DCIT(E), New Delhi V. M/s Abul Kalam Azad, New Delhi

ITA 2102/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65991 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 06-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANURADHA MISHRA
• Keywords: Depreciation; Charitable institution; Maximum Marginal Rate; Capital expenditure
• Section: 12AA; 12; 11

Judgement Text

ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 2358/DEL/2010 & 3929/DEL/2011 A.YRS. : 2005-06 & 2007-08 ABUL KALAM AZAD ISLAMIC AWAKENING CENTRE, 4, JOGABAI, JAMIA NAGAR, NEW DELHI (PAN : AAATA2513N) VS. DY. DIRECTOR OF INCOME TAX (E), INV. CIRCLE-I, AAYAKAR BHAVAN, LAXMI NAGAR, DISTT., CENTRE, NEW DELHI 110 092. AND ITA NO. 2102 /DEL/2010 A.Y. 2005-06 DY. DIRECTOR OF INCOME TAX (E), INV., VS. ABUL KALA M AZAD ISLAMIC AWAKENING CIR-I, ROOM NO. 311, AAYAKAR BHAVAN, CENTRE, LAXMI NAGAR, DISTT. CENTRE, 4, JOGABAI, JAMIA NAG AR, DELHI 110092 NEW DELHI (APPELLAN (APPELLAN (APPELLAN (APPELLAN TS ) TS ) TS ) TS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) ASSESSEE BY : SH. R.S. SINGHVI, CA DEPARTMENT BY : SMT. ANURADHA MISHRA, C.I.T. (D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE APPEALS BY THE ASSESSEE AND THE REVENUE EM ANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR ASSESSMENT YEARS 2005-06 & 2007-08. SINCE THE ISSUES ARE COM MON AND CONNECTED THE APPEALS WERE HEARD TOGETHER AND DISPO SED OF BY THIS COMMON ORDER. ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 2 I.T.A. NO. 2358 I.T.A. NO. 2358 I.T.A. NO. 2358 I.T.A. NO. 2358/DEL/2010 (ASSESSEES APPEAL) /DEL/2010 (ASSESSEES APPEAL) /DEL/2010 (ASSESSEES APPEAL) /DEL/2010 (ASSESSEES APPEAL) FOR A.Y. 2005 FOR A.Y. 2005 FOR A.Y. 2005 FOR A.Y. 2005- -- -06 0606 06 2. THE GROUNDS RAISED IN THE ASSESSEES APPEAL READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEAL) D IN CONFIRMING T HE ACTION OF ASSESSING OFFICER BY TREATING THE AMOUNT O F CORPUS DONATION OF RS. 1746950/- AS INCOME. II) ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN CONFI RMING THE ACTION OF ASSESSING OFFICER BY DENYING BENEFIT U/S 11 & 12 BY HOLDING THAT INVESTMENT AMOUNTING TO RS.73462970/- I N BUILDING CANNOT BE TREATED AS APPLICATION OF INCOME. THE VARIOUS ADVERSE INFERENCES DRAWN BY A.O. AND CONFIR MED BY CIT(A) IN THIS REGARD ARE ERRONEOUS AND NOT SUSTAIN ABLE. III) ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, T HE COMMISSIONER OF INCOME TAX (APPEAL) /ERRED IN CONFIR MING THE ACTION OF ASSESSING OFFICER BY HOLDING THAT AMOUNT OF RS.300000/- (SALE OF SHOPS) AND RENT OF RS.9012000/ - ARE TAXABLE INCOME AND NOT ENTITLED TO EXEMPTION U/S 11 & 12 OF INCOME TAX ACT. IV) ON THE FACTS AND CIRCUMSTANCES OF CASE AN D IN LAW, THE VARIOUS ADVERSE INFERENCES DRAWN BY ASSESSING OFFICER AND C ONFIRMED BY COMMISSIONER OF INCOME TAX (APPEAL) ARE NOT SUSTAIN ABLE AND ARE LIABLE TO BE DELETED. V) THE APPELLANT CRAVES LEAVE TO ADD ONE OR MORE GROUND OF APPEAL OR TO ALTER / MODIFY THE EXISTING GROUND BEFORE OR A T THE TIME OF HEARING OF APPEAL. ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 3 3. AT THE THRESHOLD, LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT HE SHALL NOT BE PRESSING GROUND NOS. (I) & (III). AC CORDINGLY, THE GROUND NOS. (I) & (III) ARE DISMISSED AS NOT PRESSED. 4. ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSE SSEE HAS PURCHASED A PART OF ONE COMMERCIAL PROPERTY NAMED U B PLAZA IN BANGALORE. ASSESSING OFFICER OBSERVED THAT THIS PROPERTY IS AN OUT AN OUT COMMERCIAL PROPERTY AND IS ACTUALLY A SHOPPING A RCADE CUM OFFICE COMPLEX. THE ASSESSING OFFICER ASKED THE ASSESSE E TO EXPLAIN AS TO HOW THE INVESTMENT MADE IN UB PLAZA AND INCOME DERIV ED THEREFROM WOULD BE EXPLAINED AS CHARITABLE ACTIVITY, AS PER THE AIMS AND OBJECTIVES OF THE SOCIETY. HOWEVER, NO PROPER RESP ONSE WAS RECEIVED FROM THE ASSESSEE. HENCE, ASSESSING OFFICER HELD T HAT INVESTMENT MADE IN UB PLAZA OF ` 7,34,62,970/- IS DISALLOWED, AS NOT BEING BONAFIDE APPLICATION OF TRUST FUNDS. ASSESSING OF FICER FURTHER NOTED THAT ASSESSEE WAS FOUND TO HAVE CLAIMED CAPITAL APP LICATION FOR TRUST FUND TO THE EXTENT OF ` 8,88,05,027/- WHICH INCLUDE D THE ABOVE INVESTMENT. ASSESSING OFFICER NOTED THAT ASSESSEE HAS ALSO NOT SUBMITTED THE DETAILS OF BALANCE CAPITAL APPLICATIO NS. HENCE, ASSESSING OFFICER HELD THAT CAPITAL APPLICATION OF ` 8,88,05 ,027/- IS NOT ALLOWED TO THE ASSESSEE. 5. UPON ASSESSEES APPEAL IN THIS REGARD, LD. COMMIS SIONER OF INCOME TAX (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER . 6. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT LD. COMMI SSIONER OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 4 OFFICER BY DENYING THE BENEFIT U/S. 11 & 12 OF THE ACT BY HOLDING THAT INVESTMENT AMOUNTING TO ` 7,34,62,970/- IN BUILDING CANNOT BE TREATED AS APPLICATION OF INCOME. LD. COUNSEL OF THE ASSE SSEE CONTENDED THAT ASSESSING OFFICER NOT ONLY DISALLOWED INVESTMENT IN RESPECT OF THE SAID AMOUNT BUT ALSO NOT ALLOWED BENEFIT OF APPLICA TION AS CLAIMED IN THE COMPUTATION OF INCOME. HE SUBMITTED THAT ASSE SSEE HAS NOT CLAIMED DEDUCTION IN RESPECT OF ` 7,34,62,970/- AS SELF EVIDENT FROM THE INCOME AND EXPENDITURE ACCOUNT AND CLAIM WAS ME RELY MADE IN THE COMPUTATION OF INCOME AS APPLICATION OF INCOME U/S. 11 OF THE I.T. ACT. THUS, LD. COUNSEL OF THE ASSESSEE CONTENDED THAT ACTION OF THE ASSESSING OFFICER HAS ADVERSELY EFFECTED THE COMPU TATION OF INCOME TWICE BY WAY OF DISALLOWANCE WITHOUT THEIR BEING AN Y SUCH CLAIM AND NON ACCEPTANCE OF CLAIM OF APPLICATION. HE SUBMITTE D THAT ASSESSEE HAS NOT CLAIMED DEDUCTION OF ` 7,34,62,970/- IN THE INCOME AND EXPENDITURE ACCOUNT AND THE ABOVE SAID CLAIM WAS ON LY IN THE COMPUTATION OF INCOME ON ACCOUNT