9911796707
TMI Blog2023 (10) TMI 1416X X X X Extracts X X X X X X X X Extracts X X X X ..... denied exemption u/s.11 of the Act, income of the Trust needs to be computed under normal commercial accounting principles and further, depreciation, if any, needs to be allowed as per the provisions of the Act. Further, before amendment, depreciation is an allowable deduction even if the cost of asset acquired during the relevant previous year, has been allowed as application of income u/s.11 of the Act. Therefore, we are of the considered view that the AO needs to verify these facts and consider the issue of allowability of depreciation in accordance with law. We find that an identical issue has been considered by the decision of co-ordinate Bench in the case of Veeravel Trust [ 2021 (7) TMI 1084 - ITAT CHENNAI] wherein, the issue has been considered in light of provisions of Sec.11, 12 12A of the Act, and after considering relevant facts and also by following the decision of M/s. U.P. Forest Corporation Anr. [ 2007 (11) TMI 303 - SUPREME COURT] held that voluntary contribution received by a Trust with a specific direction that forming part of corpus of the Trust is income of the trust, when the Trust is not entitled for exemption u/s.11 of the Act. As in the case of Veeravel Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining Kulod Bhawan on the ground that said expenditure is in the nature of personal expenses. Since, the assessee s Trust is maintaining Kulod Bhawan exclusively for the benefit of Sahuwala family members, said expenditure cannot be considered as expenditure incurred wholly and exclusively for the purpose of earning of income and further said expenditure is in the nature of personal expenses. Therefore, we are of the considered view that there is no error in the reasons given by the AO and the CIT(A) to disallow expenses incurred for maintaining Kulod Bhawan for both assessment years and thus, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the assessee. - SHRI MAHAVIR SINGH, HON BLE VICE PRESIDENT AND SHRI MANJUNATHA.G, HON BLE ACCOUNTANT MEMBER For the Appellant : Shri T. Banusekar, Adv. And Shri H. Yeshwanth kumar, CA For the Respondent : Shri P. Sajit Kumar, JCIT ORDER PER MANJUNATHA.G, ACCOUNTANT MEMBER: This bunch of nine appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-19, Chennai, dated 16.11.2022,and pertains to assessment years 2013-14 to 2019-20. Since, facts are identical and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily. Denial of Depreciation 14. For that tie Commissioner of Income Tax (Appeals) erred in denying depreciation amounting to Rs. 14,87,279/- to the appellant Trust. 15. Without prejudice to the above, the appellant is eligible to claim deprecation amounting to Rs. 14,87,279/- even if assessed in the status of Association of Persons. PRAYER For these grounds and such other grounds that may be raised, may be altered, amended or modified, with the leave of this respected authority before or during the hearing of the appeal, it is most humbly prayed that this respected authority may be pleased to a. Quash the order of reassessment. b. Allow the exemption u/s.11 as claimed by the appellant. c. Delete the addition made u/s.13(1)(c). d. Allow the depreciation claimed by the appellant. e. Pass such other orders as this respected authority may deem fit. 3. The appellant Trust was established in the year 1972 and is registered u/s.12AA of the Income Tax Act, 1961 (in short the Act ). The assessee has filed its return of income for AYs 2013-14 to 2019-20 u/s.139 of the Act, and admitted nil total income after claiming exemption u/s.11 of the Act. A survey u/s.133A of the Act, was conducted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involves the carrying of any activity in nature of trade, commerce or business or any activity of running any services in relation to trade, commerce or business for a cess, fees or any other consideration irrespective of the nature of use or application or retention of income from such activity. Since, the receipts from the activity is in excess of the prescribed limit provided under the proviso, the assessee is not entitled for the benefit of exemption u/s.11 of the Act, and thus, rejected exemption claimed by the assessee and computed the income on commercial principle and taxed excess of income over expenditure. Similarly, the AO has disallowed donations paid to other charitable trust or institutions on the ground that the said expenditure has not been incurred for charitable purpose. The AO had also disallowed depreciation claimed on fixed assets, the cost of which has already been allowed as application of income in the year of purchase of said fixed assets. Similarly, the AO has disallowed expenses incurred for Bhawan at Kulod, a community temple on the ground that said expenditure has been utilized for the benefit of trustees and their family members alone and not for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early laid down that the advancement of any other object GPU shall not be a charitable purpose, if it involves carrying any activity in the nature of trade, commerce or business or any activity of running a service in relation to any trade, commerce or business for a fees or cess irrespective of the nature of use or