SHRIRAM SCIENTIFIC AND INDUSTRIAL RESEARCH FOUNDATION,NEW DELHI vs. JDIT (EXEMPTIONS), NEW DELHI

Accordingly, the issues which are required to be examined are whether the assessee has claimed depreciation in any of the previous years and whether the loan money was shown to have been utilized for acquisition of the assets.

The facts in brief of the case as culled out from the order of the lower authorities and statement of facts submitted by the assessee are that the assessee is a society registered under the Societies Registration Act vide registration dated 05/10/1940. The assessee was engaged in carrying out the scientific and industrial research in applied sciences. The return of income was filed declaring nil income on 30/09/2008. The Assessing Officer noted that assessee has shown income derived of Rs.34,29,70,551/- and application of income thereof and thus claimed the taxable income as nil.

According to the Assessing Officer, one of the items of the expenditure claimed by the assessee was an application of income towards loan repayment to the bank amounting to Rs.1,70,00,000/- and this claim was not made in the audited income/expenditure account appended with the return of income but the claim has been made separately by way of the statement furnished alongwith the return of income. On being asked by the Assessing Officer to clarify the nature of said loan, the assessee submitted that the financial assistance for an amount of Rs.62.2 million (US dollar 3.57 million) was originally sanctioned by the World Bank in 1990 by the agreement dated 07/12/1994 strengthening the activities in the field of Material Science, Analytical Chemistry, Environmental Protection and Toxicology and new activities like standard reference materials in modern instrumental analysis and electronic grade chemical facilities for carrying out purification and characterization of various solvents and cleaning agents to be used by the electronic industry under Technology Services Revolving Fund (TSRF) constituted by the International Bank for Reconstruction and Development (World Bank), International Development Association (IDA) and the Government of India and final disbursement received by the assessee in March 1996. The final amount disbursed was Rs.125 millions due to increase in exchange rate of dollar. The repayment made during the year under consideration of Rs.170 lakhs was toward this loan. The said loan was interest-free in nature and amount was paid towards the principal amount. It was observed by the Assessing Officer that: (i) the assets purchased out of the loan amount were already treated as application of income (ii) that the repayment of loan, which is interest free is again being claimed by the assessee showing the same as application of income (iii) that the said loan has not been considered as income and accordingly not included in the total income of the previous year in which the loan was received.

The assessee relied on the circular No. 100(F.No. 195/1/72-IT (A-I) dated 24.01.1973 of the Central Board of Direct Taxes (CBDT). However, the Assessing Officer was of the opinion that Circular was not of help to the assessee as the benefit of the circular could be availed by the assessee who had shown debt in the nature of income at the time of receiving such debt. The Assessing Officer relied on the decision of the Hon’ble Apex Court in the case of Escorts Ltd. Vs. UOI, 199 ITR 43 and Hon’ble Apex Court decision in the case of Lakshmipat Singhania Vs. CIT 71 ITR 291. Considering the above said decisions and principal of accounting, the Assessing Officer observed that the practice of claiming repayment of loan as application, in addition to the claim of investment in fixed assets made out of the said loan, amounted to double deduction which was neither intended nor expressed by the legislature. Hence, he concluded that amount of Rs.1,70,00,000/- claimed as application of income cannot be allowed to the assessee.

