Director of Income Tax (Exemption) vs G.K.R. Charities

In this appeal by the revenue for the assessment year 2007-08, following reframed questions of law have been raised for our consideration:-

(a) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in allowing the claim of the assessee for exemption u/s. 11 of the Act ignoring the fact that the assessee failed to get the permission of the Charity Commissioner to raise loans for the trust in violation of provisions of section 36(3) of the Bombay Public Trust Act without considering the decision of the Bombay High Court in Commissioner of Income Tax, Bombay City III Vs. Pruthivi Trust, ?

(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in law in ignoring the stand of the revenue that allowance of depreciation on the assets, the cost of which has already been allowed as a deduction on account of application of income, would amount to double deduction which is legally not permissible in view of the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Smt. Gayatri Devi, ?

(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in directing the A.O. to allow repayment of loan amounting to Rs. 2,91,57,058/- as application of income when the cost of the assets, for which the loan was taken, had already been allowed as application of income and further allowance of repayment of loan as application of income would result in double deduction for the same outgoing which is against the principles laid down in the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Smt. Gayatri Devi, ?

So far as question (a) is concerned, the relevant facts are that the respondent-assessee is engaged in the charitable activities and has been granted registration u/s 12A of the income tax Act, 1961 (the Act). The revenue seeks to deny the benefit of exemption u/s 11 of the Act inter alia by disallowing the repayment of the interest free unsecured loan taken from the managing trustees in earlier years without obtaining prior approval from the Charity Commissioner under the Bombay Public Trust Act, 1950 (the Trust Act). On appeal, the CIT(A) following the ITAT''s decision in the case of ITO (Exemption) v. Bombay Stock Exchange [IT Appeal No. 5551 (Mum.) of 2009, dated 22nd August, 2006] allowed the claim of the assessee for exemption u/s 11 of the Act. On further appeal filed by the revenue, the ITAT while upholding the order of CIT(A) held that once the registration has been granted u/s 12AA of the Act, the exemption u/s 11 cannot be withdrawn unless there is violation of provisions of Section 13 of the Act or the registration u/s 12AA(3) of the Act is cancelled. The Tribunal held that the decision of this Court in the matter of Commissioner of Income Tax, Bombay City III Vs. Pruthivi Trust, is distinguishable on facts as the Trust in that case was carrying out profit making activity without any authorisation in the Trust Deed. In this case, there is no bar in the Trust Deed to take unsecured loans. The breach, if any, is in failing to comply with the provisions of the Trust Act in an earlier year. Moreover, it is not in dispose that the unsecured loans taken in earlier years were duly reflected in the books maintained by the assessee and though prior approval was not obtained, the assessee had, in fact, subsequently applied for approval from the Charity Commissioner and the Charity Commissioner has neither granted approval nor initiated any proceedings under the Trust Act for the alleged violation of obtaining unsecured loan without prior permission. In these circumstances, we see no reason to entertain question (a) as proposed by the revenue.

So far questions (b) & (c) are concerned, counsel for the parties agree that the issue arising herein are covered by the decision of this Court in the matter of Commissioner of Income Tax Vs. Institute of Banking Personnel Selection (IBPS), in favour of the assessee and against the revenue. In these circumstances, we do not see any reason to entertain questions (b) & (c). Accordingly, the appeal is dismissed with no order as to costs.