2025 (2) TMI 1427 - AT - Income Tax

Charitable exemption claims and related disallowances affirmed where approval remained unwithdrawn; depreciation allowed by precedent

Assessee's claim for exemption under the charitable-approval provision was allowable because the approval remained unwithdrawn and pre conditions were ... Claim of exemption u/s 10(23C)(vi) - invoking the “thirteenth proviso” of the said statutory provision - HELD THAT:- There is no denying the fact that the assessee society had in its return of income specifically raised a claim for exemption u/s. 10(23C)(vi) of the Act. Although, it is a fact that the claim for exemption u/s. 10(23C)(vi) of the Act was mentioned as Rs. Nil, but the same was for the reason that as the assessee society had sought for exemption of its income u/s. 11 of the Act, therefore, based on the said bonafide claim there remained no income of the assessee society against which exemption u/s. 10(23C)(vi) could be quantified. We are of a firm conviction that the assessee society which is approved u/s.10(23C)(vi) of the Act satisfied the set of pre-conditions prescribed u/s.10(23C)(vi) of the Act (as were applicable to the year under consideration), therefore, there could have been no justification for the A.O in not considering the entitlement of the assessee society for claim of exemption u/s.10(23C)(vi) of the Act. “Thirteenth proviso” to Section 10(23)(vi) of the Act (as was available on the statute during the subject year) laid down the set of circumstances in which the registration/approval, inter alia, granted to the assessee society by the prescribed authority could be withdrawn, viz. (i) the society had not applied its income in accordance with the provisions contained in clause (a) of the “third proviso”; or (ii) the society had not invested or deposited its funds in accordance with the provisions contained in clause (b) of the “third proviso” to Section 10(23C)(vi) of the Act; or (iii) the activities of the society are not genuine; or (iv) the activities of the society are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved. Admittedly, it is a matter of fact that the approval granted to the assessee society u/s.10(23C)(vi) of the Act had not been withdrawn by the prescribed authority by invoking the “thirteenth proviso” of the said statutory provision. As the approval of the assessee society u/s.10(23C)(vi) of the Act was very much available with it during the subject year, and it had satisfied the set of pre-conditions for claiming exemption under the said statutory provision, therefore, we are unable to comprehend that on what basis its said claim for exemption had not been considered by the A.O. Accordingly, we find no infirmity in the view taken by the CIT(Appeals) who had rightly allowed the assessee’s claim for exemption u/s. 10(23C)(vi) of the Act and, thus, uphold the same. Even if the observation of the A.O that the assessee society was disentitled from claiming exemption u/s.11 of the Act is to be accepted, then the latter’s claim for exemption u/s.10(23C)(vi) of the Act, as was specifically raised by it in its return of income after having satisfied the pre-conditions set out in the said statutory provision has to be allowed. Claim for exemption u/s.11 - On a conjoint reading of Section 13(2)(c) read with Section 13(3) of the Act, it transpires beyond doubt that it is only the amount paid by way of salary, allowance or otherwise by the assessee society to a person referred to in sub-section (3) of Section 13 of the Act, out of the resources of the society for the services rendered by that person to such society, which is in excess of what may be reasonably paid for such services, shall be deemed to have been used or applied for the benefit of the person referred to in sub-section (3) of Section 13 of the Act and, thus, to the said extent would not be eligible for claim of exemption u/s.11 of the Act. We are unable to comprehend that as to on what basis the A.O had declined the assessee’s entire claim for exemption u/s.11 of the Act, allegedly for the reason that the amount paid to the related parties was in excess of the amount that otherwise would have been reasonably paid by the assessee society. Excessive salary paid to persons covered u/s 13(3) - Salary paid to Mr. S.K. Chaubey, Chairman of the society was commensurate with his experience and contribution made to the assessee society. Also, salary of Shri Anurag Seetha (supra) paid in the AY 2015-16 was found reasonable and accepted by the revenue. Accordingly, we are of a firm conviction that an inconsistent view for the year under consideration adopted by the revenue does not stand good in the eyes of law unless there is some distinguishing feature brought on record. Accordingly, the disallowance made by Ld. AO qua the impugned excessive salary paid to Shri S. K. Chaubey and Shri Anurag Seetha cannot survive. We, therefore, are of the considered view that CIT(Appeals) had appropriately appreciated the facts of the case and had vacated the disallowance made by the A.O. Addition of student’s data processing expenses, on account of Books and course material purchased on account of printing & stationary