The learned Commissioner of Income-tax(Appeals) upheld the action of the Assessing Officer with following observation: “3.2 I have gone through the finding of the AO in the assessment order and written submission of the Id. AR. Further, Id. AO also relied on various case laws which were perused by me and Id. AR has also produced the copy of Form No.3CD for assessment years 2006-07 and 2.007-08, wherein, repayment of the loan has been shown as under:- Rs.1,80,00,000/- for the assessment year 2006-07 Rs.1,70,00,000/- for the assessment year 2007-08 In this regard it was submitted that this is an interest free loan and amount of Rs.1,70,00,000/- added by AO is actually repayment of loan. The Id. AR of the appellant also relied on the Circular No. 100 of CBDT dated 24.1.1973. In fact above mentioned Circular has been distinguished by the AO in the body of assessment order itself. Furthermore, in para 6.1, the AO has also demonstrated the findings of double deduction as under:- “6.1. This is rendered more clear by way of an illustration, say for instance, an assessee receives a loan of Rs.100/-.The same is not reflected as an income. However, as against this, the assessee claims Rs.100 towards application [purchase of assets] and again Rs 100[repayment of loan]. In other words, against a receipt of the out-go is to the tune of Rs.200/-. ” 3.3 In the relevant paragraph No. 6.3 and 6.4, AO has relied on the decision of Hon’ble Supreme Court in the case of Escorts Ltd. vs. Union of India, 199 ITR 43 and in the case of Laxmilpat Singhania vs. CIT [1969] 71 ITR 291, wherein, double deduction has not been allowed in the consideration of justice and equity. So, AO has relied on the ratio of the above mentioned two judgments of the Hon'ble Supreme Court so as to make an addition of Rs. 1,70,00,000/-. In this regard before me Id. AR of the appellant relied on the judgment of the Hon’ble Delhi High Court in the case of D1T (Exemption) vs. Span Foundation reported at 178 Taxman 436 (Mad.). I have gone through the facts of the case and in my considered opinion reliance on the case of Span Foundation is distinguishable on facts due to following reasons:- 1) In case of the appellant, loan has been found to be interest free whereas there is no mention about the interest in the case of Span Foundation. 2) The case of appellant is that appellant has taken loan from World Bank for strengthening activities of Material Science and Analytical Chemistry, Environmental Protection etc., whereas, case of Span Foundation pertains to repayment of borrowed fund for construction of building. 3) In the case of Span Foundation, there is mention of standard rent computed in accordance with the Delhi Rent Control Act, which is not present in the appellant’s case. 3.4 So, in my considered opinion reliance on the judgment of Span Foundation is totally distinguishable. Furthermore, AO was able to demonstrate that there is no violation of Circular No.

This fact has been discussed by AO in Para 5.3 of the assessment order, wherein, AO has relied on the judgment in the case of C1T vs. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666 (Cal.). So, in my considered opinion, I am in agreement with the finding of the AO in this regard that Circular No. 100 does not favour the case of the appellant. Furthermore, reliance on various case laws by the Id. AR of the appellant is found to be distinguished on the facts and in my AO making addition of Rs. 1,70,00,000/- deserves to be confirmed. Grounds No. 1 to 4 are dismissed.”

Aggrieved, the assessee filed further appeal to the Income Tax Appellate Tribunal (in short ‘the Tribunal’). The Tribunal relying on the decision of the Hon’ble Delhi High Court in the case of DIT(E) Vs. Span Foundation, 178 taxmann 436 (Del) and the CBDT Circular (supra) set aside the orders of the lower authorities and allowed the repayment of loan as application of income. Aggrieved, the Revenue filed appeal before the Hon’ble High Court of Delhi. The Hon’ble High Court after taking into consideration the submission of the parties, remitted the matter for reconsideration by the Tribunal with the following observations: “3. The Tribunal noted that the case of the assessee was that it wanted to let out the building and derive rent therefrom and use the rents for the charitable purposes set out in the trust deed. As noted above, the assessee had borrowed funds for the purposes of constructing the building. The rent that was derived from the said building was utilized by the assessee trust to re-pay the borrowed funds. It was contended on behalf of the assessee that the re-payment of the loan, in these circumstances, has to be regarded as application of income for charitable purposes. The Tribunal accepted this plea of the assessee. The Tribunal noted that if the argument of the revenue was to be accepted, then it would amount to concluding that the assessee could not utilize the rental incomes received by it from the lease of the property for charitable purposes. The Tribunal noted that as and when the loans are discharged and the assessee becomes free to utilize the rental income, it would apply the same for charitable purposes set out in Assessing Officer could insist that the application of the income be for the purposes mentioned in the trust deed. The Tribunal concluded that the repayment of the funds borrowed for construction of the building was to be treated as application of income for charitable purposes and held & 789/08 Page No.4 of 5 that the assessee was entitled to the benefits under Section 11 and 12 of the said Act.

As regards the benefit being derived by interested persons, the only question that was of relevance was whether the rents paid by the so-called interested persons were adequate or not? In this regard, the Tribunal remanded the matter to the Assessing Officer to decide the question of adequacy in accordance with law, after affording the assessee an opportunity of being heard. However, while doing so, the Tribunal noted its earlier decision in the case of Rabhubir Saran Charitable Trust v. Income Tax Officer where the view was taken that if the rent charged by an assessee was higher than the standard rent, as computed under the rent control legislation, then the rent charged by the assessee should be considered as adequate. We note that the Tribunal’s decision in Rabhubir Saran Charitable Trust was the subject matter of a reference being IT case No. 81/1989 which was disposed of by an order dated 15.01.1990 which has been reported as 183 ITR 297 (DEL). In that decision this Court applied the principles set out in Dewan Daulat Rai Kapoor v. NDMC: 122 ITR 700 and concluded that the market rent could not be more than the standard rent.”

