2017 (5) TMI 1671 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Income Application & Rental Income Deduction

The Tribunal upheld the CIT(A)'s decision, treating the corpus donation as an application of income for charitable purposes under section 11(1)(a). The ... Treatment of corpus donation - application of income towards objects of the Trust - assessee has given donation to Tolani Education Society which has been claimed by the assessee as application of income towards the objects of the Trust - HELD THAT:- Similar issue in respect of donation being paid by the assessee trust to Tolani Education Trust was decided by this Tribunal in favour of the assessee [2013 (10) TMI 875 - ITAT MUMBAI] Claim toward repairs and maintenance u/s. 24 in computing the income from house property let out by the assessee - Disallowance of claim of standard deduction on rental income @30% u/s. 24(a) - HELD THAT:- As decided in assessee own case [2013 (10) TMI 875 - ITAT MUMBAI] we confirm the order of the CIT(A) disallowing the claim of the assessee u/s. 24(a) of the Act. Thus, the ground taken by the assess fails. Issues Involved:1. Whether the corpus donation amounting to Rs. 1,02,00,000/- given by the assessee to Tolani Education Society should be treated as an application of income towards the objects of the Trust.2. Whether the assessee is entitled to claim standard deduction on rental income @30% under section 24(a) of the IT Act.Issue 1: Corpus Donation to Tolani Education SocietyThe primary issue in this appeal pertains to the treatment of a corpus donation amounting to Rs. 1,02,00,000/- given by the assessee to Tolani Education Society as an application of income towards the objects of the Trust.Facts and Arguments:- The Assessing Officer (AO) noted that the assessee had given a donation of Rs. 1,02,00,000/- to Tolani Education Society and claimed it as an application of income towards the objects of the Trust.- The AO argued that Tolani Education Society and the assessee are covered under the provisions of section 13(3) of the Act because Dr. Nandlal B Tolani, a trustee of the assessee trust, is also the Chairman/Member of Tolani Education Society.- The AO referred to the second proviso to section 11(2) and concluded that the donation is not allowable under section 11(1)(a) as an application of income towards the objects of the assessee trust.CIT(A) Findings:- The CIT(A) allowed the donation as an application of income for charitable purposes under section 11(1)(a), stating that Tolani Education Society does not fall under the purview of section 13(3) of the Act.- It was observed that the donation made to Tolani Education Society is not hit by section 13 of the IT Act and directed the AO to treat the donation as an application of income for charitable purposes under section 11(1)(a).Tribunal Analysis:- The Tribunal referenced its earlier decision in the assessee's own case for the assessment year 2004-05, where a similar issue was decided in favor of the assessee.- It was noted that the donation was paid out of the current income and not accumulated income, which is crucial under the Explanation to section 11(2).- The Tribunal reiterated that donations by one charitable trust to another, even if towards the corpus of the donee trust, qualify as an application of income under section 11(1)(a).- The Tribunal dismissed the Revenue's ground, following the earlier decision that corpus donations do not disqualify as an application of income.Issue 2: Standard Deduction on Rental Income under Section 24(a)The second issue involves the disallowance of the claim of standard deduction on rental income @30% under section 24(a) of the IT Act.Facts and Arguments:- The assessee claimed a standard deduction on rental income, which was disallowed by the AO and upheld by the CIT(A).- The Tribunal noted that the income of a charitable trust, subject to its application for charitable purposes, is exempt from tax and does not form part of the total income to be classified under the various heads of income under section 14.- The Tribunal cited the Supreme Court decision in CIT vs. Harprasad & Co. (P.) Ltd., which clarified that income exempt under Chapter III does not enter the computation mechanism under Chapter IV.Tribunal Analysis:- The Tribunal confirmed that the assessee's claim for standard deduction under section 24(a) is without merit because the income of a charitable trust does not form part of the total income under the Act.- The Tribunal referenced its previous decisions and the Board's Circular No. 5P(LXX6) dated 19.06.1968, which clarified that only the income as reflected in the accounts of the trust is to be applied for charitable purposes.- The Tribunal upheld the CIT(A)'s order disallowing the claim of standard deduction under section 24(a).Conclusion:Both the appeals filed by the assessee and the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decision to treat the corpus donation as an application of income for charitable purposes and confirmed the disallowance of the standard deduction on rental income under section 24(a). The order was pronounced in the open court on 31st May 2017.