered under Rajasthan Society Registration Act, 1958 and is further registered u/s 12AA of the Act w.e.f. 17.12.1990. For the relevant assessment year on 15.10.2010, the assessee filed its return declaring total income NIL after claiming exemption u/s 11(1)(a) of the Act. The case of assessee was selected for scrutiny and for that notice u/s 143(2)/142(1) were issued from time to time and assessee in compliance thereto attended the proceedings and furnished the required details. After considering the return of income and the details filed during the course of assessment proceedings, the ld. AO vide his order dt.25.3.2013, completed the assessment u/s 143(3) at the income of ₹ 8,46,93,400/- 5. Counsel for the appellant contended in view of provisions of Section 10 (x), 23 (c) and Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t apart is not in excess of twenty- five per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty five per cent of the income from such property;] (c) income 4 derived] from property held under trust-(i) created on or after the 1st day of April, 1952 , for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952 , to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d) 1 income in the form of volunt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the 1st day of June, 1970 ; (d) 1 in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in subsection (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub- section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983 ; or (iii) any shares in a company[ not being a Government company as defined in section 617 of the Companies Act, 19563 (1 of 1956 ), or a corporation established by or under a Central,. State or Provincial Act are held by the trust or institution after the 30th day of November, 1983. 5.4 Section 28-Profits and gains of business or profession. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,- (i) the profits and ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal installments in each of the four immediately succeeding previous years. There is an explanation which is not relevant for our present purposes. Reading Section 35(2) further, it provides in Clauses (iv) and (v) as follows: (iv) where a deduction is allowed for anyprevious year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under Clauses (i), (ii) and (iii) of Sub-section (1) of Section 32 for the same previous year in respect of that asset; (v) where the asset mentioned in Clause (ii) is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under Clauses (i), (ii) and (iii) of Sub-section (1) of Section 32. 5. Reference must also be made to Explanation 1 to Section 43(1) in this context. It read as follows at the relevant time: Explanation : Where an asset is used in business after it ceases to be used for scientific research related to that business and a deduction has to be made under Clause (i), Clause (ii) or C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and independent heads of allowances. One is a notional allowance to provide for the wear and tear of a capital asset employed in the business as the years roll by; the other is an allowance for actual expenditure of a capital nature granted, on the eve of our country's independence, in order to give fillip to new industrial innovations and the development of indigenous know-how and techniques by proper planning on research and development by various business houses. It is therefore suggested that there is nothing absurd in construing the statutes act as providing cumulatively for both types of deductions in respect of the same capital asset. The only limitations on this right are the two placed by the statute itself. The first limitation, contained in Clause (d) of the proviso to Section 10(2)(xiv) and Section 35(2)(iv) is that both the deductions cannot be claimed for the same previous year in respect of the same capital asset. The second limitation is found in Clause (e) of the proviso to Section 10(2)(xiv) and Section 35(2)(v) which say that if a capital asset used for scientific research ceases to be so used but is thereafter brought into a business for use therein, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly during the year or years in which the deduction under Section 35(1)(iv) is availed of, but permanently. The reason, according to them, is obvious: if both are allowed to be availed of, it amounts to grant of 200% deduction .viz., 100% under Section 35(1)(iv) and another 100% under Sub-sections (1) and (1A) of Section 32. This is totally outside the contemplation of the Act, they say. On the other hand, the case of the assessees is that the bar created by Clause (iv) of Sub-section (2) applies only to that previous year or those previous years during which the said expenditure is allowed as a deduction. That is the express language of the clause. The bar does not extend beyond the year or years in which the deduction under Section 35(1)(iv) is , availed. There is no reason -more so in a ' taxing enactment -- to extend the said bar beyond the limit prescribed by the statute. They say, if the intention of the Parliament was to bar the claim of depreciation in respect of such asset for all time to come, nothing was easier than to say so in clear words, as was done