2014 (9) TMI 957 - AT - Income Tax

Tribunal rules on depreciation, payments, advances, and gold bullion investment.

Deputy Commissioner of Income Tax (Exemptions) -II, Chennai Versus M/s. Sri Vekkaliamman Educational and Charitable Trust

The Tribunal partly allowed the Revenue's appeal, upholding the assessee's claim for depreciation and dismissing the issue regarding payments to a firm ... Depreciation on assets purchased by the assessee-trust - Held that:- The hon'ble Punjab and Haryana High Court in the case of CIT v. Market Committee Pipli [2010 (7) TMI 374 - Punjab and Haryana High Court ] wherein held that the income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining percentage of funds which had to be applied for the purpose of the trust. There is no double deduction claimed by the assessee. Thus the assessee is entitled for claiming depreciation. - Decided against revenue. Disallowance of payment made for contract work to a firm owned by one of the managing trustees of the assessee - Held that:- As decided in assessee's own case for the assessment year 2009-10 [2015 (6) TMI 346 - ITAT CHENNAI] wherein similar issue has been decided in favour of the assessee wherein the Commissioner of Income-tax (Appeals) has given a categoric finding that in cases of civil construction contracts, especially were no proper books are maintained the Act recognises normal profit margins at 8 per cent. Whereas, the firm M/s. Sri Vekkaliamman Builders has earned a profit of 5.8 per cent. which is very reasonable. We are of the considered opinion that since, the contract was awarded on competitive basis and the profit earned is reasonable, the provisions of section 13(2)(c) are not violated. - Decided in favour of assessee. Advances made to M/s. SAMS Pvt. Ltd. in violation of the provision of section 13(1)(c) - Held that:- he assessee has not given any reason as to why the amount advanced to M/s. SAMS Pvt. Ltd., has not been so for appropriated towards charges for using infrastructure facilities. As per the contentions of the Revenue, ₹ 1.94 crores are outstanding as on March 31, 2011 towards fee for services. The findings of the Commissioner of Income-tax (Appeals) on the issue are sketchy. We do not agree with the observations of the Commissioner of Income-tax (Appeals) that the company is not benefitted by the trust. The assessee has not given the details of charges to be paid/adjusted for using infrastructure facilities provided by M/s. SAMS Pvt. Ltd. The said payments may not fall within the mischief of section 13(3)(a) read with section 13(1)(c) of the Act, but the reasonableness of the charges has to be ascertained to ensure compliance of the provisions of section 13(2)(c) of the Act. the issue needs a revisit to the Commissioner of Income-tax (Appeals) for fresh consideration - Decided in favour of revenue for statistical purpose. Investment made by the assessee in gold bullions in violation of the provisions of section 11(5) - Held that:- Purchase of gold by the assessee was not application of funds but an investment in gold bullion. The assessee has made investment in gold bullion in violation of the provisions of section 11(5). Accordingly, the income earned by the assessee from the sale of gold is liable to be taxed, in accordance with law. - Decided in favour of revenue. Issues Involved:1. Depreciation on assets purchased by the assessee-trust.2. Payment made for contract work to a firm owned by one of the managing trustees.3. Advances made to M/s. Southern Academy of Maritime Studies Pvt. Ltd.4. Investment in gold bullion.Detailed Analysis:Depreciation on Assets Purchased by the Assessee-Trust:The Revenue argued that the assessee is not entitled to depreciation on assets since the cost of assets was considered as an application of income, and allowing depreciation would result in a double benefit. The Tribunal disagreed, citing the Punjab and Haryana High Court's decision in CIT v. Market Committee Pipli [2011] 330 ITR 16 (P&H), which clarified that depreciation should be reduced from the income for determining the percentage of funds applied for the trust's purposes. Hence, the Tribunal dismissed this ground of appeal, allowing the assessee's claim for depreciation.Payment Made for Contract Work to a Firm Owned by One of the Managing Trustees:The Revenue contended that payments to M/s. Vekkaliamman Builders, a firm owned by a managing trustee, violated section 13(2)(c) of the Act. The Tribunal referenced a previous decision in the assessee's own case (I.T.A. No. 1402/Mds/2013 for AY 2009-10), where it was established that the contract was awarded on a competitive basis, and the profit earned was reasonable. The Tribunal found no violation of section 13(2)(c) and dismissed this ground of appeal.Advances Made to M/s. Southern Academy of Maritime Studies Pvt. Ltd.:The Revenue pointed out that substantial advances to M/s. SAMS Pvt. Ltd. were not adjusted and remained outstanding. The assessee claimed these advances were for using infrastructure facilities without payment. The Tribunal noted the lack of detailed justification for the outstanding advances and found the Commissioner of Income-tax (Appeals)'s findings insufficient. The Tribunal remanded this issue back to the Commissioner of Income-tax (Appeals) for fresh consideration, requiring a detailed examination of the nature and reasonableness of the charges for using the facilities.Investment in Gold Bullion:The Revenue challenged the investment in gold bullion, alleging it violated section 11(5) of the Act. The assessee claimed the gold was purchased for distribution as prizes, but the Tribunal found no evidence supporting this claim. The Tribunal concluded that the purchase was an investment, not an application of funds, and thus, income from the sale of gold should be taxed. This ground of appeal was allowed.Conclusion:The Tribunal partly allowed the Revenue's appeal, upholding the assessee's claim for depreciation and dismissing the issue regarding payments to M/s. Vekkaliamman Builders. However, it remanded the issue of advances to M/s. SAMS Pvt. Ltd. for further examination and allowed the appeal concerning the investment in gold bullion, ruling it a violation of section 11(5).