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2017 (6) TMI 498 - ITAT BANGALORE

2017 (6) TMI 498 - ITAT BANGALORE - TMI - Disallowance of depreciation to assessee trust - Held that:- Depreciation is the exhaustion of the effective life of a fixed asset owing to 'use' or obsolescence.It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the assessee. See Director of Income-tax, Exemptions v.Al- Ameen Charitable Fu .....

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lready existing on record with the AO. In our view, it would always be advisble hat the first appellate authority should seek a remand report, in case the factual matrix are not clear from the records, from the AO. In the light of the above, we remand the matter to the file of the CIT (A) with a direction to seek a remand report from the AO on this issue, i.e., whether the grants received from other agencies including AICTE, were utilised for the specific purposes or not and whether the assessee .....

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cquisition of assets from the borrowed funds. If we hold so, then we would be equating the borrowed fund with the income of the trust. Under the law, it is the application of income and not of the fund that is required to be seen for the purpose of granting the exemption. In fact, the assessee would be entitled to exemption in view of the judgment in the matter of Janmabhoomi Press Trust (1999 (12) TMI 51 - KARNATAKA High Court), as and when the loan is repaid to the financial institutions. In v .....

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: Shri. Prashanth, C, CA Revenue by : Shri. Sanjay Kumar, CIT-III ORDER Per Lalit Kumar, Judicial Member The present appeal is filed by the Revenue against the CIT (A)-14, LTU, Bengaluru, dt.22.03.2016, for the assessment year 2011-12. 02. Facts of the case are that the assessee is a society registered under the Mysore Society Registration Act. The society has been granted approval u/s.12AA and Section 10(23C)(vi) of Income-tax Act, 1961. The income of the Society is derived from running and man .....

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ation as application of income, which are covered in grounds (i to (iv) of the grounds of Revenue, which are descriptive in nature and hence not reproduced. 04. It is the contention of the Ld. DR that while computing the income u/s.11 and 12 of the Act, assessee had claimed depreciation to the tune of ₹ 18,90,94,568/- on the assets, when the investment made thereof had already been claimed as application of income during the year of investment. It was submitted that the assessee is not lia .....

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income ..... '. As per Section 11(1), income derived from property held under trust, wholly for charitable or religious purpose, will be exempt to the extent it is applied or accumulated for application towards objects of the Trust in India, provided the amount of application is not less than 85% of the income from such property. Thus, it is evident that the term used therein is "income" and not "total income", which is applicable for the purposes of taxation of other tax .....

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computed in the manner laid down in this Act". It would, accordingly, be incorrect to assign to the word "income' used in section 11 (1)(a), the same meaning Las has been specifically assigned to the expression "total income" vide section 2(45). ….. Hence the computation mechanism contained in section 11 is with reference to 'Income' rather than 'Total Income'. Further section 11 provides exemption to a charitable entity on the condition that 85% o .....

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. Nizam' s Supplemental Religious Endowment Trust 127 ITR 378 (AP); (ii) CIT v Rao Bahadur Calavala Cunnan Chetty Charities 135 ITR 485 (Mad.) & (iii) C T v Estate of V.L.Ethiraj 136 ITR 12 (Mad.). d) The Hon ble Karnataka High Court in the case of CIT Vs. Society of the Sisters of St. Anne (146 ITR 28), held that the income "19. The depreciation if it is not allowed as a necessary deduction for computing the income from the charitable institutions, then there is no way to preserve .....

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towards the purpose of the trust or otherwise , and al so after adding back any debits made for capital expenditure incurred for the purposes of the trust 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 trus from out of the income computed in the aforesaid manner, should be not le .....

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v Institute of Banking 264 ITR 110. f) A similar view in the matter was taken by the Hon'ble ITAT, Bangalore, in the case of Karnataka Reddy Janasangha in ITA No. 220/Bang/201 1, Karnataka State Muslim Federation in ITA No. 37/Bang/2013, in the case of DDIT (E) V.s Cutchi Memon Union (2013) 60 SOT 260, Jyothi Charitable Trust in 60 taxmann.com. 165 Bangalore and ACIT Vs. City Hospital Charitable Trust in 42 ITR(Trib) 583 Bangalore. 06. We have gone through the record and heard the rival con .....

