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TMI Blog2023 (7) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was added by the ld. Assessing Officer as capital gain on sale of value of two vehicles and a flat. (b) Ld. CIT(Appeals) has erred in deleting the addition of Rs. 20,13,54,800/-, which was added by the ld. Assessing Officer with the aid of section 13(3) read with section 13(2) of the Income Tax Act on the ground that three immovable properties purchased at New Delhi, Mumbai and Goa were not put to use in the year under consideration and they were not to be used for the purpose of the Educational Institution. 5. Brief facts of the case are that the assessee is a Society registered with Registrar of Societies, New Delhi and was incorporated on 09.07.1997. It was registered under section 12AA vide order of Director of Income Tax (Exemption), New Delhi dated 1st October, 1997. It was approved under section 10(23C)(iv) by the CBDT, New Delhi vide order dated 31.03.2002 for A.Ys. 1999-2000 to 2001-02. Earlier it was assessed to tax at Delhi. However, on account of search conducted on the premises of the assessee on 08.05.2003, its case was transferred to Patna on the ground that the only functional School at that point of time was situated at Patna and thereafter assessment of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has not included the above capital gain in its computation, the same is added to the income of the assessee as per provision of IT act. Penalty proceedings u/s 270A is initiated separately for this misreporting of income". 7. Dissatisfied with this finding, the assessee carried the matter in appeal. It has filed written submission, which has duly been noticed by the ld. CIT(Appeals) on pages no. 5 to 11 of the impugned order. The ld. CIT(Appeals) after going through the finding of the ld. Assessing Officer as well as the submission of the assessee deleted the addition by recording the following finding:- "Ground No. 2 to 6 In these grounds the assessee has disputed the addition of Rs. 99,15,000/- made by the Assessing Officer on account of capital gain arising out of sale flat at Pune and two vehicles. The brief facts relating to this addition is that the assessee has sold one flat at Pune for a consideration of Rs. 96,00,000/- having cost of Rs. 39,73,069/- which was purchased way back in the year 2008 under an agreement for lease which was registered on 15.07.2011. The assessee has also sold two vehicles for a consideration of Rs. 3.15 lacs. The Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and states that notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under the Income Tax Act, 1961 or under the Indian Income Tax Act, 1922 (11 of 1922), the provisions of section 48 and 49 shall be subject to the modifications set out in section 50. Section 48 and 49 provide for mode of computation of the capital gains. Section 48 deals with the mode of computation and deductions. The income chargeable under the head "Capital gains" shall be computed by deducting the full value of the consideration received or accruing as a result of the transfer of the capital asset. Section 49 deals with the cost with reference to certain modes of acquisition. Where the capital asset became the property of the assessee on distribution of assets of a HUF, or under gift or will or by succession/inheritance or under a transfer to a revocable or an irrevocable trust, etc., the cost of such acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. Both these provisions are subject to modifications set out in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terated the stand of the Revenue as taken by the ld. Assessing Officer. She contended that though the asset was acquired earlier in time but by way of Finance Act, 2014 w.ef. 1st April, 2015, the legislature has added sub-section (6) of section 11. Prior to this section, the Charitable Institutions were entitled to the benefit of depreciation on the capital asset as well as application/utilization against receipt of such investment in capital asset. In other words, when a capital asset is being acquired, then its acquisition cost is being set off towards application of income from the charitable activities. Such acquisition of asset was construed as a charitable activity in furtherance of objects of the Society. The assessee was entitled to claim depreciation also on such assets. Thus according to the Revenue, it was a double benefit to Charitable Institution in comparison to other business houses. This benefit has been restricted by insertion of sub-section (6) to section 11 w.e.f. 1st April, 2015. Since these assets have been sold in this year and depreciation was also claimed by the assessee in the past, therefore, on sale of these assets, capital gain arose to the assesese dese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 fifteen per cent of the income from such property; x x x x x x x 11(6) In this section where any income is required to be applied or accumulated or set apart for application, then , for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. 11. Before adverting to construe the meaning of relevant clauses of sections 11(1) and 11(6), it is pertinent to observe that scheme of assessment of Charitable Institution is provided under sections 11 to 13, 10(23C) and section 2(15) of the Income Tax Act. The first and fundamental requirement is that assessee should be a Charitable Institution within the meaning of section 2(15) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of income and then depreciation on that asset. 