2016 (5) TMI 1567 - AT - Income Tax

Benefit of exemption u/s 11 12 - whether activities of the trust were not within the purview of section 2(15) - As per revenue assessee society s main source of receipts is from Hostel/Canteen activities and booking of Auditorium and Conference Hall which are of commercial nature - CIT(A) where relying upon the order of the ITAT for 2009-10 A.Y. and taking note of the fact that there was a similar denial in 2010-11 A.Y. also on identical fact which issue also stood concluded in favour of the assessee - HELD THAT - We have seen the material available on record and in the light of the submissions advanced by the parties and on consideration of the above finding, we find that the conclusion drawn by the CIT(A) relying upon the order of the ITAT cannot be faulted with. It is seen that in 2009-10 A.Y. more or less on identical facts, the AO had proceeded on an Inspector s report and therein also relying upon the information in Form 26AS as in the year under consideration he relying on the transactions made with non-member concluded that the trust was running as a commercial activity. This similarity of fact in the earlier year would be evident from order of the ITAT as held it would not be possible to ascertain the amount of canteen collection from those persons who were not stayed in the hostel. In any case it is bound to be very negligible and within permissible limits of section 2(15) of the Income Tax Act. It can be seen from the documents submitted that the trust serves buffet meals during the program / workshop conducted by Members Organizations and/or during own program and workshop but not for any other purposes. This can be reviewed form the related documents enclosed herewith for your kind perusal i.e. Bills of buffets served during workshop and seminars. We also like to submit that for the booking of the facilities (Buffet, Auditorium, Conference Hall etc.) of the Trust, officials of the trust designated for the said purposes (at the rank of Manager) are only authorized. Hence, as regard the remarks made by our Canteen staff they had merely given the information in regard to tariff rate both for vegetarian and non vegetarian buffets arrangement. There is nothing wrong in what has been stated by them and no where they had committed that it will be served also for the purposes other than the objectives of the activities for which it was intended. They had merely answered a query. Therefore, it would be inappropriate to conclude that what they had stated involve commercial activities. Thus identical claim of the Revenue has been considered by the ITAT. No change in fact or circumstance has either been referred to by the Ld. Sr. DR nor has been brought out in the assessment order. In the absence of any infirmity having been pointed out, we find no good reason to deviate from the view taken. Holding the conclusion of the CIT(A) in relying thereon justified on facts and law the departmental ground is dismissed. Depreciation claim - As relying on Indraprastha Cancer Society 2014 (11) TMI 733 - DELHI HIGH COURT in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgements of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. Revenue appeal dismissed.

Summary

Issues Involved:
1. Exemption under Sections 11 & 12 of the Income Tax Act, 1961.
2. Nature of activities of the trust under Section 2(15) of the Income Tax Act, 1961.
3. Claim of depreciation on fixed assets previously claimed as application of income.
4. Applicability of recent judicial precedents regarding depreciation claims.

Issue-wise Detailed Analysis:

1. Exemption under Sections 11 & 12 of the Income Tax Act, 1961:
The Revenue challenged the CIT(A)’s decision to allow the benefit of exemption under Sections 11 & 12, contending that the activities of the trust did not fall within the purview of Section 2(15) of the Income Tax Act, 1961. The ITAT noted that the CIT(A) followed the ITAT's order from the previous assessment year, which was not disputed by the Revenue. The trust, registered under Section 12A since 1973, continued to pursue its main objective of establishing and maintaining youth centers, sponsoring youth programs, and facilitating interactions among youth leaders. The AO's disallowance based on the trust's activities being of "general utility" was reversed by the CIT(A), which the ITAT upheld, finding no change in facts or circumstances from previous years.

2. Nature of Activities of the Trust under Section 2(15) of the Income Tax Act, 1961:
The AO argued that the trust's activities, including running a hostel, canteen, and renting out auditoriums, were commercial in nature. The AO's conclusion was based on an Inspector's report indicating that the trust's facilities were open to the general public without membership restrictions. The CIT(A) and ITAT found that the trust's activities were consistent with its charitable objectives, and any incidental commercial activities were within permissible limits. The ITAT emphasized that the trust's primary purpose was charitable, focusing on youth welfare and leadership development, and upheld the CIT(A)'s decision to allow the exemption under Sections 11 & 12.

3. Claim of Depreciation on Fixed Assets Previously Claimed as Application of Income:
The Revenue contended that the CIT(A) erred in allowing the claim of depreciation on fixed assets that had been claimed as application of income in earlier years. The ITAT referred to the CIT(A)'s reliance on judicial precedents, including the Delhi High Court's decision in DIT vs. Vishwa Jagriti Mission, which held that depreciation on assets used for charitable purposes should be allowed as a deduction. The ITAT found no distinction in facts or contrary decisions presented by the Revenue and upheld the CIT(A)'s decision to allow the depreciation claim.

4. Applicability of Recent Judicial Precedents Regarding Depreciation Claims:
The Revenue cited the Delhi High Court's judgment in Charanjiv Charitable Trust vs. DIT(E) to argue against the depreciation claim. However, the ITAT noted that this judgment had been overruled by the Delhi High Court in DIT(E) vs. Indraprastha Cancer Society, which reaffirmed the allowance of depreciation on assets used for charitable purposes. The ITAT concluded that the CIT(A) correctly applied the prevailing judicial precedents and dismissed the Revenue's grounds related to the depreciation claim.

Conclusion:
The ITAT upheld the CIT(A)'s order, allowing the trust's exemption under Sections 11 & 12 and the claim for depreciation on fixed assets. The ITAT found that the trust's activities were charitable and aligned with its objectives, and any incidental commercial activities did not negate its charitable status. The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s reliance on established judicial precedents.