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2015 (9) TMI 11 - AT - Income TaxClaim of exemption under section 11 denied - income from non-members - CIT(A) has allowed the claim of principles of mutuality to the extent of income received from the members - Held that - Prior to the amendment ie upto 31.03.2009 all the objects of any general public utility is eligible to be classified as charitable purpose under section 2(15) of the Act. After 01.04.2009 as per the second limb of section 2(15) any activity of rendering any services in relation to any trade commerce and business for a cess or any other consideration irrespective of the nature of use or application or retention of the income from such activity cannot come under the purview of charity. In the present case the assessee is rendering services to its members custom house agents to carry out their business/professional activities. Therefore the activities of the assessee directly amount to the services rendered by it in relation to the trade business and commerce. Hence the assessee cannot be considered as a charitable organization and therefore the Assessing Officer as well as the ld. CIT(A) rightly denied the exemption claim of the assessee under section 11 of the Act. Assessee is not eligible for claiming exemption under section 11 of the Act and also not eligible for claiming principles of mutuality. The Hon ble Kerala High Court in the case of Investors Club Trissur v. CIT 2008 (2) TMI 546 - KERALA HIGH COURT has observed that we do not know how the assessee can claim principles of mutuality when the assessee has entitled to claim exemption under charitable organization it has got registration under section 12A of the Act. Depreciation claim correctly denied - The assessee has not provided any material to show that he is entitled to claim depreciation again on the same assets. That apart once the exemption claimed by the assessee under section 11 of the Act is disallowed the claim of depreciation has to be calculated as per the regular provisions of the Act. Accordingly this ground of appeal of the assessee is also dismissed. - Decided against assessee.
Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act. 2. Application of the principle of mutuality. 3. Claim of depreciation on assets. Detailed Analysis: 1. Eligibility for Exemption under Section 11 of the Income Tax Act: The assessee, a Trade Association registered under the Tamil Nadu Societies Registration Act and Section 12A(a) of the Income Tax Act, filed a return of income admitting NIL income. The Assessing Officer (AO) observed that the assessee's activities fell under "object of general public utility" as per Section 2(15) of the Act. The AO concluded that the assessee was a business-oriented organization, conducting activities for the promotion of Custom House Agents Trade, which included organizing events that were viewed as business promotion campaigns. Consequently, the AO denied the claim of exemption under Section 11 of the Act. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's view, noting that post-amendment to Section 2(15) effective from 01.04.2009, activities in the nature of trade, commerce, or business were excluded from the definition of "general public utility." Thus, the assessee was not eligible for exemption under Section 11. The Tribunal concurred with the AO and CIT(A), emphasizing that the assessee's activities were directly related to trade, business, and commerce, and hence, did not qualify as charitable under the amended Section 2(15). Therefore, the exemption under Section 11 was rightly denied. 2. Application of the Principle of Mutuality: The AO rejected the assessee's claim under the principle of mutuality, citing the lack of identity between contributors and participants. The CIT(A) partially allowed the claim, directing the AO to assess the taxable income from non-members after reducing proportionate allowable expenses. The Tribunal found that contributions from members and non-members were pooled together, making it challenging to segregate expenses. Moreover, the Tribunal noted that a charitable organization registered under Section 12A cannot simultaneously claim benefits under the principle of mutuality, as these concepts are mutually exclusive. The Tribunal also highlighted that the distribution of silver mementos to members violated Section 13(1)(c) of the Act. Consequently, the Tribunal denied the application of the principle of mutuality. 3. Claim of Depreciation on Assets: The AO disallowed the depreciation claim of Rs. 1,57,788, stating that the assessee had already claimed the capital expenditure on asset acquisition as application of income in earlier years, leading to double deduction. The CIT(A) upheld this view, noting that allowing depreciation again on the same assets was not permissible under the Income Tax Act. The Tribunal agreed with the CIT(A), stating that no material was provided by the assessee to justify the depreciation claim on assets already claimed as capital expenditure. The Tribunal also mentioned that, since the exemption under Section 11 was disallowed, depreciation should be calculated as per regular provisions of the Act. Conclusion: The Tribunal ruled in favor of the Revenue, denying the exemption under Section 11, rejecting the application of the principle of mutuality, and disallowing the depreciation claim. The appeal filed by the Revenue was allowed, and the appeal filed by the assessee was dismissed.
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