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2016 (5) TMI 1166 - PUNJAB AND HARYANA HIGH COURT

2016 (5) TMI 1166 - PUNJAB AND HARYANA HIGH COURT - TMI - Exemption under section 11 - capital expenditure incurred by the assessee on objects of general public utility - Held that:- Apex Court in S.RM.M.CT.M. Tiruppani Trust's case (1998 (2) TMI 3 - SUPREME Court ) had held that the amounts spent on acquiring capital assets for the trust were exempt.

In the present case, the town development expenditure of ₹ 3,79,192/- and expenditure against works of ₹ 8,76,538/- was inc .....

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HAR DHAWAN, JJ. For The Appellant : Ms. Radhika Suri, Sr. Advocate with Mr. Rinku Dahiya, Advocate For The Respondent : Mr. Denesh Goyal, Advocate Ajay Kumar Mittal,J. 1. The delay in refiling the appeal is condoned. 2. This appeal has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 30.6.2009, Annexure A.1 passed by the Income Tax Appellate Tribunal, Amritsar Bench (in short, the Tribunal ) in ITA No.223 (ASR)/2 .....

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decision of the controversy involved as narrated in the appeal may be noticed.The appellant-assessee was registered under section 12AA of the Act vide order passed by the Tribunal on 15.6.2007 in ITA Nos.184 and 195 ASR 2006. The said order was upheld by this court on 31.10.2008, Annexure A.2.The assessee was thus held to be a charitable institution carrying on activities of general public utility within the meaning of Section 2(15) of the Act. The assessee filed return for the assessment year .....

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und that the expenditure being incurred by the assessee on its objects was capital in nature. Not satisfied with the order, the assessee filed appeal before the Tribunal contending that the expenditure incurred by it on account of payment against works amounting to ₹ 8,76,538/- and town development expenses at ₹ 3,79,192/- was in consonance with its objects of general public utility and no distinction had been made under the Act holding that application of income must be only towards .....

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e instant appeal by the appellant-assessee. 4. We have heard learned counsel for the parties. 5. Learned counsel for the appellant-assessee submitted that the issue involved in this appeal stands concluded by the judgment of this Court in Pinegrove International Charitable Trust vs. Union of India and others, (2010) 327 ITR 73 wherein the judgment of the Apex Court in S.RM.M.CT.M Teruppani Trust's case (supra) has been relied upon. An affidavit dated 26.4.2016 has also been filed by Executiv .....

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of the Act. After considering the relevant case law on the point and following the judgment of the Apex Court in S.RM.M.CT.M. Tiruppani Trust's case (supra), it was held by this Court that in case of an educational institution, capital expenditure is to be deducted from its gross receipts/income whenever the institution applies its Income for the attainment of its object. Thus, the capital expenditure incurred by the trust would be application of Income and assessee would be entitled to exem .....

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y applies its income for the achievement of its object. The word applies its income means to put to use or to turn to use or to make use or to put to practical use (see CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal, 211 ITR 293 (Guj)]. The aforesaid view is further supported from a bare perusal of clause 11 of Form No. 56D of the Rules, which is required to be filed in terms of the provisions of Rule 2CA when viewed in the light of the judgment rendered by Hon ble the Supreme Court and the .....

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lhi High Court in the aforementioned cases, arising under Section 11(1) of the Act, have held that the capital expenditure incurred by the trust would be application of income and the assessee would be entitled to exemption under Section 11(1) of the Act. Even the High Court of Uttrakhand in the case of CIT v. Jyoti Prabha Society, (2009) 177 Taxman 429 (Uttrakhand) has held that the educational society which had utilized rental income again for the purposes of imparting education by maintaining .....

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e of wherein noticing the Circular dated 19.6.1968 it has been emphasized that capital expenditure has to be deducted from the total income of the Trust for the purposes of finding out how much has been accumulated by the assessee-Trust. Thus, both on principle and precedents the capital expenditure is to be deducted from the gross income of the educational institutions like the petitioner-society. Admittedly, in the present case of the petitioner-society the application of income is more than 1 .....

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to keep in view the third proviso while wrongly holding that since the substantial profits are being earned year after year it could not be said that the surplus is arising incidentally and, therefore, the petitioner-society was not entitled to be exempted. 7. In S.RM. M.CT.M.Tiruppani Trust's case (supra), it was held by the Apex Court that under section 11(1)(a) of the Act, income derived from property held under trust for charity to the extent that such Income is applied for charitable o .....

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lied ₹ 8 lakhs for charitable purposes in India by purchasing a building which was to be utilized as a hospital. This Income was held entitled to exemption under section 11(1) of the Act. The relevant observations made by the Apex Court read thus:- .....Mr. Harish Chandra, learned counsel; appearing for the Department has, however, stated before us the at the sum of ₹ 8 lakhs does constitute that income of the assessee-Trust. But this income was required to be invested in Government .....

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tal income of the previous year. The income so exempt is the income which is applied by the Charitable or Religious Trust to its charitable or religious purposes in India. If the entire income is so applied, the entire income would be exempted. If the entire income is not applied but some income is accumulated by such a Trust, then also under Section 11(1)(a), such accumulated income to the extent of 25% of the total income (or ₹ 10,000/-. whichever is higher) would be exempted from income .....

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; 10,000/-) is to be exempted then the assessee has to comply with the conditions prescribed under Section 11(2). In the case of Additional Commissioner of Income-Tax & Anr. vs. A.L.N. Rao Charitable Trust reported in (1995) 216 ITR 697, this Court considered the provisions of Section 11(1)(a) in the light of Section 11(2) and held that Section 11(2) dose not in any manner restrict the operation of Section 11(1). The accumulated income which is exempt under Section 11(1)(a) need not be inves .....

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