Repayment of debt, incurred by trust, for construction of building is application of income

DCIT Vs Ram Asra Goyal Education & Research Society (ITAT Chandigarh)

Facts- The assessee society was registered under the Societies Registration Act and also registered u/s. 12AA of the Income-tax Act, 1961. The assessee filed its ROI on 03-09-2014 declaring Nil income. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer (AO) issued the notice to the assessee to show cause as to why the donation was paid to M/s. Ashoka Educational Trust may not be disallowed. The AO after considering the above submissions of the assessee observed that the assessee failed to justify the payments made to M/s. Ashoka Educational Trust, which is registered u/s. 12AA of the Income Tax Act for the AY 2015-16. The AO observed that during the inquiry u/s. 133(6) of the Act, it was found that in its reply M/s. Ashoka Educational Trust stated that no amount had been received by it. The AO also observed that for the AY 2014-15 there was no activity seen related to the charity or education by M/s. Ashoka Educational Trust for the A.Y 2014-15 and the investments were made in the fixed assets and therefore, disallowed a sum of Rs. 9,50,000/-.

Being aggrieved the assessee carried the matter to the Ld. CIT(A). CIT(A) deleted the disallowance. Accordingly, the department preferred the present appeal. Another grievance of the department was allowing repayment of loan as application of income.

Conclusion- We have considered the rival submissions of both the parties and perused the material available on record. In the present case it appears that the assessee had paid a sum of Rs.9,50,000/- to M/s. Ashoka Educational Trust as corpus fund. The assessee society paid the said amount through banking channel and at every step claimed the said amount was paid as donation. Even the recipient, M/s. Ashoka Educational Trust also confirmed the same before the AO as well as before the Ld. CIT(A) that the amount in question was received by them as a donation to be utilised for the purpose of charitable activities of M/s. Ashoka Educational Trust. We, therefore, considering the totality of the facts are of the view that the Ld. CIT(A) was fully justified in deleting the addition made by the AO. Ground no. (i) raised by the department is dismissed.

With regard to repayment of loan it was held that in the case of CIT Vs. Janmabhumi Press Trust, Hon’ble Karnataka High Court has held that the repayment of debt incurred by the trust for construction of the building should be treated as application of the income of the trust for charitable purpose. In the present case also the assessee utilized the loans to create the fixed assets and the loan was taken and shown as receipt while on repayment, it was considered as application of income. Therefore, following the ratio laid down by the Hon’ble Karnataka High Court the Ld. CIT(A) was fully justified in allowing the claim of the assessee.

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