expenses and on account of other expenses - Once the revenue after appreciating the facts of expenses claimed by the assessee in light of mandate of law have decided that there is no excessive payment to the related parties covered u/s.13(3) and there is no apparent violation of law, therefore, an inconsistent view qua the same expenditure incurred by the assessee during the year under consideration cannot be adopted unless there are certain factual differences in the expenditure incurred during the subject year as compared to the year for which directions u/s. 144A were issued. As no such facts or material to dislodge the direction of JCIT(Exemption) could be brought on record by the revenue before us, therefore, the addition/ disallowance made by the A.O qua the Student’s Data Processing Expenses, Books and Course Material Purchased, Printing & Stationary Expenses and Other Expenses cannot be sustained. Addition of VC House Expenses, Advertisement Expenses, AND Computer Software expenses - We find substance in the contentions of Ld. AR and the reasonings of the CIT(Appeals) that the diversion of funds for the benefit of specified person(s) contemplated in Section 13(3) of the Act, as alleged by the A.O, could not be proved/established. In view of such facts and circumstances, in absence of any further explanation, clarification or material to dislodge the decision/findings of CIT(A), we do not find any infirmity in the impugned order and, thus, approve the same. Consideration collected an amount from the students as “Development Charges” - We, find substance in the observation of the AO that as the same cannot be treated as a corpus fund or a capital receipt, therefore, there was a violation of the provisions of section 11(1)(d) and the exemption claimed by assessee society treating the “development fund” as a capital receipt cannot be allowed. Accordingly, the first contention raised by the assessee society fails. Second limb of the contention raised by the assessee society, i.e. if the “development funds” collected by it are considered as revenue receipts, then, considering the fact that the funds so received are utilized for more than 85% of the total receipts (including development fund) for the subject year, therefore, the pre-condition to claim exemption u/s.11/12 stands fulfilled and, thus, the subject addition so made cannot be sustained. We are of a firm conviction that as the said aspect was duly considered by the CIT(A), which in our considered opinion has been appropriately adjudicated, therefore, finding no perversity, we approve the same. In result, Ground of appeal No. 8 of the revenue’s appeal is partly allowed. Validity of assessment as barred by limitation - Since the impugned assessment order u/s.143(3) was made on 31.12.2016, a fact which could not be disproved by the assessee, therefore, the dispatch thereof on 04.01.2017 or receipt by the assessee after 31.12.2016, cannot be a basis to treat the same as barred by limitation or passed beyond the prescribed date of limitation. Consequently, Ground No. 1 of cross-objection in the present case filed by the assessee stands dismissed. Disallowance of depreciation - Allowability of depreciation in the present case for AY 2014-15 is squarely covered by the decision of Rajasthan and Gujarati Charitable Foundation [2017 (12) TMI 1067 - SUPREME COURT] along with the decision of AL- Ameen Charitable Fund Trust [2016 (3) TMI 462 - KARNATAKA HIGH COURT] Accordingly, we find substance in the submission of Ld. AR to allow the claim of depreciation raised by the assessee society in the instant case Issues: (i) Whether the assessee (an educational society) is entitled to exemption under section 10(23C)(vi) despite the Assessing Officer not quantifying that exemption in the assessment though audit details were filed; (ii) Whether the Assessing Officer's disallowances/additions (including excessive salary, payments to related concerns, student data processing, books/course material, printing/stationery, advertisement, computer/software, VC house expenses and other expenses) under sections 11/12/13 were justified; (iii) Whether the amount collected as 'Development Fund' qualifies as corpus (exempt under section 11(1)(d)) or as revenue receipt and whether any addition on that account is sustainable; (iv) Whether the assessment order dated 31.12.2016 is barred by limitation because it was dispatched after the limitation period; (v) Whether depreciation of Rs.2,18,48,453/- is allowable where cost of assets was earlier treated as application of income.Issue (i): Entitlement to exemption under section 10(23C)(vi) though the AO did not quantify the exemption in assessment.Analysis: The assessee held valid approval/registration under section 10(23C)(vi) for the year under consideration and furnished the prescribed audit report (Form 10BB) with the return. Section 10(23C)(vi) and its provisos require prescribed filings and authorisation; there was no material to show withdrawal of approval under the statutory provisos. While the AO is ordinarily constrained from admitting claims not reflected in the return, the Tribunal has power to entertain such issues where facts supporting