2015 (12) TMI 898 - AT - Income Tax

Non-granting of exemption u/s.11 - DR submitted that activity of publishing of newspaper carried on by the assessee is a commercial one - Held that - Giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms any trade, commerce or business refers to the trade, commerce or business pursued by the recipient to whom the service is rendered (as there may be a situation involving in publishing of newspaper. Thus, as observed earlier, publishing of newspaper 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 u/s.11 of the Act. Disallowance of depreciation - Held that - We have to make it clear that the claim of depreciation to be granted on written down value of the assets. In other words, if the assessee has already claimed capital expenditure on acquisition of assets as application of income in earlier years and the value of the assets on which depreciation claimed has been fully allowed as expenditure or application in the earlier years that cannot be any claim of depreciation once again. The present claim of depreciation cannot be a double deduction over and above the fully value of the assets, if it was granted as application of income in earlier years. With these observations, this ground is allowed for statistical purposes. Taxability of interest income, it is to be taxed under the head income from other sources and it is not an exempted income and there is no reason to exempt the same from taxation as the assessee is not entitled exemption u/s.11 of the Act, in view of the judgment of the Supreme Court in the case of Bangalore Club v. CIT (2013 (1) TMI 343 - SUPREME COURT ).

Issues Involved:
1. Non-granting of exemption under Section 11 of the Income Tax Act, 1961.
2. Denial of depreciation on assets.
3. Taxability of interest income.

Detailed Analysis:

1. Non-granting of exemption under Section 11 of the Income Tax Act, 1961:

The primary issue in these appeals is the denial of exemption under Section 11 of the Income Tax Act, 1961, to the assessee. The trust filed its returns for the assessment years 2009-10 and 2010-11, admitting Nil income. However, during scrutiny, the Assessing Officer (AO) determined the total income to be Rs. 9,79,71,460/- and Rs. 10,57,29,890/- for the respective years. The AO found that the assessee expended Rs. 15,67,818/- and Rs. 13,33,979/- towards charitable purposes out of gross receipts of Rs. 16.04 crores and Rs. 16.05 crores. The AO concluded that the activities of the trust, particularly running the newspaper 'Murasoli', were in the nature of trade, commerce, or business, and not charitable. Consequently, the AO denied the exemption under Section 11 and brought the surplus income to tax.

The assessee argued that the activities, including running the newspaper, aimed at improving and spreading the Tamil language and culture, and were not commercial. The trust claimed that the income from 'Murasoli' was incidental to its charitable objectives. The assessee also contended that the CIT(Appeals) raised the issue of violation of Section 13(1)(c) without giving an opportunity to respond.

The Tribunal analyzed the scope of "charitable purpose" under Section 2(15) of the Act, particularly after the amendment by the Finance Act, 2008. The amendment excluded activities involving trade, commerce, or business from being considered charitable if they involved any consideration. The Tribunal noted that the assessee's activities, particularly running the newspaper, were commercial and not charitable. Therefore, the exemption under Section 11 was rightly denied by the lower authorities.

2. Denial of depreciation on assets:

The assessee claimed depreciation on assets purchased in earlier years. The Tribunal clarified that if the assessee had already claimed capital expenditure on the acquisition of assets as an application of income in earlier years, the value of the assets would have been fully allowed as expenditure. Therefore, claiming depreciation again would result in double deduction. The Tribunal allowed this ground for statistical purposes, directing the AO to verify and grant depreciation on the written-down value of the assets.

3. Taxability of interest income:

The interest income earned by the trust was brought to tax by the AO. The Tribunal held that the interest income should be taxed under the head "income from other sources" as it was not exempt. The Tribunal referred to the Supreme Court judgment in the case of Bangalore Club v. CIT (350 ITR 509) to support this conclusion.

Conclusion:

The Tribunal upheld the denial of exemption under Section 11 of the Income Tax Act, 1961, for the assessee, agreeing with the lower authorities that the activities were commercial and not charitable. The claim for depreciation was allowed for statistical purposes, subject to verification by the AO. The interest income was held to be taxable under the head "income from other sources." The appeals were allowed for statistical purposes, directing the AO to compute the income in accordance with the law, allowing usual deductions under Sections 30 to 38 of the Act.

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