DEPUTY COMMISSIONER OF INCOME TAX (E), CIRCLE, JAIPUR V. MAHATMA GANDHI CHARITABLE SOCIETY FOR EDUCATION AND RESEARCH, JAIPUR

ITA 359/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7822 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 15-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RUNI PAUL
• Assessee Lawyers: MAKING DISALLOWANCESADDITIONS
• Keywords: Capital asset; Depreciation; Charitable institution; Maximum Marginal Rate; Revenue expenditure; Capital expenditure
• Section: 37; 12; 11; 40A(3); 143(3); 12AA; 48; 13; 22; 101; 20

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,B JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA- @ ITA NO. 359/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2015-16 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR JAIPUR CUKE VS. MAHATMA GANDHI CHARITABLE SOCIETY FOR EDUCATION AND RESEARCH 521, ACHARYA KRIIPLANI MARG, ADRASH NAGAR,JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABAM 4006 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY: SMT.RUNI PAUL, JCIT DR FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL, CA LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 16/01/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 23 /01/2020 VKNS'K@ ORDER PER SANDEEP GOSAIN, J.M. THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF CIT(A), KOTA DATED 24.12.2018 FOR THE ASSESSMENT YEAR 2015-16 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUN DS OF APPEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING EXEMPTION U/S 11 O F THE I.T. ACT, 1961 TO THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE MADE PAYMENT TO RAMBAGH POLO CLUB FOR CORPORATE MEMBERSHIP WHICH HAS NOTHING TO DO WITH T HE ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 2 OBJECTS OF THE SOCIETY AND THEREFORE, THE FUNDS OF THE SOCIETY HAVE BEEN DIVERTED FOR THE PERSONAL BENEFIT OF THE SPECIFIED PERSONS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN ALLOWING EXEMPTION U/S 11 O F THE I.T. ACT, 1961 TO THE ASSESSEE BY HOLDING THAT ONLY THE PORTION OF INCOME WHICH VIOLATES THE PROVISION ARE TO BE CHARG ED AT MMR. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF DEPRECIATON OF RS. 1,23,30,183/- IGNORING THE AMEND EMTN MADE THOROUGH FINANCE ACT NO. 2/2014 IN SECTION BY INSERTING SUB-SECTION (6) TO THE SECTION 11 OF THE INCOME TAX ACT IN THE STATUTE WHICH BECAME EFFECTIVE FROM THE A.Y. 2015-16 AND THE FACT THAT THE ASSETS ON WHICH DEPRE CIATION HAVE BEEN CLAIMED HAD ALREADY BEEN CLAIMED AS APPL ICATION OF INCOME BY THE ASSESSEE IN EARLIER YEARS.S 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN DELETING ADDITION OF RS. 89 ,37,519/- U/S 40A(3) WITHOUT VERIFYING THE FACT THAT SUCH EXP ENDITURE HAD BEEN CLAIMED BY THE ASSESSEE AS APPLICATION AN D WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS BEEN AS SESSED AS AN AOP AND HAS MADE CASH PAYMENT TO THE CONTRACTORS IN