Adharshila Education & Charitable Trust, Gandhinagar V. The ACIT.,GNR Circle, Gandhinagar

ITA 1443/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6748 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 24-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS R K TOPIWALA
• Assessee Lawyers: B T THAKKAR
• Keywords: Capital asset; Depreciation; Charitable institution; Source of fund; Commercial expediency
• Section: 12AA; 12; 11

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND D.C.AGRAWAL, AM ITA NO. ASST. YEAR 1443/AHD/2008 2005-06 810/AHD/2009 2006-07 ADHARSHILA EDUCATION & CHARITABLE TRUST, NH-8, NR. PANCHESHWAR MAHADEV, VALAD-GANDHINAGAR. VS. ASSTT. CIT, GANDHINAGAR CIRCLE, GANDHINAGAR. (APPELLANT) .. (RESPONDENT) AND ITA NO. ASST. YEAR 1253/AHD/2009 2006-07 ASSTT. CIT, GANDHINAGAR CIRCLE, GANDHINAGAR. VS. ADHARSHILA EDUCATION & CHARITABLE TRUST, NH-8, NR. PANCHESHWAR MAHADEV, VALAD- GANDHINAGAR. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI B. T. THAKKAR, AR REVENUE BY:- MRS. R. K. TOPIWALA, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . OUT OF THESE THREE APPEALS, TWO ARE FILED BY THE A SSESSEE FOR ASST. YEAR 2005-06 AND 2006-07 AND ONE IS FILED BY THE RE VENUE FOR ASST. YEAR 2006-07. SINCE ALL THESE APPEALS INVOLVE COMMON ISS UE THEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. ITA NO.1443/AHD/2008 ASST. YEAR 2005-06 (ASSESSEE S APPEAL) ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 2 2. IN THIS APPEAL ASSESSEE HAS RAISED FOLLOWING GRO UNDS :- (1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRM ING OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSES SEE TRUST HAS MADE VIOLATION OF SECTION 13(1)(C)(II) OF THE IT AC T THEREFORE THE ASSESSEE TRUST IS NOT ELIGIBLE FOR EXEMPTION U/S 11 & 12 OF THE IT ACT, 1961 ACCORDINGLY THE CIT(A) CONFIRMED THE ADDI TION OF RS.5,30,000/- AND RS.21,03,468/- RESPECTIVELY MADE BY THE AO U/S 11(1)(D) AND U/S 11(1)(A) OF THE ACT. (1.1) THE APPELLANT SAYS AND SUBMITS THAT NO VIOLATION HA S BEEN MADE BY THE TRUST IN GIVING ADVANCES FOR RENT OF SCHOOL BUILDING AND BUS RENT ETC. TO ADHARSHILA ASSOCIATES FOR COMMERCI AL EXPEDIENCY AND NO BENEFITS EITHER DIRECTLY OR INDIR ECTLY HAS BEEN PROVIDED TO THE RELATIVES OF THE TRUSTEE OF THE TRU ST THEREFORE THERE IS NO VIOLATION OF SECTION 13(1)(C)9II) OF TH E ACT. (2) CIT(A) ERRED ON FACTS CONFIRMING THE ADDITION OF RS .21,03,468/- IN RESPECT OF AMOUNT SET APART U/S 11(1)(A) OF THE ACT SINCE THE AMOUNT IS NOT CONSIDERED WHILE ALLOWING THE DEDUCTI ON SAME CANNOT BE ADDED BACK. THE AO HAS TAKEN INCOME AS PE R INCOME & EXPENDITURE A/C RS.15,23,510/- INSTEAD OF NET LOS S RS.5,30,456/- AS PER STATEMENT OF COMPUTATION OF IN COME. OTHERWISE IT AMOUNTS TO DUPLICATION. (3) THE CIT(A) ERRED IN LAW IN NOT CONSIDERING GROUND N O.7 OF THE APPEAL BEFORE CIT(A) IN RESPECT OF INITIATION OF PE NALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, 1961. 