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ITO, (E) , Trust Ward III, Delhi Versus M/s. Calorex Foundation

2015 (11) TMI 988 - ITAT DELHI

Entitlement for depreciation on assets - CIT(A) allowed the claim - as per revenue assessee has already claimed as application of income or that the complete amount spent on purchase of the said assets and as such correctly claimed 100% deduction in the initial stage itself and by doing so, Ld. CIT(A) has in fact granted double benefit to the assessee - Held that:- Keeping in view the fact that the income of the appellant is exempt u/s 11 of the Act and when certain assets purchased by the asses .....

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me for charitable purpose, the income earned on the sale of such assets is part of income even for taxation purposes. So, Ld. CIT(A) has rightly deleted the addition of ₹ 70,395/- Decided in favour of assessee.

Addition made u/s 68 in respect of corpus donation - Held that:- When the assessee has provided the complete details of corpus donors in the form of individual confirmations from such donors, their names and addresses as well as PAN, it was for the A.O. to confirm the sam .....

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e assessee.

So, consequently, the amount spent by the assessee towards charitable cause, during the year under consideration, is more than the income earned if the allegation of the A.O. is taken as correct. So, under these circumstances, no addition can be made u/s 11(1A) of the Act. Even otherwise, when the amount of ₹ 25,32,000/- has been added in the income again, making addition u/s 68 of the Act would amount to double addition/taxation. When the corpus donations received b .....

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the present appeal under I. T. Act, 1961 (hereinafter referred to as the Act ) sought to set aside the order dated 24.03.2010 passed by Ld. CIT(A) XXI, New Delhi qua the Assessment Year 2006-07 on the grounds inter alia that:- 1. On the facts & in the circumstances of the case, the Ld.CIT (A) has erred in holding that the Assessee is entitled to depreciation on assets when, in the first place, the Assessee has already claimed, as application of income, the complete amount spent on purchase .....

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be taken at net value instead of gross value amount at ₹ 84,0001- as full value of cost of capital assets already stood allowed to the Assessee as application on income. 3. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in holding that no addition could be made u/s 68 of the Act in respect of corpus donations amounting to ₹ 25,32,000/- despite failure of the Assessee to discharge the onus cast regarding proving the genuineness of the said donations. 4. On .....

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Year 2006-07, the case was subjected to scrutiny and notices along with questionnaire u/s 143(2) and 142(1) were served upon the assessee who put appearance through Shri Sunil Gupta, CA who has attended the proceedings, filed details and discussed the case. 3. The assessee is a trust registered u/s 12A (a) of the Act w.e.f. 27.02.1996 to avail exemption u/s 80G valid up to 31.03.2005. The trust is running a school in the name and style of Delhi Public School at Ahmedabad for providing education .....

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mption u/s 11 of the Act whereas, on the same assets, the assessee was granted application of capital expenditure on this account and the assessee has further claimed application of depreciation amounting to ₹ 2,07,88,207/- which is not allowable. The assessee in response to the query raised by the A.O., stated that the assessee has charged an amount of ₹ 2,18,48,560/- in the books of account as depreciation and while making computation of income for the income tax purposes, the same .....

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ning the submissions made by the assessee in the light of law laid down by Hon'ble Supreme Court and Hon'ble High Court, disallowed the depreciation of ₹ 2,07,88,027/- claimed by the assessee. 4. The assessee during the year under assessment had income from sale of asset and has offered an income of ₹ 13,605/-. The claim of the assessee on account of capital expenditure was being allowed and as such the entire sale proceeds be taken as income of the assessee since the sale pr .....

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s were issued to 20 persons / parties duly described in the order of the A.O. and in all the cases, no reply has been received till date and thereafter, assessee was asked to prove the genuineness and creditworthiness of corpus donors but he has not brought out any evidence to support this fact till date and as such an amount of ₹ 25,32,000/- amounted to undisclosed income and consequently made the addition. 6. The assessee challenged the assessment order before Ld. CIT(A) by way of appeal .....

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duly covered by the judgement delivered by Hon'ble Jurisdictional High Court cited as Director of Income Tax Vs Vishwa Jagriti Mission, 73 DTR (Del.) 195 and the judgement delivered by Hon'ble Punjab & Haryana High Court entitled as ACIT Vs Tiny Tots Education Society in I.T.A.No. 3182/Del/2008 and prayed for dismissal of the appeal. 9. Grounds No.1 & 2: Grounds No.1 and 2 are interlinked and more so, ground No.2 is an extension of ground No.1. To decide the controversy at hand, .....

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istered u/s 12A of the Act and has been granted exemption u/s80G of the Act meaning thereby appellant s income is exempted under the provisions of Section 11 of the Act. The assessee had purchased some fixed assets in the earlier year and claimed it to be exempted u/s 11 as application of income for charitable purposes on the ground that the same was used for charitable purposes. During the year under assessment, the assessee has claimed an amount of ₹ 2,07,88,207/- as depreciation. 11. Ld .....

