2015 (3) TMI 1289 - AT - Income Tax

Denial of application of benefits u/s 11 and 12 - violation of sec. 13(1)(d) in respect of TISCO share - Held that -As far as the assessee's appeal is concerned, this Bench of ITAT in assessee's own case for the assessment year 2008-09 has held that the assessee cannot be denied exemption u/s 11 and 12 of the Act because of its investment in continuing in TISCO shares. It has been further held that dividend income from TISCO shares is exempt u/s 10(34) of the I T Act. Therefore, the trust is eligible for benefits of sec 11 and 12 of the I T Act and there will be no addition in taxable income as dividend income is exempt. Thus respectfully following our own decision in the case of the assessee, the grounds raised by the assessee s appeals are allowed. Depreciation claim - Held that - Charitable institutions can claim depreciation on assets acquired out of application of trust income, irrespective of the facts that cost of purchase is out of application of income exempt u/s 11 and 12 of the Act.

Summary

Issues:
1. Denial of application of benefits u/s 11 and 12 of I.T. Act due to alleged violation of sec. 13(1)(d) regarding TISCO shares.
2. Allowance of depreciation on assets previously treated as applied income in earlier years.

Analysis:

Issue 1: Denial of benefits u/s 11 and 12 due to alleged violation of sec. 13(1)(d) regarding TISCO shares:
The appellant contested the denial of benefits u/s 11 and 12 of the I.T. Act based on the alleged violation of sec. 13(1)(d) concerning the holding of TISCO shares. The ITAT, in a previous order, ruled in favor of the appellant, emphasizing the apportionment of income eligible for benefits between exempted and non-exempted income. The ITAT held that the entire benefits of sec. 11 and 12 cannot be forfeited due to a minor breach. The Tribunal further clarified that non-beneficial income, such as dividend income from TISCO shares, is exempt from income tax under sec. 10(34). Consequently, the ITAT allowed the appeal filed by the appellant, rejecting the Revenue's contentions.

Issue 2: Allowance of depreciation on assets treated as applied income in earlier years:
Regarding the Revenue's appeal on allowing depreciation on assets previously treated as applied income, the appellant's counsel argued that a similar issue arose in AY 2008-09, where depreciation was allowed by the CIT(A) and accepted by the Department without further appeal. Citing various judicial precedents, it was established that charitable institutions can claim depreciation on assets acquired from trust income application, irrespective of the cost being covered under sec. 11 and 12 exemptions. The legal position was further supported by a legislative amendment effective from 01-04-2015, which clarified that depreciation on assets acquired from exempt income application is permissible. The ITAT found no infirmity in the CIT(A)'s order allowing depreciation, as the change in law was prospective and not retrospective. Consequently, the Revenue's appeals were dismissed.

In conclusion, the ITAT partly allowed the appellant's appeal for AY 2004-05, fully allowed it for AY 2009-10, and dismissed the Revenue's appeals.

This detailed analysis covers the issues of denial of benefits under sec. 11 and 12 due to alleged sec. 13(1)(d) violation and the allowance of depreciation on assets previously treated as applied income, as discussed in the judgment by the Appellate Tribunal ITAT Jaipur.