CONTRAVENTION TO THE PROVISION OF SECTION 40A(3) OF THE I.T. ACT, 1961 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS RETURN OF INCOME ON 29-09-2015 DECLARING A TOTAL INCOME OF R S. 46,000/-. THE ASSESSEE DERIVES INCOME FROM EDUCATIONAL INSTITUTE. THE ASSESSMENT WAS ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 3 COMPLETED U/S 143(3) ON 28-09-2017 COMPUTING THE TO TAL INCOME OF THE ASSESSEE BY MAKING DISALLOWANCES/ADDITIONS. 2.2 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED THE APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) AFTER CONS IDERING THE CASE OF BOTH THE PARTIES ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITIONS MADE BY THE AO. 2.3 AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE R EVENUE HAS FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED H EREINABOVE. 3.1 THE GROUND NOS. 1 AND 2 RAISED ABOVE BY THE REV ENUE ARE INTERRELATED AND INTERCONNECTED AND ALSO RELATES TO CHALLENGING THE ORDER OF THE LD. CIT(A) IN ALLOWING EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE. WE,THEREFORE THOUGHT IT FIT TO DISPOSE OFF THESE GR OUNDS THROUGH THE CONSOLIDATED ORDER. 3.2 THE LD. DR APPEARING ON BEHALF OF THE REVENUE S UBMITTED BEFORE US THAT THE LD. CIT(A) ERRED IN ALLOWING THE EXEMPTION U/S 11 OF THE I.T. ACT, 1961 TO THE ASSESSEE WITHOUT APPRECIATING THE FACT S THAT THE ASSESSEE MADE PAYMENTS TO RAMBAGH POLO CLUB FOR CORPORATE MEMBERS HIP WHICH HAS NOTHING TO DO WITH THE OBJECTS OF THE SOCIETY AND T HEREFORE, IN THIS WAY THE FUNDS OF THE SOCIETY HAVE BEEN DIVERTED AND MISUTIL IZED FOR THE PERSONAL ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 4 BENEFITS OF THE SPECIFIED PERSONS. IT WAS FURTHER S UBMITTED THAT THE LD. CIT(A) ALSO ERRED IN ALLOWING EXEMPTION TO THE ASSE SSEE BY HOLDING THAT ONLY THE PORTION OF INCOME WHICH VIOLATES THE PROVI SIONS ARE TO BE CHARGED AT MMR AND THEREFORE, HE RELIED ON THE ORDE R PASSED BY THE AO. 3.3 ON THE OTHER HAND, THE LD.AR APPEARING ON BEHAL F OF THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A). IT WAS SUBMI TTED THAT WHERE THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTION 13, NEITHER THE EXEMPTION U/S 11/12 CAN BE DENIED NOR THE SURPLUS AS SUCH CAN BE CHARGED TO TAX AT MAXIMUM MARGINAL RATE. THE LD.AR OF THE ASSESSEE RE LIED ON THE PROVISIONS OF SECTION 164(2) OF THE ACT AND SUBMITT ED THAT SAID PROVISIONS DEALS WITH THE CHARGE OF TAX ON THE INCOME OF THE T RUST WHICH IS DERIVED BY IT FROM THE PROPERTY HELD WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. IT WAS SUBMITTED THAT WHERE THE WHOLE OR ANY PART OF T HE RELEVANT INCOME IS NOT EXEMPT U/S 11 OR 12 BECAUSE OF THE PROVISIONS O F THE SECTION 13(1)(C) OR 13(1)(D), TAX IS CHARGEABLE ON THE RELEVANT INCO ME OR PART OF THE RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE (MMR). THEREFORE, IN CASE THERE IS VIOLATION OF SEC.13, ENTIRE INCOME OF THE TRUST IS NOT LIABLE TO BE TAXED