2015 (9) TMI 800 - AT - Income Tax

Entitlement to exemption under sec.11 - Held that - Running of working womens hostel, womens service center and canteen is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption under sec.11 of the Act. - Decided against assessee. Denial of depreciation on the assets purchased before the financial year 2008-09 - Held that - As the income of the assessee has to be computed in accordance with strict principles of accounting after denying exemption u/s.11 of the Act. If written down value of assets is already zero, for allowing depreciation, the same cannot be considered in the assessment year under consideration. Accordingly, the appeal of the assessee for the assessment year 2009-10 is dismissed. - Decided against assessee.

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act.
2. Application of the amended provisions of Section 2(15) of the Income Tax Act.
3. Classification of activities as charitable or commercial.
4. Denial of depreciation on assets purchased before the financial year 2008-09.
5. Validity of Form 10 for accumulation of income under Section 11(2) of the Income Tax Act.
6. Enhancement of assessment by CIT(A).

Issue-wise Detailed Analysis:

1. Denial of exemption under Section 11 of the Income Tax Act:
The assessee's appeals were against the orders of the Commissioner of Income-tax (Appeals) denying exemption under Section 11 for the assessment years 2006-07 and 2009-10. The Assessing Officer (AO) denied the exemption on the grounds that the assessee was engaged in activities of a commercial nature, specifically running women's hostels, service centers, and canteens, which did not qualify as charitable activities under the amended Section 2(15) of the Act. The CIT(A) upheld the AO's decision, concluding that the predominant activities were commercial and not charitable.

2. Application of the amended provisions of Section 2(15) of the Income Tax Act:
The amendment to Section 2(15) with effect from April 1, 2009, introduced a proviso that excluded entities from being considered as charitable if they engaged in activities in the nature of trade, commerce, or business. The AO and CIT(A) applied this proviso to deny the exemption under Section 11, arguing that the assessee's activities were commercial. The Tribunal upheld this interpretation, noting that the predominant activities of running hostels and canteens were commercial and thus the assessee was not entitled to the exemption.

3. Classification of activities as charitable or commercial:
The Tribunal analyzed the nature of the activities carried out by the assessee, such as running women's hostels, service centers, and canteens. It concluded that these activities were commercial and not incidental to the charitable objectives of the trust. The Tribunal referred to similar cases, including the Young Women's Christian Association of Madras, where it was held that such activities could not be considered charitable under the amended Section 2(15).

4. Denial of depreciation on assets purchased before the financial year 2008-09:
The CIT(A) directed the AO to withdraw depreciation on the written-down value of assets acquired in earlier years, as the assessee had already claimed the cost of these assets as an application of income under Section 11. The Tribunal upheld this decision, stating that depreciation could only be allowed on assets acquired in the financial year 2008-09 and onwards.

5. Validity of Form 10 for accumulation of income under Section 11(2) of the Income Tax Act:
For the assessment year 2006-07, the assessee filed Form 10 for accumulation of income but did not specify the purposes clearly. The AO and CIT(A) denied the benefit of accumulation under Section 11(2) due to the lack of specificity. The Tribunal upheld this decision, citing the requirement to specify the purpose and period for accumulation as mandated by Section 11(2) and supported by judicial precedents.

6. Enhancement of assessment by CIT(A):
The CIT(A) enhanced the assessment for the assessment year 2006-07, concluding that the activities were commercial and denying the exemption under Section 11 entirely. The Tribunal upheld this enhancement, agreeing with the CIT(A)'s assessment that the activities were not incidental to the charitable objectives of the trust and thus did not qualify for exemption.

Conclusion:
The Tribunal dismissed the appeals of the assessee for both assessment years, agreeing with the lower authorities that the predominant activities were commercial and not charitable, thereby denying the exemption under Section 11. The Tribunal also upheld the denial of depreciation on assets purchased before the financial year 2008-09 and the rejection of Form 10 for accumulation due to lack of specificity.

← Previous Next →