application of the income of such activity. Since, the predominant activity of the assessee s Trust is in the nature of trade and commerce, the activity of the Trust comes under GPU, and thus, the proviso to sec.2(15) of the Act, clearly attracts in the given facts and circumstances of the case. Since, the receipts from the activity of GPU is in excess of the prescribed profit as per proviso to sec.2(15) of the Act, the benefit of exemption u/s.11 of the Act, cannot be allowed. Therefore, the CIT(A), by following the decision of the Hon ble Supreme Court in the case of ACIT(Exemptions) v. Ahmadabad Urban Development Authority (2023)290 Taxman 137, rejected arguments of the assessee and upheld the reasons given by the AO to reject exemption u/s.11 of the Act. The Ld.CIT(A) had also discussed the issue in light of gross receipts from the assessee and application of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proviso to Sec.2(15) of the Act, does not come into play and question of denial of exemption u/s.11 of the Act, does not arise. The Ld. Counsel for the assessee further submitted that the AO and the Ld.CIT(A) failed to appreciate the fact that provisions of Sec.13(1)(c) of the Act, are not invocable in the facts and circumstances of the present case, because, reference made by the AO to a particular bill paid for printing of diary of members of the Trust, does not per se lead to conclusion that funds of the Trust are used for the benefit of the Trustees. The Ld. Counsel for the assessee further submitted that even a solitary reference to bill of a restaurant to allege that the funds of the Trust has been diverted for the trustees, is incorrect, because, the Trust has utilized the services of the Restaurant in the course of running of its activities and same cannot be treated as benefit to the trustees and their family members. Therefore, he submitted that the observations of the AO the Ld.CIT(A) with regard to violation of provisions of Sec.13(1)(c) of the Act, are not correct. 9. The Ld. Counsel for the assessee further submitted that the Ld.CIT(A) erred in denying depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r orders should be upheld. 11. The Ld. DR further submitted that the AO had also brought out clear facts to the effect that the assessee s Trust has violated provisions of Sec.13(1)(c) of the Act, by allowing benefit to the Trustees and their family members which is evident from facts gathered during the course of survey, where the assessee s Trust has incurred the cost of printing Sahuwala Pariwar Directory-2019 and also Diwali celebrations in a Restaurant which clearly indicates violation of provisions of Sec.13(1)(c) of the Act. Further, the AO has rightly treated and disallowed depreciation claimed by the assessee on fixed assets, because, once the income of the Trust has been computed under normal commercial principles, the assessee cannot claim double deduction. Therefore, there is no error in the findings of the AO in disallowing the depreciation on fixed assets. Similarly, the AO has rightly treated corpus donations as income of the Trust, because, once the Trust loses the benefit of exemption u/s.11 of the Act, the corpus donations becomes income of the Trust in light of provisions of Sec.2(24) of the Act, and thus, the AO and the Ld.CIT(A) has rightly treated corpus donat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is having composite objects which can be considered under other limb of the definition of charitable purpose u/s.2(15) of the Act, but the assessee has only carried out advancement of any other object of GPU which is clearly evident from the activities carried out by the assessee s Trust for these assessment years. The facts brought on record by the AO in light of survey conducted u/s.133A of the Act, clearly shows that the assessee is running Kalyan Mandapam at Chennai Coimbatore in commercial lines for fees and cess like any other persons carrying out business operations. Further, although the assessee claims to have spent the income generated from GPU activity for education and relief of the poor, but on perusal of financial statement filed by the assessee for these assessment years, it is abundantly clear that except a minimum amount of donations, the assessee has not spent any amount for charitable purpose as per their objects specified in the deed of Trust. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that the assessee s Trust is a charitable Trust and carrying out charitable activities as defined u/s.2(15) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the receipts from the activity referred to therein is within the specified limit in the previous year. In the present case, there is no dispute with regard to the fact that receipts from the marriage hall related to activities of the assessee s Trust are more than the specified limit as per proviso to s.2(15) of the Act. Since, a gross receipt from the activities of running marriage hall is in excess of prescribed limit, the AO has rightly rejected exemption u/s.11 of the Act, and taxed excess of income over expenditure under normal provisions of the Income Tax Act, 1961. This legal principle is supported by the decision of the Hon ble Supreme Court in the case of ACIT (Exemptions) v. Ahmadabad Urban Development Authority (supra), where it has been clearly explained the provisions of Sec.2(15) of the Act, and proviso provided thereto and held that if the activity of the Trust is in the nature of GPU, then, carrying out such activity for a fees or cess in line with trade and commerce, then, such Trust cannot be considered as charitable trust for the purpose of exemption u/s.11 of the Act. In the present case, the assessee is running a Kalyan Mandapam charging significant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the facts and circumstances of the case and also by following the decision of the Hon ble Supreme Court in the case of ACIT vs. Ahmadabad Urban Development Authorities (supra), we are of the considered view that the objects and activities of the Trust are GPU in nature and thus, proviso to Sec.2(15) of the Act is applicable for the assessee s Trust. Since, the assessee is a GPU Trust and gross receipts from said activities is in excess of prescribed limit provided under proviso of Sec.2(15) of the Act, for these assessment years, in our considered view, the AO has rightly rejected exemption u/s.11 of the Act, for these assessment years. The Ld.CIT(A) after considering relevant facts rightly upheld the reasons given by the AO to reject exemption u/s.11 of the Act, and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee for all assessment years. 17. The next issue that came up for our consideration from AYs 2013- 14 to 2019-20 is additions towards depreciation on fixed assets. The AO has disallowed depreciation on fixed assets on the ground that the cost of assets purchased during the relevant previous year has already been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an identical issue has been considered by the decision of co-ordinate Bench in the case of Veeravel Trust(supra) wherein, the issue has been considered in light of provisions of Sec.11, 12 12A of the Act, and after considering relevant facts and also by following the decision of the Hon ble Supreme Court in the case of M/s. U.P. Forest Corporation Anr. v. DCIT in Civil Appeal No.9432 of 2003 dated 27.11.2007 held that voluntary contribution received by a Trust with a specific direction that forming part of corpus of the Trust is income of the trust, when the Trust is not entitled for exemption u/s.11 of the Act. The relevant findings of the Tribunal are as under: 9. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The definition of income as defined u/s.2 of sub- section (24) includes voluntary contribution received by any trust created wholly or partly for charitable or religious purpose. This means, for any assessee, including trust or institution voluntary contribution is income. The provisions of section 11, 12A 12AA, deals with taxation of trust or institution. The income of any trust or institution is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of M/s. U.P.Forest Corporation Another vs. DCIT(supra), while deciding the issue and hence, we are of the considered view that those case laws are not applicable to the facts of the present case. 11. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that voluntary contribution received by the trust with a specific direction that they form part of corpus of the trust is income of the trust within the meaning of section 11 12 of the Income Tax Act, 1961. Therefore, we are of the considered view that there is no error in the findings recorded by the learned CIT(A) to confirm additions made by the Assessing Officer towards disallowance of corpus donations. Hence, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the assessee. 23. In this view of the matter and by following the decision of ITAT Chennai benches in the case of Veeravel Trust, we are of the considered view that corpus donations received by the assessee s Trust would fall under the definition of income and includable in the total income of the Trust. In so far as case relied upon by the counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t off of said income to subsequent years to be applied for charitable purpose becomes academic in nature. Therefore, we direct the AO to delete separate additions made towards accumulation of income for AYs 2015-16 to 2016-17 2017-18. 27. The next issue that came up for our consideration from grounds of appeal of the assessee s for AYs 2013-14 to 2017-18 2019-20 is validity of re-opening of assessment. The Ld.Counsel for the assessee at the time of hearing submitted that the assessee does not want to press grounds taken for challenging validity of re-opening of assessment, and thus, grounds of appeal taken by the assessee for these assessment years challenging validity of re-opening of assessment proceedings, is dismissed as withdrawn. 28. The next issue that came up for our consideration from grounds of appeal of the assessee s for AYs 2016-17 2017-18 is additions towards disallowance of expenses incurred for maintaining Kulod Bhawan. During the course of survey, it was found that the Bhawan at Kulod was given at free of cost to Sahuwala family members. Further, assessee s Trust has spent amounts towards maintaining Kulod Bhawan out of income of the Trust. The AO made additions to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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