2015 (11) TMI 857 - AT - Income Tax

Trust's Loan Exemption Upheld, Depreciation Denied

The Deputy Director of Income-Tax (Exemptions), Chennai Versus M/s Vels Institute of Science, Technology & Advanced Studies

The Deputy Director of Income-Tax (Exemptions), Chennai Versus M/s Vels Institute of Science, Technology & Advanced Studies - TMI Issues Involved:1. Violation of Section 13(1)(c) r.w.s. 13(3) of the Income-tax Act, 1961.2. Eligibility for exemption under Section 11 of the Income-tax Act, 1961.3. Receipt of donations from Sri Balaji Charitable and Educational Trust.4. Claim for depreciation under Section 32 of the Income-tax Act, 1961.Detailed Analysis:1. Violation of Section 13(1)(c) r.w.s. 13(3) of the Income-tax Act, 1961:The Revenue contended that the assessee-Trust, registered under Section 12AA, violated Section 13(1)(c) r.w.s. 13(3) by advancing a loan of Rs. 15,76,00,000 to its Managing Trustee, which was deemed as a misuse of trust funds. The Assessing Officer noted that the loan was given without adequate security, making the Trust ineligible for exemption under Section 11. The CIT(Appeals), however, allowed the assessee's claim on the ground that the loan was for purchasing land to establish a medical college, and the Managing Trustee repaid the amount with interest, thus not violating Section 13(1)(c).2. Eligibility for exemption under Section 11 of the Income-tax Act, 1961:The Tribunal upheld the CIT(Appeals)' decision, confirming that the transaction was genuine and the money advanced was repaid with interest. The Tribunal emphasized that the market value of land is subjective and depends on various factors. Since the Managing Trustee repaid the loan with interest, the transaction did not constitute a diversion of funds. Therefore, the Trust did not violate Section 13(1)(c), and the exemption under Section 11 was rightly allowed.3. Receipt of donations from Sri Balaji Charitable and Educational Trust:The Revenue argued that the corpus of Rs. 37,83,27,838 received as donations from Sri Balaji Charitable and Educational Trust should be treated as income due to the violation of Section 13(1)(c). The Tribunal, however, found no evidence of fund diversion. The donation was in the form of capital assets (three institutions) for charitable purposes, and since there was no misuse of funds, the exemption under Section 11 was valid.4. Claim for depreciation under Section 32 of the Income-tax Act, 1961:The assessee-Trust claimed depreciation of Rs. 5,25,30,554. The Tribunal denied this claim, stating that as a charitable institution claiming exemption under Section 11, the Trust is not eligible for depreciation under Section 32. The Tribunal referenced a similar case (Tamil Nadu Cricket Association v. DDIT(Exemptions)) and reiterated that once the cost of capital expenditure is claimed as an exemption under Section 11, the written down value of the asset becomes NIL, and no further depreciation can be claimed.Conclusion:The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, confirming the CIT(Appeals)' decision to allow the exemption under Section 11 but denying the claim for depreciation under Section 32. The order was pronounced on 28th October 2015 at Chennai.