IMPROVEMENT TRUST FARIDKOT vs. CIT, FEROZEPUR AND ANR.

ITA/276/2010HC Punjab & HaryanaPHHC01093193201004 May 2016Author: MR. JUSTICE SURINDER GUPTA,MR. JUSTICE RAMESHWAR SINGH MALIK9 pages
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What were the facts?

The appellant, Improvement Trust, Faridkot, an assessee registered under Section 12AA of the Income Tax Act, 1961, for the assessment year 2004-05, is challenging an order of the Income Tax Appellate Tribunal. The Assessing Officer disallowed expenditure of ₹8,76,538/- on works and ₹3,79,192/- on town development, deeming it capital in nature. The CIT(A) upheld this disallowance. The Tribunal denied exemption under Section 11 of the Act, stating the expenditure was capital in nature and the assessee failed to prove it was for charitable purposes, distinguishing the Supreme Court's ruling in S.RM.M.CT.M Teruppani Trust vs. CIT. The assessee's registration as a charitable institution for general public utility was previously upheld by the High Court.

What did the High Court hold?

The High Court held that the Tribunal erred in denying exemption under Section 11 of the Act solely on the ground that the expenditure was capital in nature. The Court relied on its own judgment in Pinegrove International Charitable Trust vs. Union of India and others (2010) 327 ITR 73, which, following the Apex Court's decision in S.RM.M.CT.M Teruppani Trust's case, established that capital expenditure incurred by an institution for its charitable objects constitutes an application of income and is eligible for exemption under Section 11(1) of the Act. The Court also referred to the Delhi High Court's decision in Commissioner of Income Tax vs. Division Light Mission (2005) 278 ITR 659, which similarly held that amounts spent on acquiring capital assets for the trust were exempt. The Court noted that the town development expenditure and expenditure on works were incurred by the Improvement Trust under the Punjab Town Improvement Trust Act, 1922, and thus entitled to exemption. The revenue could not dispute this settled legal position. The substantial question of law was answered in favour of the assessee.

What were the issues?

1. Whether, in law, the Income Tax Appellate Tribunal was correct in denying exemption under Section 11 of the Income Tax Act, 1961, on capital expenditure incurred by the assessee on objects of general public utility, contrary to the judgment of the Apex Court in S.RM.M.CT.M Teruppani Trust vs. CIT (1998) 230 ITR 636? Assessee's Contention: The assessee argued that the expenditure incurred on works (₹8,76,538/-) and town development (₹3,79,192/-) was in consonance with its objects of general public utility. They contended that the Act does not distinguish between revenue and capital expenditure for availing exemption under Section 11. They relied on this Court's judgment in Pinegrove International Charitable Trust vs. Union of India and others (2010) 327 ITR 73, which followed the Apex Court's decision in S.RM.M.CT.M Teruppani Trust's case, and an affidavit showing the expenditure was for charitable purposes. Revenue's Contention: The revenue did not dispute the settled legal position or the factual matrix presented by the assessee.

Which sections of the Income-tax Act were involved?

Section 260A,Section 12AA,Section 2(15),Section 11,Section 10(23C)(vi),Section 37,Section 36(1)(xii),Section 11(1),Section 11(1)(a),Section 11(2),Section 11(2)(a),Section 11(2)(b)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 04.05.2016 Improvement Trust, Faridkot through its authorised Signatory Shri Kulwant Singh, Executive Officer ……Appellant vs. The Commissioner of Income Tax, Ferozepur and another …..Respondents CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE SHEKHAR DHAWAN

1.

Whether Reporters of local papers may be allowed to see the judgment?

2.

To be referred to the Reporters or not? YES

3.

Whether the judgment should be reported in the Digest? Present: Ms. Radhika Suri, Sr. Advocate with Mr. Rinku Dahiya, Advocate for the appellant-assessee. Mr. Denesh Goyal, Advocate for the respondent-revenue. Ajay Kumar Mittal,J.

1.

The delay in refiling the appeal is condoned.

2.

This appeal has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 30.6.2009, Annexure A.1 passed by the Income Tax Appellate Tribunal, Amritsar Bench (in short, “the Tribunal”) in ITA No.223 (ASR)/2009 for the assessment year 2004-05, claiming following substantial question of l

The order continues below.

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