TMI Blog2022 (12) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... on was never claimed by the assessee in the original ITR and the revised ROI filed by the assessee was defective - In our opinion, this is not a valid reason to deny the benefit of exemption, once the Revenue accepts that the assessee is a charitable society whose activities are not in the nature of business and its income is applied for the benefit of public at large - Admittedly, the claim of exemption was made in the revised return filed within the statutory time limit but was treated as defective only on flimsy ground that once the original return is e-filed, the revised return cannot be filed manually during assessment proceedings. Not claiming exemption in the original return, though otherwise legally admissible on facts cannot be fatal when the assessee did claim exemption in the revised return which was duly considered for the purposes of making assessment. We, therefore do not find any substance in this grievance of the Revenue. Denial of depreciation - assessee s claim of depreciation tantamount to a double deduction since the assessee has already claimed deduction of its capital expenditure being a trust - HELD THAT:- CIT(A) has taken notice of subsection( 6) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of accumulated income of earlier years. Since the basis of disallowance itself does not subsist, we agree with the finding of the CIT(A) that the impugned disallowance is not sustainable and reject this ground of the Revenue as well. Appeal of the Revenue is dismissed. - ITA No. 4172/Del/2017 - - - Dated:- 7-12-2022 - SHRI ANIL CHATURVEDI , ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA , JUDICIAL MEMBER Assessee by: Shri Atul Ninawat , Advocate Department by : Ms. Pramita M Viswas , CIT ( DR ) ORDER PER ASTHA CHANDRA , JM The appeal by the Revenue is directed against the order dated 05.04.2017 of the Ld. Commissioner of Income Tax (Appeals) 40, Delhi ( CIT(A) ) pertaining to assessment year ( AY ) 2012-13. 2. The Revenue has taken the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in law in directing the AO to allow the amount of Rs. 38,80,27,604( being taxes paid and deposited) as application of income. 2. The Ld. CIT(A) has erred on facts and law in allowing exemption u/s 11 12 and accumulation u/s 111(2) of the Income Tax Act to assessee while the AO has clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed the assessment under section 143(3) of the Act on 30.03.2015 on total income of Rs. 1,63,91,74,414/- including therein disallowance of Rs. 14,50,85,713/- claimed on account of depreciation , disallowance of Rs. 38,80,27,604/- being the amount of taxes paid and disallowance of Rs. 6,50,00,000/- being earmarked fund spent during the year. The assessee challenged the aforesaid disallowances in appeal before the Ld. CIT(A). 4. It was submitted by the assessee before the Ld. CIT(A) that while computing income, benefit of exemption under section 11 has not been given even though the claim of the assessee has been accepted. The assessee had moved an application under section 154 before the Ld. AO stating therein that even though the assessment was made based on the revised return filed by the assesee on 31.03.2014, the computation of income was made based on the original return filed on 30.09.2013. The application was rejected for the reason that if the original return is e-filed return, revised return shall be filed through electronic mode only . 5. The Ld. CIT(A) accepted the contention of the assessee and in para 4.2.4 of his appellate order gave the following directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. These sections constitute a complete code governing the grant, cancellation or withdrawal of registration, providing exemption of income and also conditions subject to which a charitable trust or institution is required to function in order to be eligible for exemption. Section 11(1)(a) provide exemption to the extent income derived from the property held under trust is applied for charitable purposes Subject to fulfilment of conditions laid down in section 11 exemption is available in respect of income irrespective of whether the expenditure incurred is revenue or capital in nature. Hence, exemption is available even when the income is applied for acquiring a capital asset. In view of this, charitable institutions were not eligible for depreciation. 4 3 3 This view has been clarified in Para 7.5 of the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2014 issued vide Circular No. 1/2015 dated 21st ]anuary, 2015. Section 11 was amended by the Finance (No. 2) Act, 2014 whereby a new sub-section has been inserted which provides that under section 11, income for the purposes of its application shall be determined without any deduction or allowance by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of appeal No. 2 is, hence, allowed. 