2019 (12) TMI 485 - AT - Income Tax

Tax Tribunal Affirms Trust's Claims: Depreciation, Development Funds, Exemptions Upheld

The ITAT upheld the CIT(A)'s decisions on all issues, dismissing the revenue's appeal and affirming the trust's claims for depreciation, treatment of ... Exemption u/s 11(1)(d) - claiming depreciation on fixed assets while treating the same as application of funds - double deduction - AO treated the development fees was a revenue income of the assessee and not capital receipt as claimed by the assessee - assessing officer treated the one time admission fees as revenue receipt - HELD THAT:- Amount utilized for Requiring Fixed assets is allowable as application of income as per sec. 11(1)(a) of the Act. There are two separate issues one is pertaining to application of income and other is computation of income. In application of income of trust, amount applied for acquiring fixed assets is considered as eligible, therefore this ground of appeal is allowed and AO is directed to allow amount of investment in the fixed assets as part of application of income as per sec. 11(1)(a). Decision in the case of [2019 (4) TMI 553 - ITAT AHMEDABAD] and [2017 (9) TMI 965 - ITAT AHMEDABAD] followed. Appeal of the revenue is dismissed. Issues Involved:1. Applicability of Section 13(1)(c)(ii) of the Income Tax Act.2. Deletion of depreciation amounting to Rs. 2,99,77,044/-.3. Deletion of addition of development fund amounting to Rs. 33,46,000/-.4. Justification for the benefit of Sections 11 and 12 of the Income Tax Act.5. Deletion of addition of capital expenditure amounting to Rs. 6,62,45,376/-.Issue-wise Detailed Analysis:1. Applicability of Section 13(1)(c)(ii) of the Income Tax Act:The Assessing Officer (AO) contended that the assessee trust paid huge rent to specified persons and incurred significant travel expenses for trustees without clear justification, invoking Section 13(1)(c)(ii) to deny exemptions under Sections 11 and 12. The CIT(A) refuted this, and the ITAT upheld CIT(A)’s decision, noting that the AO failed to provide comparative market rates or evidence of excessiveness, and that similar rents were paid in preceding years without disallowance. The tribunal concluded that the payments were not excessive and upheld the CIT(A)’s findings.2. Deletion of Depreciation Amounting to Rs. 2,99,77,044/-:The AO disallowed the depreciation claim, arguing it constituted a double deduction since the cost of fixed assets was already treated as an application of income. The CIT(A) allowed the appeal, and the ITAT referenced previous decisions, including CIT vs. Seth Manilal Ranchhodlal Bhavan Trust and others, which supported the assessee’s claim for depreciation. The tribunal noted that the legislative amendment to Section 11(6) in 2014, which denies such double deductions, applies prospectively from 01.04.2015, thus supporting the CIT(A)’s decision for the assessment year in question.3. Deletion of Addition of Development Fund Amounting to Rs. 33,46,000/-:The AO treated the development fund as revenue receipt, not capital receipt, and added it to the total income. The CIT(A) reversed this, recognizing the fund as a capital receipt used for specific development activities. The ITAT upheld CIT(A)’s decision, citing similar cases where development funds were treated as capital receipts and not taxable income, such as ITO vs. J.D. Tytler School Society.4. Justification for the Benefit of Sections 11 and 12 of the Income Tax Act:The AO denied exemptions under Sections 11 and 12, citing payments to trustees and travel expenses as violations of Section 13(1)(c)(ii). The CIT(A) disagreed, and the ITAT supported this, noting the absence of evidence for excessive payments and the use of an approved valuer’s report. The tribunal emphasized that the payments were consistent with prior years and upheld the CIT(A)’s findings, affirming the trust’s eligibility for exemptions under Sections 11 and 12.5. Deletion of Addition of Capital Expenditure Amounting to Rs. 6,62,45,376/-:The AO disallowed the capital expenditure, arguing it constituted a double deduction. The CIT(A) allowed the appeal, and the ITAT referenced precedents, including the Supreme Court’s decision in S.RM.M.CT.M Tiruppani Trust vs. CIT, which recognized capital expenditure on fixed assets as an application of income under Section 11(1)(a). The tribunal upheld the CIT(A)’s decision, affirming that the expenditure on fixed assets was a valid application of income.Conclusion:The ITAT upheld the CIT(A)’s decisions on all issues, dismissing the revenue’s appeal and affirming the trust’s claims for depreciation, treatment of development funds, and eligibility for exemptions under Sections 11 and 12. The tribunal’s decision was consistent with previous rulings on similar facts and issues.