2011 (3) TMI 907 - AT - Income Tax

Registration under section 12A - Deduction u/s 11 - Depreciation - Since the appellant was carrying on the activities and rendering services as per its objects only, it was not at all carrying on any business activity as has been stated by the Assessing Officer - When the exemption is claimed under the concept of mutuality, then it is necessary to see that the services should be rendered to the members only - it becomes clear that admitted position is that the assessee is carrying on certain activities, which are in the nature of the carrying on of the business - The provision contained in section 11(4A) is clear to the effect that various deductions under section 11 shall not be admissible in relation to any income, being profits and gains of business - it is not clear whether separate books of account have been maintained for such business or businesses - If the conditions prescribed in section 11(4A) stands satisfied, the assessee will be entitled to other deductions under section 11, otherwise not - Decided in favour of the assessee by way of remand to AO Regarding depreciation - assessee has never written off capital assets from its accounts by treating them as application of income. Therefore, it is argued that the assessee is entitled to the deduction of depreciation - Appeal is allowed for statistical purposes

Summary

Issues Involved:
1. Entitlement to deduction under section 11 of the Income-tax Act, 1961.
2. Deduction of depreciation on assets acquired.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 11:

The revenue's primary contention is that the assessee is not carrying out any charitable activity and thus is not entitled to deduction under section 11 of the Income-tax Act, 1961. The facts reveal that the assessee, a registered chamber under section 12A since 1994, declared nil income for the assessment year 2006-07. The Assessing Officer (AO) found that the chamber engaged in various business activities, including specialized services and facilities, membership subscriptions, and conducting meetings, seminars, and training programs. The AO concluded that the assessee did not maintain separate books of account for these business activities, as required under section 11(4A), and thus denied the deduction under section 11, computing the total income at Rs. 1,03,77,510.

The CIT(A) reversed the AO's decision, stating that the chamber's objects are charitable in nature under section 2(15) and it is registered under section 12A, which remains in force. The CIT(A) emphasized that section 11(4A) allows for the carrying on of business incidental to the attainment of the trust's objectives, provided separate books of account are maintained. Furthermore, the CIT(A) noted that the amendment to section 2(15) effective from 1-4-2009 does not apply to the assessment year 2006-07. Thus, the CIT(A) directed the AO to compute the income at nil, granting the deduction under section 11.

The Tribunal observed that the assessee admitted to carrying on business activities and questioned whether separate books of account were maintained. The Tribunal noted that section 11(4A) stipulates that deductions under section 11 are not admissible for business income unless the business is incidental to the trust's objectives and separate books of account are maintained. The Tribunal found that the CIT(A) did not adequately address the requirement of maintaining separate books of account and thus restored the matter to the AO to ascertain whether the conditions under section 11(4A) were met. The Tribunal directed the AO to re-examine the facts, hear the assessee, and pass a fresh order as per law.

2. Deduction of Depreciation on Assets Acquired:

The second issue pertains to the deduction of depreciation on assets acquired by the assessee. The assessee argued that it never wrote off capital assets from its accounts by treating them as an application of income, thus entitling it to the deduction of depreciation. The Tribunal noted that the AO did not discuss this issue in the assessment order. Consequently, the Tribunal restored the matter to the AO for consideration of the assessee's submission regarding the deduction of depreciation. The AO is directed to decide the issue de novo after hearing the assessee.

Conclusion:

The Tribunal treated the appeal as allowed for statistical purposes, remanding both issues back to the AO for further examination and fresh adjudication in accordance with the law.