OF APPLICATION OF INCOME U/S. 11 OF THE I.T. ACT. LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ISSUE INVOLVED IS SQUARELY COVERED BY THE DECISION OF TH E ITAT IN ASSESSEES OWN CASE IN I.T.A. NO. 386/DEL/2012. HE SUBMITTED T HAT THE TRIBUNAL HAD CLEARLY RECORDED THE FINDING THAT INVESTMENT IN COMMERCIAL PROPERTY IS A PART OF CHARITABLE ACTIVITY AS THE IN COME GENERATED BY THE SAME IS APPLIED TO CHARITABLE OBJECTS AND SAME IS I N CONFORMITY WITH THE OBJECTS AND BYE LAWS OF THE SOCIETY. 7.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT THE ISSUE INVOLVED ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 5 IN THIS CASE IS SQUARELY COVERED BY THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 386/DEL/2012 VIDE ORDER DATED 30.3.2012. THE RELEVANT PORTION OF THE TRIBUNAL S ORDER IN THIS REGARD IN PARA NOS. 7.1 TO 7.3 IS EXTRACTED AS UNDER:- 7.1. PLAIN READING OF PROVISIONS OF SEC. 11 (2)(B) LAY DOWN THAT 85% OF THE INCOME IS TO BE APPLIED TO CHARITAB LE PURPOSES OR SET APART AND THE MONEYS ACCUMULATED OR SET APART CAN BE INVESTED OR DEPOSITED IN THE FORMS OR MO DES SPECIFIED IN SUB-SEC.(5). 7.2. CLAUSE (X) OF SUB SEC. (5) TO SEC. 11 PRESCRIB ES ONE OF THE MODES OF INVESTMENT AS INVESTMENT IN IMMOVABLE PROPERTY. THUS, THE SURPLUS INCOME CAN BE APPLIED TO INVESTMENT IN IMMOVABLE PROPERTY. THE CHARITABLE PUR POSES WILL INCLUDE THE EDUCATIONAL ACTIVITIES AND ACQUIRI NG THE INCOME YIELDING ASSETS TO PROMOTE THE EDUCATIONAL OB JECTS OF THE SOCIETY. CONSEQUENTLY, COMBINED READING OF T HESE PROVISIONS MAKE IT CLEAR THAT THE ASSESSEE CAN SET A PART OR INVEST ITS INCOME IN AN IMMOVABLE PROPERTY. THE WO RD IMMOVABLE PROPERTY BY NATURAL READING, WILL INCLU DE ANY TYPE OF LAND, RESIDENTIAL OR COMMERCIAL PROPERTY OR ANY OTHER FORM OF PROPERTY, WHICH CAN BE TERMED AS IMMO VABLE PROPERTY AS DEFINED IN THE TRANSFER OF PROPERTY ACT . THUS, THE SOCIETY/ MANAGEMENT IS ALLOWED TO INVEST ITS SU RPLUS IN IMMOVABLE PROPERTY, INCLUDING COMMERCIAL PROPERTY. THU S, THERE CANNOT BE A BAR ON MANAGEMENT OF SOCIETY TO I NVEST ITS SURPLUS FUNDS IN ACQUISITION OF A COMMERCIAL PR OPERTY AS THE LAW DOES NOT MANDATE ANY EXTRA BAR. ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 6 7.3. COMING TO THE OTHER ASPECT THAT BECAUSE THE AS SESSEE IS NOT CARRYING OUT ANY EDUCATIONAL ACTIVITY IN THI S COMMERCIAL PROPERTY, THEREFORE, THE INVESTMENT BECO MES FOR NON-CHARITABLE PURPOSES AND THE ASSESSEE HAS ENDEAVORED TO ENTER INTO BUSINESS OPERATIONS. IN OU R VIEW THE ASSESSEES CHARITABLE OBJECTS INCLUDE SPREADING EDUCATION AND OPENING OF SCHOOLS; INVESTMENT EVEN IN COMMERCIAL PROPERTY ASSETS REMAINS CHARITABLE PURPO SES SO LONG AS THE INCOME GENERATED BY IT IS APPLIED TO CH ARITABLE OBJECTS. IT HAS NOT BEEN DEMONSTRATED THAT THE ASSES SEE APPLIED RENT RECEIVED FROM THESE PROPERTIES TO ANY NON- CHARITABLE PURPOSES. BESIDES, IT HAS NOT BEEN DEMON STRATED THAT THE ASSESSEES INTENTION WAS TO ENTER IN BUSIN ESS OF PURCHASE AND SALE OF COMMERCIAL PROPERTY INASMUCH A S WE ARE IN YEAR 2012, THE PROPERTY WAS PURCHASED IN FY 2004-05 AND THE TRUST STILL RETAINS THIS PROPERTY. IN THES E CIRCUMSTANCES, WE ARE UNABLE TO HOLD THAT THE ASSESS EES INVESTMENT CAN BE HELD NON-CHARITABLE IN NATURE. 