AT MMR BUT ONLY THE RELEVANT PART OF THE I NCOME WHICH VIOLATES ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 5 SEC.13 ATTRACTS THE MMR. FOR THIS PURPOSE, THE LD.A R OF THE ASSESSEE RELIED ON FOLLOWING CASE LAWS:- (I) DIT VS. WORKING WOMENS FORUM (2015) 235 TAXMAN 516 (SC) - SLP DISMISSED AGAINST HIGH COURTS RULING THAT IN C ASE OF TRUST REGISTERED U/S 12AA, ONLY SUCH PART OF INC OME WHICH IS VIOLATIVE OF SECTION 13(1)(D) CAN BE BROUGHT TO TAX AT MINIMUM MARGINAL RATE AND ENTIRETY OF INCOME CANNOT BE DENI ED EXEMPTION U/S 11. (II) CIT VS. FR. MULLERS CHARITABLE INSTITUTIONS (2 014) 227 TAXMAN 369 (SC) - HIGH COURT BY IMPUGNED ORDER HELD THAT IN CASE OF CHARITABLE TRUST, IT IS ONLY INCOME FROM INVESTMENT OR DEPOSIT WHICH HAD BEEN MADE IN VIOLATION OF SECTION 11(5) THAT WAS LI ABLE TO BE TAXED AND THAT VIOLATION U/S 13(1)(D) DOES NOT TANTAMOUNT TO DENIAL OF EXEMPTION U/S 11 ON TOTAL INCOME OF ASSESSEE TRUST. SPECIAL L EAVE PETITION FILED AGAINST IMPUGNED ORDER WAS TO BE DISMISSED. IT WAS FURTHER SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE BY THE AO IN AY 2014-15 WHERE THE LD. CIT(A) VIDE ITS ORDER DATE D 28.12.2018 HELD THAT THE ENTIRE EXEMPTION U/S 11/ 12 CANNOT BE DENI ED. THE PORTION OF INCOME WHICH VIOLATES THE PROVISIONS IS TO BE CHARG ED AT MMR. AGAINST THE ORDER OF LD. CIT(A), THE REVENUE HAS NOT FILED ANY FURTHER APPEAL BEFORE HONBLE ITAT. THE LD.AR OF THE ASSESSEE THUS SUBMITTED THAT THE LD. CIT(A) HAS RIGHTLY ALLOWED THE EXEMPTION U/S 11 TO THE ASSESSEE AND HENCE, GROUNDS OF THE DEPARTMENT BE DISMISSED. 3.4 WE HAVE HEARD THE LD. COUNSEL OF BOTH THE PARTI ES, PERUSED THE MATERIALS PLACED ON RECORD, ORDERS OF THE LOWER AUT HORITIES AND THE ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 6 JUDGEMENT CITED BY THE PARTIES. BEFORE WE DECIDE T HE MERITS OF THESE GROUNDS, IT IS NECESSARY TO EVALUATE THE ORDERS PAS SED BY THE REVENUE AUTHORITIES. THE LD. CIT(A) WHILE DEALING WITH THES E GROUNDS HAD PASSED THE DETAILED ORDER AND THE OPERATIVE PORTION AS MEN TIONED AT PAGES 20 TO 22 OF THE LD. CIT(A)S ORDER IS CONTAINED HEREINBE LOW. AS REGARDS GROUND NOS. 1 AND 3, I AM IN AGREEMENT WITH THE AOS STAND THAT TAKING A CORPORATE MEMBERSHIP IN A PRIVATE CLUB CANNOT BE LINKED TO THE OBJECTS OF THE TRUST/SOCIET Y IN ANY MANNER. THE TRUST EXISTS FOR SOME OTHER PURPOSES AND GETS B ENEFIT UNDER TAX LAWS FOR GENUINE PURSUIT OF ITS OBJECTS TOWARDS GOO D OF THE SOCIETY AND NOT FOR BUSINESS LIKE EXPANSION THROUGH ENT ERTAINMENT FOR GUESTS IN PRIVATE CLUBS AND NETWORKING ETC. FOR WHI CH NORMALLY BUSINESSES USE SUCH MEMBERSHIPS. IN CIT VS UNITED G LASS MANUFACTURING CO. LTD. THE APEX COURT HAS OPINED TH AT CLUB MEMBERSHIP FEE IS PURELY A BUSINESS EXPENSE AND ALL OWABLE U/S 37 OF THE I.T. ACT WHICH APPLIES TO DEDUCTIONS ALLOWAB LE AGAINST BUSINESS PROFITS. THERE IS NO SUCH PROVISION IN TRU ST CASES FOR SUCH EXPENSES UNDER THE GOVERNING SECTIONS 11, 12 & 