TMI Blog2010 (7) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in holding that the assessee was eligible for the deduction prescribed u/s 11 though the same was disallowed by the Assessing Officer as there were violation of Section 13, 11(3) and 11(5) of the Income-tax Act,1961. 2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the disallowance of ₹ 40,26,264/- made on account of claim of the assessee towards the application of income in acquisition of fixed assets. 3. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of ₹ 13,10,639/- made on account of advance fee received. 4. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of ₹ 9,49,039/- made on account of refundable deposits viz. caution money, teachers deposit and journal advertisements to AICTE. 5. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the disallowance of ₹ 1,17,20,800/- made on account of Building Development Fund (Corpus Fund). 6. On the facts and in the circumstances of the case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety had violated the conditions prescribed in Section 13(1)(d)(i) read with Section 11(5) of the Act. 8. The AO, thereafter, held that the assessee had not submitted evidence while filing the original return as regard to a sum of ₹ 1,17,20,800/- being received for specific purpose of Building Development Fund and also held that in the course of re-assessment proceedings, also nothing was submitted, hence, he treated the same as taxable. The AO, accordingly, recasted income and expenditure account and computed the excess of income over expenditure at ₹ 1,98,68,003/- and completed the assessment proceedings. 9. Aggrieved by this, the assessee preferred an appeal before the ld. CIT(A). 10. The assessee made detailed submissions and assailed the assessment order. The main plea of the assessee was that the assessee society and Devi Shakuntala Thakaral and Charitable Foundation were distinct as that foundation was a separate person registered under the Societies Registration Act, wherein none of the persons referred to in clause (a)(b)(c)(cc) and the Section 13(3) were having substantial interest and, therefore, the findings of the AO as regard to violation of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11(1) in any manner. Hence, the accumulated income, which was exempt u/s 11(1)(a) was not to be invested in Government securities and the provisions of Section 11(2) were applicable only in case of additional accumulated income beyond 25 % whereon the assessee wanted to claim exemption, then the assessee had to follow the procedure as prescribed in Section 11(2) of the Act. Accordingly, the ld.CIT(A) directed the AO to grant the deduction of ₹ 35,38,918/- in assessment year 1999-2000 as an application of income u/s 11(1)(a) of the Act in respect of two other assessment years. The ld.CIT(A) also held so subject to the condition that in case there was an income after giving effect to the other condition, the assessee would be eligible for deduction u/s 11(1)(a) thereon also. 11. As regard to addition made by the Assessing Officer in assessment years 1999-2000 and 2000-01 in respect of corpus donation received towards building donation fund, the assessee submitted that the same were fully verifiable from the amounts received from the students and the books of account were itself an evidence and the correctness of such books of account had not been challenged by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the ld.CIT(A) has erred in deleting the addition of ₹ 13,754,347/- on account advance, tuition fees which was the income during the above assessment year. 5. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of ₹ 11,69,000/- which represents the difference between the opening and closing balance of deposits received from the students without appreciating the facts narrated in the assessment order. 6. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in holding that depreciation claimed by the assessee on assets whose cost has already been allowed as application for the purpose of claiming exemption u/s 11 of the Income-tax Act, is allowable and deleted the addition of ₹ 46,18,591/- without appreciating the facts narrated in the assessment order. 14. The facts and reasons for rejecting the claim of depreciation have already been narrated earlier, hence, no repeated. Similarly, facts relating to treatment of advance fee as income have already been narrated, hence, not repeated. Thereafter, the AO s findings relating to constitution of society and its sister concern and loan tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the following judicial decisions :- (a) ARR Trust vs. ACIT, 97 ITD 203 (Chennai) (b) CIT vs. Rajathan Text Book Board, 244 ITR 667 (Raj) (c) Aryan Educational Society vs. CIT, (2006) 8 (11) (ITCL)454 (Del) (d) Dy. CIT vs. St.Paul Secondary School, 9 SOT 702 (Del) (e) CIT vs. Pulikkal Medical Foundation, 210 ITR 299 (Ker). 