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TMI Blog2018 (12) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... n of funds which was contrary to the law, as the assessee had already been granted benefit of exemption when assessee acquired these fixed assets. 4. As regards other grounds of appeal, ld. D.R. submitted that Assessing Officer had disallowed certain amounts which were commission payment to middleman to attract new admission in the Institute and which the ld. CIT(A) has wrongly allowed. 5. Arguing in appeal No.266/LKW/2017, ld. D.R. stated that ld. CIT(A) has wrongly allowed benefit under section 11 of the Act ignoring the fact that activities of the assessee were commercial in nature and were not charitable one. 6. Ld. A.R. of the assessee, on the other hand, submitted that claim of depreciation on fixed assets is a separate claim which the assessee was entitled and, therefore, had rightly claimed the same and was rightly allowed by the ld. CIT(A). It was submitted that ld. CIT(A) while allowing the claim of assessee has relied on a number of decisions and, therefore, there is no infirmity in the order of ld. CIT(A). As regards claim against repayment of term loans, it was submitted that this issue is also in favour of the assessee and ld. CIT(A) has relied on a number of case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and profession" whereas Assessee is claiming exemption of its income under section 11 as charitable institution. 5.03 The first ground of disallowance i.e. "depreciation amounts to double deduction" is factually incorrect. The fact is that in earlier assessment years, the Assessee did not make any claim in respect of expenditure incurred on additions to fixed assets as "application of income". 5.04 The second ground of disallowance is legally incorrect. The depreciation is charged to Income & Expenditure A/c to work out the "Income" of the Society on sound commercial principles. Such claim is not under section 32(1). The depreciation is an allowable deduction in case of charitable institutions as held in the following judgments - (i) [2003] 264 ITR 110 (Bom) - CIT Vs. Institute of Banking Held at Page-113-114 (i) It is not correct that section 32 was the only section granting benefit of deduction of depreciation. (ii) Section 32 is not applicable to charitable trusts. (iii) Income of charitable trust is required to be computed u/s 11 on commercial principles after providing for normal depreciation and deduction thereof from gross income. (iv) Depreciation is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 5.06 In view of above facts and legal position, the disallowance/ addition of depreciation claim of Rs. 1,34,88,135 is erroneous in law and fact and liable to be deleted. 2.3 Discussion & Decision: Having gone through the finding given by- the A.O. and also the elaborate written submissions as made by the Ld. A.R. of the appellant, I am of the considered view depreciation in an allowable expenditure in computing income of the trust. To this effect, there are enumerable case laws in favour of the assessee; some of which have been quoted by the Ld. A.R. in his written submissions. The latest decision being that of the Hon'ble Karnataka High Court which was rendered after the introduction of sub-section 11(6) of the I.T. Act. In the said decision, the Hon'ble High Court has held that - "[2016] 383ITR- 517 (Karn) Director of Income Tax(Exmp) V. Alameen Charitable Fund Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 5,85,00,000 1,35,22,4 95 8.02 The above repayments of loans aggregating to Rs. 1,35,22,495 (as shown in the last column of the Table) have been claimed by the /Assesses as application of income in the Computation of Income filed with the Return. 8.03 The Ld. A. O. has disallowed the above claim on the following grounds - "(i) The Term loan taken by the Assessee has never been shown as income of the society; hence, repayment of such loan cannot be claimed as expenditure, (ii) Further, it amounts to double deduction. The expenditure incurred by the Assessee from the loan amount has already been claimed as expenses claimed during the respective years. Hence to claim the repayment of loan as application of funds amounts to double deduction and is against normal accounting principles which is not allowable." 8.04 The first ground of disallowance is patently misconceived and incorrect. The loans in issue, when received, were not income of the Society on any commercial principles or under any provisions of law. Loans are liability and not income. Only those receipts can be included in "income" which become the property of the Society and are not to be repaid. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust wiped out its liability and the income earned from the property would be available for being utilized for charitable purposes, (ii) [2000] 242 ITR 703 (Kam) - CIT Vs. Janmabhoomi Press Trust Held at Pages 701-704 Relying upon the earlier judgment of the same court, reported in [2000] 242 ITR 457 (Kam)- CIT Vs. Janmabhoomi Press Trust, held that the Tribunal is right in holding that repayment of debt incurred by the assesses for the construction of the commercial building taken up by the assesses for the purpose of augmenting Us funds, should be treated as "application" of the income of the assessee-trust for charitable purposes. 8.08 In view of above facts and legal position, the disallowance/ addition of repayment of loans amounting to Rs. 1,35,22,495 is erroneous in law and fact and liable to be deleted." 5.3. Decision: The impugned repayment is that of the loans taken by the appellant trust for carrying out construction work/ making capital expenditure. I have gone through the past financial details of the assessee trust and I find that capital expenditure incurred was never treated by the assessee trust as an application of income in the year(s) of acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the instant case. These fees/ charges, collected in addition to the tuition fees, were fully recorded and accounted funds and these have been spent for the purposes/ objects of the trust. Even assuming that the assessee trust had charged some additional fees/ charges which was in violation of the UPTU norms, it was for the UPTU to take appropriate action. The A.O. cannot step into the shoes of the UPTU to determine the excess amount, if any, charged. Further, it is now a settled law that "Education" per se is a charitable activity and even if some surplus is earned by the trust while imparting education, the same cannot be considered as a business activity as long as the funds of the trust are used for the purposes/ objects of the trust. In this view of the matter, the observations of the A.O. that the assessee was indulging in a business activity is not in accordance with the settled law and, therefore, it has to be held that the surplus of the trust is not to be treated as business income. Accordingly, this addition of Rs. 3,65,41,344/- is hereby deleted." 14. Finding no infirmity in the order of ld. CIT(A) on this issue also, we decide this issue in favour of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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