DCIT, Bangalore V. M/s people's Educatation Society, Bangalore

ITA 1074/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5265 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 31-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 26-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PRASHANTH C
• Keywords: Capital asset; Depreciation; Charitable institution; Revenue expenditure; Capital expenditure
• Section: 12; 11

Judgement Text

ITA.1074/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIT KUMAR, JUDICIAL MEMBER I.T.A NO.1074/BANG/2016 (ASSESSMENT YEAR : 2011-12) DEPUTY COMMISSIONER OF INCOME-TAX (E), CIRCLE -1, BENGALURU .. APPELLANT V. M/S. PEOPLES EDUCATION SOCIETY, 50 FEET ROAD, HANUMANTHANAGAR, BSK 1 ST STAGE, BENGALURU 560 050 .. RESPONDENT PAN : AAATP3955H ASSESSEE BY : SHRI. PRASHANTH, C, CA REVENUE BY : SHRI. SANJAY KUMAR, CIT-III HEARD ON : 31.05.2017 PRONOUNCED ON : 09.06.2017 O R D E R PER LALIT KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE REVENUE AGAINST THE CIT (A)-14, LTU, BENGALURU, DT.22.03.2016, FOR THE ASSESSMENT Y EAR 2011-12. ITA.1074/BANG/2016 PAGE - 2 02. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SO CIETY REGISTERED UNDER THE MYSORE SOCIETY REGISTRATION ACT. THE SOCIETY HAS B EEN GRANTED APPROVAL U/S.12AA AND SECTION 10(23C)(VI) OF INCOME-TAX ACT, 1961. THE INCOME OF THE SOCIETY IS DERIVED FROM RUNNING AND MANAGING VARIOUS EDUCATIONAL INSTITUTIONS IMPARTING EDUCATION IN THE FIELD OF MEDICINE, ENGINEERING, MANAGEMENT, GRADUATION AND U NDER GRADUATION ETC. THE RESPONDENT HAS CLAIMED DEPRECIA TION OF RS.18,90,94,568 ON FIXED ASSETS AS APPLICATION OF I NCOME UNDER SECTION 11 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT') WHILE FILING RETURNS FOR ASSESSMENT YEAR 201 1-12. 03. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL BY THE REVENUE IS WITH RESPECT OF DISALLOWANCE OF DEPRECIATION AS APPLICAT ION OF INCOME, WHICH ARE COVERED IN GROUNDS (I) TO (IV) OF THE GROUNDS OF RE VENUE, WHICH ARE DESCRIPTIVE IN NATURE AND HENCE NOT REPRODUCED. 04. IT IS THE CONTENTION OF THE LD. DR THAT WHILE C OMPUTING THE INCOME U/S.11 AND 12 OF THE ACT, ASSESSEE HAD CLAIMED DEPR ECIATION TO THE TUNE OF RS.18,90,94,568/- ON THE ASSETS, WHEN THE INVESTMEN T MADE THEREOF HAD ALREADY BEEN CLAIMED AS APPLICATION OF INCOME DURIN G THE YEAR OF ITA.1074/BANG/2016 PAGE - 3 INVESTMENT. IT WAS SUBMITTED THAT THE ASSESSEE IS NOT LIABLE TO CLAIM DEPRECIATION ON THE SAME AS IT WOULD AMOUNT TO DOUB LE DEDUCTION. THE LD. DR SUBMITTED THAT THE ORDER OF THE HONBLE JURISDIC TIONAL HIGH COURT IN ITA NO.62/2010 (67 TAXMANN.COM 160), DT.22.02.2016, IS CLEARLY DISTINGUISHABLE. 