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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 ..... shall be deemed to be in use for the benefit of specified person if such person is using it without charging adequate rent or other compensation. AO has just expressed his apprehension that the nature of property would suggest that these will be used by other person referred to in sub-section (3) of section 13 of the Income Tax Act and these properties would be used without paying rent to the assessee. AO has no where recorded a finding demonstrating the fact that these properties have factually been used by specified persons. The persons who are associated with the Society and because of their position taken undue advantages. Neither any investigation was made towards that issue nor any finding has been recorded. During the course of hearing, assessee drew our attention towards CBDT Circular dated 21st July, 1966 whereby the scope of sections 13(2) and 13(3) were explained and this Circular contemplates that few instances in which property of a Trust or Institution may be taken to be used or applied for the benefit of an excluded person namely house property belonging to the Trust or Institution and used by such excluded person free of rent or at concessional rent. The value of be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey 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 income is being done at Patna. 6. In this year, the assessee has filed its return of income on 25.10.2017 declaring nil income. The case of the assessee was selected for scrutiny assessment under Computer Aided Scrutiny Selection (CASS) and notices under section 143(2) and 142(1) were issued and served upon the assessee on 14.08.2018 and 29.01.2019. The ld. Assessing Officer has observed that a perusal of income and expenditure account of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 opined that at the time of purchase of these assets the assessee has taken set of the corresponding cost of acquisition as application of income against its receipt and therefore, the cost of acquisition is to be taken at NIL. Further, according to Assessing Officer Section 11 to 13 are self-contained sections and all the non-profit organizations are governed by these sections and the provisions of Chapter 3 and 4 are applicable to profit making concern and not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 50, where capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed. It was further contended that the block of asset of building and plan and machinery still exist after deducting the sale proceeds of Rs. 99.15 lacs made by the Assessing Officer is contrary to the mandatory provisions of section 50 of the Income Tax Act. I have considered the submission of the A/R as also the schedule of fixed assets under the head b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 deserves to be taxed. 9. On the other hand, ld. Counsel for the assessee raised two-folds submission. In his first-fold of contention, he submitted that these assets were acquired by the assessee before A.Y. 2015-16. In other words, sub-section (6) has been inserted by Finance Act, 2014 w.e.f. 1st April, 2015. The assets were acquired prior to that, hence set off of acquisition cost towards application of income from charitable activities is concerned that was allowable. This sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 if it is not a Charitable Institution but carrying out activity of advancement of any other object of general public utility, then in such category of Trust/Institution, the exemption to the extent of 20% of the total receipt of the Trust is to be allowed after A.Y. 2016-17. Thus as observed above, the first and foremost condition is the Institution should be a Charitable Institution. The second condition is that it should register under section 12AA of the Income Tax Act with the competent authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) 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 which the cost of acquisition in case of depreciable asset is required to be computed for the purposes of determining the capital gain. Sub- section (1) of section 50 provides that in a case where any block of assets does not cease to exist but the full value of consideration received or accruing as a result of the transfer of the depreciable assets by the assessee during the previous year exceeds the aggregate of the following amounts, namely - (i) expenditure incurred wholly or exclusively in connection w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, which reads as under:- Circular No. 469 dated 23.09.1986 reported in 162 ITR 21 (Statute)- New provisions for allowing depreciation in respect of blocks of assets 6.1. ..x x x x x x x (B) All the assets in the relevant block may be transferred during the year. Section 50 of the Income-tax Act prescribing the manner in which the cost of acquisition in the case of depreciable assets may be computed for the purposes of determining the capital gains has been substituted by new provisions by the Amending Act to take care of both the above situations. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 block of assets which will be entitled to depreciation at the rate of 33 1/3 per cent for the assessment year 1988-89 and subsequent years, in this example the aggregate written down value of the block of assets at the beginning of the previous year will be Rs. 5,52,500. Presuming that during the financial year 1987-88, the assessee sold item 1 for a consideration of Rs. 2,00,000 and bought a new item (item 4) falling in the same block of assets during the said financial year for a consideration of Rs. 2,50,000, the depreciation to be allowed in respect of the assessment year 1988-89 will be as follows : Aggregate WDV of the block at the beginning of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 the addition and we do not find any merit in this ground of appeal of the Revenue, it is dismissed. 17. In Ground No.2 in this appeal, the grievance of the Revenue is that the ld. CIT(Appeals) has erred in deleting the addition of Rs. 20,13,54,800/-. The finding recorded by the ld. Assessing Officer on this issue reads as under:- Disallowance u/s 13(3) - Violation of provisions of section 13 : During the course of assessment proceedings, it was found that the assessee had made transactions for the purpose of acquiring the following properties: 1. Factory building at Okhla Industrial area, Phase II, Block B, New Delhi at a consideration of Rs 5.40 crores 2. Flat in 13th floor in Elements at New D N Nagar, Andheri West Mumbai with two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Deed on 28.06.2017. However, the property at Goa was in use in the year under consideration i.e. A.Y. 2017-18. Thus, the invocation of section 13(2) r.w.s. 13(3) in respect of property at Okhla, Delhi and flat at Mumbai are otherwise not sustainable as these have not been in use in the year under consideration. As a matter of fact the Assessing Officer has not proved the use of any of the property by any of the specified person or their close relative. One of the properties at Okhla was not in use and was under construction, a fact not in dispute. Similarly, with regard to the flat at Mumbai, the same cannot be put to use as it was not in possession of the Society in the year under consideration and with regard to property at Goa, the Assessing Officer has not brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 adequate rent or other compensation . 20. A bare perusal of above clauses would reveal that the properties shall be deemed to be in use for the benefit of specified person if such person is using it without charging adequate rent or other compensation. The ld. Assessing Officer has just expressed his apprehension that the nature of property would suggest that these will be used by other person referred to in sub-section (3) of section 13 of the Income Tax Act and these properties would be used without paying rent to the assessee. The ld. Assessing Officer has no where recorded a finding demonstrating the fact that these properties have factually been used by specified persons. In other words, the persons who are associated with the Society and because of their position taken undue a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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