13. THE DECISIONS OF THE AO TO DISALLOW THE EXPENSES OF RS. 11,71,949 /- AGAINST MEMBERSHIP CHARGES TO RAMBAGH GOLD CLUB AS CONTESTE D BY THE ASSESSEE IN GROUND 1 IS UPHELD. SIMILARLY, AS PER G ROUND NO. 3, THE DISALLOWANCE OF INTEREST AMOUNT OF RS. 1,40,634/- W ORKED OUT ON THIS PAYMENT IS ALSO UPHELD. THESE GROUNDS OF APPEA L ARE DISMISSED. AS REGARDS GROUND NO. 4, ON PERUSAL OF THE OVERALL FACTS AND THE PROVISIONS OF THE ACT, I FIND THAT THE ASSESSEE SOC IETY IS REGISTERED UNDER THE RAJASTHAN SOCIETY ACT AND ALSO REGISTERED U/S 12AA OF THE I.T. ACT. THIS EXEMPTION HAS NOT BEEN WITHDRAWN . IT IS A SETTLED LAW THAT EVEN IF IT IS HELD THAT ASSESSEE HAS VIOLA TED THE PROVISIONS OF SECTIN 13, NEITHER THE EXEMPTION U/S 11/ 12 CAN BE DENIED NOR THE SURPLUS AS SUCH CAN BE CHARGED TO TAX AT MAXIMUM MA RGINAL RATE. SECTION 164 DEALS WITH THE CHARGE OF THE TAX WHERE THE SHARE OF THE BENEFICIARY IS UNKNOWN. SECTION 164(2) DEALS WITH T HE CHARGE OF TAX ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 7 ON THE INCOME OF THE TRUST WHICH IS DERIVED BY IT F ROM THE PROPERTY HELD WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. T HE PROVISO TO THIS SECTION WHICH IS RELEVANT IN THE PRESENT CASE READS AS UNDER:- PROVIDED THAT IN A CASE WHERE THE WHOLE OR ANY PA RT OF THE RELEVANT INCOME IS NOT EXEMPT UNDER SECTION 11 OR S ECTION 12 BY VIRTUE OF THE PROVISIONS CONTAINED IN CLAUSE OR CLAUSE ( D) OF SUB-SECTION (1) OF SECTION 13, TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE. FROM THE PLAIN READING OF THIS PROVISO, IT IS EVIDE NT THAT WHERE THE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXE MPT U/S 11 OR 12 BECAUSE OF THE PROVISIONS OF THE SECTION 13(1)( C) OR 13(1)(D), TAX IS CHARGEABLE ON THE RELEVANT INCOME OR PART OF THE RE LEVANT INCOME AT THE MAXIMUM MARGINAL RATE (MMR). THEREFORE, IN CASE THERE IS VIOLATION OF SEC 13, THE ENTIRE INCOME OF THE TRUST IS NOT LIABLE TO BE TAXED AT MMR BUT ONLY THE RELEVANT PART OF THE INCO ME WHICH VIOLATES SEC 13 ATTRACTS THE MMR. THIS PRINCIPLE OF LAW IS SETTLED BY THE FOLLOWING D ECISIONS REFERRED BY THE AO:- DCIT VS WORKING WOMENS FORUM (2015) 235 TAXMAN 516 (SC). CIT VS FR. MULLERS CHARITABLE INSTITUTIONS (2014) 2 27 TAXMAN 369 (SC) CIT VS FR. MULLERS CHARITABLE INSTITUTINS(2014) 363 ITR 230 (KAR.) CIT VS ORPAT CHARITABLE TRUST (2015) 230 TAXMAN 006 6 (GUJ) H.C. DIT (EXEMPTION) VS SHETH MAFATLAL GAGALBHAI FOUNDAT ION TRUST,249 ITR 533 (BOM.) ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 8 M/S. SANTOKBA DURLABHJI TRUST FUND VS ITO IN ITA NO . 