05. THE LD. AR HAS SUBMITTED AS FOLLOWS : SECTION 11 OF THE ACT CLEARLY STATES THAT: '11 (1) SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOM E ..... '. AS PER SECTION 11(1), INCOME DERIVED FROM PROPERTY HELD UNDER TRUST, WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE, WILL BE EXEMPT TO THE EXTENT IT IS APPLIED OR ACCUMULATED FOR APPLICATION TOWARDS OBJECTS OF THE TRUST IN INDIA, PROVIDED THE AMOUNT OF APPLICATION IS NOT LESS THAN 85% OF THE INCOME FROM SUCH PROPERTY. THUS, IT IS EVIDE NT THAT THE TERM USED THEREIN IS 'INCOME' AND NOT 'TOTAL INCOME', WHICH I S APPLICABLE FOR THE PURPOSES OF TAXATION OF OTHER TAXABLE ENTITIES UNDER THE ACT. B) FURTHER, DISTINGUISHING THE TERMS 'TOTAL INCOME' AND 'INCOME' FOR THE PURPOSE OF SEC 11, THE CENTRAL BOARD OF DIRECT TAXE S VIDE CIRCULAR NO5- 1)I[LXX-6) OF 198, DATED 19.6.1968, HAS STATED THAT ' 2. THE REFERENCE IN CLAUSE (A) OF SECTION 21(1) I S INVARIABLY TO 'INCOME' AND NOT TO 'TOTAL INCOME'. T HE EXPRESSION 'TOTAL INCOME' HAS BEEN SPECIFICALLY ITA.1074/BANG/2016 PAGE - 4 DEFINED IN SECTION 2(45) AS 'THE TOTAL AMOUNT OF IN COME COMPUTED IN THE MANNER LAID DOWN IN THIS ACT'. IT W OULD, ACCORDINGLY, BE INCORRECT TO ASSIGN TO THE WORD 'IN COME' USED IN SECTION 11 (1)(A), THE SAME MEANING LAS HAS BEEN SPECIFICALLY ASSIGNED TO THE EXPRESSION 'TOTAL INCO ME' VIDE SECTION 2(45). .. HENCE THE COMPUTATION MECHANISM CONTAINED IN SECTIO N 11 IS WITH REFERENCE TO 'INCOME' RATHER THAN 'TOTAL INCOME'. F URTHER SECTION 11 PROVIDES EXEMPTION TO A CHARITABLE ENTITY ON THE CO NDITION THAT 85% OF ITS INCOME IS APPLIED TOWARDS CHARITABLE PUR POSE. C) IT HAS BEEN HELD BY VARIOUS HIGH COURTS THAT THE INCOME OF THE CHARITABLE ORGANIZATION ARE TO BE COMPUTED ON COMME RCIAL PRINCIPLES, WITHOUT REFERENCE TO THE HEADS OF INCOME SPECIFIED UNDER SECTION 14 OF THE INCOME TAX ACT, 1961. THE SAME SHOULD HE COMPUTED A S PER THE BOOK INCOME AND NOT TOTAL INCOME AS SPECIFIED BY SECTION 2(45). THIS PROPOSITION IS LAID DOWN BY VARIOUS JUDGEMENTS OF H ONBLE HIGH COURTS, NAMELY, (I) CIT V TRUSTEE OF H.E.H. NI ZAM'S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST 127 ITR 378 (AP); (II) CIT V RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES 135 ITR 485 (MAD.) & (III) CIT V ESTATE OF V.L.ETHIRAJ 136 ITR 12 (MAD.). D) THE HON 7 BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOC IETY OF THE SISTERS OF ST. ANNE (146 ITR 28), HELD THAT THE INCOME '19. THE DEPRECIATION IF IT IS NOT ALLOWED AS A NEC ESSARY DEDUCTION FOR COMPUTING THE INCOME FROM THE CHARITA BLE INSTITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. THE BOARD ALSO APPEARS TO HAVE UNDERSTOOD THE 'INCOME U/S. 11(1) IN ITS COMMERCIA L SENSE. THE ITA.1074/BANG/2016 PAGE - 5 RELEVANT PORTION OF THE CIRCULAR NO. 5-P (LXX-6) OF 1968, DATED JULY 19, 1968, READS : WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY , INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WO RD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK I NCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATION S THEREOF TOWARDS THE PURPOSE OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHOU LD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WILL BEC OME CHARGEABLE TO TAX U/S. 11(3) TO THE EXTENT THAT THE Y REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE OF THE TRUS T. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT O F THE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LES S THAN 75 PER CENT. OF THE LATTER, IF THE TRUST IS TO GET THE FUL L BENEFIT OF THE EXEMPTION U/S. 11(1).' HENCE THE JURISDICTIONAL HIGH COURT HAS UPHELD THE CLAIM OF DEPRECIATION AS APPLICATION OF INCOME UNDER SECTION II WHILE COM PUTING THE INCOME OF A CHARITABLE ENTITY. E) THE ALLOWANCE OF DEPRECIATION AS APPLICATION OF INCOME FOR THE COMPUTATION OF APPLICATION UNDER SECTION 11 IN THE CASE OF A CHARITABLE INSTITUTION HAS BEEN UPHELD BY THE HON'BLE HIGH COU RT OF BOMBAY IN THE CASE OF CIT V INSTITUTE OF BANKING 264 ITR 110. F ) A SIMILAR VIEW IN THE MATTER WAS TAKEN BY THE HON 'BLE ITAT, BANGALORE, IN THE CASE OF KARNATAKA REDDY JANASANGHA IN ITA NO . 220/BANG/201 1, KARNATAKA STATE MUSLIM FEDERATION IN ITA NO. 37/BAN G/2013, IN THE CASE OF DDIT (E) V.S CUTCHI MEMON UNION (2013) 60 SOT 260, JYOTHI CHARITABLE ITA.1074/BANG/2016 PAGE - 6 TRUST IN 60 TAXMANN.COM. 165 BANGALORE AND ACIT VS. CITY HOSPITAL CHARITABLE TRUST IN 42 ITR(TRIB) 583 BANGALORE. 06. WE HAVE GONE THROUGH THE RECORD AND HEARD THE R IVAL CONTENTIONS. IN OUR VIEW, THE ISSUE IS SQUARELY COVERED BY THE JUDG MENT OF THE HONBLE KARNATAKA HIGH COURT IN DIRECTOR OF INCOME-TAX, EXEMPTIONS V. AL- AMEEN CHARITABLE FUND TRUST ITA NO.62/2010 (67 TAXMANN.COM 160) . THEREFORE, WE DISMISS THIS GROUND OF THE REVENUE AP PEAL . NET RECEIPTS V. GROSS RECEIPTS 07. THE NEXT ISSUE IS WITH RESPECT OF NET RECEIPTS V. GROSS RECEIPTS IN COMPUTATION OF APPLICATION OF INCOME. UNDER THIS H EAD ALSO THE REVENUE HAS RAISED GROUNDS (I) TO (IV) WHICH ARE AGAIN DESC RIPTIVE IN NATURE AND HENCE NOT REPRODUCED. 08. ON THIS ISSUE, THE LD. DR HAS SUBMITTED THAT TH E AO HAS ALLOWED ACCUMULATION OF 15% OF NET RECEIPT INSTEAD OF 15% O F THE GROSS RECEIPTS. HOWEVER, THE CIT (A) HAS ALLOWED THE ACCUMULATION O F 15% OF GROSS RECEIPTS. 09. ON THE OTHER HAND, THE LD. AR HAS SUBMITTED THA T THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE COORDINATE BEN CH OF THE BANGALORE TRIBUNAL IN THE MATTER OF JYOTHI CHARITABLE TRUST IN ITA NO.662/BANG/2015 ITA.1074/BANG/2016 PAGE - 7 [60 TAXMANN.COM. 165], WHEREIN IT WAS DECIDED THAT THE ACCUMULATION AT 15% ON GROSS RECEIPTS SHOULD BE CONSIDERED U/S.11(1)(A) , AND NOT ON NET RECEIPTS. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE MATERIALS ON RECORD. IN OUR VIEW, THE ISSUE IS SQUARELY COVERED BY THE COORDINATE BENCH DECISION OF THE TRIBUNAL IN THE MATTER OF JYOTHI CH ARITABLE TRUST (SUPRA). NO DISTINGUISHABLE FEATURE OR FACTS WAS BROUGHT TO OUR NOTICE BY THE LD. DR. IN THE LIGHT OF THE ABOVE, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. UNUTILISED GRANTS AS INCOME 11. THE THIRD ISSUE IS ON TREATMENT OF UNUTILISED G RANTS AS INCOME. UNDER THIS HEAD ALSO, THE REVENUE HAS RAISED GROUNDS (I) TO (IV) WHICH ARE DESCRIPTIVE IN NATURE AND HENCE NOT REPRODUCED. 12. THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS RECEIVED GRANTS FROM VARIOUS UNIVERSITIES AND OUTSIDE AGENCIES TOWARDS E DUCATION ACTIVITY. HOWEVER, IN MANY CASES, THE ASSESSEE HAS NOT UTILIS ED THE GRANTS AND ARE LYING WITH THE ASSESSEE, SHOWN AS LIABILITIES IN THE BALA NCE-SHEET. IT WAS NOTICED DURING THE SCRUTINY THAT THE ASSESSEE HAS NOT MAINT AINED ANY SEPARATE BANK ACCOUNT FOR THE PURPOSE OF KEEPING THE GRANTS RECEI VED FROM VARIOUS UNIVERSITIES AND OUTSIDE AGENCIES AND HAS WRONGLY M ERGED THE FUNDS WITH ITA.1074/BANG/2016 PAGE - 8 OTHER REVENUE STREAMS OF THE ASSESSEE AND IT WAS FU RTHER CONTENDED THAT THE GRANTS RECEIVED BY THE ASSESSEE WERE NOT UTILISED F OR THE PURPOSE IT WAS INTENDED FOR A LONG-TIME. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE FINDINGS OF THE CIT (A) ARE ALSO REQUIRED TO BE SPE CIFIED. OUR ATTENTION WAS ALSO DRAWN TO PARA 6.4 OF THE ORDER OF THE CIT (A), WHEREIN IT IS MENTIONED AS UNDER : 6.4 AS THE AR HAS PRODUCED ALL RECORDS, ACCOUNTS, BANK STATEMENTS AND OTHER RELATED DOCUMENTS DURING THE COURSE OF HEARIN G AND AFTER DUE VERIFICATION OF THEM IT IS SEEN THAT THEY ARE SPECIFIC GRANTS TO BE UTILISED IN A SPECIFIC TIME FRAME AND NECESSARY ACCOUNTING, AUDITING AND VERIFI CATION IS BEING UNDERTAKEN AS PER THE RULES FRAMED BY THE AICTE OR FUNDING AGE NCY AND IT IS ALSO SEEN THAT THE ASSESSEE HAS OPENED SEPARATE BANK A/CS FOR THE SAME AND IS SUBMITTING UTILISATION CERTIFICATE AS REQUIRED BY THE PERSONS GIVING THE GRANTS. ON THE BASIS OF THE ABOVE, IT WAS SUBMITTED THAT TH E CIT (A) HAS DECIDED THE ISSUE WITHOUT GIVING AN OPPORTUNITY TO THE AO BY SE EKING A REMAND REPORT IN RESPECT OF THE FACTS NOW BROUGHT TO THE NOTICE OF T HE CIT (A). 