In CIT v. Seth Anandram Jaipuria Edu. Society Cantonment, the division bench of the Allahabad High Court held that a Society registered under 12A of the Income Tax is eligible for deduction of payments made by them on account of scholarship for higher studies since the same is in the nature of charitable expenditure for the purpose of Income Tax Act.
The petitioner is a Charitable Society, obtained registration under section 12A of the Income Tax Act, is running several educational institutions. The assessee’s claim for expenditure and depreciation on such capital expenditure was disallowed by the Officer on ground that once entire cost of capital assets has already been allowed as deduction against income of Trust in respective years, no depreciation on such capital assets can be allowed for the purpose of computing deduction against revenue expenditure.He further disallowed the expenditure on payment on scholarship by observing that the same sis not in the nature of capital expenditure. On appeal, the first and the second appellate authorities held in favour of the assessee. Revenue challenged these orders before the High Court.
The Revenue, relied on the decision of the Apex Court in Escorts Limited and others Vs. Union of India and other and contended that once deduction was already allowed, depreciation cannot be allowed.
Rejecting the above argument, the bench held that the above decision is applicable only if it is found that Section 11 allows some kind of deduction from income of Assessee of previous years. “However, Section 11(1) states that the kind of income mentioned in various sub-clauses of Section 11(1) shall not be included in total income of previous year of person in receipt of income. Expression “total income” has been defined under Section 2(45) of Income Tax Act, 1961 and the word “income” is defined in Section 2(24) of Income Tax Act, 1961. Section 11(1), therefore, excludes the kind of income specifically mentioned therein from “total income” of person concerned.
With regard to the issue of payment of scholarship, the bench observed that the scholarship was disbursed for pursuing Engineering course from University of California, Los Angeles, USA. The candidate was selected after a process of selection and finding him most deserving candidate, scholarship was disbursed to the said incumbent. This is in the process of charitable object of Assessee – Society for advancement of higher technical education to deserving students. “It cannot be doubted that advancement of education is a ‘charitable purpose’. The candidate, beneficiary, was directly or indirectly not related to Members of Society nor otherwise has any bearing or connection with the Society Members. Financial status of the said student or other things are immaterial so far as purpose for which scholarship to Adheesh Bhagat is concerned.”agreement with the view taken by CIT(A) as also Tribunal that payment of scholarship was admissible as charitable expenditure.”
Read the full text of the Judgment below.