169/JP/2012 FOR A.Y. 2008-09 DATED 5-11-2014. JAMSEDJI TATA TRUST VS JDIT (EXEM.) 101 DTR 305 / 1 48 ITD 388 (MUM) (TRIB.) CONSIDERING ALL THESE FACTS, I FIND THAT THE ENTIRE EXEMPTION U/S 11/12 CANT BE DENIED. THE PORTION OF THE INCOME WH ICH VIOLATES THE PROVISION ARE DISCUSSED SEPARATELY IN GROUNDS 1 & 3 ABOVE, WHERE THE TAX IS TO BE CHARGED AT MAXIMUM MARGINAL RATE. ACCORDINGLY, THE AO IS DIRECTED TO COMPUTE THE INCOME OF THE ASS ESSEE TRUST AFTER ALLOWING THE EXEMPTION U/S 11/12. THIS GROUND OF APPEAL IS ALLOWED. AFTER HAVING HEARD THE LD. COUNSEL FOR BOTH THE PAR TIES AT LENGTH, WE FOND THAT THE LD. CIT(A) HAD RIGHTLY UPHELD THE DECISION OF THE AO BY HOLDING THAT TAKING A CORPORATE MEMBERSHIP IN A PRIVATE CLU B CANNOT BE LINKED TO THE OBJECTS OF THE TRUST /SOCIETY IN ANY MANNER. TH E TRUST EXISTS FOR SOME OTHER PURPOSES AND GETS BENEFITS UNDER THE TAX LAWS FOR GENUINE PURSUIT OF ITS OBJECTS TOWARDS GOOD OF THE SOCIETY AND NOT FOR THE BUSINESS LIKE EXPANSION THROUGH ENTERTAINMENT FOR GUESTS IN PRI VATE CLUB AND NETWORKING ETC. FOR WHICH NORMALLY BUSINESSES USE SUCH MEMBERSHIPS. WE ALSO FOUND SUPPORT FROM THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS UNITED GLASS MANUFACTURING CO. LTD. WHEREIN IT WAS HELD THAT CLUB MEMBERSHIP FEES IS PURELY A BUSINESS EXPE NSES AND ALLOWABLE U/S ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 9 37 OF THE I.T. ACT WHICH APPLIES TO DEDUCTIONS ALLO WABLE AGAINST BUSINESS PROFITS. THERE IS NO SUCH PROVISION IN TRUST CASES FOR SUCH EXPENSES UNDER THE GOVERNING SECTIONS 11 TO 13 OF THE ACT . THEREF ORE, THE LD. CIT(A) HAD RIGHTLY UPHELD THE DECISION OF THE AO TO DISALL OW THE EXPENSES OF RS. 11,71,949/- AGAINST MEMBERSHIP CHARGES TO RAMBAGH G OLD CLUB. 3.4.1 SIMILARLY, WE ARE ALSO OF THE VIEW THAT THE E VEN IF IT IS HELD THAT ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 13 OF THE ACT, EVEN THEN THE EXEMPTION U/S 11 OR 12 OF THE ACT CANNOT BE DE NIED NOR THE SURPLUS AS SUCH CAN BE CHARGED TO TAX AT MAXIMUM MARGINAL RATE . EVEN OTHERWISE, THE PROVISION OF SECTION 164 SPECIFICALLY DEALS WIT H THE CHARGE OF TAX WHERE THE SHARES OF THE BENEFICIARY IS UNKNOWN. SEC TION 164(2) DEALS WITH CHARGE OF TAX ON THE INCOME OF THE TRUST WHICH IS D ERIVED BY IT FROM THE PROPERTY HELD WHOLLY FOR CHARITABLE OR RELIGIOUS PU RPOSES. FROM THE PLAIN READING OF THIS PROVISO, IT IS EVIDENT THAT WHERE T HE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT U/S 11 OR 12 BECA USE OF THE PROVISIONS OF THE SECTION 13(1)( C) OR 13(1)(D) THEN TAX IS CH ARGEABLE ON THE RELEVANT INCOME OR PART OF THE RELEVANT INCOME AT THE MAXIMU M MARGINAL RATE (MMR). THUS IN THAT EVENTUALITY, EVEN IN CASE THERE IS VIOLATION OF SEC 13, THE ENTIRE INCOME OF THE TRUST IS NOT LIABLE TO BE TAXED AT MMR BUT ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 10 ONLY THE RELEVANT PART OF THE INCOME WHICH VIOLATES SEC 13 ATTRACTS THE MMR. WE ALSO FOUND SUPPORT FROM THE DECISION IN THE CASE OF DCIT VS WORKING WOMENS FORM (2015) 235 TAXMAN 516 AND CIT VS FR.MULLERS CHARITABLE INSTITUTIONS (2014) 227 TAXMAN 369 (SC). NO NEW FACTS OR CIRCUMSTANCES HAVE BEEN BROUGHT BEFORE US IN ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY THE LD. CIT(A). THEREFO RE, WE FIND REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). HENCE, TH E GROUND NOS. 1 AND 2 OF THE REVENUE ARE DISMISSED. 