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2017 (1) TMI 666 - ITAT DELHI

2017 (1) TMI 666 - ITAT DELHI - TMI - Denial of exemption under section 11 - Non charitable activity - Held that:- Expenditure incurred on blood donation camps, Free books distribution are purely charitable in nature and therefore these are to be considered application of income. Administrative expenses are basically includes printing & stationery, conveyance expenses, office maintenance expenses which are necessary for running office of the trust. It is not the case of the AO that the assessee .....

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is not the case of the AO that the assessee has made any business of sale or purchase of property. There is no allegation that activities are not charitable in nature. Thus we delete the addition in dispute and accordingly decide the issue in dispute in favour of the assessee and against the Revenue. - I.T.A. Nos. 1824/DEL/2016 & 2025/DEL/2015 - Dated:- 9-1-2017 - SHRI H.S. SIDHU, JUDICIAL MEMBER For The Assessee : Sh. Ved Jain, Adv., Sh. Ashish Goel, CA For The Department : S h. Anil Kumar Sha .....

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and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the addition of ₹ 44,54,602/- made by the learned AO. 3. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the action of A.O. in denying the exemption under section 11 of the Income Tax Act while computing its income ignoring the fact that the assessee-society is an educational institution and registered under section 12AA of the Income T .....

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ting the fact that the income U/s 11 (1) refers. to the income from property held under the trust and which has to be applied for charitable purposes irrespective of the head of income under which the income is assessable. 6. On the facts and circumstances of the case, learned CIT (A) has erred both on facts and in law in ignoring the various judicial pronouncements in this regard. 7. That the CIT(A) has erred both on facts and in law in confirming the findings of the learned AO ignoring the exp .....

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eceipt of ₹ 97,90,257/- as income from house property and taxed under the head income from house property. 4. That the Ld. CIT(A) erred in sustaining that there is no application / utilization of expenses against the receipt for the purpose of charitable activity u/s. 2(15) of the Income Tax Act, 1961. 5. That the Ld. CIT(A) has erred in sustaining the interest charged u/s. 234A, 234B, 234C and 234D of the Income tax Act. Prayer:- It is therefore, prayed that the disallowance / additions s .....

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esponse thereto, assessee s AR appeared and filed the reply. AO observed that the society has made an agreement with M/s Mothers Pride Personal Ltd. to establish a pre-school learning centre/ nursery school. As per the agreement with the assessee and the said company, premise will be made available free of charges during the subsistence of the agreement. In consideration of the above assessee is entitled to 20% of the entire collection which includes registration charges, admission charges, annu .....

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IT Refund Interest of ₹ 37,382/- and miscellaneous income of ₹ 7,95,450/-received as voluntary donations. Total addition of ₹ 44,54,602/- was made to the returned income of the assessee. Thereafter, the AO completed the assessment at ₹ 44,54,602/- by making various additions vide his order dated 29.3.2014 passed u/s. 143(3) of the Income Tax Act, 1961. 5. Against the assessment order dated 29.3.2014, assessee appealed before the Ld. CIT(A), who vide his impugned order dat .....

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. He further stated that the rental income from the property is in the charitable objects of the Trust as mentioned in the Clause z aa) of the Memorandum of Association. He relied upon the order of the Chennai Bench in the case of Anjuman-EHimayath- E-Islam (2015) 154 ITD 755. He further stated that in respect of interest expenses of ₹ 24,25,411/- it has been paid on term loan taken to acquire/ construction of assets of the society. He further stated that assessee has also made the repayme .....

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asically includes printing and stationery, conveyance expenses, office maintenance expenses which are necessary for running office of the trust. Therefore, he finally stated that this is not the case of the AO that the assessee has made any business of sale or purchase of property. There is no allegation that activities are not charitable in nature. In view of the above, he requested that addition in dispute may be deleted. 8. On the contrary, Ld. DR opposed the aforesaid contention of the Ld. C .....

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A.Y. 2011-12 on 01.08.2011 declaring total income of Rs. Nil along with copy of Audit Report, Balance sheet and Income & Expenditure Alc. It has been noticed that during the year under consideration the assessee had an agreement with M/s Mothers Pride Education Persona Limited to establish a pre-school learning center nursery school. As per the agreement with the assessee and the said company, premises will be made available free of charge during the subsistence of the agreement. In conside .....

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77; 15,46,359/- of the Income Tax Act. Further addition of ₹ 12,676/- on account of interest income, Income from IT Refund Interest of ₹ 37,382/- and miscellaneous income of ₹ 7,95,450/- received as voluntary donations. Total addition of ₹ 44,54,602/- was made to the returned income of the assessee. Aggrieved by the order of the AO assessee preferred an appeal before the Ld.CIT(A) who rejected the contention raised by the assessee that the interest paid by the assessee fo .....