16. It was also contended that expenditure incurred on acquisition of fixed assets was also a case of application of income and, therefore, amount spent on acquisition of fixed assets was liable to be considered as application of income. In this regard, the assessee relied on following judicial decisions:- (A) Gujarat High Court in the case of Satya Vijay Patel Hindu Dharamsala Trust vs. CIT, 86 ITR 683 (Guj). (B) S.RM. M. CT.M.TIRUPPANI TRUST vs. CIT, 230 ITR 636 (S. C.) (C) CIT vs. Janmabhumi Press Trust, 242 ITR 703. (D) CIT vs. Institute of Banking, 264 ITR 110 (Mum) 17. It was also submitted that in this year there was a deficit. Hence, no income was accumulated and set apart and, therefore, there was no question of violation of proviso to sub Section (2) of Section 11 of the Act. It was also contended that in such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation where the persons referred to in clauses (a), (b),(c), (cc) and (d) have share-holding of 20 % and above in the said company, which is not a case here. Sub-clause (ii) is also not applicable, because it applies to concern in which the persons referred to in clauses (a), (b), (c), (cc) and (d) having interest of 20 % or more in the profits of such concern, which is also not a case here. Further, the appellant institution has also not lent the income or the property of the institution to any person referred to in sub-Section (3). Therefore, I am of the view that the provisions of Section 13(2)(h) and 13(2)(a) have no application in the case of the appellant. I therefore decide the ground nos. 9 10 in favour of the assessee. 19. As regard to the AO s view that the assessee had violated provisions of Section 13(1)(d)(i) read with Section 11(5) of the Incometax Act,1961, the assessee submitted that investments made were not in violation of Section 11(5) of the Act. It was also submitted that the owner of the land was assessee society, which was duly reflected in the balance sheet of the society and the name of the society as owner of the land was also mentioned in Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sisters of St. Anne , 146 ITR 28 (Kar) (iv) CIT vs. Bheruka Public Welfare Trust, 240 ITR 513 (Cal). (v) CIT vs. Rao Bahadur Calavala Cunnal Chetty Charities, 135 ITR 485 (Mad). On this issue, the AO had observed that in earlier years as well as in current year, the deduction for the cost of asset has been allowed therefore the assessee is not eligible for depreciation. The assessee also submitted that the view of the AO was erroneous in view of the following decisions :- (vi) CIT vs. Institute of Banking, 264 ITR 110 (Bom) (vii) CIT vs. Munisuvarat Jain, [1994] Tax LR 1084 (Bom) (viii) Director of Income Tax (Exemption) vs. Framjee Cawasjee Institute, [1993] 109 CTR 463 (Bom) 23. The ld.CIT(A) held that depreciation was an application of the income in the case of Charitable Institution and the cost of acquisition though treated as an application of income. However, the assessee was entitled for depreciation thereon. Accordingly, he held that the assessee was entitled for allowance of depreciation to the tune of ₹ 46,18,591/-. 24. The ld. CIT DR appearing on behalf of the Revenue placed strong reliance on the order of AO, whereas the ld.counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Hon'ble Jurisdictional High Court in the case of CIT vs. Raipur Pallotine Society as reported in 50 Taxman 233 ( M.P.). Thus, this ground of the Revenue is also dismissed. 32. As regard to issue raised in ground no. 7 relating to income derived from property, it is noted that the assessee claimed that actual amount, which could be claimed was ₹ 35,38,918/- as against ₹ 18,61,261/- claimed by the assessee as per the provisions of Section 11(1)(a). The assessee has also placed reliance on the decision of the Hon'ble Gujarat High Court in the case of S. R. Koshti vs. CIT, as reported in 276 ITR 164. It is further noted that the ld.CIT(A) has accepted these claims of the assessee in assessment year 1999-2000 and in assessment year 2000-01 and 2004-05, the ld.CIT(A) has accepted the claim of the assessee for deduction to the tune of ₹ 48,67,521/- and ₹ 80,37,434/- subject to the effect of appellate order on other additions. In this process, the ld.CIT(A) has relied on the above cited decision of the Hon'ble Gujarat High Court and the decision of the Hon'ble Supreme Court in the case of S.RM.M.CT.M.TIRUPPANI Trust vs. CIT, as reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Shri K.L.Thakral is a person covered u/s 13(2) of the Income-tax Act,1961, to whom benefit was passed. 2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of ₹ 1,75,000/- rightly made by the Assessing Officer on account of remuneration paid to the persons covered u/s 13(2) of the Income-tax Act,1961. 3. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of ₹ 16,732/- rightly made by the Assessing Officer on account of payment of telephone mobile bill which are for personal use of Shri K.L.Thakral, a person covered u/s 13(2) of the Income-tax Act,1961. 40. As regard to ground no.1, the AO found that the assessee was paying rent of ₹ 50,000/- per month from M/s. Alka Industries if a proprietory concern of Shri K.L.Thakral, Chairman of the assessee society. The AO while examining the genuineness of the claim of the assessee and found that as against the claim of the assessee that M/s. Alka Industries at 1 lakh square feet area in its possession. The actual area was merely 40,000 sq. ft. The AO also examined the balance sheet of M/s. Alka Industries found t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out the taxable income at ₹ 1,91,57,700/-. Aggrieved by this, the assessee preferred an appeal before the ld. CIT(A), wherein the detailed submissions were made. The assessee gave point-wise reply to the findings of the AO. Such details are reproduced by the CIT(A) at pages 3 to 16 of the appellate order. Since the assessee had also submitted certain additional evidence before the CIT(A), the ld.CIT(A) sent the same for the report of the AO, wherein the AO merely reiterated that such additional evidences were not liable to be admitted. The ld.CIT(A) deleted all the three disallowances made by the Assessing Officer and also held that the assessee was entitled for exemption u/s 11 12 of the Act, as the assessee had not violated any provisions of Section 13. The relevant findings of the ld.CIT(A) are as under :- I have carefully considered the detailed submission given by the ld. Counsel of the appellant in support of his argument that appellant had not violated the provision of Section 13(2c) of Income-tax Act,1961, and appellant had given reasonable rent for use of plot of land of M/s. Alka Industries at the rate of 50,000/- p.m. to Shri K.L. Thakral and had paid r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant had paid reasonable amount of remuneration to these persons having due regard to the services rendered by these persons to the appellant. Shri K.L. Thakral, Shri Praveen Thakral and Shri Arun Sachdeva are totally devoted to the work of the appellant society. They are not employed anywhere and all the three thus remain engaged only for the work of the society. The comparison of salary paid by the appellant society to these persons with what has been paid to other functionaries and employees is not a fair. Similarly, there is no evidence on record that appellant had passed on any benefit by way of personal use of telephone to Shri K.L. Thakral and other family members. It is only presumption on the part of the AO that since telephone was installed at the residence of Shri K.L. Thakral the same might be used for the personal benefits of Shri K.L. Thakral and other family members. Accordingly, I hold that appellant had not violated the provisions of Section 13 so as to disentitle the appellant of the benefit as available to it u/s 11 and 12 of the Incometax Act,1961. Accordingly grounds no. 2, 5 and 6 are decided in favour of the appellant and I hold that since appellant had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee persons are looking after the work of the appellant society on whole time basis. They are totally devoted to the work of the appellant society and they are not employed anywhere and all the three persons are looking after the work of the appellant society on whole time basis. They are totally devoted to the work of the appellant society and they are not employed anywhere and all the three persons remain engaged only for the work of the society. As regards other society, they only attend the meetings. The comparison of payment of salary to these persons who are the office bearers of the society with what has been paid to other functionaries and employees of the institution does not appear to be fair. Shri K.L. Thakral has included in his income tax return the perquisite value for use of guest house for his family residence. Looking to the status of the office bearers and services rendered by them to the appellant society in my view, these persons have been allowed reasonable amount of salary. There is no evidence on record that appellant had passed on any benefit by way of personal use of telephone to the Chairman of the society and other family members. It appears to be only the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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