Tribunal upholds assessee's exemption claim for capital expenditure on university asset.

The tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision, allowing the exemption claimed by the assessee for the capital expenditure incurred on the asset of Pandit Deendayal Petroleum University. The tribunal found that the expenditure was in accordance with statutory provisions and for a charitable purpose, concluding that the withdrawal of exemption under Section 11 of the Income Tax Act was not sustainable. The judgment was pronounced on 02/12/2019.

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Issues Involved:

1. Deletion of addition of Rs. 46,49,38,848/- made by the AO on capital expenditure incurred by the appellant on the asset of Pandit Deendayal Petroleum University (PDPU).

Issue-wise Detailed Analysis:

1. Deletion of Addition on Capital Expenditure:

The Revenue challenged the deletion of the addition of Rs. 46,49,38,848/- made by the AO on capital expenditure incurred by the appellant on the asset of Pandit Deendayal Petroleum University (PDPU). The AO had issued a show-cause notice during the assessment proceedings, questioning why the said expenditure should not be disallowed for charitable purposes. The assessee responded by providing details and explanations, stating that the expenses were incurred for the setup and expansion of the university in accordance with Section 25 of the Pandit Deendayal Petroleum University Act, 2007. The assessee argued that although both entities are separate with different PAN numbers, they share the same objective of improving education, training, and research in the energy sector, which is a charitable cause for the public at large. The relevant documents, including meeting minutes, policy decisions on non-recurring expenditure, and details of bills and vouchers, were submitted to the AO. However, the AO found the explanation unsatisfactory and made an addition, which was subsequently reversed by the First Appellate Authority, leading to the current appeal.

The Revenue's representative relied on the AO's order, arguing that the asset created with the appellant's funding is used solely by the university and not by the appellant, thus benefiting only the university. Therefore, the expenditure was not incurred for the appellant trust's objectives and should not be allowable.

The assessee's counsel supported the CIT(A)'s order and referred to Section 25 of the Pandit Deendayal Petroleum University Act, 2007, which mandates the appellant to invest funds periodically for the university's development. The counsel also cited the jurisdictional High Court's judgment in CIT vs. Sarladevi Sarabhai Trust No. 2, which held that donations to another charitable trust for its charitable objects are considered a proper application of income for charitable purposes under Section 11 of the Income Tax Act, 1961.

The tribunal reviewed the materials and found that the assessee, a society registered under Section 12AA of the Act, had claimed capital expenditure of Rs. 46,86,14,891/- as expenditure incurred for charitable purposes under Section 11 of the Act. The assessee, promoted by Gujarat State Petroleum Corporation Ltd., had established PDPU under the Gujarat Act No. 14 of 2007. The appellant was authorized to appoint key positions in the university and had a common agenda with the university for education, training, and research in the energy sector. The appellant had made payments directly for constructing a hostel building, which was transferred to the appellant upon completion. The tribunal found that the expenditure was incurred in accordance with a statutory provision and for a charitable purpose, thus not violating Section 11 of the Act. The tribunal concluded that the withdrawal of exemption under Section 11 on this ground was not sustainable.

The tribunal also considered the jurisdictional High Court's judgment in CIT vs. Sarladevi Sarabhai Trust No. 2, which supported the assessee's claim that donations to another charitable trust for its objects do not violate Section 11(1)(a) of the Act. The High Court had held that the donor trust's application of income for charitable purposes is complete upon making the donation to another charitable trust with similar objects. The tribunal agreed with this view and found no irregularities in the CIT(A)'s decision to allow the exemption claimed by the assessee.

In conclusion, the tribunal affirmed the CIT(A)'s order, finding no merit in the Revenue's appeal, and dismissed the appeal.

Judgment:

The Revenue's appeal is dismissed. The tribunal upheld the CIT(A)'s decision, allowing the exemption claimed by the assessee for the capital expenditure incurred on the asset of PDPU, as it was in accordance with the statutory provisions and for a charitable purpose. The order was pronounced in open court on 02/12/2019.

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