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TMI Blog2020 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ch applies to deductions allowable against business profits. There is no such provision in trust cases for such expenses under the Governing Sections 11 to 13 of the Act . Therefore, the ld. CIT(A) had rightly upheld the decision of the AO to disallow the expenses against membership charges to Rambagh Gold Club. The provision of Section 164 specifically deals with the charge of tax where the shares of the beneficiary is unknown. Section 164(2) deals with charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or religious purposes. From the plain reading of this proviso, it is evident that where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of the Section 13(1)( c) or 13(1)(d) then tax is chargeable on the relevant income or part of the relevant income at the maximum marginal rate (MMR). Thus in that eventuality, even in case there is violation of Sec 13, the entire income of the trust is not liable to be taxed at MMR but only the relevant part of the income which violates sec 13 attracts the MMR. Therefore, we find reason to interfere in the order of the ld. CIT(A). Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GOSAIN, J.M. The present appeal has been filed by the Revenue against the order of CIT(A), Kota dated 24.12.2018 for the assessment year 2015-16 wherein the Revenue has raised the following grounds of appeal. 1. On the facts and circumstances of the case and in law the ld. CIT(A) erred in allowing exemption u/s 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the assessee made payment to Rambagh Polo Club for corporate membership which has nothing to do with the objects of the society and therefore, the funds of the society have been diverted for the personal benefit of the specified persons. 2. On the facts and circumstances of the case and in law the ld. CIT(A) erred in allowing exemption u/s 11 of the I.T. Act, 1961 to the assessee by holding that only the portion of income which violates the provision are to be charged at MMR. 3. On the facts and circumstances of the case and in law the ld. CIT(A) erred in deleting the disallowances of depreciaton of ₹ 1,23,30,183/- ignoring the amendemtn made thorough Finance Act No. 2/2014 in Section by inserting sub-section (6) to the Section 11 of the Income Tax Act in the statute wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, the ld.AR appearing on behalf of the assessee relied on the order of the ld. CIT(A). It was submitted that where the assessee had violated the provisions of section 13, neither the exemption u/s 11/12 can be denied nor the surplus as such can be charged to tax at Maximum Marginal Rate. The ld.AR of the assessee relied on the provisions of Section 164(2) of the Act and submitted that said provisions deals with the charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or religious purposes. It was submitted that where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of the section 13(1)(c) or 13(1)(d), tax is chargeable on the relevant income or part of the relevant income at the maximum marginal rate (MMR). Therefore, in case there is violation of sec.13, entire income of the trust is not liable to be taxed at MMR but only the relevant part of the income which violates sec.13 attracts the MMR. For this purpose, the ld.AR of the assessee relied on following case laws:- (i) DIT Vs. Working Women s Forum (2015) 235 Taxman 516 (SC) - SLP dismissed against High Court s ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns allowable against Business profits. There is no such provision in Trust cases for such expenses under the Governing Sections 11, 12 13. The decisions of the AO to disallow the expenses of ₹ 11,71,949/- against membership charges to Rambagh Gold Club as contested by the assessee in Ground 1 is upheld. Similarly, as per Ground No. 3, the disallowance of interest amount of ₹ 1,40,634/- worked out on this payment is also upheld. These grounds of appeal are dismissed. As regards Ground No. 4, on perusal of the overall facts and the provisions of the Act, I find that the assessee society is registered under the Rajasthan Society Act and also registered u/s 12AA of the I.T. Act. This exemption has not been withdrawn. It is a settled law that even if it is held that assessee has violated the provisions of Sectin 13, neither the exemption u/s 11/ 12 can be denied nor the surplus as such can be charged to tax at Maximum Marginal Rate. Section 164 deals with the charge of the tax where the share of the beneficiary is unknown. Section 164(2) deals with the charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety and not for the business like expansion through entertainment for guests in private club and networking etc. for which normally businesses use such memberships. We also found support from the decision of Hon'ble Supreme Court in the case of CIT vs United Glass Manufacturing Co. Ltd. wherein it was held that club membership fees is purely a business expenses and allowable u/s 37 of the I.T. Act which applies to deductions allowable against business profits. There is no such provision in trust cases for such expenses under the Governing Sections 11 to 13 of the Act . Therefore, the ld. CIT(A) had rightly upheld the decision of the AO to disallow the expenses of ₹ 11,71,949/- against membership charges to Rambagh Gold Club. 3.4.1 Similarly, we are also of the view that the even if it is held that assessee has violated the provisions of section 13 of the Act, even then the exemption u/s 11 or 12 of the Act cannot be denied nor the surplus as such can be charged to tax at Maximum Marginal Rate. Even otherwise, the provision of Section 164 specifically deals with the charge of tax where the shares of the beneficiary is unknown. Section 164(2) deals with charge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2015) 125 DTR 281, deleted the disallowance made by the AO. 4.4 During the course of hearing, the ld. DR relied on the order of the AO. 4.5 On the other hand, the ld.AR of the relied on the order of the ld. CIT(A). It was contended by the ld.AR of the assessee that the assessee has not claimed cost of fixed assets as application of income as there was very meager surplus in earlier years The assessee only claimed the depreciation of fixed assets. It was submitted that even during the year the purchase of fixed assets is to the tune of ₹ 1,17,78,921/- but the same is not claimed as application and only depreciation is claimed. Thus in these circumstances, the disallowance of claim of depreciation by the AO was not called for and therefore, the same was rightly deleted by the ld. CIT(A). 4.6 We have heard the ld. counsels of both the parties and perused the materials available record. The ld. DR during the course of hearing submitted before us that the disallowance of claim of depreciation was deleted by the ld. CIT(A) by merely relying on the decision of CIT vs Rajasthan and Gujarat Charitable Foundation (supra) whereas in the said judgement it has categoricall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment made for fixed assets in cash. The A/R argued that the provisions of section 40A(3) do not apply8 to capital expenditure. As I hence held in the appellant s own case for A.Y. 2014-15 on this very issue that since all the payments were capitalized in the books of account and no expenditure are claimed as Revenue expenditure and therefore, the provisions of section 40A(3) would not apply on the same. CBDT Circular No.34[F.No.13A/92/69-IT(A-II), dated 5-03- 1970 clearly states that section 40A(3) is applied only to revenue expenditure and not to capital expenditure, when capital expenditure is incurred in cash, section 40A(3) cannot be invoked. The relevant Para is as under:- 2. The provisions of section 40A(3) would apply in computing the income under the heads profits and gains of business or profession and income from other sources as per section 58(2). All payments in excess of ₹ 2,500/- at one time whether for goods or services obtained for cash or credit, which are deductible in computing the income, have to be made by cross cheque or bank draft. Thus the price of goods purchased for resale or use in manufacturing process or payments for services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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