4.1 IN GROUND NO. 3, THE REVENUE IS AGGRIEVED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCES OF DEPRECIATION OF RS. 1,23,30,183/- (CORRECT AMOUNT RS. 1,20,32,873/-) IGNORING THE AME NDMENT MADE THROUGH FINANCE ACT NO. 2/2014 IN SECTION 11 BY INSERTING S UB-SECTION (6) TO THE SECTION OF 11OF THE I.T. ACT, 1961 IN THE STATUTE W HICH BECAME EFFECTIVE FROM THE A.Y. 2015-16 AND THE FACT THAT THE ASSETS ON WHICH DEPRECIATION HAVE BEEN CLAIMED HAD ALREADY BEEN CLAIMED AS APPLI CATION OF INCOME BY THE ASSESSEE IN EARLIER YEARS. 4.2 BRIEF FACTS OF THE CASE ARE THAT THE AO DURING THE YEAR UNDER CONSIDERATION OBSERVED THAT THE ASSESSEE HAD CLAIM ED DEPRECIATION ON FIXED ASSETS AT RS. 1,20,32,873/-. THE AO FURTHER N OTED THAT EACH OF THE ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 11 ASSETS HAS ALREADY BEEN TREATED AS APPLICATION OF T HE INCOME AND THEREFORE, FURTHER CLAIMING DEPRECIATION WOULD TANTAMOUNT TO D OUBLE TAXATION OF THE SAME INCOME. ACCORDINGLY, THE AO MADE DISALLOWANCE OF CLAIM OF DEPRECIATION OF RS. 1,20,32,873/-. 4.3 IN FIRST APPEAL, THE LD. CIT(A) AFTER RELYING O N THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS RAJASTH AN AND GUJARATI CHARITABLE FOUNDATION 402 ITR 441 AND THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS KRISHI U PAJ MANDI SAMITI, JAISLMER (2015) 125 DTR 281, DELETED THE DISALLOWAN CE MADE BY THE AO. 4.4 DURING THE COURSE OF HEARING, THE LD. DR RELIED ON THE ORDER OF THE AO. 4.5 ON THE OTHER HAND, THE LD.AR OF THE RELIED ON T HE ORDER OF THE LD. CIT(A). IT WAS CONTENDED BY THE LD.AR OF THE ASSESS EE THAT THE ASSESSEE HAS NOT CLAIMED COST OF FIXED ASSETS AS APPLICATION OF INCOME AS THERE WAS VERY MEAGER SURPLUS IN EARLIER YEARS THE ASSESSEE O NLY CLAIMED THE DEPRECIATION OF FIXED ASSETS. IT WAS SUBMITTED THAT EVEN DURING THE YEAR THE PURCHASE OF FIXED ASSETS IS TO THE TUNE OF RS. 1,17 ,78,921/- BUT THE SAME IS NOT CLAIMED AS APPLICATION AND ONLY DEPRECIATION IS CLAIMED. THUS IN THESE CIRCUMSTANCES, THE DISALLOWANCE OF CLAIM OF DEPRECI ATION BY THE AO WAS ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 12 NOT CALLED FOR AND THEREFORE, THE SAME WAS RIGHTLY DELETED BY THE LD. CIT(A). 4.6 WE HAVE HEARD THE LD. COUNSELS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE RECORD. THE LD. DR DURING THE C OURSE OF HEARING SUBMITTED BEFORE US THAT THE DISALLOWANCE OF CLAIM OF DEPRECIATION WAS DELETED BY THE LD. CIT(A) BY MERELY RELYING ON THE DECISION OF CIT VS RAJASTHAN AND GUJARAT CHARITABLE FOUNDATION (SUPRA) WHEREAS IN THE SAID JUDGEMENT IT HAS CATEGORICALLY BEEN HELD THAT THE A MENDMENT IN SECTION 11(6) OF THE ACT HAS BEEN INCORPORATED VIDE FINANC E ACT (NO. 2 ) OF 2014 WHICH BECAME EFFECTIVE FROM ASSESSMENT YEAR 2015-16 . THE LD. DR HAS ALSO DRAWN OUR ATTENTION TO THE CLARIFICATION GIVEN BY THE HON'BLE SUPREME COURT WHEREIN IT HAS CONFIRMED THE