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2022 (6) TMI 1385 - AT - Income TaxDenying of exemption u/s 11 by invoking the first proviso to section 2(15) - assessee argued that civil works carried out by him are not commercial in nature by mentioning that they are fund-raising activities - HELD THAT - We are of the opinion that similar issue came for consideration before this Tribunal in the case of Zilla Nirmithi Kendra 2022 (2) TMI 1362 - ITAT BANGALORE as held that the application of income generated by the business is not relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives. It was contended by the assessee that the surplus funds generated from the construction business was spent towards charitable activities and therefore, the assessee is entitled for exemption under section 11(4). This contention is not acceptable. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) is applicable. The tribunal held that there is no nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self reliance among the members of the public etc. Being so, the assessee is not entitled for any exemption under section 11. Decided against assessee. Also see M/S. NIRMITHI KENDRA case 2018 (11) TMI 117 - ITAT COCHIN Income tax liability - tax on income of a State - assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution - HELD THAT - Assessee is not a State but it is registered as a Society and hence it is to be treated as an AOP or Trust for the purpose of Taxation. The assessees Dakshina Kannada Nirmithi Kendra Udupi Nirmithi Kendra are separate entities and distinct from state, having its own legal identity. It could sue or be sued in its own name. It has its own assets liabilities. But only when the State Government decides that purpose of Nirmithi Kendra has been achieved and there is no need to continuation of this Nirmithi Kendra, then it may pass the order of dissolution of the same. In that event, the income, assets, liabilities of the Nirmithi Kendra will be vested with the State Government and not otherwise. Thus, it is apparent from the record that the Hon ble Supreme Court has already dealt with this matter and we are completely agreeing with the argument of Ld. D.R. and the Article 289 of the Constitution cannot be applied to the assessee s case. Accordingly, this additional ground of the assessee is dismissed. Disallowance u/s 43B - AO disallowed an amount in respect of expenditure claimed towards labour cess outstanding - HELD THAT - As per this Act, certain payments could be claimed as expenses in the year in which they have been paid and not in the year in which the liability to pay such sum was incurred. In other words, certain statutory expenses are allowed to be claimed in the year of payment only. In the case of this payment of it has not been paid within the due date of filing return of income and which was paid only on 21.3.2014 and the said payment cannot be allowed as in the assessment year under consideration. Accordingly, we dismiss this ground of the assessee in AY 2013-14. However, the assessee has liberty to claim on actual basis in the year in which it was paid. Activities carried on by the assessee along with object clause of the Trust Deed - No infirmity in the order of the lower authorities in observing that the assessees herein carried out activities not in accordance with the object clauses mentioned in Trust Deed. Accordingly, this additional grounds in both cases are also dismissed.
Issues Involved:
1. Denial of exemption under Section 11 of the Income-tax Act, 1961. 2. Applicability of the first proviso to Section 2(15) of the Income-tax Act, 1961. 3. Admission of additional grounds by the Tribunal. 4. Validity of notice issued under Section 143(2) of the Income-tax Act, 1961. 5. Classification of the assessee as a "State" under Article 12 of the Constitution and its implications under Article 289. 6. Denial of depreciation on the basis of double benefit. 7. Disallowance under Section 43B of the Income-tax Act, 1961. 8. Assessment of activities carried out by the assessee within the object clause mentioned in the Trust Deed. Detailed Analysis: 1. Denial of Exemption under Section 11 of the Income-tax Act, 1961: The primary issue involves the denial of exemption under Section 11 by invoking the first proviso to Section 2(15). The assessee argued that their activities do not fall within the mischief of the first proviso to Section 2(15). The Tribunal, however, upheld the Assessing Officer's decision, stating that the activities carried out by the assessee are in the nature of trade, commerce, or business, thereby disqualifying them from exemption under Section 11. 2. Applicability of the First Proviso to Section 2(15) of the Income-tax Act, 1961: The Tribunal examined whether the assessee's activities fall within the scope of "advancement of any other object of general public utility" and whether they involve carrying on any activity in the nature of trade, commerce, or business. The Tribunal concluded that the activities carried out by the assessee are commercial in nature and thus fall within the mischief of the first proviso to Section 2(15), leading to the denial of exemption under Section 11. 3. Admission of Additional Grounds by the Tribunal: The Tribunal admitted additional grounds raised by the assessee, relying on the judgment of the Hon'ble Supreme Court in NTPC Vs. CIT 229 ITR 383, which allows the admission of legal grounds that do not require fresh investigation of facts. 4. Validity of Notice Issued under Section 143(2) of the Income-tax Act, 1961: The assessee contended that the notice issued under Section 143(2) was invalid as it lacked a digital or manual signature and seal. The Tribunal dismissed this ground, stating that there is no necessity for affixing a digital or manual signature or seal on the notice when issued digitally. 5. Classification of the Assessee as a "State" under Article 12 of the Constitution and its Implications under Article 289: The assessee argued that being a State under Article 12, it is exempt from Union Tax under Article 289. The Tribunal rejected this argument, stating that the assessee is a separate legal entity distinct from the State. The Tribunal relied on the Supreme Court judgment in Adityapur Industrial Area Development Authority Vs. Union of India, which clarified that such entities are distinct from the State and their income is not exempt under Article 289. 6. Denial of Depreciation on the Basis of Double Benefit: The Tribunal allowed the assessee's claim for depreciation, relying on the Supreme Court judgment in CIT vs. Rajasthan & Gujarati Charitable Foundation Poona, which held that depreciation is allowable even if the expenditure incurred for acquiring capital assets was treated as an application of income for charitable purposes under Section 11(1)(a). 7. Disallowance under Section 43B of the Income-tax Act, 1961: The Tribunal upheld the disallowance of Rs. 4,98,427/- in respect of labour cess outstanding as on 31.03.2013, stating that it was not paid within the due date of filing the return of income. However, the Tribunal allowed the assessee to claim the deduction in the year in which the payment was made. 8. Assessment of Activities Carried Out by the Assessee within the Object Clause Mentioned in the Trust Deed: The Tribunal found that the activities carried out by the assessee were not in accordance with the object clauses mentioned in the Trust Deed. The Tribunal observed that the assessee carried out commercial activities such as construction of roads, buildings, and other civil works, which are not incidental to the attainment of the objects of the Trust. Conclusion: The Tribunal dismissed the appeals filed by the assessee for the assessment years in question, except for the partial allowance of the appeal for the assessment year 2013-14 regarding the claim for depreciation. The Tribunal upheld the denial of exemption under Section 11, the applicability of the first proviso to Section 2(15), and the disallowance under Section 43B, while rejecting the classification of the assessee as a "State" under Article 12 and its implications under Article 289.
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