Assessee Society Wins Tax Exemption Appeal, Salary Expenses Allowed, Foreign Travel Expenses Deleted

ACIT (Exemption), Jaipur Versus Mahima Shiksha Samiti and Vice-Versa

ACIT (Exemption), Jaipur Versus Mahima Shiksha Samiti and Vice-Versa - TMI Issues Involved:
1. Entitlement to exemption under Section 11 of the IT Act.
2. Allowance of salary expenses to specified persons under Section 13(3).
3. Deletion of addition made on account of foreign travel expenses.
4. Treatment of contribution to Jaipur National University as application of income under Section 11.
5. Admissibility of depreciation under Section 32 for assets on which exemption has been allowed under Section 11.

Detailed Analysis:

1. Entitlement to Exemption under Section 11 of the IT Act:
The Tribunal examined whether the assessee society is entitled to exemption under Section 11. The society is registered under the Rajasthan Society Registration Act, 1958, and Section 12AA of the IT Act. The assessee filed its return showing NIL income after claiming exemption under Section 11(1)(a).

The Tribunal noted that the assessee society's primary objective is the promotion of education through various educational institutions, including Seedling Public School and Jaipur National University. The society's activities fall within the definition of "charitable purpose" under Section 2(15). The Tribunal referred to the Supreme Court's decision in Queen's Education Society, which clarified that the existence of surplus does not negate the charitable purpose if the surplus is ploughed back into educational activities. The Tribunal concluded that the assessee society meets the conditions for exemption under Section 11, as the surplus generated is used for educational purposes.

2. Allowance of Salary Expenses to Specified Persons under Section 13(3):
The Revenue challenged the allowance of salary expenses to specified persons under Section 13(3), arguing that the salaries were higher than reasonable. The Tribunal examined the qualifications, responsibilities, and salaries of the individuals in question, noting that the salaries were commensurate with their roles and responsibilities. The Tribunal found no violation of Section 13 and upheld the allowance of salary expenses, emphasizing that the reasonableness of the expenditure should be judged from the perspective of the assessee society.

3. Deletion of Addition Made on Account of Foreign Travel Expenses:
The Revenue disallowed foreign travel expenses, arguing that they were not incurred for the society's objectives. The Tribunal reviewed the tour reports and found that the visits were related to educational purposes, such as exploring student exchange programs and collaborating with foreign institutions. The Tribunal noted that similar expenses had been allowed in previous years and found no basis for the disallowance. The Tribunal upheld the deletion of the addition made on account of foreign travel expenses.

4. Treatment of Contribution to Jaipur National University as Application of Income under Section 11:
The Revenue argued that the contribution to Jaipur National University (JNU) violated the society's byelaws and Section 13(1)(c) and 13(2)(a). The Tribunal referred to its earlier decision for AY 2009-10, where it held that JNU is not a specified person under Section 13(3) and that the contribution was within the society's objectives. The Tribunal reiterated that the contribution to JNU qualifies as an application of income under Section 11, as it is in line with the society's objective of promoting education.

5. Admissibility of Depreciation under Section 32 for Assets on which Exemption has been Allowed under Section 11:
The Tribunal addressed whether depreciation is allowable for assets on which exemption has been claimed under Section 11. The Tribunal noted the amendment to Section 11(6) by the Finance (No. 2) Act, 2014, which applies prospectively from AY 2015-16. The Tribunal referred to various judicial precedents, including the Karnataka High Court's decision in Al-Ameen Charitable Fund Trust, which held that depreciation is allowable up to AY 2014-15. The Tribunal concluded that depreciation is admissible for the years under consideration.

Conclusion:
The Tribunal upheld the assessee society's entitlement to exemption under Section 11, allowed the salary expenses to specified persons, deleted the addition made on account of foreign travel expenses, treated the contribution to Jaipur National University as an application of income, and allowed depreciation for the relevant assessment years. The appeals filed by the Revenue were dismissed, and the appeals filed by the assessee society were allowed.