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2015 (11) TMI 857 - ITAT CHENNAI

2015 (11) TMI 857 - ITAT CHENNAI - TMI - Eligibility for making claim under Section 11 - payment of advance to the trustee, which is in excess of the market value of the land, would make the assessee ineligible for making claim under Section 11 - according to the Ld. D.R., there was a clear violation of provisions of Section 13(1)(c) - CIT(A) allowed the claim - Held that:- Held that:- The assessee has received ₹ 4,06,92,078/- being the interest from the Managing Trustee, in addition to th .....

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dvanced in pursuance of the agreement for sale. After cancellation of agreement, the money was returned in its entirety. Since there was delay in repayment of money received as advance for sale of the land, the Managing Trustee has also paid interest to the extent of ₹ 4,06,92,078/-. Therefore, at any stretch of imagination, it cannot be said that the money was diverted for interest of the Managing Trustee. Therefore, this Tribunal is of the considered opinion that there is no violation of .....

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er himself disallowed the claim of the assessee on the ground that the money was advanced to the Managing Trustee. Since this Tribunal found that there was no violation of Section 13(1)(c) of the Act in respect of the agreement entered between the assessee-Trust and the Managing Trustee for purchase of property and it is not in dispute that the Managing Trustee returned entire amount with interest of ₹ 4,06,92,078/-, the assessee is entitled for exemption under Section 11 of the Act. There .....

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the assessee that it is not doing any business. Therefore, this Tribunal is of the considered opinion that the assessee is not entitled for any depreciation under Section 32 of the Act. See Tamil Nadu Cricket Association v. DDIT(Exemptions) [2015 (8) TMI 761 - ITAT CHENNAI ] wherein held as when the written down value of the asset becomes NIL since the entire cost was allowed as application of income under Section 11 of the Act, this Tribunal is of the considered opinion that there cannot be an .....

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ax (Appeals)-VII, Chennai, dated 31.05.2013 and pertain to assessment year 2010-11. 2. Shri S. Bharath, the Ld. Departmental Representative, submitted that the assessee-Trust is registered under Section 12AA of the Income-tax Act, 1961 (in short 'the Act') and claimed exemption under Section 11 of the Act for the year under consideration. However, the Assessing Officer found that the assessee-Trust gives loan to the interested persons in violation of Section 13(1)(c) r.w.s. 13(3) of the .....

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the Assessing Officer brought out the entire transaction at pages 2 and 3 of his order. The assessee claimed before the Assessing Officer that the transaction being a loan transaction, the money was received in pursuance of agreement for sale. According to the Ld. D.R., the assessee claimed before the Assessing Officer that it intended to establish a medical college. Therefore, the assessee entered into an agreement for purchase of land with the Managing Trustee. However, after considering the m .....

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the Ld. D.R., there was a clear violation of provisions of Section 13(1)(c) of the Act, since the money was advanced to the Managing Trustee without any adequate security. 3. Shri Bharath, the Ld. D.R., further submitted that the assessee has received donation from Sri Balaji Charitable and Educational Trust. According to the Ld. D.R., by a gift deed dated 03.03.2010, Sri Balaji Charitable and Educational Trust has donated three of its institutions to the assessee-Trust, along with land, buildi .....

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extent of ₹ 37,83,27,838/- was taken as income of the assessee. According to the Ld. D.R., since there was violation of Section 13(1)(c) of the Act, the assessee is not eligible for exemption under Section 11 of the Act, therefore, the Assessing Officer rejected the claim of the assessee. However, on appeal by the assessee, the CIT(Appeals) allowed the claim of the assessee on the ground that the money was advanced to the Managing Trustee for purchasing the landed property since the Trust .....

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ministering educational institutions. The educational institution established by the assessee was recognized as deemed university by University Grants Commission. For the purpose of obtaining the deemed university status, the University Grants Commission prescribes certain guidelines, including infrastructure facilities. During the financial year 2009-10, the assessee-Trust planned to start a medical college as part of its charitable activity. As per the guidelines prescribed by Medical Council .....

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the related persons. In fact, the CIT(Appeals) extracted the interest-free loan received by the assessee-Trust from the related persons and Managing Trustee. 5. According to the Ld.counsel for the assessee, Section 13 of Act is not prohibiting any transaction by the Trust with interested persons. What is prohibited by Section 13 of the Act is advancing of money without adequate security or adequate interest. In the case before us, even though the money was advanced for purchase of property as p .....

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t any interest. In fact, the assessee had paid more interest than the market rate. Therefore, there is no question of violation of Section 13(1)(c) of the Act. 6. Referring to the receipt of three institutions from Sri Balaji Charitable and Educational Trust, the Ld.counsel for the assessee submitted that, in fact, the assessee-Trust received as donation three institutions from Sri Balaji Charitable and Educational Trust. No funds of the assessee-Trust were transferred to Sri Balaji Charitable a .....

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ritable and Educational Trust cannot be a reason for rejecting the claim of the assessee under Section 11 of the Act. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee under Section 11 of the Act. 7. We have considered the rival submissions on either side and perused the relevant material on record. It is not in dispute that the assessee-Trust is registered under Section 12AA of the Act. It is also not in dispute that there was an agreement for sale of the land belonging .....

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pending upon various factors. The urgency of the vendor to sell the property, the necessity of the purchaser to purchase the property, the location of the land, the area of the land, infrastructures available nearer to the land and future prosperity for development of the land, etc. need to be considered while determining the market value of a land. Apart from that, it is well settled principles of law that market value is nothing but a price agreed between the willing seller and willing purchas .....