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ncome of ₹ 12676/-, ₹ 37382/- on account of interest on refund and ₹ 7,95,450/- as miscellaneous income which is the amount received as voluntary donation without giving any justification for the same. I further find that AO has accepted the application of funds made by the assessee and he did not make any adverse comment on the activities rendered by the assessee. In the present case, assessee purchased and constructed the property after taking term loan from the bank and made .....

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carrying out the same, the society shall have power to receive, hold and posses any property including securities of any kind and to construct and maintained any building and to enter into any contract for or in connection with the purpose of the society to raise funds by creating charge over the assets of the society or otherwise for the benefit of the society and to accept the management of any trust or endowment in which the society may be interested. 9.1 My aforesaid view is fully supported .....

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s reproduced hereunder: "6.3 We have heard both the parties and carefully perused the materials available on record. Chapter-III refers to "income which does not form part of total income". Section-11 of the Act placed under Chapter-III deals with 'income from property held for charitable or religious purpose'. Section- 11 (1 )(a) provides that income derived from the property held under trust wholly for charitable or religious purpose, to the extent to which such income i .....

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under the head "C-Income from house property". Therefore while determining the "income" of the assessee trust and its "application of income" for the purpose of claiming exemption u/s. 11(1 )(a) of the Act, the provisions of Chapter-IV - Sections 22 to 27 of the Act which is applicable for computing the income chargeable to tax under the head 'income from house property' will not be attracted. However, provisions of sections 22 to 27 of the Act will come int .....

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hatsoever related to the rental income has to be allowed as deduction and the net income which is the real income, will be treated as the income of the Trust. From our above discussion the ground raised by the assessee on this issue will not survive and therefore, the order of the Revenue is upheld. " 9.2 Further a perusal of income & expenditure and CIT(A) order at page no. 6 shows that application made by the assessee is towards the charitable activities and as per the objects of the .....

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n to acquire/construction of assets of the society. Further, assessee has also made the repayment of loan to the tune of ₹ 29,51,584 and depreciation of ₹ 32,31,728/- are the application of income for charitable purposes. In this regard, reliance is placed on the judgement of the Madras High Court in the case of DIT(E) vs GovinduNaicker Estate[2009] 315 ITR 237 (Madras) wherein it has been held as under: 9. In the case on hand, it is an admitted fact that the property of the assessee .....

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st borrowed fund from the Indian Bank. Thus, the capital asset so put up by the borrowed fund is only for the purpose of augmenting income in order to carry out the object of the trust as envisaged. It is clear from the order of the Commissioner of Income-tax (Appeals) that neither the Assessing Officer nor the assessee has adverted to the object of the charitable trust. But the authorities proceeded on the premise that the complex has been put up by the trust in order to perform its charitable .....

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d fund, under no circumstances, could be regarded to be outside the scope of its objects. If it is within the objects of the charitable trust, then there is no reason as to why the borrowing made for the construction of the building and repayment of the loan could not be treated as an application of income. It is not the case of the Assessing Officer that the asses- See by constructing the commercial complex contravened the objects of the trust. There is no provision in the Act, which disentitle .....

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d for charitable purposes. 9.4 From the above, I noticed that Expenditure incurred on blood donation camps, Free books distribution are purely charitable in nature and therefore these are to be considered application of income. Administrative expenses are basically includes printing & stationery, conveyance expenses, office maintenance expenses which are necessary for running office of the trust. In view of the above, it is not the case of the AO that the assessee has made any business of sa .....

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f income on 08.10.2010 declaring total income of Rs. NIL. The return of income was processed u/s. 143(1) of the I.T. Act. The case was picked up for scrutiny. Accordingly, notice u/s. 143(2) of the I.T. Act was issued on 23.9.2011 and further statutory notice u/s. 142(1) alongwith questionnaire issued on 15.10.201. In response to the notice, assessee s AR appeared and filed the information, details and written submissions. AO observed that the society has made an agreement with M/s Mothers Pride .....

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and refundable security. AO during the assessment proceedings considered the amount received from Mothers Pride Persona Limited of ₹ 97,90,257/- as Income under the head house property and allowed statutory deduction (@30%} of ₹ 29,37,077/- and interest on borrowed capital of ₹ 33,94,280/- under section 24 of the Income Tax Act. Further addition of ₹ 17,503/- on account of interest income was also made by him. Total addition of ₹ 34,54,602/- was made to the returned .....

