Investment made in violation of provisions of section 11(5) can not be treated as income
In a recent judgment, ITAT Nagpur held that amount of investment made by a charitable institute in violation of provisions of section 11(5) can not be treated as income, only the income arising out of such investment can be added to income.
ABCAUS Case Law Citation:
4214 (2024) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition on account of contravention of Section 11(5) of the Income Tax Act, 1961 (the Act).
One of the conditions for grant of exemption under section 11 of the Act to charitable institution is that where eighty-five per cent of the income is not applied, or is not deemed to have been applied, to charitable purposes but is accumulated for application to such purposes, such income shall not be treated as total income provided the amount so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5).
The appellant assessee was a public trust registered under section 12AA of the Act and engaged in activity of providing facility for cremation of dead bodies by fire and by gas. The CIT(A) confirmed an addition under section 11(5) of the Act made by Assessing Officer holding that there was contravention of section 11(5) of the Act on account of investment in fixed deposits with Non Banking Finance Companies (NBFC). Besides this, the CIT(A) also confirmed the disallowance of claim of depreciation though the cost of these assets were not claimed as deduction under section 11 of the Act in earlier or current year.
The Tribunal observed that the assessee had made out a case that it had not claimed the fixed asset as an application of income and if that be so, there is no scope of disallowance of depreciation, since it will not tantamount to double benefit. Upon perusal of the Balance Sheet, the Tribunal noted that there was no addition to fixed assets. Hence the claim of depreciation was allowed in accordance with the provisions of section 11(6) of the Act.
With regard to the addition made on account of investment in violation of provisions of section 11(5) r/w section 13(1)(d) of the Act, the Tribunal found that there is no scope of adding back the investment as an income only. Only the income arising out of such investment could only have been added. The Tribunal expressed surprise on how an asset disclosed in Balance Sheet can be added to the total income under any provisions of the Act.
Accordingly, both the grounds raised by the assessee were allowed in entirety.
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