2017 (4) TMI 1101 - AT - Income Tax

Denied exemption claimed u/s.11 - whether activities of the assessee society could be classified as one of general public utility or as religious - Held that - It is interesting to note the argument advanced by the assessee as to why it was distributing books other than religious ones. As per the assessee such books were displayed so as to attract general public to the Christian religious books. It is not disputed by either party that major receipts of the assessee came from distribution of Christian religious books, though this was supplemented by realizations from sale of other books. In my opinion sale of other books in the nature of dictionaries, history, social science, literature etc can only be considered as incidental to its major activity which was publishing and distributing religious books and tracts. Such incidental activity alone, in my opinion cannot jacket the assessee as one pursuing an object, different from distribution of religious books. Thus, the claim of the assessee that it s main activity was confined to object clauses (b) and (c), in my opinion carries much strength. Object clause (d) onwards can be considered only as incidental to clause (b) and (c). Whether publication and distribution of religious books can be considered a religious activity? - Held that - In my opinion assessee which was pursuing printing, publishing and distribution of Christian literature and tracts as its main activity, could be considered only as a religious one. In my opinion lower authorities fell in error by applying section 2(15) to it, when said Section has no applicability on religious institutions. In respect of Cochin branch, there was a suit filed by the assessee against its Manager who claimed ownership to the said branch. As for the Trivandrum branch, assessee had entrusted its operation to CSI Diocese of South Kerala through an MOU dated 01.04.2004. It has also not been disputed by the Revenue that the said branch was running in a loss. In any case accounts of these branches were not incorporated since 31.03.2005 and the position continued so since many years. In other words, Revenue had accepted the factual position with regard to these branches in the earlier years and the claim for exemption u/s.11 of the Act was granted to the assessee in such earlier despite similar comments in the audit report. In any case non incorporation of the accounts of the branches was not due to any fault of the assessee but due to factors beyond its control. Claim of depreciation - Held that - Assessee can take advantage of judgments which went in its favour. Claim of depreciation has to be allowed. In the result, set aside the orders of the lower authorities and direct that the assessee be granted exemption claimed by it u/s.11 of the Act and also allowed depreciation. - Decided in favour of assessee

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Denial of exemption under section 11 of the Income Tax Act.
3. Disallowance of depreciation claim.

Condonation of Delay:
The appeal was filed with a delay of 212 days. The petitioner explained that the delay was due to changes in the office of the General Secretary and the auditor, as well as the board members' limited exposure to income tax procedures. The Departmental Representative did not object, and the delay was condoned, allowing the appeal to be admitted.

Denial of Exemption Under Section 11:
The assessee, a company registered under section 25 of the Companies Act, 1956, claimed exemption under section 11 of the Income Tax Act based on its registration under section 12A(a). The Assessing Officer denied the exemption, concluding that the majority of the assessee's activities were of general public utility, specifically publishing and selling literature, including religious and non-religious books. The Assessing Officer also noted that the assessee had amended its object clause without prior approval, which was against the law as per various judicial precedents. Additionally, the audited accounts did not incorporate the results of the Cochin and Trivandrum branches, leading to incomplete disclosure of assets and liabilities.

The Commissioner of Income Tax (Appeals) upheld the denial, stating that selling Christian literature was not a charitable or religious activity and was covered under the residual clause of "advancement of any other object of general public utility" as per section 2(15) of the Act. The Commissioner also upheld the non-incorporation of branch accounts and the amendments to the object clause without prior approval.

Upon appeal, it was argued that the assessee's main activity was religious, focusing on publishing and distributing Christian literature. The Tribunal found that the sale of non-religious books was incidental to the primary religious activity. Citing the Andhra Pradesh High Court judgment in Arsha Vijinanna Trust, the Tribunal held that publishing and distributing religious books is a religious activity. Therefore, the assessee's activities were religious, and section 2(15) did not apply. The Tribunal also noted that as a company under section 25 of the Companies Act, the assessee was not a trust and could amend its objects as per the Companies Act. The Tribunal concluded that the non-incorporation of branch accounts was not willful and had been accepted in earlier years.

Disallowance of Depreciation Claim:
The Assessing Officer disallowed the depreciation claim on assets whose cost was already allowed as application of income, relying on the Supreme Court judgment in Escorts Ltd. The Commissioner of Income Tax (Appeals) upheld this disallowance, citing the Delhi High Court judgment in Charanjiv Charitable Trust.

The Tribunal, however, noted conflicting judgments from various High Courts on this issue. It decided in favor of the assessee, allowing the depreciation claim, as there was no jurisdictional High Court ruling directly on this aspect.

Conclusion:
The Tribunal set aside the orders of the lower authorities, granted the exemption under section 11, and allowed the depreciation claim, thereby allowing the appeal of the assessee.

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