PROSPECTIVE NATU RE OF SECTION 11(6) OF THE ACT WHICH CLARIFIES THAT INCOME OF AN INSTITUTI ON WOULD BE CALCULATED WITHOUT PROVISION FOR ANY DEPRECIATION OR DEDUCTION IN RELATION TO AN ASSET THAT HAS BEEN ACQUIRED BY THE INSTITUTION. FROM THE RECORDS, WE NOTICED THAT ALTHOUGH IT WAS SUBMITTED BY THE LD.AR OF THE ASSESSEE THAT IT HAD NOT CLAIMED COST OF FIXED ASSET AS APPLICATION OF INCOM E AS THERE WAS VERY MEAGER SURPLUS IN EARLIER YEARS AND IT ONLY CLAIMED DEPRECIATION OF FIXED ASSET. HOWEVER, THIS FACT HAS NOT BEEN VERIFIED BY THE AO AS TO WHETHER ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 13 THE ASSESSEE HAS CLAIMED THE COST OF FIXED ASSETS A S APPLICATION OF INCOME IN THE PREVIOUS YEAR OR NOT. THEREFORE, IN OUR VIEW AND IN THE INTEREST OF EQUITY AND JUSTICE, THIS ISSUE IS RESTORED BACK TO THE FILE OF THE AO WITH THE DIRECTION TO VERIFY THE FACTS OF THE EARLIER YEARS AS TO WHETHER THE ASSESSEE HAD CLAIMED THE COST OF FIXED ASSETS AS APPLICATION OF INCOME OR HAS CLAIMED DEPRECIATION AND THEN PASS THE AFRESH ASSES SMENT ORDER ON THE ISSUE IN QUESTION BY PROVIDING REASONABLE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. THUS GROUND NO. 3 OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 5.1 IN GROUND NO. 4, THE REVENUE IS AGGRIEVED THAT THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS.89,37,519/- U/S 40 A(3) WITHOUT VERIFYING THAT SUCH EXPENDITURE HAD BEEN CLAIMED BY THE ASSES SEE AS APPLICATION WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS BEEN ASSESSED AS AN AOP AND HAS MADE CASH PAYMENT TO THE CONTRACTORS IN CONTRAVENTION TO THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT, 196 1. 5.2 BRIEF FACTS OF THE CASE ARE THAT THE AO ON PERU SAL OF THE CASH BOOK OBSERVED THAT THE ASSESSEE HAD MADE CASH PAYMENT OF RS. 89,37,519/- IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3) OF TH E I.T. ACT, 1961. ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 14 ACCORDINGLY, THE AO DISALLOWED THE PAYMENT MADE FOR FIXED ASSETS IN CASH. 5.3 IN FIRST APPEAL, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE AO BY OBSERVING AS UNDER:- (II) AS REGARDS GROUND NO. 5, THE AO HAD MADE DISALLOWANCE OF RS. 89,37,519/- U/S 40A(3) IN RESPE CT OF THE PAYMENT MADE FOR FIXED ASSETS IN CASH. THE A/R ARGU ED THAT THE PROVISIONS OF SECTION 40A(3) DO NOT APPLY8 TO C APITAL EXPENDITURE. AS I HENCE HELD IN THE APPELLANTS OWN CASE FOR A.Y . 2014-15 ON THIS VERY ISSUE THAT SINCE ALL THE PAYME NTS WERE CAPITALIZED IN THE BOOKS OF ACCOUNT AND NO EXPENDIT URE ARE CLAIMED AS REVENUE EXPENDITURE AND THEREFORE, THE PROVISIONS OF SECTION 40A(3) WOULD NOT APPLY ON THE SAME. CBDT CIRCULAR NO.34[F.NO.13A/92/69-IT(A-II), DATED 5-03- 1970 CLEARLY STATES THAT SECTION 40A(3) IS APPLIED ONLY TO REVENUE EXPENDITURE AND NOT TO CAPITAL EXPENDITURE, WHEN CAPITAL EXPENDITURE IS INCURRED IN CASH, SECTION 40 A(3) CANNOT BE INVOKED. THE RELEVANT PARA IS AS