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plicable as per Income Tax Rules. The AO seems to have got confused between the two things, the income chargeable to tax, and the conditions, fulfillment of which make the said income exempt from tax. The AO has failed to appreciate the difference between the income chargeable to tax, and the application of income which is a condition for the purposes of exemption under section \ 11. Application of income is not computation of income and the provision of application of income would come into pla .....

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the AO, is in respect of section 35(2)(iv), which specifically disallows the deduction u/s.32, whereas, there is no such explicit provision in respect of exemption claims u/s. 11 and 12. 11.1 On the other hand, the A.O. decided the matter by relying upon the judgement of Hon'ble Supreme Court cited as Escorts Limited Vs Union of India 199 ITR 43. 12. However, Ld. CIT(A) relied upon the judgement cited as ACIT Vs Tiny Tots Education Society (supra) wherein, identical issue has arisen before .....

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ed depreciation for the purpose of showing the amount utilized. The A.O. disallowed the depreciation on the ground that the income of the assessee being exempt, claim for depreciation would amount to taking of double benefit. The CIT(A) held that deduction for computing income to preserve the corpus of the trust was permissible and did not amount to double benefit. This view was upheld by the Tribunal observing that application of income was not computation of income of the charitable institutio .....

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should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust. It could not be held that double benefit was given in allowing the claim for depreciation for computing income for purposes of section 11. 13. Identical issue came up before the Hon'ble Jurisdictional High Court in the case cited as Director of Income Tax Vs Vshwa Jagariti Mission 73 DTR (Del.) 195 where, the Hon'ble High Court vide order dated 29th March 2012 .....

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ed on commercial principles and in doing so whether depreciation on fixed assets utilized for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(Appeals) as well as the Tribunal. In CIT vs. The Society of the Sisters of St. Anme (Supra), an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under Sect .....

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reciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circular No.5-P (LXX-6) of 1968, dated July 19, 1968 was reproduced in the judgment in which the Board has taken the view that the income of .....

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ust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s 11 (3) to the extent that they represent outgoings for purposes 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 u/s. 11(1)." 12. A similar view was earlier expresse .....

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d by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. 13. The judgment of the Supreme Court in Escorts Limited .....

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on business and the statutory computation provisions of Chapter IV-O of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with t .....

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iness outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals). 14. Having regard to the consensus of judicial opinion on the precise question that has arisen in the present appeal, we are not inclined to admit the appeal and frame any substantial question of law. There does not appear to be any contrary view plausible on the question raised before us and at any rate no judgment taking a contrary view has been broug .....

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e same year or in the earlier year. By applying the law laid down b y Hon'ble High Court discussed in the preceding paragraphs as well as amended provisions of Section 10(23C) and Section 11 of the Act, Ld. CIT(A) has rightly determined the issue in favour of the assessee by holding that application of income is not computation of income and the provisions of application of income would come into play after only the income chargeable to tax is determined and the income has to be in its gener .....

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e period under assessment, the assessee had offered an income of ₹ 13,605/- as profit on the sale of asset and the A.O. has taken the entire sale proceeds as income to be assessed on the ground that the claim of assessee has already been allowed on account of capital expenditure, thus made an addition of ₹ 70,395/- i.e. (Rs.84,000 - ₹ 13,605 = ₹ 70,395/-), which is the profit on the sale of asset. 16. Keeping in view the fact that the income of the appellant is exempt u/s .....

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95/- used for purchasing fixed assets, is application of income for charitable purpose, the income earned on the sale of such assets is part of income even for taxation purposes. So, Ld. CIT(A) has rightly deleted the addition of ₹ 70,395/-. Consequently, grounds No.1 & 2 are determined against the appellant. 17. Grounds No.3 & 4: Both the grounds are interlinked and the question arises for determination qua the aforesaid grounds is, as to whether Ld. CIT(A) has erred in holding th .....

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see received corpus donation of ₹ 25,32,000/- during the Assessment Year under consideration and filed the confirmation letter in respect of corpus donors with their addresses. The A.O. in his order dated 30.12.2008, categorically recorded that despite issuance of notice u/s 133(6) of the Act to 20 donors claimed by the assessee, no reply / confirmation has been filed by them. The assessee failed to prove the genuineness and creditworthiness of the corpus donation despite specific directio .....

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, that in this case, the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assessees. Their index numbers were in the file of the revenue. The revenue apart from issuing notices under section 131 at the instance of the respondent did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no .....

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using to states a case. 21. The issue in controversy in the present appeal is duly covered under the judgement supra because when the assessee has provided the complete details of corpus donors lying in the paper book at pages 50-145 in the form of individual confirmations from such donors, their names and addresses as well as PAN, it was for the A.O. to confirm the same. Merely issuance of notices by the A.O. to the corpus donors u/s 133(6) of the Act is not enough to discharge the onus. The A. .....

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