Before us, the assessee filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 in compliance to the direction of the Hon’ble High Court for admitting detailed chart of total receipts as per audited accounts and expenditure claimed appended with the income 1992-93 to assessment year 2000-01. The details of addition to assets was also filed alongwith the statement of total income for each of the aforesaid assessment years.

Further, the learned Authorized Representative of the assessee claimed that depreciation was never been claimed as an expenditure or an application of income in any of the assessment years concerned and, therefore, the submission of the learned Departmental Representative before the Hon’ble High Court as contained in para-3 were factually incorrect because the assessee never claimed depreciation as the application of income in all the years concerned during which the loans were utilized for acquisition of assets. Further, he reiterated earlier submission made by the assessee before the Tribunal. 11. In the course of hearing before us, the details of receipts and expenditure as well as statement of income for the assessment year from 2001-02 to 2008-09 were made available by the assessee for admission as additional evidence under Rule 29 of the ITAT Rules. 12. The learned Commissioner of Income Tax (Departmental Representative), relied on the findings of the lower authorities and reiterated the submission made before the Hon’ble High Court by the Department. 13. We have heard the rival submissions and perused the material on record. The additional evidences have been filed by Hon’ble Court, which is necessary for disposal of this appeal and, therefore, we admit these additional evidences under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. We also find that the learned Departmental Representative was allowed sufficient time to go through those evidences, however, she did not raise any objections in respect of reliability of those evidences.

From the facts of the case, we find that loan under reference was sanctioned in the year 1990 and final amount of disbursement of the loan was received by the assessee company in March, 1996. On perusal of the statement of income filed for the assessment years 1992-93 to 1999-2000 during which the loan was received by the assessee, we find that apparently the loan under reference received from World Bank has not been shown as income in any of the year concerned. Further, we find from the statement of total income that the cost of fixed assets acquired during the relevant years has been claimed as application of income. In the note appended to depreciation chart for the assessment year 1992- 93 enclosed along with the balance sheet and profit and loss account, it is mentioned that additions include assets amounting to Rs.91,31,124/- (previous year Rs.75,50,597/-) purchased under the Industrial Credit and Investment Corporation of India Ltd. (Technology Service Revolving Fund) Scheme. Similar notes have been provided in case of other assessment years involved. The assessment year wise deduction claimed for cost of fixed asset is as under Sl. No. assessment year cost of fixed asset claimed as deduction (in Rs.) 1. 1992-93 1,73,58,448/- 2. 1993-94 1,08,17,964/- 3. 1994-95 1,10,97,687/- 4. 1995-96 1,86,70,264/- 5. 1996-97 3,30,21,268/- 6. 1997-98 2,01,21,185/- 7. 1998-99 2,72,73,985/- .

Further, on perusal of the statement of computation of income, we find that in the assessment years from 1992-93 to assessment year 1998-99, the depreciation provided in the books of accounts has been reduced from the expenditure claimed towards application of income, which means the depreciation has not been claimed as application of income. From the assessment year 1999-2000 onwards till the assessment year under consideration also the depreciation has not been claimed towards application of the income.

In view of above observations, it is clear that the assessee has not shown the loans received as its income or receipt, in the year in which such loan was received by the assessee and, therefore, the repayment also cannot be allowed as an expenditure or application of income. Further, we find that loan money obtained has been shown as application on acquisition of fixed assets and, therefore, the assessee has already claimed loan as deduction or application of income and therefore, in our opinion, allowing application of repayment of loan will amount to double deduction. 17. As regard the CBDT Circular, the Hon’ble Supreme Court in the case of CIT Vs. Rajendra Poddar Charitable Trust (1987) 164 ITR 666 has held that circular in question cannot override the law. The relevant findings of the Apex Court are as under:

In result, the appeal of the assessee is dismissed. The decision is pronounced in the open court on 30th Sept., 2016.