UNDER:- 2. THE PROVISIONS OF SECTION 40A(3) WOULD APPLY IN COMPUTING THE INCOME UNDER THE HEADS PROFITS A ND GAINS OF BUSINESS OR PROFESSION AND INCOME FROM OTHER SOURCES AS PER SECTION 58(2). ALL PAYMENTS IN EXC ESS OF RS. 2,500/- AT ONE TIME WHETHER FOR GOODS OR SERVICES O BTAINED FOR CASH OR CREDIT, WHICH ARE DEDUCTIBLE IN COMPUTI NG THE INCOME, HAVE TO BE MADE BY CROSS CHEQUE OR BANK DRA FT. THUS THE PRICE OF GOODS PURCHASED FOR RESALE OR USE IN MANUFACTURING PROCESS OR PAYMENTS FOR SERVICES WILL BE COVERED BY THE PROVISIONS OF SECTION 40A(3). HOWEVE R, THE SECTION WILL NOT APPLY TO REPAYMENT OF LOANS OR PAY MENT TOWARDS THE PURCHASE PRICE OF CAPITAL ASSETS SUCH A S PLANT AND MACHINERY NOT FOR RESALE. ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 15 ACCORDINGLY, THE DISALLOWANCE TO THE EXTENT OF CAPI TAL EXPENDITURE OF RS. 89,37,519/- IS NOT BEING UPHELD. .5.4 WE HAVE HEARD THE LD. COUNSEL FOR BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE NOTICED THAT THE PAYMENT OF RS. 89,37,519/- WAS MADE FOR ACQUIRING THE FIXED ASSETS AND IT WAS ALSO MADE TO LABOUR CONTRACTORS WHO HAD TO MAKE PAYMENTS TO T HE LABOURERS. ALL THE PAYMENTS WERE CAPITALIZED IN THE BOOKS OF ACCOUNT A ND NO EXPENDITURE WAS CLAIMED AS REVENUE EXPENDITURE. WHEN NO EXPENDI TURE WAS CLAIMED IN THE PROFIT AND LOSS ACCOUNT THEN THE PROVISION O F SECTION 40A(3) CANNOT BE APPLIED. IN THIS RESPECT, WE ALSO RELY ON THE CB DT CIRCULAR NO.34 DATED 5-03-1970 WHEREIN IT HAS CLEARLY BEEN STATED THAT SECTION 40A(3) APPLIES ONLY TO REVENUE EXPENDITURE AND NOT TO CAPI TAL EXPENDITURE. EVEN OTHERWISE, SIMILAR DISALLOWANCE WAS MAD BY THE AO I N ASSESSMENT YEAR 2014-15 WHICH WAS DELETED BY THE LD. CIT(A) VIDE OR DER DATED 28-12- 2018 AGAINST WHICH THE REVENUE HAS NOT FILED ANY FU RTHER APPEAL BEFORE ITAT. IN THIS CASE, NO NEW FACTS OR CIRCUMSTANCES H AVE BEEN BROUGHT BEFORE US BY THE REVENUE IN ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY THE LD. CIT(A). THEREFORE, WE FIND NO R EASON TO INTERFERE WITH ITA NO. 359/JP/2019 THE DCIT (EXEMPTIONS) CIRCLE JAIPUR VS MAHATAMA GA NDHI CHARITABLE SOCIETY FOR EDUCATION AND RESARCH, JAIPUR 16 THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. HENCE, W E DISMISS THE GROUND NO. 4 OF THE REVENUE BY UPHOLDING THE ORDER OF THE LD. CIT(A). 6.0 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 23/01/2020 . SD/- SD/- FOE FLAG ;KNO LANHI XKSLKBZ (VIKRAM SINGH YADAV) (SANDEEP GOSAIN) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23/01/2020. *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE DCIT (EXEMPTIONS), CIRCLE- JAIPU R , JAIPUR 2. IZR;FKHZ@ THE RESPONDENT-MAHATAMA GANDHI CHARITABLE SOCIETY F OR EDUCATION AND RESEARCH, AIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 4. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR . 5. XKMZ QKBZY@ GUARD FILE {ITA NO. 359/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSTT. REGISTRAR