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Facts
The assessee, a charitable trust, claimed an advance of Rs. 1.10 crore for acquiring another educational institute as an application of funds. The AO disallowed this, treating it as a violation of Section 11(5) of the Income Tax Act. The CIT(A) upheld this disallowance for lack of substantiation.
Held
The Tribunal held that "Application" of funds for charitable purposes includes acquiring another society engaged in charitable activities, provided certain conditions are met. The issue of the advance made for acquiring the society requires fresh adjudication by the AO. The disallowance on account of Rs. 1,20,000/- spent on insurance and accessories for a new school van was directed to be allowed.
Key Issues
Whether an advance given for acquiring another charitable society can be considered as an application of income under Section 11(1)(a) and if the disallowance of expenses related to a new school van is justified.
Sections Cited
143(3), 250(6), 11(5), 11(1)(a), 234A, 234B, 80G, 12AA
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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI NAVEEN CHANDRA
ORDER PER NAVEEN CHANDRA [A. M]: The above captioned appeal is preferred by the assessee against the order dated 05.12.2017, passed by Learned Commissioner of Income Tax(Appeals), Muzaffarnagar (hereinafter referred to as ‘ld.
CIT(A)), under section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for Assessment Year 2013-14. The assessment order in this appeal is passed by the Assessing Officer [for short, AO] under section 143(3) of the Act.
The assessee has raised following grounds of appeal:-
2. That, the CIT (A) has erred in confirming the action of the assessing officer, in completing the assessment on Income at Rs.70,87,930.00 against the Return of Income declaring 'NIL'. The additions/disallowances made at Rs.70,87,930.00 are illegal, unjust, highly excessive and are not based on any material on record by the Assessing Officer.
3. The Assessing officer has erred in making the addition / disallowance of Rs.70,87,930.00 on account of Short fund as applied for Charitable Purposes, which is added to the income of the assessee trust without appreciating the fact and circumstances of the case. The CIT (A) has erred in confirming the same.
4. That, the assessing officer has erred in observing that, Rs.1,10,20,000.00 on account of advance given to Scholar Welfare Society and Rs.1,20,000.00 on account of Capital Expenditure are not the eligible charitable investment as made by Assessee Appellant Trust and has made the addition of Rs.70,80,930.00 on account of violation of Section 11(5) of the Income Tax Act, 1961. The CIT (A) has erred in confirming the same.
5. The additions confirmed and the observations made by CIT (A) are unjust, unlawful and based on mere surmises and conjunctures. The additions made cannot be justified by any material on record 6. That the explanation given evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made.
7. That the impugned Assessment Order passed by the Assessing Officer and order passed by CIT(A) are against the principles of natural justice and the same has been passed without affording reasonable and adequate opportunity of being heard.
Page 2 of M/s Shanti Devi Jain Memorial Trust 8. That the interest U/s 234A & 234B has been wrongly and illegally charged as the appellant could not have foreseen the disallowances/additions made and could not have included the same in current income for payment of Advance tax. The interest charged under various sections is also wrongly worked out.
None appeared on behalf of the assessee hence we decided to hear the case ex-parte with the assistance of the Ld DR. We have carefully perused the materials on record.
Brief facts of the case is that the assessee is a Registered Charitable Trust duly Registered U/S 12AA, under Societies Act and has also been allowed Registration u/s 80G in earlier years. The Assessee Trust is running Four Unit of Colleges/Academy and is carrying on activities of providing Education to the Children irrespective of Caste and Creed and mainly on Charitable purposes.
In the year under consideration, the assessee has shown the total gross receipt at Rs.2,48,40,080.00 out of which expenses at Rs.1,25,42,227.00 is claimed and allowed. The assessee has also claimed (i) capital investment of Rs.16,03,916.00 and (ii) advance given for acquiring Scholar Educational and Welfare Society, Dehradun at Rs.1,10,20,000.00, towards the application of fund for the charitable purposes. Since the amount utilised is more than 85% of total gross receipts, the assessee filed the Return of Income on 30.09.2013 declaring income of 'NIL'.
Page 3 of 7 M/s Shanti Devi Jain Memorial Trust 6. The assessing officer however, has disallowed the advance of Rs 1.10 crore given to Scholar Educational and Welfare Society, Dehradun as application of funds and treated the same as violation of section 11(5) which prescribes specific mode of investment or deposit of funds.
Further, the assessee has claimed the amount of Rs.16,03,916/- as application of income on account of purchase of fixed assets. It was explained that the amount of Rs.1,20,000/- represent amounts spent upon Insurance and accessories for the new school van purchased during the year for Rs.1,05,000/-. As the assessee could not furnish any evidence for Rs.1,20,000/-, the AO denied benefit on this account for application of income.
On the basis of above disallowance, the assessing officer has re- casted the Income-Expenditure account and the total application of funds for the charitable purpose and assessed the income at Rs.70,87,930.00 on account of Short Application of Income for the Charitable purpose. The CIT(A) confirmed the same as the assessee did not provide any evidence for acquiring the said society, hence the aggrieved assessee is before us.
We find that the assessee’s contention is that it is engaged in running the school and college for the purpose of charity, and has given advance for acquiring another Educational Institute i.e. Muzaffarnagar Institute of Technology, Muzaffarnagar, which run under Scholar Page 4 of 7 M/s Shanti Devi Jain Memorial Trust Educational & Welfare Society, which was acquired in the subsequent year. Hence, it is claimed that the advance given to acquire the Scholar Educational and Welfare Society, Dehradun should be treated as application of fund for the purpose of charitable activities.
We find that the CIT(A) noted that the assessee has given advance of Rs.1,10,20,000/- to the Scholars Educational Welfare Society during the year, which the Scholars Educational Welfare Society acknowledged by reflecting the same as amount payable to the assessee in its balance sheet as on 31-03-2013. The CIT(A) however, denied the benefit only on the ground that the assessee, during the assessment proceedings as well as appellate proceedings, has not produced any document to substantiate its submission to show that the amount of Rs.1.10 crore has been given to the said society for the purpose of acquiring the same.
We are of the considered view that "Application" of funds includes all payments and expenditures, both revenue and capital, for charitable purposes in India and therefore a trust acquiring another society engaged in charitable activities may be considered an application of income for charitable purposes u/s 11(1)(a), provided specific conditions are met. The advance given for acquiring Scholars Educational Welfare Society may be viewed as a capital expenditure incurred to advance the objects of the trust only if the acquisition is Page 5 of 7 M/s Shanti Devi Jain Memorial Trust being made to advance the charitable objectives of the trust and not for the private benefit of the trustees or founders. Further, the acquisition should be made from the income of the current year or accumulated income, not from a "corpus" donation.
In the given factual matrix of the case, we are of the view that the issue of advance made for acquiring Scholars Educational Welfare Society needs a fresh adjudication as neither the lower authorities nor the assessee has established the factum of charitable activities of the said Scholars Educational Welfare Society and whether the objectives of the assessee Trust is aligned to the charitable activities of the said Society. We therefore set aside the issue of advance made for acquiring Scholars Educational Welfare Society to the AO for adjudication afresh wherein if the conditions are satisfied, the assessee becomes eligible for considering the said advance as application of income. Ground is allowed for statistical purpose.
As far as account of purchase of fixed assets, is concerned, we are of the opinion that the assessee should succeed as the said amount of Rs.1,20,000/-, spent on Insurance and accessories, are linked with the purchase of new school van during the year. The AO is directed to allow the benefit of application of income for the said amount. Ground is allowed.
In the result, the appeal of the assessee is partly allowed. Page 6 of 7