2022 (12) TMI 397 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Tax Application, Exemptions, and Income Computation

ACIT (E), Circle-2 (1), New Delhi Versus Software Technology Parks of India

ACIT (E), Circle-2 (1), New Delhi Versus Software Technology Parks of India - TMI Issues Involved:1. Application of taxes paid and deposited as income.2. Exemption under sections 11 & 12 and accumulation under section 11(2).3. Applicability and interaction of sections 11, 12, 12A, 12AA, 13, and 32.4. Allowability of depreciation on capital assets.5. Benefit of section 11(1)(a) and section 11(2).6. Expenditure of earmarked funds.Issue-wise Detailed Analysis:1. Application of Taxes Paid and Deposited as Income:The Revenue contended that the CIT(A) erred in directing the AO to allow Rs. 38,80,27,604 as the application of income. The CIT(A) referenced the case of CIT vs. Janaki Ammal Ayya Nadar Trust, which held that expenditure on taxes should be considered as application of income for charitable purposes. The CIT(A) also cited the Delhi High Court decision in DIT (E) v National Association of Software and Service Companies, which supported the view that taxes should be deducted before arriving at the commercial income available for application to charitable purposes. Thus, the CIT(A) directed the AO to allow the amount as application of income, and this direction was upheld by the Tribunal.2. Exemption Under Sections 11 & 12 and Accumulation Under Section 11(2):The Revenue argued that the CIT(A) wrongly allowed exemptions under sections 11 & 12 and accumulation under section 11(2), despite the AO establishing that the exemption was not claimed in the original ITR and the revised ROI was defective. The Tribunal noted that the assessee is a registered society under section 12A for over 25 years. The AO had accepted the assessee's charitable status and its income application for public benefit. The Tribunal found that the revised return, though filed manually, was within the statutory time limit and should be considered. Therefore, the Tribunal upheld the CIT(A)'s direction to re-compute the income with exemptions under section 11.3. Applicability and Interaction of Sections 11, 12, 12A, 12AA, 13, and 32:The Revenue contended that the CIT(A) ignored the independent provisions of sections 11, 12, 12A, 12AA, and 13, which are a separate code within Chapter III, and that depreciation under section 32 applies to business assets. The CIT(A) observed that charitable trusts are governed by sections 11 to 13, which allow exemptions for capital expenditures. The Tribunal agreed with the CIT(A) that the assessee's income should be computed under these provisions, including accumulation as per sections 11(1)(a) and 11(2).4. Allowability of Depreciation on Capital Assets:The AO disallowed depreciation, arguing it would result in a double deduction since capital expenditure was already claimed. The CIT(A) allowed depreciation, citing several judicial decisions supporting the view that depreciation does not constitute a double benefit for charitable trusts. The Tribunal noted that the restriction on depreciation claims under section 11(6) applies prospectively from AY 2015-16 and not to AY 2012-13. Thus, the Tribunal upheld the CIT(A)'s decision to allow depreciation.5. Benefit of Section 11(1)(a) and Section 11(2):The CIT(A) directed the AO to re-compute income, giving the benefit of section 11(1)(a) and section 11(2), which was challenged by the Revenue. The Tribunal found that the AO had accepted the assessee's charitable status and that the income application was for public benefit. Therefore, the Tribunal upheld the CIT(A)'s direction to allow the benefits under sections 11(1)(a) and 11(2).6. Expenditure of Earmarked Funds:The AO disallowed Rs. 6,50,00,000, arguing that it should have been booked in the previous year as per the matching concept. The CIT(A) disagreed, noting that the matching concept does not apply to charitable organizations. The Tribunal observed that the funds were received and utilized in the same year, not from accumulated income of earlier years. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal found no infirmity in the CIT(A)'s directions regarding the application of taxes paid, exemptions under sections 11 & 12, depreciation on capital assets, and the expenditure of earmarked funds. The Tribunal confirmed that the assessee's income should be computed in accordance with sections 11 to 13, including the benefits of section 11(1)(a) and section 11(2).