3. THUS THE ISSUE IS WHETHER ASSESSEE CAN BE DENIED EXEMPTION UNDER SECTION 11 & 13 ON THE GROUND THAT IT HAS PAID ADVA NCES TO M/S ADHARSHILA ASSOCIATES WHICH IS A CONCERN WHERE SOME PARTNERS A RE THE TRUSTEES OF THE PRESENT ASSESSEE. 4. THE FACTS RELATING TO THIS ISSUE ARE THAT ASSESS EE IS A TRUST CARRYING ON THE EDUCATION ACTIVITIES. IT IS GRANTED CERTIFIC ATE U/S 12AA OF THE ACT BY THE COMMISSIONER. IT IS RUNNING SCHOOLS FROM PRIMAR Y LEVELS TO HIGHER SECONDARY LEVEL IN VILLAGE VALAD, DISTRICT GANDHINA GAR IN A LEASED ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 3 PREMISES. IT HAS TAKEN THE PREMISES BELONGING TO M/ S ADHARSHILA ASSOCIATES ON LEASE AND ALSO TAKEN SEVEN BUSES FROM SAME CONCERN FOR TRANSPORTING STUDENTS FOR WHICH IT IS PAYING RENT O F RS.12,25,000/- PER ANNUM IN ADDITION TO RENT FOR SCHOOL PREMISES AT RS .16,50,000/- PER ANNUM. IT IS ALSO NOT DISPUTED THAT M/S ADHARSHILA ASSOCIATES IS COVERED U/S 13(3) OF THE ACT. WHILE EXAMINING THE ACCOUNTS OF THE ASSESSEE TRUST, A SUM OF RS.21,50,860/- WAS FOUND OUTSTANDING AGAINST M/S ADHARSHILA ASSOCIATES UNDER THE HEAD LOANS AND ADVANCES ON D EBIT SIDE. THE AO FOUND THAT THE TRUSTEES OF THE ASSESSEE TRUST NAMEL Y SHRI KANTIBHAI D. PATEL, SHRI HARIBHAI P. PATEL, SHRI RAMNIKBHAI R. P ATEL, SHRI DHIRAJBHAI R. PATEL AND SHRI RAJESH D. PATEL ALSO PARTNERS IN THE FIRM M/S ADHARSHILA ASSOCIATES. IT IS, THEREFORE, A PERSON COVERED UNDE R SECTION 13(3) OF THE ACT AND SINCE SUM OF RS.21,50,860/- WAS OUTSTANDING AGAINST M/S ADHARSHILA ASSOCIATES IT WAS AN APPLICATION OF INCO ME FOR THE BENEFIT OF THE PERSONS REFERRED IN SECTION 13(3) AND THEREFORE , PROVISIONS OF SECTION 11 & 12 ARE NOT OPERATIVE IN FAVOUR OF THE ASSESSEE . THE AO ALSO INFERRED THAT PAYMENT OF RENT FOR THE BUILDING AS WELL AS FO R THE BUSES IS EXCESSIVE. HE WORKED OUT A SUM OF RS.4,00,000/- AS EXCESS IN C ASE OF BUILDING RENT AND A SUM OF RS.9,28,475/- AS EXCESS FOR BUS RENT A ND MADE CONSEQUENTIAL ADDITION. 5. WHEN THE MATTER CAME UP BEFORE THE LD. CIT(A) HE DELETED THE ADDITION IN RESPECT OF EXCESSIVENESS OF BUS RENT AN D BUILDING RENT FOR THE REASONS GIVEN BY HIM IN PARA 5.2 OF HIS ORDER AGAIN ST WHICH THE DEPARTMENT HAS FILED AN APPEAL WHICH HAS BEEN DISMI SSED BY THE TRIBUNAL. HE ALSO HELD THAT THE ASSESSEE IS HIT BY SECTION 13 (3) AND 13(2) OF THE ACT AS ASSESSEE HAS ADVANCED MONEY TO M/S ADHARSHILA AS SOCIATES WHICH IS A CONCERN COVERED UNDER SECTION 13(2)(A) OF THE ACT. ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 4 6. THE LD. CIT(A) ALSO MENTIONED THAT EXAMINATION O F THE COPY OF ACCOUNTS OF M/S ADHARSHILA ASSOCIATES IN THE ASSESS EES BOOKS SHOWED FOLLOWING PAYMENTS:- (I) THERE IS AN OPENING CREDIT BALANCE OF RS.8,74,640/- . (II) THEREAFTER, VIDE 8 TRANSACTIONS FROM 19/5/04 TO 5/7 /04 A SUM OF RS.41,55,000/- IS ADVANCED TO M/S ADHARSHILA ASSOCI ATES. THE AMOUNT OF CHEQUES RANGES FROM RS.25,000/- TO RS.17,00,000/-. (III) THERE UPON FROM 11/9/04 TO 8/11/04 THE APPELLANT VI DE 9 CHEQUES RECEIVED A SUM OF RS.13,00,000/- CHEQUES VARY FROM RS.13,000 /- TO RS.3,30,000/-. (IV) FROM 16/12/04 TO 30/12/04 THE APPELLANT HAS MADE AN OTHER PAYMENT OF RS.33,00,000/- BY FIVE CHEQUES SO THAT AS ON 31/12/ 04 THERE WAS A DEBIT BALANCE OF RS.52,20,360/- IN THE ACCOUNT OF M/S ADH ARSHILA ASSOCIATES IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. (V) THE AMOUNTS OF BUILDING RENT, BUS RENT AND OTHER EX PENSES HAVE BEEN ADJUSTED ONLY VIA JOURNAL ENTRIES DATED 31/3/05 AND AMOUNTED TO RS.33,47,760/-. AND ON THE ABOVE BASIS HE CAME TO THE CONCLUSION TH AT ASSESSEE HAS PROVIDED BENEFITS TO ADHARSHILA ASSOCIATES AND IT C ANNOT BE RELATED TO SERVICES RENDERED. 7. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT AMOUNT SHOWN AS ADVANCE AGAINST ADHARSHILA ASSOCIATES IS THE AMO UNT AGAINST SCHOOL BUILDING RENT AND BUS RENT FOR THE NEXT PERIOD WHIC H WAS PAYABLE TO M/S ADHARSHILA ASSOCIATES. TEMPORARY ADVANCES FOR CONST RUCTION OF EXTENTION OF SCHOOL BUILDINGS TO BE LEASED TO THE TRUST FOR E DUCATION ACTIVITIES WERE ALSO GIVEN. THE LD. AR REFERRED TO SECTION 13(1) AN D 13(2) AS UNDER :- SECTION 13 READS AS UNDER: 1) NOTHING CONTAINED IN SECTION 11 (OR SECTION 12 ) SHALL OPERATE SO AS TO EXCLUDE FROM TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSO N IN RECEIPT THEREOF- (A) ----- (B) ----- (C) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGI OUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOME THEREOF- ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 5 (I) IF SUCH TRUST OR INSTITUTION HAS BEEN CREATED OR ESTABLISHED AFTER THE COMMENCEMENT OF THIS ACT AND UNDER THE TERMS OF THE TRUST OR THE RULES GOVERNING THE INSTITUTION, ANY PART OF SUCH INCOME ENSURES, OR (II) IF ANY PART OF SUCH INCOME OR ANY PROPER TY OF THE TRUST OR THE INSTITUTION (WHENEVER CREATED OR ESTABLISHED) IS DURING THE PRE VIOUS YEAR USED OR APPLIED, DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUBSECTION (3): 2) WITHOUT PREJUDICE TO THE GENERALITY OF THE PRO VISIONS OF CLAUSE (C) AND CLAUSE (D) OF SUB SECTION (1), THE INCOME OR THE PROPERTY OR T HE PROPERTY OF THE TRUST OR INSTITUTION OR ANY PART OF SUCH INCOME OR PROPERTY SHARE, FOR T HE PURPOSE OF THAT CLAUSE, BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON REFERRED TO IN SUB SECTION (3)- (A) IF ANY PART OF THE INCOME OR PROPERTY OF THE TR UST AND INSTITUTION IS, OR CONTINUES TO BE LENT TO ANY PERSON REFERRED TO IN SUB SECTION (3 ) FOR ANY PERIOD DURING THE PREVIOUS YEAR WITHOUT EITHER ADEQUATE SECURITY OR ADEQUATE I NTEREST OR BOTH. BY REFERRING TO THIS SECTION HE SUBMITTED THAT ADDI TIONAL CONDITIONS ARE REQUIRED TO BE SPECIFIED BEFORE INVOKING SECTION 13 (1)(C). THEY ARE - (I) THERE SHOULD BE LENDING OF TRUST INCOME OR PROPERTY (II) FOR ANY PERIOD DURING THE PREVIOUS YEAR AND (III) WITHOUT EITHER ADEQUATE SECURITY OR (IV) ADEQUATE INTEREST HE SUBMITTED THAT ASSESSEE HAS NEVER GIVEN ANY LOAN TO ADHARSHILA ASSOCIATES AND, THEREFORE, IT CANNOT BE SAID THAT T HERE WAS ANY LENDING. IN FACT MONEY WAS GIVEN TO THAT CONCERN FOR CARRYING O UT THE OBJECT OF THE TRUST. THE EXTENSION OF SCHOOL BUILDING WAS BEING C ONSTRUCTED AND ASSESSEE HAD ONLY GIVEN ADVANCES AGAINST RENT OF TH E BUILDING AND BUS RENT AND NOT AS A PURE LOAN. THERE WAS NO RELATIONSHIP O F BORROWER AND LENDER. IT WAS GIVEN FOR COMMERCIAL CONSIDERATION. THE LD. AR RELIED ON THE DECISION OF HON. ITAT , DELHI BENCH IN THE CASE OF DCIT VS. HELP AGE INDIA 123 ITD 371 FOR THE PROPOSITION THAT IF THERE IS A TECHNICAL INFRINGEMENT THEN BENEFIT AVAILABLE TO THE ASSESSEE SHOULD NOT BE WITHDRAWN. HE ALSO REFERRED TO THE DECISION OF HON. DELHI HIGH COURT IN DIT (EXEMPTION) VS. ALARIPPU 244 ITR 358(DEL) FOR THE PROPOSITION THAT ADVANCES GIVEN FOR COMMERCIAL EXPEDIENCY CANNOT BE TREATED AS LOAN ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 6 WITHIN THE MEANING OF SECTION 13(1)(II). HE REFERRE D TO THE DECISION OF HON. SUPREME COURT IN SHREE RAM MILLS LTD. VS. CEPT (1953) 23 ITR 120 (SC) FOR THE PROPOSITION THAT THERE HAS TO BE A POSITIVE ACT OF RELATIONSHIP OF LENDER AND BORROWER. IT COULD NOT O RDINARILY COME OUT BY MERE INFERENCE. 8. AGAINST THIS, LD. DR RELIED ON THE ORDERS OF AUT HORITIES BELOW AND SUBMITTED THAT UNDUE BENEFIT HAS BEEN GIVEN TO M/S ADHARSHILA SSSOCIATES. MONEY MORE THAN WHAT IS REQUIRED FOR RE NT HAS BEEN PAID WHICH THEY COULD HAVE ACQUIRED FROM THE MARKET ON I NTEREST. THUS FUND OF THE TRUST ARE DIVERTED TO THE BENEFIT OF M/S ADHARS HILA ASSOCIATES FREE OF INTEREST AND, THEREFORE, IT IS A BENEFIT GIVEN TO T HEM AND THEREFORE, THE CASE IS HIT BY SECTION 13. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO RELAT IONSHIP OF BORROWER AND LENDER IN THE CASE OF ASSESSEE TRUST AND M/S ADHARS HILA ASSOCIATES EVEN THOUGH M/S ADHARSHILA ASSOCIATES IS A CONCERN COVER ED U/S 13(3). IT IS NOT DISPUTED THAT ASSESSEE TRUST HAS HIRED A BUILDING O WNED BY M/S ADHARSHILA ASSOCIATES FOR WHICH IT IS REGULARLY MAKING PAYMENT OF RENT. IT HAS ALSO HIRED SOME BUSES FOR WHICH RENT IS ALSO BEING PAID BY THE ASSESSEE TRUST TO M/S ADHARSHILA ASSOCIATES. SUCH PAYMENT OF RENT HAS NOT BEEN FOUND EXCESSIVE BY LD. CIT(A), WHOSE DECISION WAS CHALLEN GED BY THE DEPARTMENT IN AN APPEAL FILED BEFORE THE TRIBUNAL A ND THE TRIBUNAL HAS DECIDED THE ISSUE IN ITA NO.2221/AHD/2008 BY OBSERV ING AS UNDER :- 11. REGARDING DISALLOWANCE OUT OF CLAIM OF BUILDIN G RENT AND BUS RENT BELONGING TO ADARSHILA ASSOCIATES WE ARE OF THE VIE W THAT REASONABLENESS OF PAYMENTS IN RESPECT OF SUCH ASSETS CANNOT BE DEC IDED ON THE BASIS OF RATE OF INTEREST. RATE OF INTEREST IN RESPECT OF LI QUID CASH IS DIFFERENT WHEREAS RENTAL INCOME IN RESPECT OF BUILDING IS DIF FERENT. IT CANNOT BE ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 7 EQUATED WITH INTEREST. THE AO SHOULD HAVE GIVEN EXA MPLE TO SHOW THAT MARKET RATE OF PROPERTY SITUATED SIMILARLY IS LESSE R. THERE SHOULD BE PROPER COMPARABLE CASES. IT WAS POINTED OUT IN THE WRITTEN SUBMISSIONS THAT SIMILAR RENT WAS ALLOWED IN EARLIER YEARS. THE N FOLLOWING THE PRINCIPLES OF CONSISTENCY, THE CLAIM OF THE TRUST H AS TO BE ALLOWED UNLESS THERE ARE MATERIAL FACTS BROUGHT ON RECORD TO SHOW THAT MARKET RENT OF THE PROPERTY USED BY THE ASSESSEE TRUST ARE LESSER AS T O WHAT THE TRUST HAS SPENT THIS YEAR. IN ANY CASE COMPARISON WITH RESPEC T TO INTEREST IS NOT A REASONABLE CRITERIA. ACCORDINGLY, WE UPHOLD THE ORD ER OF LD. CIT(A) AND DISMISS GROUND NO.3 OF REVENUE. THUS THE ORDER OF THE LD. CIT(A) WAS UPHELD AND NO DISALLOWANCE OUT OF BUS RENT OR BUILDING RENT WAS UPHELD. 10. ONCE A SUM OF RS.28,75,000/- IS REQUIRED TO BE ANNUALLY PAID BY ASSESSEE TRUST TO M/S ADHARSHILA ASSOCIATES FOR HIR ING THEIR BUILDING AND BUSES THEN TAKING ADVANCE AGAINST SUCH RENT CANNOT BE CALLED TO BE A LOAN SIMPLICITOR. HOWEVER, ALLEGATION OF THE DEPARTMENT IS THAT MONEY REQUIRED MORE THAN RENTAL LIABILITY HAS BEEN PAID TO THE FIR M M/S ADHARSHILA ASSOCIATES WITHOUT INTEREST. IN OUR CONSIDERED VIEW ASSESSEE TRUST OUGHT TO HAVE CHARGED INTEREST FROM THE FIRM ON THE AMOUNT G IVEN IN EXCESS OVER AND ABOVE THE RENTAL LIABILITY. MONEY IS APPARENTLY LENT BY ASSESSEE WITHOUT ADEQUATE SECURITY OR ADEQUATE INTEREST. IT IS NOT DISPUTED THAT M/S ADHARSHILA ASSOCIATES IS A CONCERN COVERED U/S 13(3 ). NO EVIDENCE AS TO THE EFFECT THAT MONEY WAS ADVANCED FOR FACILITATING M/S ADHASHILA ASSOCIATES TO CONSTRUCT A BUILDING FOR BEING FURTHE R GIVEN ON RENT TO ASSESSEE TRUST FOR RUNNING EDUCATIONAL ACTIVITIES, HAS BEEN FILED. PRIMA FACIE EXCESSIVE MONEY OVER AND ABOVE RENTAL LIABILI TY GIVEN TO M/S ADHARSHILA ASSOCIATE REMAINED ADVANCED WITHOUT ADEQ UATE SECURITY OR ADEQUATE INTEREST. THE TRUST OUGHT TO HAVE CHARGED INTEREST ON SUCH EXCESS MONEY AND SHOWN SUCH INTEREST AS ITS INCOME. ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 8 11. THOUGH WHERE MONEY IS GIVEN FOR COMMERCIAL EXPE DIENCY OR AGAINST SERVICES RENDERED THERE WILL NOT BE ANY REL ATIONSHIP OF BORROWER OR LENDER BUT WHERE UNDER THE COVER OF SUCH COMMERCIAL RELATIONSHIP MORE THAN REQUIRED AMOUNT IS TRANSFERRED THEN IT WOULD B E EQUAL TO CONFERRING BENEFIT AND IT WOULD BE HIT BY SECTION 13(1)(C)(II) AND 13(2). THERE IS NO DISPUTE THAT THE PROPOSITION LAID DOWN BY THE TRIBU NAL OR THE COURT ON WHICH ASSESSEE HAS RELIED ON BUT THE CASE OF THE AS SESSEE IS THAT BENEFIT TO SISTER CONCERN IS APPARENTLY GIVEN UNDER THE COVER OF COMMERCIAL RELATIONSHIP. 12. WE, HOWEVER, DO NOT CONSIDER IT APPROPRIATE TO DENY EXEMPTION TO THE ASSESSEE ONLY ON THIS GROUND BUT WE DIRECT THAT ASSESSEE TRUST SHOULD CHARGE INTEREST ON THE EXCESS AMOUNT OVER AND ABOVE THE RENTAL LIABILITY FOR PAYING RENT ADVANCED TO M/S ADHARSHILA ASSOCIAT ES. THE AO WILL, THEREFORE, CALCULATE SUCH INTEREST ON EXCESS AMOUNT ADVANCED TO M/S ADHARSHILA ASSOCIATES AND CHARGE IT TO TAX AS PER L AW SUBJECT TO THE EXEMPTION OF 85% OF TOTAL RECEIPTS APPLIED FOR CHAR ITABLE PURPOSES. WITH THE ABOVE DIRECTION WE PARTLY ALLOW THE APPEAL OF T HE ASSESSEE AND PARTLY RESTORE TO THE FILE OF ASSESSING OFFICER. 13. GROUND NOS.2 & 3 ARE NOT PRESSED BY THE ASSESSE E AND HENCE THEY ARE REJECTED. ITA NO.810/AHD/2009 ASST. YEAR 2006-07 (ASSESSEES APPEAL) 14. IN THIS APPEAL ASSESSEE HAS RAISED FOLLOWING GR OUNDS :- (1) THE CIT(A) ERRED IN LAW AND IN FACTS IN CONFIRMING OBSERVATION OF THE AO THAT THE ASSESSEE TRUST HAS MADE VIOLATIO N OF SECTION 1391)(C)(II) OF THE IT ACT THEREFORE THE ASSESSEE T RUST IS NOT ELIGIBLE FOR EXEMPTION U/S 11 & 12 OF THE IT ACT, 1 961. ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 9 (1.1) THE APPELLANT SAYS AND SUBMITS THAT NO VIOLATION HA S BEEN MADE BY THE TRUST IN GIVING ADVANCES FOR RENT OF SCHOOL BUILDING AND BUS RENT ETC. TO ADHARSHILA ASSOCIATES FOR COMMERCI AL EXPEDIENCY AND NO BENEFITS EITHER DIRECTLY OR INDIR ECTLY HAS BEEN PROVIDED TO THE RELATIVES OF THE TRUSTEE OF THE TRU ST. THEREFORE, THERE IS NO VIOLATION OF SECTION 