2017 (11) TMI 1798 - AT - Income Tax

Charitable activity - Applicability of proviso to section 2(15) - denying the benefits of section 11(1)(a) - activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities - HELD THAT - The objects of the Trust clearly establish that the same was for general public utility and for charitable purposes - Profit making was neither the aim nor object of the Trust - Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business - See Sabarmati Ashram Gaushala Trust case 2014 (1) TMI 1539 - GUJARAT HIGH COURT Non granting of set off of brought forward unabsorbed depreciation - HELD THAT - Deficit shown in the earlier years is eligible to be given set off for surplus, if any for the year under consideration. Therefore, the AO is directed to allow the set off of brought forward deficit while giving appeal effect to our order.

Summary

Issues:
1. Eligibility for exemption under section 11 of the Income Tax Act.
2. Set off of brought forward unabsorbed depreciation.
3. Computation of tax at the correct slab rate for an Association of Persons (AOP).
4. Charging of interest under section 234B and withdrawal of interest under section 244A.

Eligibility for exemption under section 11 of the Income Tax Act:
The appellant challenged the denial of benefits under section 11(1)(a) of the Income Tax Act by the Assessing Officer (AO). The AO contended that the appellant, engaged in the business of high-quality semen on a commercial basis, did not qualify as a charitable trust under the revised provisions of Charitable purpose. The AO emphasized that the appellant operated with a profit motive and generated a surplus, leading to the denial of exemption under section 11. The Commissioner of Income Tax (Appeals) partly allowed the appeal, and the appellant appealed further. The Appellate Tribunal, considering the case's similarity to another trust's case, upheld the appellant's contention. The Tribunal highlighted that the trust's activities aligned with general public utility and charitable purposes, not profit-making, as clarified by CBDT Circular No. 11/2008. The Tribunal dismissed the Revenue's appeal, following the High Court's decision and the trust's objectives.

Set off of brought forward unabsorbed depreciation:
The appellant raised concerns regarding the Assessing Officer's treatment of the appellant's income as business income and the denial of set off for brought forward unabsorbed depreciation. The appellant argued that the deficit from earlier years should be allowed as a set off against any surplus for the current year. The Tribunal, referring to a previous order in the appellant's case, directed the AO to permit the set off of brought forward deficit while implementing the Tribunal's order. Consequently, the Tribunal allowed the appellant's grounds related to the set off of brought forward unabsorbed depreciation.

Computation of tax at the correct slab rate for an Association of Persons (AOP):
The appellant contested the Assessing Officer's computation of tax at a flat rate of 30% instead of the correct slab rate applicable to an Association of Persons (AOP). The Tribunal noted that the issue had become infructuous, possibly due to subsequent developments or corrections. Therefore, the Tribunal did not delve into this matter further, implying that the incorrect computation of tax at a flat rate did not impact the final decision.

Charging of interest under section 234B and withdrawal of interest under section 244A:
The appellant challenged the charging of interest under section 234B and the withdrawal of interest under section 244A by the Assessing Officer. The Tribunal deemed the discussion on these issues as consequential, suggesting that they were linked to other primary determinations. As a result, the Tribunal did not provide a detailed adjudication on these matters, implying that they were resolved as part of the overall decision-making process.

In conclusion, the Appellate Tribunal, in the judgment, addressed multiple issues concerning the appellant's eligibility for exemption under section 11, the set off of brought forward unabsorbed depreciation, the computation of tax at the correct slab rate, and the charging and withdrawal of interest under relevant sections. The Tribunal's detailed analysis and decisions on each issue reflected a comprehensive consideration of legal principles and precedents, ultimately resulting in the dismissal of the Revenue's appeal and the partial allowance of the appellant's Cross-Objection.