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ptive in nature and hence not reproduced. 08. On this issue, the Ld. DR has submitted that the AO has allowed accumulation of 15% of net receipt instead of 15% of the gross receipts. However, the CIT (A) has allowed the accumulation of 15% of gross receipts. 09. On the other hand, the Ld. AR has submitted that the issue is squarely covered by the order of the coordinate bench of the Bangalore Tribunal in the matter of Jyothi Charitable Trust in ITA No.662/Bang/2015 [60 taxmann.com. 165], wherein .....

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LISED GRANTS AS INCOME 11. The third issue is on treatment of unutilised grants as income. Under this head also, the Revenue has raised grounds (i) to (iv) which are descriptive in nature and hence not reproduced. 12. The Ld. DR has submitted that the assessee has received grants from various universities and outside agencies towards education activity. However, in many cases, the assessee has not utilised the grants and are lying with the assessee, shown as liabilities in the Balance-Sheet. It .....

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ecified. Our attention was also drawn to para 6.4 of the order of the CIT (A), wherein it is mentioned as under : 6.4 As the AR has produced all records, accounts, bank statements and other related documents during the course of hearing and after due verification of them it is seen that they are specific grants to be utilised in a specific time frame and necessary accounting, auditing and verification is being undertaken as per the rules framed by the AICTE or funding agency and it is also seen .....

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utilised for the specific purpose / education activities and the assessee has maintained separate bank account for the said grants. It was submitted that the assessee has not merged the accounts of the assessee. It was further submitted that the documents and the pass-book and the other financials were duly submitted with the AO during the assessment proceedings and no new documents were filed by the assessee before the CIT (A). 14. We have heard the rival submissions and perused the materials .....

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ek a remand report from the AO on this issue, i.e., whether the grants received from other agencies including AICTE, were utilised for the specific purposes or not and whether the assessee has kept the said grants received by it in a separate bank account and has not merged the same with the regular account of the assessee. In the light of the above, the issue is remanded back to the AO. INVESTMENT IN FIXED ASSET BY USING THE LOAN AMOUNT 15. The next issue is with respect to investment in fixed .....

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itted by the Ld. DR that the assessee for the purpose of availing the loan and actual utilisation of the same has submitted reply, wherein it was submitted that the loans were utilised for meeting the capital / revenue expenditure of the Society and its institution. It was also brought to the notice that the assessee during the year under consideration had also invested in two immovable properties during the financial year under consideration, which were purchased vide said deeds dt.18.03.2011 a .....

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t the present case is not on application of income, but is a case of acquiring the assets from the loan amount. It was submitted that the assessee is only entitled to the benefit if there is a repayment of debt availed for the purposes of construction of building taken by the assessee for the purposes of augmenting its income. In those circumstances, it was held that it is an application of income for charitable purposes. 17. On the other hand, the Ld. AR has submitted as under : 4. Capital Expe .....

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construction of any fixed assets and they are loan against fixed deposit, which are used for the general expenditure of the Society or for the Capital expenditure. (c) The respondent places reliance on the judgment of by the Hon'ble Karnataka High Court in the case of CIT Vs. Janmabhoomi Press Trust (242 ITR 703), where it was upheld that repayment of debt incurred by the assessee for the construction of the commercial building taken up by the assessee for the purpose of augmenting its fund .....

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ara 7.4 of the order). 18. We have heard the rival submissions and perused the materials on record. In the present case, the sole basis of disallowing the amount of ₹ 10,62,94,245/- is on account of the loans borrowed for the purpose of capital expenditure. It is thus clear that the total expenditure incurred by the assessee was ₹ 47,87,64,431/-, for the charitable purposes / activities of the trust. It is also coming from the record that the assessee has applied the total amount of .....

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on. The income of the assessee is lying invested in FDR and it is not utilised for the objects of the trust or for repayment of loan earlier taken for objects of the trust. The assessee is asking for accepting the usage of borrowed funds as application of income for the objects of the trust , therefore seeking exemption under section 11 of the Act , the same cannot be allowed as in future when the assessee start repaying the loan, at that time repayment of loan would be treated as application of .....

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