13. ON THE OTHER HAND, IT WAS SUBMITTED BY THE LD. AR THAT THE GRANTS WHICH WERE RECEIVED FROM AICTE, AND OTHER RESEARCH AGENCIES WERE UTILISED FOR THE SPECIFIC PURPOSE / EDUCATION ACTIV ITIES AND THE ASSESSEE HAS MAINTAINED SEPARATE BANK ACCOUNT FOR THE SAID GRANT S. IT WAS SUBMITTED THAT ITA.1074/BANG/2016 PAGE - 9 THE ASSESSEE HAS NOT MERGED THE ACCOUNTS OF THE ASS ESSEE. IT WAS FURTHER SUBMITTED THAT THE DOCUMENTS AND THE PASS-BOOK AND THE OTHER FINANCIALS WERE DULY SUBMITTED WITH THE AO DURING THE ASSESSME NT PROCEEDINGS AND NO NEW DOCUMENTS WERE FILED BY THE ASSESSEE BEFORE THE CIT (A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IN OUR VIEW, THE CONCLUSION RECORDED BY TH E CIT (A) IN PARA 6.4 MENTIONED HEREIN ABOVE DO NOT CLEARLY SUGGEST THAT THE INFERENCE WAS DRAWN BY THE CIT (A) BASED ON THE MATERIAL ALREADY EXISTI NG ON RECORD WITH THE AO. IN OUR VIEW, IT WOULD ALWAYS BE ADVISABLE THAT THE FIRST APPELLATE AUTHORITY SHOULD SEEK A REMAND REPORT, IN CASE THE FACTUAL MATRIX ARE NOT CLEAR FROM THE RECORDS, FROM THE AO. IN THE LIGHT OF THE ABOVE, WE REMAND THE MATTER TO THE FILE OF THE CIT (A) WITH A DIRECT ION TO SEEK A REMAND REPORT FROM THE AO ON THIS ISSUE, I.E., WHETHER THE GRANTS RECEIVED FROM OTHER AGENCIES INCLUDING AICTE, WERE UTILISED FOR THE SPE CIFIC PURPOSES OR NOT AND WHETHER THE ASSESSEE HAS KEPT THE SAID GRANTS R ECEIVED BY IT IN A SEPARATE BANK ACCOUNT AND HAS NOT MERGED THE SAME W ITH THE REGULAR ACCOUNT OF THE ASSESSEE. IN THE LIGHT OF THE ABOVE , THE ISSUE IS REMANDED BACK TO THE AO. ITA.1074/BANG/2016 PAGE - 10 INVESTMENT IN FIXED ASSET BY USING THE LOAN AMOUNT 15. THE NEXT ISSUE IS WITH RESPECT TO INVESTMENT IN FIXED ASSET BY USING THE LOAN. UNDER THIS HEAD ALSO, THE REVENUE HAS RA ISED GROUNDS (I) TO (V) WHICH ARE DESCRIPTIVE IN NATURE AND HENCE NOT REPRO DUCED. 16. THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAD AVAILED A LOAN TO THE TUNE OF RS.28,59,60,638/- AS ON 31.03.2010 AND THE SAME WAS INCREASED TO RS.47,14,68,794/- AS ON 31.03.2011. THUS IT WAS S UBMITTED THAT THERE WAS AN INCREASE IN THE LOAN AMOUNT TO THE EXTENT OF RS.18,55,08,156/- DURING THE YEAR UNDER CONSIDERATI ON. IT WAS ALSO SUBMITTED BY THE LD. DR THAT THE ASSESSEE FOR THE P URPOSE OF AVAILING THE LOAN AND ACTUAL UTILISATION OF THE SAME HAS SUBMITT ED REPLY, WHEREIN IT WAS SUBMITTED THAT THE LOANS WERE UTILISED FOR MEETING THE CAPITAL / REVENUE EXPENDITURE OF THE SOCIETY AND ITS INSTITUTION. IT WAS ALSO BROUGHT TO THE NOTICE THAT THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION HAD ALSO INVESTED IN TWO IMMOVABLE PROPERTIES DURING THE FIN ANCIAL YEAR UNDER CONSIDERATION, WHICH WERE PURCHASED VIDE SAID DEEDS DT.18.03.2011 AND 16.09.2010, FOR A SUM OF RS.2,58,67,200/- AND RS.3, 67,00,000/-. IT WAS SUBMITTED BY THE LD. DR THAT THE RELIANCE PLACED BY THE CIT (A) ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E MATTER OF CIT V. ITA.1074/BANG/2016 PAGE - 11 JANMABHOOMI PRESS TRUST [242 ITR 703] WAS WHOLLY IN CORRECT AS THE FACTS IN THE SAID CASE WAS DIFFERENT FROM THE FACTS IN TH E PRESENT CASE. IT WAS SUBMITTED THAT IN THE CITED CASE, IT WAS AN