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ually the agreed price. Therefore, the observation of the Assessing Officer in the assessment order that the value of the land is much less than what was agreed between the parties cannot stand in the eye of law. When the assessee-Trust intended to establish a medical college for which it requires minimum 25 acres of land and the Managing Trustee has such vast area of land, nothing wrong in purchasing the land from the Managing Trustee by paying the market value. Subsequently, the assessee-Trust .....

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r the benefit of the person interested, then there shall be a diversion of funds for the interested person. Section 13(1)(c) says that if the amount paid is excess of what was reasonably paid for the service rendered has to be considered as used or applied for the benefit of person interested. In the case before us, the Managing Trustee has not rendered any service. In fact, there was an agreement for purchase of property. Therefore, the question arises for consideration is whether the money adv .....

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s Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that after cancellation of agreement, the assessee-Trust was returned and compensated by way of interest. Therefore, the transaction between the assessee-Trust and the Managing Trustee cannot be construed as without any adequate security or without any adequate interest. Therefore, this Tribunal is of the considered opinion that the money was in fact advanced in pursuance of the agreement for sale. After cancellation .....

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rom Sri Balaji Charitable and Educational Trust, what was received by the assessee is capital asset by way of three institutions and its infrastructures. It is nobody s case that the assessee s funds were diverted to any other Trust. When the assessee received three institutions for carrying out its charitable activity, it cannot be said that there was a violation of any other provisions of Income-tax Act. In fact, the Assessing Officer himself disallowed the claim of the assessee on the ground .....

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the CIT(Appeals) and accordingly, confirmed. 10. The assessee has filed the cross-objection claiming depreciation to the extent of ₹ 5,25,30,554/-. 11. Admittedly, the assessee-Trust is registered as charitable institution and it is claiming exemption under Section 11 of the Act. The claim of the assessee under Section 11 of the Act is allowed by the CIT(Appeals) which was confirmed by this Tribunal in the earlier part of this order. It is not the case of the assessee that it is not doing .....

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erused the relevant material on record. Let s first take assessment year 2008-09. The assessee is claiming depreciation under Section 32 of the Act. For the purpose of convenience, we are reproducing Section 32 hereunder:- 32 (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture being tangible assets ; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or .....

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on shall be allowed under this clause in respect of-(a) any motor car manufactured outside India, where such motor car is acqired by the assessee after the 28th day of February, 1975 5but before the 1st day of April, 2001, unless it is used-(i) in a business of running it on hire for tourists; or(ii) outside India in his business or profession in another country ; and(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered in .....

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escribed for an asset under clause (i) 6or clause (ii) or clause (iia), as the case may be: Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999, and is put to use before the 1st day of April, 1999, for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation .....

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light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road-roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988). Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this .....

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r commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates .....

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in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation - 2. For the purposes of this sub-se .....

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es of this sub-section, the expression "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto) ; Explanation - 5. For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the ded .....

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ect of-(A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person ; or(B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house ; or(C) any office appliances or road transport vehicles ; or(D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in com .....

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rniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. Explanation - For the purposes of this clause,- (1) "moneys payable" in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof ; (b) where the building, machinery, plant or furniture is sold, the price for which it .....

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nty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso ; (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is 8an Indian company or in a scheme of amalgamation of a ban .....

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year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if t .....

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n engaged itself in public utility service. Once the assessee claims that it is a charitable organization and not engaged in business or profession, this Tribunal is of the considered opinion that the provisions of Section 32 have no application at all. The provisions of Section 32 in fact were not brought to the notice of this Tribunal while deciding the assessee's own case for assessment year 2007-08 and also the decision of Sri Mariamman Educational Health and Charitable Trust (supra). In .....

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cussed in the case of Lissie Medical Institution Vs. CIT reported in [2012] 348 ITR 344(Ker.) and held the issue against the assessee. While doing so, the Hon ble Kerala High Court had considered the Circular No.5P(LLX-6) dated 19.06.1968 which has not been considered by the other decisions. The Circular No. 5P(LLX-6) is reproduced herein below for reference:- 1. Circular No. 5-P (LXX-6) of 1968, dated 19-6-1968. Subject : Section 11-Charitable trusts-Income required to be applied for charitable .....

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lained below. 2. Section 11(1) provides that subject to the provisions of sections 60 to 63 "the following income shall not be included in the total income of the previous year . . . ". The reference in sub-section (a) is invariably to "income" and not to "total income". The expression "total income" has been specifically defined in section 2(45) of the Act as "the total amount of income . . . computed in the manner laid down in this Act". It wou .....

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ich is in excess of the income as shown in its accounts, is to be deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed by the account will be eligible for exemption under section 11(1), the permitted accumulation of 25 per cent will also be calculated with reference to this income. 4. Where the trust derives income from house property, interest on securities, capital gains, or other sou .....

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poses other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under section 11(1). 5. To sum up, the business income of the trust as disclosed by the accounts plus its other income computed above, will be the "income" of the trust for purposes of section 11(1). Further, the trust must spend .....

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surplus available with the assessee, which was outside the books of account of the trust unless it was written back which was not done by the assessee. It was not permissible for a charitable institution to generate income outside the books in this fashion and there would be violation of section 11(1)(a). It was for the assessee to write back the depreciation and if that was done, the Assessing Officer would modify the assessment determining higher income and allow recomputed income with the de .....

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