the claim exist (consistent with the Goetze principle). The CIT(A) examined compliance with conditions and factual materials and found pre-conditions satisfied.Conclusion: In favour of Assessee - the claim for exemption under section 10(23C)(vi) is allowed.Issue (ii): Validity of disallowances/additions by AO under sections 11/12/13 for various expenses and payments to related concerns.Analysis: The AO alleged diversion/excess payments invoking sections 13(2)(c), 13(3) and related provisions. The CIT(A) reviewed invoices, working papers, installation reports, comparative material and subsequent year directions (section 144A) and found insufficient proof of diversion or that payments were unreasonably excessive so as to forfeit exemption wholly. The Tribunal noted that where the revenue accepted similar expenditures in subsequent year after detailed enquiries (including JCIT directions), an inconsistent adverse view for the subject year was not sustainable absent distinguishing material. For salary disallowances, the AO failed to establish the excess portion as applied for personal benefit; where only part if any is to be taxed, blanket forfeiture is impermissible.Conclusion: In favour of Assessee - the disallowances/additions on account of excessive salary, payments to related concerns, student data processing, books/course material, printing & stationery, advertisement, computer & software, VC house expenses and other expenses are vacated or rejected.Issue (iii): Treatment of Rs.14,56,75,819 received as 'Development Fund' - corpus/exempt or revenue and whether addition sustains.Analysis: The AO treated the development fund as non-voluntary and thus not corpus, bringing it to tax; the CIT(A) considered application of funds and judicial precedents favouring liberal treatment of corpus donations and scrutinised the application (including capital expenditure invested). The Tribunal found the receipts were not voluntary and thus revenue in character, but also accepted CIT(A)'s finding that even on treating the receipts as revenue, the assessee applied more than 85% of receipts for educational purposes in the year, satisfying section 11 conditions applicable to educational institutions.Conclusion: Partly in favour of Revenue / partly in favour of Assessee - the AO's characterization of the receipts as not corpus is upheld (so revenue in character) but the addition is not sustained because the assessee satisfied the 85% application test; accordingly the revenue's ground is partly allowed in law but the addition cannot be sustained in result.Issue (iv): Whether assessment order dated 31.12.2016 is time-barred because dispatched after limitation period.Analysis: The statutory limitation provision uses the word 'made' (e.g., in section 143/153) and the Apex Court has held that the relevant date for limitation is the date the order is made/passed, not the date of dispatch or receipt. The assessment order was dated 31.12.2016 and there was no evidence that the AO revisited or re-made the order after that date; postal dispatch after the deadline does not render the order barred.Conclusion: Against Assessee - cross-objection on limitation is dismissed; assessment is not barred by limitation.Issue (v): Allowability of depreciation where cost of assets was earlier treated as application of income.Analysis: The authorities examined judicial precedents including the Supreme Court and High Court rulings which permit allowability of depreciation for the assessment year in question (AY 2014-15) where the factual matrix and precedent are satisfied; amendments introduced later (section 11(6) prospective) do not negate the assessee's entitlement for the year under consideration. The Tribunal followed binding and persuasive precedents allowing depreciation in such circumstances.Conclusion: In favour of Assessee - depreciation of Rs.2,18,48,453/- is allowable and the disallowance is to be vacated.Final Conclusion: The Tribunal upholds the CIT(A)'s grant of exemption under section 10(23C)(vi) and vacates or rejects major disallowances under sections 11/12/13 relating to payments and expenses, while sustaining the legal character of development fund receipts as non-corpus but holding the addition unsustainable because the assessee met the 85% application requirement; the assessment is not time-barred; depreciation is allowed. Overall the revenue's appeal and the assessee's cross-objection are each partly allowed, producing mixed but predominantly favourable outcomes for the assessee on substantive expense and exemption issues.Ratio Decidendi: Where an educational institution holds valid approval under section 10(23C)(vi) and files required audit particulars, the Tribunal may recognise the exemption notwithstanding the AO's failure to quantify it in assessment; disallowances under sections 11/12/13 require concrete proof of diversion or unreasonable excess and blanket forfeiture is impermissible; limitation for assessment is governed by the date the order is 'made' rather than date of dispatch; depreciation may be allowable for the year where precedents and facts entitle the assessee notwithstanding prior application of capital cost in earlier years.