2013 (3) TMI 706 - AT - Income Tax

Summary

Issues involved: The eligibility for claiming benefit u/s section 11 of the Income Tax Act and the requirement of maintaining separate Books of account for claiming benefit u/s 10(23C)(via), and the allowability of the claim of depreciation.

Eligibility for claiming benefit u/s section 11:
The Appellate Tribunal ITAT Mumbai addressed the issue of eligibility for claiming the benefit u/s section 11 of the Income Tax Act. The assessee, a charitable trust managing 'Saifee Hospital,' had its exemption claim under section 11 disallowed by the AO due to amendments in the trust deed. However, the Ld.CIT(A) allowed the claim, stating that the object clauses in the original and amended trust deed were identical. The Tribunal upheld the Ld.CIT(A)'s decision, emphasizing that the trust had valid registration u/s 12A and 10(23C)(iv)(a) of the Act, and the amendments made did not change the main object of the trust. The Tribunal also noted that the trust had complied with informing the CIT about the changes, even though there was no specific time limit for such compliance. The Tribunal rejected the AO's argument that the trust was not eligible for exemption u/s 10(23C)(vi) or u/s 11, as the trust had applied over 85% of its income for charitable purposes. Therefore, the Tribunal upheld the eligibility of the trust to claim the benefit of section 11.

Requirement of maintaining separate Books of account:
The Tribunal also deliberated on the requirement of maintaining separate Books of account for claiming the benefit u/s 10(23C)(via). The AO treated the activities of running Cafeteria, Gymnasium, and Pharmacy in the hospital premises as business activities due to the lack of separate books of account. However, the Ld.CIT(A) held that these activities were integral to the trust's main charitable activity and not independent business activities. The Tribunal agreed with the Ld.CIT(A), stating that these departments were directly related to the trust's main object and necessary for its fulfillment. Citing the jurisdictional High Court's decision in Baun Foundation Trust Vs CIT, the Tribunal emphasized that incidental activities like running a chemist shop did not change the charitable nature of the trust. Therefore, the Tribunal dismissed the ground related to the requirement of maintaining separate Books of account for claiming the benefit u/s 10(23C)(via).

Allowability of claim of depreciation:
Regarding the claim of depreciation on fixed assets purchased from donations received in earlier years, the AO disallowed the claim, citing potential double deduction. However, the Ld.CIT(A) directed the AO to allow the claim, considering that the trust had incurred costs for asset acquisition and met the conditions for depreciation. The Tribunal noted that the donations received were exempt income in previous years under sections 11 to 13 of the Act. The Tribunal rejected the argument of double deduction, stating that the claim of depreciation on assets acquired through donations did not amount to double deduction. Relying on judicial precedents, including the decision in Institute of Bombay Personnel Selection (IBPS), the Tribunal upheld the Ld.CIT(A)'s decision to allow the claim of depreciation. Consequently, the Tribunal dismissed the issue related to the allowability of the claim of depreciation.

In conclusion, the Appellate Tribunal ITAT Mumbai dismissed the appeal filed by the Revenue, upholding the eligibility of the trust to claim the benefit u/s section 11, the decision on maintaining separate Books of account for claiming benefit u/s 10(23C)(via), and the allowability of the claim of depreciation on fixed assets purchased from donations.