9. THUS, WE FIND THAT THE TRIBUNAL HAD CLEARLY HELD THAT INVESTMENT IN COMMERCIAL PROPERTY WAS PART OF THE CHARITABLE ACT IVITY. HENCE, THE INCOME GENERATED BY THE SAME WAS APPLIED TO THE CHA RITABLE ACTIVITY AND THE SAME WAS IN CONFORMITY WITH THE OBJECTS AND BYE-LAWS OF THE SOCIETY. 10. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENT, WE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND DE CIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 7 I.T.A. NO. 2 I.T.A. NO. 2 I.T.A. NO. 2 I.T.A. NO. 2102 102 102 102/DEL/2010 ( /DEL/2010 ( /DEL/2010 ( /DEL/2010 (REVENUES REVENUES REVENUES REVENUES APPEAL) FOR A.Y. 2005 APPEAL) FOR A.Y. 2005 APPEAL) FOR A.Y. 2005 APPEAL) FOR A.Y. 2005- -- -06 0606 06 11. THE GROUNDS OF APPEAL READ AS UNDER:- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION ON ASSETS AT ` 2,01,44,365/- WHEN, IN THE FIRST PLACE, THE ASSES SEE HAS ALREADY CLAIMED, AS APPLICATION OF INCOME, THE COMPL ETE AMOUNT SPENT ON PURCHASE OF THE SAID ASSETS AND, HEN CE, TECHNICALLY CLAIMED 100% DEDUCTION IN THE INITIAL STAGES ITSELF. BY ALLOWING THE CLAIM OF DEPRECIATION THE LD. COMMISSIONER OF INCOME TAX (A) HAS, IN EFFECT, GRANT ED DOUBLE BENEFIT TO THE ASSESSEE AND HENCE THE DECIS ION IS ERRONEOUS. II) THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF T HIS APPEAL. 12. ON THIS ISSUE ASSESSEE HAS CHARGED DEPRECIATION OF ` 2,01,44,365/-. THIS ISSUE WAS ADJUDICATED BY THE LD . COMMISSIONER OF INCOME TAX (A) AS UNDER:- REGARDING CLAIM OF DEPRECIATION OF ` 2,01,44,365/- , HOWEVER, I AM INCLINED TO AGREE WITH THE APPELLANT THAT THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF CHARITABLE INSTITUTION HAS TO BE DEDUCTED TO ARRIV E AT THE INCOME AVAILABLE FOR APPLICATION FOR CHARITABLE AND RELIGIOUS PURPOSES AS HELD IN THE CASE OF C.I.T. VS. SHETH MA NILAL ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 8 RANCHHODDAS VISHRAM BHAWAN TRUST, (1992) 198 ITR 598 (GUJ.). DEPRECIATION WILL HAVE TO BE ALLOWED ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICA TION OF INCOME U/S. 11. FURTHERMORE, IN THE CASE OF ACIT VS . TINY TOTS EDUCATION SOCIETY IN I.T.A. NO. 3182/DEL/2008, FOR THE ASSESSMENT YEAR 2006-07, THE HONBLE ITAT, DELHI, H ELD THAT THE ASSESSEE HAD NOT CLAIMED ANY DOUBLE DEDUCTION A S THE PROVISIONS RELATING TO COMPULSORY APPLICATION OF IN COME IS ALTOGETHER A DIFFERENT CONCEPT AND WOULD COME INTO PLAY ONLY AFTER THE INCOME IS DETERMINED. APPLICATION O F INCOME IS NOT COMPUTATION OF INCOME OF