2019 (3) TMI 1920 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - Claim under the head objects of general public utility OR under the head preservation of environment - as upto assessment year 2008-09, had been claiming exemption u/s 11 under the head objects of general public utility whereas from assessment year 2009-10 the assessee had claimed the exemption under the head preservation of environment - HELD THAT - We find that vide order 2018 (12) TMI 915 - ITAT LUCKNOW the Tribunal has dismissed the appeals of the Revenue for assessment year 2002-03 to 2008-09 on similar grounds though in those years the assessee had claimed exemption under the head objects of general public utility . However, during the year under consideration the assessee had claimed exemption under the specific head preservation of environment (including watersheds, forest and wildlife) as this specific head has been included in the definition of section 2(15) w.e.f. 01/04/2009. The activities of the assessee remained same and the activities being carried out by the assessee has already been held charitable in nature. Learned CIT(A), while allowing relief to the assessee, has held that if the assessee falls into a specific category then specific category will have precedent over the general category. The matter regarding registration has attained finality when Hon'ble Supreme Court dismissed the appeal of the Revenue. The reasoning of the Assessing Officer that activity of the assessee do not qualify under head preservation of environment (including watersheds, forest and wildlife) has also been decided by the Tribunal for assessment year 02-03 to 08-09 in favour of the assessee. Disallowance of expenses towards forest development expenses which the appellant claimed as utilization of funds in relation to the discharge of statutory functions - HELD THAT - CIT(A) has rightly relied on the CAG report wherein the auditor had not pointed out anything adverse with regard to the expenses and therefore, has rightly held that the expenses were shown in line with the objects and therefore, we do not find any infirmity in the same. In view of the above, ground of the Revenue s appeal is dismissed. Disallowance of expenses debited under the head material loss - HELD THAT - CIT(A) has held that such losses are inherent to the activities such as forest fires or theft of logs in the forest by mischievous/criminal elements. The learned CIT(A) has further held that loss of material has been approved by the higher authorities of the corporation which is based on the report of the Log Manager and we agree with this finding that the amount debited by the assessee towards material loss has been audited by CAG and the accounts have been approved by the State Legislature. Therefore, we do not find any infirmity in the order of learned CIT(A) on this issue - Ground of the Revenue s appeal is also dismissed.

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Classification of activities under 'preservation of environment' vs. 'objects of general public utility'.
3. Prior period expenses.
4. Forest development expenses.
5. Material loss expenses.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The Revenue's appeals contested the exemption claimed by the assessee under Section 11. The assessee initially claimed exemption under 'objects of general public utility' until the assessment year 2008-09 and shifted to 'preservation of environment' from the assessment year 2009-10. The Tribunal had previously granted registration under Section 12A, recognizing the assessee as a charitable institution. The Tribunal upheld the CIT(A)'s decision, confirming the assessee's activities as charitable, emphasizing that the specific category of 'preservation of environment' takes precedence over the general category 'objects of general public utility'. The Supreme Court and Allahabad High Court had dismissed the Revenue's appeals, affirming the charitable nature of the assessee's activities.

2. Classification of Activities:
The Revenue argued that the assessee's activities did not qualify under 'preservation of environment'. However, the Tribunal noted that the assessee's activities remained unchanged and had been previously upheld as charitable by higher judicial authorities. The Tribunal reiterated that the specific clause 'preservation of environment' (including watersheds, forest, and wildlife) introduced in Section 2(15) from 01/04/2009 prevails over the general clause 'objects of general public utility'. The CIT(A) and the Tribunal agreed that the assessee's activities fell under the specific category, thus qualifying for exemption.

3. Prior Period Expenses:
The Revenue challenged the deletion of additions made on account of prior period expenses. The Tribunal upheld the CIT(A)'s decision, which allowed the expenses as they crystallized during the years under consideration. The CIT(A) relied on various judicial precedents, emphasizing that expenses should be recognized when determined and crystallized. The Tribunal found no infirmity in the CIT(A)'s order, dismissing the Revenue's grounds.

4. Forest Development Expenses:
The Revenue disputed the deletion of additions related to forest development expenses. The CIT(A) and the Tribunal noted that the expenses were in line with the assessee's statutory functions and objectives. The CIT(A) highlighted that the assessee provided necessary documentation, including minutes of meetings and utilization certificates, which were audited by the CAG without adverse remarks. The Tribunal agreed with the CIT(A)'s findings, confirming that the expenses were for charitable purposes and dismissing the Revenue's appeal.

5. Material Loss Expenses:
The Revenue contested the deletion of additions related to material loss expenses. The CIT(A) and the Tribunal acknowledged that such losses were inherent to the assessee's activities, such as theft or fire. The CIT(A) noted that the losses were verified and approved by the higher authorities of the corporation and audited by the CAG. The Tribunal upheld the CIT(A)'s decision, confirming the genuineness of the losses and dismissing the Revenue's appeal.

Conclusion:
The Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)'s decisions on all issues, including the exemption under Section 11, classification of activities, prior period expenses, forest development expenses, and material loss expenses. The Tribunal emphasized the consistency of the assessee's activities with its charitable objectives and the validity of the expenses claimed.

← Previous Next →