by Subsection (4) of Section 20 of U.K. Finance Act, 1944. It is pointed out that Clause (xiv) of Sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed before us by the senior counsel appearing for the assessee. We have no doubt in our mind that business income of charitable trust also has to be computed in the same manner as provided under section 29 of the Income-tax Act. However, the issue that requires consideration is when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purposes under section 11(1)(a) of the Act, should not the cost of such assets to be treated as nil for the assessee and in that situation depreciation to be granted turns out to be nil. However, if depreciation provided is claimed on notional cost after the assessee claims 100 per cent of the cost incurred for it as application of income for charitable purposes, the depreciation so claimed has to be written back as income available. In fact, going by the several decisions of the various High Courts, we are sure that based on these decisions all the charitable institutions will be generating unaccounted income equal to the depreciation amount claimed on an year to year basis which is nothing but black money. This aspect is not seen considered in any of these decisions. We, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Foreign Trip, it has been contended that the tribunal has not appreciated the fact that it was a personal trip under the guise of student exchange programme and the tribunal has wrongly granted the benefit to the trust. 10. On the other issue of transfer of money of excess profit systematic service which has been created by primary school where transfer by sponsoring a University is contrary to very object of Sec.11 and in that view of the matter, it is clear that Sec.13 (1) C and 13 (2) will not apply. 11. He also contended that the money which is transferred to the private university is also controlled by the same family members who are same trustees in the university and they are controlling the affairs and indirectly they are transferring money which is surplus to meet the higher education and they are taking double benefit of Sec.11 read with Sec.13 in another education institution which is not a part of the trust which has been exempted u/s 12AA of the Act. 12. Counsel for the respondent has taken us to the judgment of the tribunal and contended that the tribunal being the fact finding authority has given a well reasoned judgment. 13. On first issue, the case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statutory powers even to cancel the registration if a doubt arises about the charitable purpose subsequent to granting of registration. 19. Without prejudice to above, reliance is placed on the decision of Hon ble Rajasthan High Court in case of Deputy Commissioner Income-Tax v. Cosmopolitan Education Society 244 ITR 494 where the appeal of the department was rejected by affirming the finding of ld. Income Tax Appellate Tribunal and ld. Commissioner of Income-Tax Appeals that in case there was any misutilisation of the funds of the society or mismanagement of the activities of the society, the action could be taken against the members of the society as per the provisions of various statues governing the society. However, even such misutilisation or mismanagement by the members could not be the basis of rejection of the claim of exemption of the assessee educational society. The Special Leave Petition against this judgment also stood dismissed vide 241 ITR (St) 132. Therefore, these grounds of disallowance of exemption are not sustainable in law. 6.1 He also relied upon the following decisions:- 3.3(i) In Queen s Education Society vs. CIT reported in (2015) 372 ITR 699 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and High Court dated 24th September, 2007. The reasoning of the ITAT (set aside by the High Court) is more in consonance with the law laid down by this Court, and we approve its decision. (ii) In Chief Commissioner of Income Tax, Chandigarh vs. St. Peter s Education Society (2016) 385 ITR 66 (SC), the Supreme Court observed as under:- We may record at this stage that there was a difference of opinion among various High Courts on the aforesaid issue. While summarizing the law, this Court approved the judgments of Punjab and Haryana High Court, Delhi and Bombay High Courts and reversed the view taken by the Uttarakhand High Court. In so far as the judgment of the Punjab and Haryana High Court is concerned, it was given in the case of Pinegrove International Charitable Trust v. Union of India MANU/PH/0146/2010 : [2010] 327 ITR 73 (P H). The relevant para in this behalf which also states as to how such cases are to be dealt with reads as under: 25. We approve the judgments of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment of the Uttarakhand High Court and since the Chief Commissioner of Income tax's orders cancelling exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of this Court in the case of Jhunjhunu Academy Sammittee Vs. Income Tax Officer Jhunjhunu, D.B. Income Tax Appeal No. 123/2006, decided on 8th February, 2017, this Court while considering the identical question observed as under: 15. Before coming to the basic contentions, it is not in dispute that the appellant is as by name itself suggests that it is an academic Samiti carrying on activities of educational purpose for establishing any educational institution. There is need of infrastructure and expansion of every activity whether it is a residential accommodation or physical or competitive requirement or other requirement and also the maintenance of the institution is a mandatory for which one has to collect the funds. 