APPLICA TION OF FUND FOR THE PURPOSES OF SERVICING THE INTEREST . IT WAS SUBM ITTED THAT THE PRESENT CASE IS NOT ON APPLICATION OF INCOME, BUT IS A CASE OF A CQUIRING THE ASSETS FROM THE LOAN AMOUNT. IT WAS SUBMITTED THAT THE ASSESSE E IS ONLY ENTITLED TO THE BENEFIT IF THERE IS A REPAYMENT OF DEBT AVAILED FOR THE PURPOSES OF CONSTRUCTION OF BUILDING TAKEN BY THE ASSESSEE FOR THE PURPOSES OF AUGMENTING ITS INCOME. IN THOSE CIRCUMSTANCES, IT WAS HELD THAT IT IS AN APPLICATION OF INCOME FOR CHARITABLE PURPOSES. 17. ON THE OTHER HAND, THE LD. AR HAS SUBMITTED AS UNDER : 4. CAPITAL EXPENDITURE OUT OF LOAN FUNDS:- (A) WITH RESPECT TO THE ABOVE GROUND, THE RESPONDEN T VIDE ITS SUBMISSIONS MADE TO THE LD. COMMISSIONER (APPEALS) A ND TO THE LD. ASSESSING OFFICER HAD EXPLAINED THAT THE ASSESSEE IN VESTS THE SURPLUS FUNDS IN FIXED DEPOSITS AND WHEN FUNDS ARE REQUIRED, I NSTEAD OF PRE- CLOSING THE FIXED DEPOSITS, IT AVAILS LOANS AGAINST FIXED DEPOSITS FOR THE PURPOSE OF UTILIZATION TOWARDS REVENUE AND CAPITA L EXPENDITURE. (B) THE LOANS AVAILED ARE NOT SPECIFIC BORROWINGS FOR ACQUISITION/ CONSTRUCTION OF ANY FIX ED ASSETS AND THEY ARE LOAN AGAINST FIXED DEPOSIT, WHICH ARE USED FOR THE GENERAL EXPENDITURE OF THE SOCIETY OR FOR THE CAPITAL EXPENDI TURE. ITA.1074/BANG/2016 PAGE - 12 (C) THE RESPONDENT PLACES RELIANCE ON THE JUDGMENT OF B Y THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. JANMABH OOMI PRESS TRUST (242 ITR 703), WHERE IT WAS UPHELD THAT REPAYMENT O F DEBT INCURRED BY THE ASSESSEE FOR THE CONSTRUCTION OF THE COMMERCIAL BUILDING TAKEN UP BY THE ASSESSEE FOR THE PURPOSE OF AUGMENTING ITS FUND S, SHOULD BE TREATED AS 'APPLICATION' OF THE INCOME OF THE ASSESSEE-TRUS T FOR CHARITABLE PURPOSES. (D) IN THE PRESENT CASE, THE RESPONDENT INSTEAD OF PRE-CLO SING THE AVAILABLE MONEY IN THE FORM OF FIXED DEPOSITS AND UTILIZATION OF THE SAME TOWARDS APPLICATION FOR THE PURPOSE OF THE SOCIETY, HAS AVAI LED LOAN AGAINST SUCH DEPOSITS AND HAS UTILIZED THE SAME FOR THE PURPOSE OF THE OBJECTIVES OF THE SOCIETY. THE SAID FACTS WERE ACCEPTED BY THE CO MMISSIONER (APPEALS) AND ACCORDINGLY ALLOWED (PARA 7.4 OF THE ORDER). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IN THE PRESENT CASE, THE SOLE BASIS OF DIS ALLOWING THE AMOUNT OF RS.10,62,94,245/- IS ON ACCOUNT OF THE LOANS BORROW ED FOR THE PURPOSE OF CAPITAL EXPENDITURE. IT IS THUS CLEAR THAT THE TOT AL EXPENDITURE INCURRED BY THE ASSESSEE WAS RS.47,87,64,431/-, FOR THE CHARITA BLE PURPOSES / ACTIVITIES OF THE TRUST. IT IS ALSO COMING FROM THE RECORD TH AT THE ASSESSEE HAS APPLIED THE TOTAL AMOUNT OF RS.47,87,64,431/- FOR THE TRUS T PURPOSES. THE REASONING GIVEN BY THE AO IS THIS THAT AS THE EXCES S FUND WAS ALREADY AVAILABLE WITH THE ASSESSEE-TRUST