THE CHARITABLE INSTI TUTION. THEREFORE, THE QUESTION WHETHER DEPRECIATION IS TO BE ALLOWED OR NOT HAS NOTHING TO DO WITH THE APPLICATI ON OF INCOME. INCOME IS ALWAYS TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND AS PER SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, SUBJECT ALWAYS TO THE STATUTORY PROVISIONS . APPLICATION OF INCOME IS A CONDITION TO ALLOW THE BE NEFIT OF EXEMPTION TO THE CHARITABLE INSTITUTION AND IT HAS N OTHING TO DO WITH THE COMPUTATION OF INCOME, AND IS NOT A DEDU CTION. ON THESE FINDINGS, THE HONBLE ITAT HELD THAT THE ARGUMENT, THAT ASSESSEE IS CLAIMING DOUBLE DEDUCTION, HAS NO SUBSTANCE AND IS TO BE REJECTED. THEREFORE, IN LIG HT OF THE ABOVE, THE CLAIM OF THE APPELLANT REGARDING DEPRECI ATION IS ALLOWED. 13. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 9 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORDS. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY T HE DECISION IN THE CASE OF TINY TOTS EDUCATION SOCIETY CITED ABOVE. 15. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT REBUT THIS PROPOSITION. ACCORDINGLY, WE HOLD THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION ON ASSETS AT ` 2,01,44,365/-. ON THIS ISSUE, IT CANN OT BE SAID THAT ASSESSEE IS CLAIMING DOUBLE DEDUCTION. HENCE, WE FI ND THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (A). ACCORDINGLY, WE UPHOLD THE SAME. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 3929 3929 3929 3929/DEL/201 /DEL/201 /DEL/201 /DEL/2011 11 1 (ASSESSEES APPEAL) FOR A.Y. 200 (ASSESSEES APPEAL) FOR A.Y. 200 (ASSESSEES APPEAL) FOR A.Y. 200 (ASSESSEES APPEAL) FOR A.Y. 2007 77 7- -- -0 00 08 88 8 17. THE GROUND RAISED IN THE APPEAL READ AS UNDER :- 1 (I). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LOWER AUTHORITIES WERE NOT JUSTIFIED IN NOT ACCEPTI NG CLAIM OF STATUTORY BENEFIT U/S. 11 OF THE INCOME TAX ACT EVEN THOUGH SOCIETY IS DULY REGISTERED U/S. 12AA OF THE INCOME TAX ACT, 1961 AND ALSO APPROVED U/S. 80G5(VI) OF THE INCOME TAX ACT, 1961. 2(I). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE CIT(A) WAS NOT JUSTIFIED IN NOT PROPERLY ADJUDICATING GROUND RELATING TO CLAIM OF BOARDING AND FOOD EXPENSES AMOU NTING TO RS. 47,31,129/- WHICH IS IN RELATION TO OBJECTS A ND ACTIVITIES OF THE SOCIETY DULY APPROVED U/S. 12AA O F THE INCOME TAX ACT, 1961. ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 10 (II) THAT THE FACT THAT THE EXPENSES ARE IN RELATI ON TO CARRYING ON OF EDUCATIONAL ACTIVITIES AND GENUINENE SS OF THE CLAIM BEING NOT IN DISPUTE, THERE IS NO GROUND OR JU STIFICATION FOR DISALLOWANCE OF THE CLAIM. 