13(1)(C)(II) OF TH E ACT. (2) THE CIT(A) ERRED IN LAW IN NOT CONSIDERING GROUND N O.4 OF THE APPEAL BEFORE CIT(A) IN RESPECT OF INITIATION OF PE NALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 15. GROUND NOS.1 & 1.1 ARE THE SAME AS RAISED IN AS ST. YEAR 2005-06 I.E. WHY THE ASSESSEE CAN BE DENIED EXEMPTION MEREL Y ON THE GROUND THAT CERTAIN MONEY HAS BEEN ADVANCED TO SISTER CONCERN N AMELY M/S ADHARSHILA ASSOCIATES. AFTER DISCUSSING THE ARGUMEN TS OF THE PARTIES WE HAVE HELD IN THE ASST. YEAR 2005-06 THAT ASSESSEE T RUST SHOULD CHARGE INTEREST ON AMOUNT GIVEN IN EXCESS OF RENTAL LIABIL ITY AND OFFER IT TO TAX SUBJECT TO OVERALL LIMIT OF 85% OF RECEIPTS AS APPL IED TO CHARITABLE PURPOSES. HOWEVER, THIS WILL NOT BECOME THE BASIS O F DENIAL OF EXEMPTION. 16. GROUND NO.2 IS GENERAL AND DOES NOT REQUIRE SPE CIFIC ADJUDICATION. THE QUESTION OF LEVY OF PENALTY WILL BE DECIDED WHE N THE ISSUE COMES BEFORE US. IT IS THUS PREMATURE AND HENCE IT IS REJ ECTED. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED BUT FOR STA TISTICAL PURPOSES. ITA NO.1253/AHD/2009 ASST. YEAR 2006-07 (REVENUES APPEAL) 17. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.27,03,931/- MADE ON ACCOUNT OF DISAL LOWANCE OF DEPRECIATION CLAIMED ON ASSETS PURCHASED OUT OF THE FUNDS CLAIMED AS EXEMPTED. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 10 18. THE ISSUE IS WHETHER ASSESSEE CAN CLAIM DEPRECI ATION IN ADDITION TO EXEMPTION AS BEING APPLICATION OF FUNDS. THE ASSESS EE CLAIMED DEPRECIATION OF RS.24,60,882/- ON THE ASSETS PURCHA SED OUT OF EXEMPTED FUNDS. IN REPLY IT WAS EXPLAINED THAT DEPRECIATION IS ALLOWABLE ON THE BASIS OF OWNERSHIP AND USE OF THE ASSETS AND NOT ON THE BASIS OF SOURCE OF FUNDS. THE AO, HOWEVER, DID NOT AGREE AND HELD THAT WHERE AN EXPENDITURE IN RESPECT OF CAPITAL ASSET IS ALLOWED, AS IN SECTION 35(2)(IV), THEN DEPRECIATION THEREON CANNOT BE ALLOWED U/S 32. HE REFERRED TO THE DECISION OF HON. SUPREME COURT IN ESCORTS LTD. VS. UNION OF INDIA (1933) 199 ITR 43 (SC). 19. THE LD. CIT(A) ALLOWED THE CLAIM BY HOLDING TH AT ONCE ASSESSEE IS NOT ENTITLED OF BENEFIT OF SECTION 12 & 12 THEN WHI LE COMPUTING INCOME UNDER NORMAL PROVISIONS THE DEPRECIATION SHOULD BE ALLOWED. 20. THE LD. DR SUBMITTED THAT IF INCOME IS COMPUTED UNDER NORMAL PROVISIONS OF THE ACT THEN DEPRECIATION MAY BE ALLO WED BUT WHERE ASSESSEE IS ALLOWED EXEMPTION U/S 11 & 12, DEPRECIA TION SHOULD NOT BE ALLOWED. 21. AGAINST THIS, THE LD. AR SUBMITTED THAT THE ISS UE IS NOW COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSE E IN ITA NO.2221/AHD/2008 ASST. YEAR 2005-06, VIDE ORDER DAT ED 30.11.2010 WHEREIN DEPRECIATION HAS BEEN ALLOWED AS UNDER :- 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). 10. THE ISSUE OF DEPRECIATION ON THE ASSETS OWNED B Y THE ASSESSEE TRUST AND USED IN THEIR ACTIVITIES IS ALLOWABLE IN VIEW O F THE TWO JUDGMENTS REFERRED TO BY THE ASSESSEE IN THE WRITTEN SUBMISSI ONS. IN ADDITION TO THIS, ABOVE VIEW IS SUPPORTED BY THE DECISION OF HON. MAD HYA PRADESH HIGH ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 11 COURT IN CIT VS. RAIPUR PALLOTTINE SOCIETY (1989) 1 80 ITR 579 (M.P.) WHEREIN HON. HIGH COURT HELD AS UNDER :- DEPRECIATION IS THE EXHAUSTION OF THE EFFECTIVE LI FE OF A FIXED ASSET OWING TO 'USE' OR OBSOLESCENCE. IT MAY BE COMPUTED AS THAT PART OF TH E COST OF THE ASSET WHICH WILL NOT BE RECOVERED WHEN THE ASSET IS FINALLY PUT OUT OF U SE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE INCURRED IN ACQUIRING THE ASSET OVER ITS EFFECTIVE LIFETIME AND THE AMOUNT OF PROVISION MADE IN RESPECT OF AN ACCOUNTING PERIOD IS INTENDED TO REPRESENT THE PROPORTION OF SUCH EXP ENDITURE WHICH HAS EXPIRED DURING THAT PERIOD. IF DEPRECIATION IS NOT ALLOWED AS A NE CESSARY DEDUCTION IN COMPUTING THE INCOME OF A CHARITABLE TRUST, THEN THERE WOULD BE N O WAY TO PRESERVE THE CORPUS OF THE TRUST. A CHARITABLE TRUST IS, THEREFORE, ENTITLED T O DEPRECIATION IN RESPECT OF THE ASSETS OWNED BY IT. IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA) HON. BOMBAY HIGH COURT HAS HELD AS UNDER :- INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GO T TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YE AR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE A ND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE H AVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN S.11 AND THAT SUCH ADJUSTME NT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER S.11(1)(A) CIT VS. S HRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1994) 119 CTR (GUJ) 144 : (1995) 211 I TR 293 (GUJ) CONCURRED WITH. ACCORDINGLY, GROUND NOS. 1 & 2 OF REVENUE ARE REJEC TED. RESPECTFULLY FOLLOWING ABOVE DECISION, WE REJECT TH E GROUND RAISED BY THE REVENUE, AS A RESULT, APPEAL FILED BY THE REVENUE I S DISMISSED. ITA NOS.1443/AHD/2008 & ITA NOS 810 & 1253/AHD/2009 ASST. YEAR 2005-06 & ASST. YEAR 2006-07 12 22. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FIL ED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 6/5/11. SD/- SD/- (D. K. TYAGI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 6/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 31/3/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 12/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..