14. It is pertinent to note that in this case, asset was acquired prior to 1st April, 2015 i.e. on 09.04.2008, and, therefore, the assessee was entitled to claim cost of acquisition against application of income. It was also entitled to claim depreciation on such assets. The assessee has demonstrated that these assets were taken to the block of asset. In this connection, written submission filed by the assessee and noticed by the ld. CIT(Appeals) on pages no. 6 & 7 is worth to note, which reads as under:- "It is respectfully submitted that the concept of block of asset instead of individual asset for the purposes of depreciation was introduced way back in the year 1986 by The Taxation laws (Amendment and Miscellaneous Provisions) Act, 1986 by which there has been insertion / amendment in section 2(11), 32, 50 besides others. The intent and purpose of replacing the concept of individual asset with that of block of asset was explained in circular of the CBDT bearing no.469 dated 23/09/1986 reported in 162 ITR 21 (statute at pages 24 to 30 - copy of page 35 to 42). Section 50 of the Income Tax Act prescribes the manner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 Total: 8,02,500 Less : Sale proceeds in respect of the assets sold 2,00,000 WDV of the block for the assessment year 1988-89 6,02,000 Depreciation for the assessment year 1988-89 at 33 1/3% of Rs. 6,02,000 2,00,667 WDV for the assessment year 1989-90 4,01,333 15. A perusal of the order of ld. CIT(Appeals) would reveal that ld. CIT(Appeals) has based its finding on CBDT Circular No. 469 dated 23rd September, 1986. This Circular explained as to how concept of block of assets is to be made and how that concept would work. Copy of this Circular is available on paper book filed by the assessee and with the assistance of ld. representatives we have gone through that Circular. As per the Scheme on individual sale of asset, capital gain would not be computed because the block of asset formed a single component for claiming the depreciation. The CBDT Circular referred by the ld. CIT(Appeals) in its order is available on page no. 35 of the paper book. It contains examples for demonstrating the condition though it is a very exhaustive Circular running into number of pages but for the purpose of the controversy in hand, we take note of the relevant part of the Circular, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation will be applied : Example I: Suppose a company "X" has financial year as its accounting year and has three items of plant and machinery in respect of which the prescribed percentage of depreciation for the assessment year 1987-88 is the general rate of fifteen per cent. Further that for the assessment year 1987-88, the written down value of these items of plant and machinery before allowing depreciation for that year was as follows : Item 1 Rs. 1,50,000/- Item 2 Rs. 2,00,000/- Item 3 Rs. 3,00,000/- Total Rs. 6,50,000/- The depreciation that will be allowable in respect of these items for the assessment year 1987-88 as also the written down value of these items at the beginning of the assessment year 1988-89 will be as follows : Depreciation WDV at the beginning of the assessment year 1988-89 Item 1 Rs. 22,500/- Rs. 127,500/- Item 2 Rs. 30,000/- Rs. 1,70,000/- Item 3 Rs. 45,000/- Rs. 2,55,000/- Aggregate WDV at the beginning of the as assessment year 1988-89 Rs. 5,52,500/- Since the items of plant and machinery which currently qualify for depreciation at the rate of 15 per cent are proposed to be classified into a bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en sells the factory building and the godown in December for Rs. 9,00,000/-. If there is no asset left in the relevant block at the end of the year, the new provisions of section 50(2) of the Income-tax Act will apply as follows : WDV at the beginning of the year Rs. 10,00,000 Add: Actual cost of new asset acquired Rs. 2,00,000 Rs.12,00,000 Less : Sale proceeds received in respect of all the assets from that block sold during the year Rs.9,00,000 Loss deemed to be short-term capital loss under section 50(2) Rs.3,00,000/-" 16. It has been demonstrated before us that assets were purchased prior to 1st April, 2015 i.e. April, 2008. They are forming part of block of asset and if these facts are visualized in the light of second and third example, then it would reveal that the assessee's case falls in this category. The Board has explained the situation as to how the new scheme is to be implemented on number of assets forming a single block. The ld. Assessing Officer has failed to construe the meaning and scope of this concept in the impugned assessment order rather he has not applied his mind and just made the addition. Therefore, ld. CIT(Appeals) has rightly deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the assessee have not produced any evidence also to prove that these were being used for the purposes for which the trusts were created except a mere mention that the properties are registered in the name of the society and not in the name of any person. In absence of any supporting evidence related to the AY under consideration, the capital expenditure in respect of the above properties totaling Rs. 201354800/- are disallowed". 18. Dissatisfied with the above, the assessee carried the matter in appeal before the ld. CIT(Appeals). It has filed detailed written submission, which has been reproduced by the ld. CIT(Appeals) on pages no. 12 & 13 of the impugned order. The ld. CIT(Appeals) after going through the submissions of the assessee and finding of the ld. Assessing Officer has deleted the addition by observing as under:- "I have gone through the submission and material on record. I find from the material on record that the property at Delhi and Mumbai were not put to use in the year under consideration as Delhi property was under construction and the flat at Mumbai was given possession after payment of Rs. 1.01 crores on 08.06.2017 and execution of the Registered Sale D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have gone through the record carefully. Brief facts are that the ld. Assessing Officer has disallowed Rs. 20,13,54,800/- on account of purchase of three properties namely Okhla (New Delhi) Rs. 5.40 crores, Flat at Mumbai Rs. 12.66 crores and property at Goa Rs. 2.07 crores. The total of these three properties comes to Rs. 20,13,00,000/-. A perusal of the finding of the ld. Assessing Officer extracted supra would reveal that ld. Assessing Officer has added the purchase cost of these three properties with the aid of sections 13(2) and 13(3). We deem it appropriate to take note of these clauses, which read as under:- "13(2)- Without prejudice to the generality of the provisions of clause (c) and clause (d of sub-section (1), the income of the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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