2019 (2) TMI 633 - AT - Income Tax

Tribunal Rules in Favor of Assessee-Trust on Income Tax Act Compliance

The Tribunal ruled in favor of the assessee-trust, finding no violation of Section 13(1)(c) and 13(1)(d) of the Income-tax Act, 1961, regarding advances ... Charitable activity - violation of Section 13(1)(c) and 13(1)(d) - assessee advanced money for purchase and construction of school building at Perungudi - Held that:- The Memorandum of Understanding dated 06.04.2006 clearly indicates that the assessee advanced money for the purpose of acquiring land and construction of building for the school. Even though it was paid to M/s Futura Construction Pvt. Ltd., it reached M/s Nischa Deep Enterprises Pvt. Ltd., who is the owner of the land. Therefore, this Tribunal is of the considered opinion that there is no violation of either Section 13(1)(c) or 13(1)(d) of the Act. Hence, the CIT(Appeals) has rightly allowed the claim of the assessee. A similar view was expressed by this Tribunal in Dy.DIT(E) v. Vels Institute of Science, Technology & Advanced Studies [2015 (11) TMI 857 - ITAT CHENNAI]. Advance made to Shri C.M. Babu - Held that:- It is not dispute that the assessee advanced amount for purchase of land. Merely because there was delay in completion of sale deed, this Tribunal is of the considered opinion that it cannot be said that there was any violation of Section 13(1)(c) or 13(2)(b) of the Act. Therefore, when the assessee advanced money for acquisition of property in connection with charitable object carried on by the assessee, this Tribunal is of the considered opinion that it has to be construed as application of income. Therefore, there is no question of violation of any provisions of the Act. Advance paid to employees of charitable trust - Held that:- When the assessee advanced money to the employees of the trust, it cannot be construed as violation of any of the provisions of Section 13 of the Act. The advance made to employees of the trust, in fact, enables the assessee-trust to carry on the charitable object effectively and efficiently. Unless the employees of the trust were motivated by advancing interest-free-funds, this Tribunal is of the considered opinion that the assessee may not be able to carry out the charitable object as expected by the trustees. Therefore, there is no violation of Section 13(1) of the Act. Advance made to other societies, who are having similar object, it is not in dispute that the advance made from the surplus funds of the current financial year. What is prohibited under the Incometax Act is advancing of money from the accumulated funds of the earlier year. It is not the case of the Revenue that the assessee has transferred the accumulated funds contrary to the purpose for which it was accumulated. In those circumstances, this Tribunal is of the considered opinion that when the assessee advanced money to similar societies who are carrying on similar object of charitable institution like assessee, there is no violation of Section 13(1) of the Act. Investment in M/s VGP Golden Beach Resorts Pvt. Ltd., the CIT(Appeals) has restricted the disallowance to the extent of the investment made in VGP Golden Beach Resorts Pvt. Ltd. Of course, the investment in VGP Golden Beach Resorts Pvt. Ltd. is in violation of Section 11(5) of the Act. Therefore, as rightly found by the CIT(Appeals), the disallowance has to be restricted only to the extent of investment made. Claim of depreciation - Held that:- It is not in dispute that the assessee claimed the cost of the asset as application of income under Section 11 of the Act. The Apex Court in Rajasthan And Gujarati Charitable Foundation Poona [2017 (12) TMI 1067 - SUPREME COURT] found that the assessee is eligible for depreciation under Section 32 of the Act even though the cost of asset was allowed as application of income. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Revenue appeal dismissed. Issues:1. Violation of Section 13(1)(c) and 13(1)(d) of the Income-tax Act, 1961.2. Advance of Rs. 30 lakhs to Shri C.M. Babu towards purchase of land.3. Advance made to some employees without charging interest.4. Investment of Rs. 2000 in M/s VGP Golden Beach Resorts Pvt. Ltd.5. Depreciation on assets purchased despite considering cost as application of income.Analysis:Issue 1: Violation of Section 13(1)(c) and 13(1)(d) of the Income-tax Act, 1961:The Revenue contended that the assessee-trust violated these sections by advancing funds to M/s Futura Construction Pvt. Ltd. and Shri C.M. Babu. However, the Ld. counsel for the assessee argued that the advances were made for specific purposes related to the trust's charitable activities, citing a Memorandum of Understanding. The Tribunal, considering the purpose and utilization of the funds, found no violation of the mentioned sections, as the funds were applied towards the intended charitable objectives. The judgment referenced a similar case to support this conclusion.Issue 2: Advance of Rs. 30 lakhs to Shri C.M. Babu for land purchase:The Revenue alleged a violation of Section 13(1)(c) and 13(2)(b) due to the delay in completing the land purchase transaction. However, the Tribunal ruled that the advance for acquiring property aligned with the trust's charitable objectives and was a valid application of income, not a violation of the Act.Issue 3: Advance made to employees without interest:The Revenue argued that interest-free advances to employees and other societies were against the Act, but the Tribunal disagreed. It noted that such advances facilitated the trust's charitable activities effectively and were made from current funds, not accumulated income, thus not violating Section 13(1) of the Act.Issue 4: Investment in M/s VGP Golden Beach Resorts Pvt. Ltd.:The Tribunal acknowledged the investment as a violation of Section 11(5) but agreed with the CIT(Appeals) to restrict disallowance to the investment amount only.Issue 5: Depreciation on assets despite considering cost as application of income:The Tribunal upheld the eligibility of the assessee for depreciation under Section 32 of the Act, even when the cost of assets was treated as application of income, citing a relevant Supreme Court judgment.In conclusion, the Tribunal dismissed the Revenue's appeals, affirming the lower authorities' decisions on the issues discussed, emphasizing compliance with the Act's provisions and the trust's charitable objectives.