16. From the record it seems that an endeavour is made that during the relevant year they have a surplus fund which is prescribed or described by the authority as a profit and compared to the expenses or the other income which has been received as 34,91,251/-. Thus, it has been stated that there is profit of 33 per cent. 17. In our view, any educational institution which is required to be run they have to have a surplus fund for educational activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available. 5. In view of the discussions made above, we find ourselves in agreement with the view taken by Bombay High Court in Director of Income Tax v. Framjee Cawasjee Institute (supra) and in CIT v. Institute of Banking Personnel (supra). The substantial question framed in the instant matter, thus, is answered in the terms that the Income Tax Appellate Tribunal rightly allowed depreciation claimed by the assessee on capital assets for which capital expenditure was already given in the year under consideration. 14.1 Decision of Punjab and Haryana High Court in Commisioner of Income Tax vs. Market Committee, Pipli (2011) 330 ITR 16 wherein it has been held as under:- 7. The Karnataka High Court in Commissionerof Income Tax, Karnataka v. Society of the Sisters of St. Anne. MANU/KA/0045/1983MANU/KA/0045/1983 : [1984] 146 ITR 28 drawing support from Madras High Court in Rao Bahadur Calavala Cunnan Chetty Charities (supra) had recorded that if depreciation is not allowed as a necessary deduction for computing the income of a charitable institution then the corpus of the trust for deriving the income cannot be preserved and that the amount of depreciation debited to the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions. 9. In the present case, the assessee is notclaiming double deduction on account of depreciation as has been suggested by learned Counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd. and Anr. (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of Section 11. The questions proposed have, thus, to be answered against the revenue and in favour of the assessee. 14.2 Decision of Delhi High Court in Director of Income Tax (Exemption) vs. Indraprastha Cancer Society (2015) 53 Taxman.com 463 wherein it has been held as under:- 10. The aforesaid paragraph refers to thedecision in the case of Vishwa Jagriti Mission ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub- section relates to application of income. 14.3 Decision of Punjab Haryana High Court in Commissioner of Income Tax vs. Tiny Tots Education Society (2011) 330 ITR 21 wherein it has been held as under:- 6. The matter was discussed in our recent judgment dated July 5, 2010 in I. T. A. No. 535 of 2009 CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P and H). After referring to the judgments in CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992]198 ITR 598 (Guj) and CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom) : [2003] 131 Taxman 386 (Bom), CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982]135 ITR 485 (Mad), CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar)and CIT v. Raipur Pallottine Society [1989]180 ITR 579 (MP), the judgment of the hon'ble Supreme Court in Escorts Ltd. [1993]199 ITR 43, was held not to be applicable to the situation where depreciation was claimed by a charitable institution in determining percentage of funds applied for the purposes of charitable objects. It was observed (page 20 supra): 9. In the present case, the Assessee is not claiming double deduction on account of deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. He contended that the view taken by the tribunal is on consideration of facts and it is not a question of law. 19. He has relied upon the judgment of this court in Murari Lal Khandelwal vs. CIT (2003) 263 ITR 642 wherein it has been held as under:- 4. Learned counsel for the assessee Mr.Jhanwar submits that the amount of salary claimed on account of payment to the sons i.e., Anoop and Alock was reasonable, as both are looking after the business and assessee has got paralytic attack in the year 1983, therefore, the payment of salary to these persons at the rate of ₹ 6,000 and ₹ 5,000 per month, respectively, was justified. 5. The facts on record reveal that both are graduates and Anoop, to whom assessee has paid ₹ 6,000 p.m. in the year under consideration was getting only ₹ 1,000 p.m. just in the preceding year. So far paralytic attack to the assessee is concerned, it happened in the year 1983. The assessee has carried on the business even after paralytic attack without the help of these two sons. 6. We also notice that in the preceding yeari.e., 1991, assessee has disclosed income of Rs, 70,000. This year he has disclosed only income of S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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