WHICH WAS LYING I N THE FORM FDRS, THAT SHOULD HAVE BEEN APPLIED INSTEAD OF THE LOAN AMOUNT . AS PER THE ASSESSEE, FUNDS EVEN IF BORROWED FUNDS WERE UTILISED FOR THE OBJECTS OF THE TRUST AND ITA.1074/BANG/2016 PAGE - 13 THEREFORE, IT SHOULD BE ALLOWED. IN OUR VIEW, IF TH IS PROPOSITION OF THE ASSESSEE IS ACCEPTED THEN IT WOULD AMOUNT TO GRANTI NG THE BENEFIT OF DOUBLE DEDUCTION. THE INCOME OF THE ASSESSEE IS LYING INV ESTED IN FDR AND IT IS NOT UTILISED FOR THE OBJECTS OF THE TRUST OR FOR RE PAYMENT OF LOAN EARLIER TAKEN FOR OBJECTS OF THE TRUST. THE ASSESSEE IS ASKING FOR ACCEPTING THE USAGE OF B ORROWED FUNDS AS APPLICATION OF INCOME FOR THE OBJECTS OF THE TRUST , THEREFORE SEEKING EXEMPTION UNDER SECTION 11 OF THE ACT , THE SAME CA NNOT BE ALLOWED AS IN FUTURE WHEN THE ASSESSEE START REPAYING THE LOAN, AT THAT TIME REPAYMENT OF LOAN WOULD BE TREATED AS APPLICATION OF INCOME IN T HAT YEAR OF REPAYMENT , AS THE REPAYMENT OF LOAN WOULD BE FROM THE INCOME O F TRUST . FURTHER, THE LD. DR DURING THE COURSE OF ARGUMENT HAS SUBMITTED THAT THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN JANMABHOOMI PR ESS TRUST (SUPRA) IS NOT APPLICABLE AS IT IS THE CASE OF APPLICATION OF REPAYMENT OF LOAN. 19. IN OUR VIEW, SECTION 11 ONLY CONTEMPLATES THE A PPLICATION OF INCOME AND IF THE SAID INCOME IS APPLIED FOR THE AIMS AND OBJECTIVES OF THE TRUST, THEN THE TRUST IS ENTITLED FOR EXEMPTION UNDER THE PROVISION. THE SAID ANALOGY CANNOT BE EXTENDED TO ACQUISITION OF ASSETS FROM THE BORROWED FUNDS. IF WE HOLD SO, THEN WE WOULD BE EQUATING TH E BORROWED FUND WITH ITA.1074/BANG/2016 PAGE - 14 THE INCOME OF THE TRUST. UNDER THE LAW, IT IS THE APPLICATION OF INCOME AND NOT OF THE FUND THAT IS REQUIRED TO BE SEEN FOR THE PURPOSE OF GRANTING THE EXEMPTION. IN FACT, THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT I N THE MATTER OF JANMABHOOMI PRESS TRUST (SUPRA), AS AND WHEN THE LO AN IS REPAID TO THE FINANCIAL INSTITUTIONS. IN VIEW THEREOF, IF THE CL AIM OF THE ASSESSEE THAT THE BORROWED FUNDS WERE UTILISED FOR THE OBJECTS OF THE TRUST, IS ENTERTAINED AND ACCEPTED AT THIS STAGE, IT WOULD TANTAMOUNT TO DOUBLE BENEFIT WHICH CANNOT BE THE INTENTION OF THE STATUTE. IN VIEW TH EREOF, WE FIND THAT THE CIT (A) ERRED IN ALLOWING THE CLAIM FOR ACQUISITION OF CAPITAL ASSETS FROM THE BORROWED FUND. THEREFORE, THE ORDER PASSE D BY THE CIT (A) IS REQUIRED TO BE RECALLED AND THE GROUND OF THE REVEN UE IS ALLOWED TO THE EXTENT OF BORROWED FUND FOR AN AMOUNT OF RS.10,62,94,245/-. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9 TH DAY OF JUNE, 2017. SD/- SD/- (A. K. GARODIA) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER MCN* ITA.1074/BANG/2016 PAGE - 15 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR