2017 (9) TMI 1724 - HC - Income Tax

Exemption u/s 11 - whether the activities of the assessee are charitable in nature - Exemption from income tax to the local authority - whether Appellant is not a local authority as contemplated u/s 10(20)? - Held that - These appeals have now become academic inasmuch as this Court in case of Urban Improvement Trust, Kota vs. The Income Tax Officer, Ward-1(2), Kota 2018 (4) TMI 192 - RAJASTHAN HIGH COURT as held functions which are carried out by the assessee are statutory functions and carry on for the benefit of the State Government for urban development therefore, in our considered opinion, the functions carried out by the authority is a supreme function and fall within the activity of the State Government. Deletion of 20A will not make difference in case of assessee. In our considered opinion, Clause-3 will come in the help of the assessee. In that view of the matter, we are considered opinion, that the authority assessee is a local authority for the purpose of carrying out of the improvement and development function of the State. - Decided in favour of assessee.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Benefits of set apart under Section 11(2) and related provisions.
3. Treatment of the assessee as a charitable institution.
4. Change of accounting policies and its impact.
5. Deduction of depreciation on assets.
6. Allowance of depreciation without business activities.
7. Treatment of development expenditure and revenue.
8. Allowance of expenses on shooting range.
9. Allowance of contribution to a medical hospital.
10. Amortization of expenditure on fencing for growing trees.

Detailed Analysis:

Exemption under Section 11 of the Income Tax Act:
The appellant challenged the Tribunal's decision allowing the assessee's exemption under Section 11, asserting that the activities of the assessee were charitable despite the amended provisions of Section 13(8) read with the first and second proviso of Section 2(15) being applicable. The Tribunal's decision was upheld, confirming that the activities were indeed charitable.

Benefits of Set Apart under Section 11(2):
The appellant argued against the Tribunal's decision to allow benefits under Section 11(2), deleting the addition of ?79,76,39,913 as unspent amount. The Tribunal confirmed the CIT(A)'s order, stating that the provisions of Section 11(2) read with Section 11(3)(c) were not attracted as the assessee was granted exemption under Sections 11 and 12.

Treatment of the Assessee as a Charitable Institution:
The Tribunal was questioned on treating the assessee as a charitable institution and allowing exemption benefits under Sections 11 and 12. The Tribunal's decision was upheld, confirming the charitable status of the assessee.

Change of Accounting Policies:
The appellant contended that the Tribunal erred in accepting the assessee's change of accounting policies without considering the auditor's qualifications. The Tribunal found the changes accurate and scientific, dismissing the appellant's objections.

Deduction of Depreciation on Assets:
The appellant challenged the allowance of ?1,98,41,604 as depreciation on assets already claimed as application under Section 11. The Tribunal justified the allowance, stating it did not amount to a double allowance.

Allowance of Depreciation without Business Activities:
The Tribunal allowed depreciation despite the assessee not carrying out business activities, asserting that depreciation is allowable even without business or profession, or in the case of "income from other sources."

Treatment of Development Expenditure and Revenue:
The Tribunal allowed the net amount of ?269,69,91,775 as capital expenditure due to a change in accounting policy and an additional ?21,13,94,421 out of establishment and administrative expenses. The appellant's objections were dismissed.

Allowance of Expenses on Shooting Range:
The Tribunal allowed ?1,07,02,423 on account of expenses on a shooting range, confirming the legitimacy of the expenditure.

Allowance of Contribution to a Medical Hospital:
The Tribunal allowed ?5,00,00,000 as expenditure for a contribution to Deendayal Medical Hospital, treating it as a donation to a charitable institution.

Amortization of Expenditure on Fencing:
The Tribunal allowed ?1,74,22,857 for amortization of expenditure on fencing for growing trees, confirming the expenditure's legitimacy.

Conclusion:
The High Court upheld the Tribunal's decisions on all counts, confirming the charitable status of the assessee and the legitimacy of the various expenditures and accounting treatments challenged by the appellant. The issues raised were deemed academic in light of the comprehensive judgment, and the appeals were disposed of accordingly.