7. As regard the disallowance of taxes paid and deposited by the assessee, the Ld. CIT(A) directed the Ld. AO to allow the amount of Rs. 38,80,27,604/- as application of income. His findings are contained in paras 4.4.1 to 4.4.3 of his appellate order which are reproduced below: 4.4.1 The Assessing Officer, in the assessment order, has mentioned that since taxes are eventually refundable or are not deductible as per the provisions of the Income-tax Act, the same cannot be considered as application of income for the purpose of exemption under section 11. The appellant on the other hand has stated that tax paid is disallowable as expense only from the income from profit and gains of business or profession under section 40 Section 40 cannot be applied for charitable originations since section 40 is applicable for deduction under sections 30 to 38 only which are not applicable to the appellant. The appellant has also relied on the judgment of CIT vs. Janaki Ammal Ayya Nadar Trust [(1985) 153 ITR159 (Mad)] wherein the Hon'ble Court have held that expenditure by way of payment of tax out of current year's income has to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of an assessee under the provisions of the Act. Vie question is whether the word 'income' used in section 11(1)(a) must be assigned the same meaning as the words total income' as defined in section 2(45). The CBDT itself has opined in the circular No. 5 of 19-6-1968 that it would he incorrect to assign to the word 'income' used in section ll(l)(a) the same meaning as has been statutorily assigned to the expression 'total income' under section 2(45). Keeping in view the fact that the long-settled position, which has also been accepted by the CBDT, should not he upset, particularly where the statute which the Court is dealing with is an all India statute. Thus, it is to he held that the payment of taxes under the VDIS is to be deducted before arriving at the commercial income of the assessee-trust that is available for application to charitable purposes. The view taken by the Tribunal on this point is correct. [Para 12] 4.4.3 In view of the decision of the Hon'ble Madras High Court in the case of CIT vs. Janaki Ammal Ayya Nadar Trust (supra) and DIT (E) v National Association of Software and Service Companies (supra), the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of earlier years and in case of charitable organizations where income is computed in accordance with the provisions of section 11, any application is to be allowed provided is same is for charitable or religious purposes. In view of this and the fact that the matching concept of income does not apply, the addition of Rs. 6,50,00,000/- is deleted. Ground No. 4 of the appeal is allowed. 9. It is the aforesaid findings of the Ld. CIT(A) that the Revenue is in appeal before the Tribunal and all the six grounds of appeal relate thereto. 10. We have heard the Ld. Representative of the parties. The Ld. CIT(DR) supported the order of the Ld. AO whereas the Ld. AR placed strong reliance on the order of the Ld. CIT(A). 11. We have given our careful thought to the rival submissions and perused the material available in the records. The grievance of the Revenue contained in ground 2 and 5 relate to assessee s claim of exemption under section 11 of the Act. It is an undisputed fact that the assessee is a registered society under section 12A of the Act since past more than 25 years. During assessment proceedings the Ld. AO required the assessee to explain under which limb of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed return cannot be filed manually during assessment proceedings. Not claiming exemption in the original return, though otherwise legally admissible on facts cannot be fatal when the assessee did claim exemption in the revised return which was duly considered for the purposes of making assessment. We, therefore do not find any substance in this grievance of the Revenue. 13. Ground No. 3 and 4 relate to denial of depreciation by the Ld. AO which had been allowed by the Ld. CIT(A). The solitary reason given by the Ld.AO is that the assessee s claim of depreciation tantamount to a double deduction since the assessee has already claimed deduction of its capital expenditure being a trust. The Ld. CIT(A) relied upon numerous decisions wherein it has been held that in the case of a charitable trust whose income is exempt under section 11, its claim of depreciation cannot be said to be double benefit. Moreover, the decision of Hon ble Supreme Court in Escorts Ltd. 199 ITR 43 relied upon by the Ld. AO is inapplicable to a situation where, depreciation is claimed by a charitable trust in determining percentage of funds applied for the purposes of charitable objects as held by the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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