3(I). THAT THE CIT(A) IS ALSO NOT JUSTIFIED IN NOT A CCEPTING BENEFIT OF APPLICATION TO THE EXTENT OF RS. 3,10,76 ,662/- U/S. 11 OF THE INCOME TAX ACT, 1961. (II) THAT THE INVESTMENT IS PART OF OBJECTS AND ACT IVITIES OF THE SOCIETY AND SAME IS IN CONFIRMITY WITH PROVISIONS OF SEC. 13 OF THE INCOME TAX ACT, READ WITH SEC. 11(5), THE RE IS NO GROUND OR JUSTIFICATION FOR NOT ACCEPTING BENEFIT O F APPLICATION WHILE COMPUTING INCOME. (III) THAT IN THE ALTERNATIVE, BENEFIT OF APPLICAT ION IN RESPECT OF VARIOUS OTHER EXPENSES TO THE EXTENT OF RS. 96,93,282/- CONSIDERED AS PART OF RS. 3,10,76,662/- WHICH ARE DIRECTLY RELATED TO RUNNING OF EDUCATIONAL INST ITUTION SHOULD BE ACCEPTED AS THESE EXPENSES HAVE NO NEXUS OR RELATION WITH INVESTMENT IN COMMERCIAL PROPERTY. 4. THAT LOWER AUTHORITIES HAVE ALSO ERRED IN NOT AC CEPTING BENEFIT OF DEEMED APPLICATION U/S. 11(1)(A) EVEN TH OUGH SOCIETY IS DULY REGISTERED U/S. 12A(A) OF THE INCOM E TAX ACT, 1961. 5. THAT THE ORDERS OF THE LOWER AUTHORITIES ARE NO T JUSTIFIED ON FACTS AND SAME ARE BAD IN LAW. 18. AT THE OUTSET, LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT LD. COMMISSIONER OF INCOME TAX (A) HAS NOT ADJUDICATED T HE MATTER RAISED ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 11 IN GROUND NO. 2 ABOVE. HENCE, HE PLEADED THAT T HIS ISSUE MAY BE SET ASIDE TO THE FILES OF THE LD. COMMISSIONER OF INCOME TAX (A) TO CONSIDER THE ISSUE AND PASS AN ORDER ACCORDINGLY. AFTER C AREFUL CONSIDERATION, WE FIND THAT THIS MATTER WAS DULY RAISED BY THE ASS ESSEE VIDE GROUND NO. 2 IN THE GROUNDS OF APPEAL WITH THE LD. COMMISSIO NER OF INCOME TAX (A). HOWEVER, THERE IS NO ADJUDICATION ON THIS ISSUE BY THE LD. COMMISSIONER OF INCOME TAX (A) IN HIS APPELLATE ORDE R. UNDER THE CIRCUMSTANCES, WE REMIT THIS ISSUE TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (A) TO CONSIDER THE SAME. NEEDLESS T O ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BE ING HEARD. 19. WITH REGARD TO GROUND NO. 3, IT IS NOTED THAT ASSESSEE HAS CLAIMED 3,10,76,662/- WHICH INCLUDED FOLLOWING ASSET S:- S. NO . NAME OF ASSETS PURCHASED OR CONSTRUCTED AMOUNT (RS.) 1. FURNITURE AND FIXTURES 2,94,382.00 2. LIBRARY BOOKS 41,750.00 3. CYCLE AND RICKSHAW 4,295.00 4. LABORATORY EQUIPMENTS 7,245.00 5. MINI BUS /RTV 12,80,860.00 6. COMPUTER 66,650.00 7. ELECTRIC FITTING AND APPLIANCES 53,606.00 8. WATER PUMP 18,086.00 9. MOSQUE 1,50,000.00 10. SIGMA BUILDING FLOOR, BANGALORE 2,13,83,380.00 11. CONSTRUCT OF SCHOOL BUILDING (NET) 77,76,408.00 TOTAL 3,10,76,66 2.00 19.1 ASSESSING OFFICER HELD THAT PURCHASE OF SIGM A PROPERTY AT BANGALORE INCLUDING OTHER CAPITAL EXPENDITURE TO CO NSTRUCT DIFFERENT SCHOOLS BUILDINGS IN VARIOUS STATES OF OUR COUNTRY AND PURCHASE OF SCHOOL BUSES AND COMPUTER AND OTHER FIXED ASSETS AMO UNTING TO ` ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 12 3,10,76,662.00 WAS NOT AN APPLICATION TOWARDS AIMS AND OBJECTIVES OF THE SOCIETY. ASSESSEES CONTENTION WAS THAT THE SA ID INVESTMENT FETCHES INCOME WHICH WAS TOTALLY USED FOR THE MAINTE NANCE AND RUNNING OF THE VARIOUS EDUCATIONAL INSTITUTIONS AND THE OTHER FIXED ASSETS WERE ALSO INCIDENTAL TO RUN OUT EDUCATIONAL INSTITUTIONS. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED BY THE ABOVE. 19.2 THE ASSESSING OFFICER NOTED THAT ASSESSEE HA S SHOWN GROSS INCOME RECEIPT OF ` 2,05,97,215/-. AS AGAINST THIS RECEIPT, THE ASSESSEE HAS SHOWN APPLICATION OF INCOME REVENUE EXPENDITU RE OF ` 2,41,72,379/- AND CAPITAL EXPENDITURE OF ` 3,10,76, 662/-. ASSESSING OFFICER FOUND THE CAPITAL EXPENDITURE INCLUDES A S UM OF ` 2,13,83,380/- WHICH WAS FOUND TO HAVE BEEN PAID TOWARDS PURCHASE OF COMMERCIAL BUILDING AT BANGALORE. ASSESSING OFFICER HELD AS UNDER:- AS STATED EARLIER THE AIMS AND OBJECTS OF THE ASSESS EE TRUST ARE IMPARTING OF EDUCATION AND MEDICAL TREATMENT OF POOR, THE ASSESSEE BY INDULGING INTO BUYING COMMERCIAL PROPERTIES AT BANGALORE IN THE YEA R UNDER CONSIDERATION HAS AGAIN FLOUTED THE BASIC AI MS AND OBJECTS AND HAS STARTED LOOKING FOR LUCRATIVE RETURNS BY WAY OF RENTAL INCOME FROM THESE COMMERCIAL BUILDINGS. THE ASSESSEE HAS DEFEATED T HE VERY PURPOSE OF DOING ANY CHARITABLE ACTIVITY AND THEREFORE, HAS ATTRACTED THE PROVISIONS AS CONTAINE D IN SECTION 13(1) WHICH SPECIFIES CERTAIN CASES WHERE T HE PROVISIONS OF SECTION 11 OR SECTION 12 SHALL NOT AP PLY. THE ASSESSEE BY MAKING INVESTMENT IN A COMMERCIAL BUILDING KNOWN AS SIGMA PROPERTY AT BANGALORE WITH ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 13 THE AIM OF EARNING GOOD RENTAL INCOME HAS VIOLATED T HE OBJECTS OF THE TRUST AND THE INVESTMENT IN IMMOVABLE PROPERTY HAS THUS ATTRACTED THE RELEVANT PROVISIONS UNDER WHICH THE BENEFIT OF SECTION 11 OR 12 CAN BE DENIED. UNDER THESE CIRCUMSTANCES, THE BENEFIT O F SECTION 11 IS DENIED TO THE ASSESSEE AND INCOME IS ASSESSED IN THE STATUS OF AOP UNDER CHAPTER-IV OF T HE INCOME TAX ACT, 1961 AND CHARGED TO TAX AT MAXIMUM MARGINAL RATE. 20. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCO ME TAX (A) CONFIRMED THE ASSESSING OFFICERS ACTION IN THIS REG ARD. 21. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORDS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE FACTS OF THE CASE ARE IDENTICAL TO THAT OF ASSESSMENT YEAR 2005-06, AND THE ISSUE IS SQUARELY COVERED BY THE TRIBUNALS ORDER IN ASSESSEES OWN CASE VIDE I.T.A. NO. 386/DEL/2012. 23. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS A ND PERUSED THE RECORDS. WE FIND THAT AS ALREADY HELD BY US IN I.T.A. NO. 2358DEL/2010 (A.Y. 2005-06) CITED ABOVE, THE ISSUE INVOLVED IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 386/DEL/2012 VIDE ORDER DATED 30 .3.2012. THE RELEVANT PORTION OF THE TRIBUNALS ORDER IN THIS R EGARD IN PARA NOS. 7.1 TO 7.3 IS EXTRACTED AS UNDER:- ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 14 7.1. PLAIN READING OF PROVISIONS OF SEC. 11 (2)(B) LAY DOWN THAT 85% OF THE INCOME IS TO BE APPLIED TO CHARITAB LE PURPOSES OR SET APART AND THE MONEYS ACCUMULATED OR SET APART CAN BE INVESTED OR DEPOSITED IN THE FORMS OR MO DES SPECIFIED IN SUB-SEC.