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), assessee is in appeal before the Tribunal. 13. During the hearing, Ld. Counsel of the assessee has stated that in the present case the assesse purchased and constructed the property after taking term loan from the bank and made the agreement with the Mother Pride Education Persona P Ltd. in respect of rental income. There is no case of any transfer of funds to the members of the society. He further stated that the rental income from the property is in the charitable objects of the Trust as me .....

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2(15) of the Act. in respect of interest expenses of ₹ 33,94,280/- it has been paid on term loan taken to acquire/ construction of assets of the society. He further stated that assessee has also made the repayment and depreciation of ₹ 33,94,280/- are the application of income for charitable purposes. He relied upon the order of the Hon ble Madras High Court in the case of DIT(E) vs. GovinduNaicker Estate (2009) 315 ITR 237 (Madras). It was the further contention that expenditure inc .....

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contention of the Ld. Counsel of the assessee and relied upon the orders of the authorities below and requested that the same may be upheld. 15. I have heard both the parties and perused the relevant records available with me, especially the orders passed by the revenue authorities and the case laws cited by the Ld. Counsel of the Assessee. During the year under consideration the assessee had an agreement with M/s Mothers Pride Education Persona Limited to establish a pre- school learning center .....

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ings consider the amount received from Mothers Pride Persona Limited of ₹ 97,90,257/- as Income under the head house property and allowed statutory deduction (@30%} of ₹ 29,37,077/- and interest on borrowed capital of ₹ 33,94,280/- under section 24 of the Income Tax Act. Further addition of ₹ 17,503/- on account of interest income was also made by him. Total addition of ₹ 34,54,602/- was made to the returned income of the assessee. The assessee is not engaged in cha .....

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made the agreement with the Mothers Pride Education Persona P Ltd in respect of rental income. There is no case of any transfer of funds to the members of the society. Further, rental income from the property is in the charitable objects of the trust as mentioned in the clause (z aa) of the Memorandum of Association. Further a perusal of income & expenditure shows that application made by the assessee is towards the charitable activities and as per the objects of the society. The issue is sq .....

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on'ble Uttarakhand High Court in the case of COMMISSIONER OF INCOME-TAX Versus JYOTI PRABHA SOCIETY [2009] 310 ITR 162 (Uttarakhand) held as under; "It is true that the activities of the respondent-society includes letting out of the properties to the educational institutions. Had the rental income earned by the respondent-society not utilized for the educational purposes it could have been said that the letting out of the property on the part of the respondent-society has lost the char .....

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entitled to exemption claimed by it under section 11 of the Act." 15.1 I find that in the case of assessee although the source from which the money is received is lease & license fee but its application is for the purposes of charitable activities covered u/s 2(15). Further, loan advances by an educational trust to students for higher studies should be treated as application of income for the charitable purpose. I further note that the CBDT vide its Circular No. 100 [F.No. 195/1/72-IT( .....

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vities carried on for the fulfillment of the objectives of the trust, granting of loan even interest bearing will amount to application of income for charitable purposes. As and when the loan is returned to trust, it will be treated as income of that year. I draw support from the decision of the Hon ble Karnataka High Court in the case of CIT Vs Janmabhoomi Press Trust [2000] 242 ITR 703 (Karn.) wherein it has been held that repayment of loan for the construction of the building by the assessee .....

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68/- is as under: I. Administrative Expenses ₹ 3,95,692/- ii. Interest & Bank Charges ₹ 33,94,2801- III. Depreciation ₹ 36,55,891/- IV. Blood Donation camp expenses ₹ 1,93,6701- v. Eye Check up camp expenses ₹ 1,16,985/- vi. Free Books Distribution Expenses ₹ 1,54,450/- ₹ 79,10,968/- 15.2 ln respect of Interest expenses of ₹ 33,94,280/- it has been paid on term loan taken to acquire/construction of assets of the society. Further, assessee has a .....

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the purpose of carrying out the objects of the trust, it has become necessary to demolish and reconstruct the property so as to earn income by exploiting the property. It is also an admitted fact that the rental income in the property held in trust amounted to 90 per cent, of the total income of the trust. For the purpose of putting up the construction of the property held in trust, the trust borrowed fund from the Indian Bank. Thus, the capital asset so put up by the borrowed fund is only for .....

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its charitable activities, necessarily has to exploit the capital assets by finding appropriate avenues for earning revenue and for that purpose, has to incur expenditure, which is capital in nature by raising loan. The capital asset built with a borrowed fund generates income which enabled the charitable trust to perform its charitable activities. Thus, the capital asset built with borrowed fund, under no circumstances, could be regarded to be outside the scope of its objects. If it is within .....

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