(5). 7.2. CLAUSE (X) OF SUB SEC. (5) TO SEC. 11 PRESCRIB ES ONE OF THE MODES OF INVESTMENT AS INVESTMENT IN IMMOVABLE PROPERTY. THUS, THE SURPLUS INCOME CAN BE APPLIED TO INVESTMENT IN IMMOVABLE PROPERTY. THE CHARITABLE PUR POSES WILL INCLUDE THE EDUCATIONAL ACTIVITIES AND ACQUIRI NG THE INCOME YIELDING ASSETS TO PROMOTE THE EDUCATIONAL OB JECTS OF THE SOCIETY. CONSEQUENTLY, COMBINED READING OF T HESE PROVISIONS MAKE IT CLEAR THAT THE ASSESSEE CAN SET A PART OR INVEST ITS INCOME IN AN IMMOVABLE PROPERTY. THE WO RD IMMOVABLE PROPERTY BY NATURAL READING, WILL INCLU DE ANY TYPE OF LAND, RESIDENTIAL OR COMMERCIAL PROPERTY OR ANY OTHER FORM OF PROPERTY, WHICH CAN BE TERMED AS IMMO VABLE PROPERTY AS DEFINED IN THE TRANSFER OF PROPERTY ACT . THUS, THE SOCIETY/ MANAGEMENT IS ALLOWED TO INVEST ITS SU RPLUS IN IMMOVABLE PROPERTY, INCLUDING COMMERCIAL PROPERTY. THU S, THERE CANNOT BE A BAR ON MANAGEMENT OF SOCIETY TO I NVEST ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 15 ITS SURPLUS FUNDS IN ACQUISITION OF A COMMERCIAL PR OPERTY AS THE LAW DOES NOT MANDATE ANY EXTRA BAR. 7.3. COMING TO THE OTHER ASPECT THAT BECAUSE THE AS SESSEE IS NOT CARRYING OUT ANY EDUCATIONAL ACTIVITY IN THI S COMMERCIAL PROPERTY, THEREFORE, THE INVESTMENT BECO MES FOR NON-CHARITABLE PURPOSES AND THE ASSESSEE HAS ENDEAVORED TO ENTER INTO BUSINESS OPERATIONS. IN OU R VIEW THE ASSESSEES CHARITABLE OBJECTS INCLUDE SPREADING EDUCATION AND OPENING OF SCHOOLS; INVESTMENT EVEN IN COMMERCIAL PROPERTY ASSETS REMAINS CHARITABLE PURPO SES SO LONG AS THE INCOME GENERATED BY IT IS APPLIED TO CH ARITABLE OBJECTS. IT HAS NOT BEEN DEMONSTRATED THAT THE ASSES SEE APPLIED RENT RECEIVED FROM THESE PROPERTIES TO ANY NON- CHARITABLE PURPOSES. BESIDES, IT HAS NOT BEEN DEMON STRATED THAT THE ASSESSEES INTENTION WAS TO ENTER IN BUSIN ESS OF PURCHASE AND SALE OF COMMERCIAL PROPERTY INASMUCH A S WE ARE IN YEAR 2012, THE PROPERTY WAS PURCHASED IN FY 2004-05 AND THE TRUST STILL RETAINS THIS PROPERTY. IN THES E CIRCUMSTANCES, WE ARE UNABLE TO HOLD THAT THE ASSESS EES INVESTMENT CAN BE HELD NON-CHARITABLE IN NATURE. ITA NOS. 2358 & 2102/DEL/2010 & 3929/DEL/2011 16 24. IN LIGHT OF THE AFORESAID DISCUSSIONS AND PREC EDENT, WE FIND THAT THE ISSUE INVOLVED IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT REBUT THIS PRO POSITION. UNDER THE CIRCUMSTANCES, WE SET ASIDE THE ORDERS OF THE A UTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 25. IN THE RESULT, BOTH THE ASSESSEES APPEAL ARE P ARTLY ALLOWED AND REVENUES APPEAL STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/11/20 12. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE: 30/11/2012 SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR,ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES