2017 (7) TMI 535 - AT - Income Tax

Exemption claimed by the assessee under Section 11 - Held that - The activity of the assessee cannot be considered to be business activity. It was further found that the assessee is not providing any services to any trade or commerce or industry. Therefore, the proviso to Section 2(15) of the Act is not applicable to the assessee. Tribunal is of the considered opinion that the assessee is entitled for exemption under Section 11 of the Act. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to grant exemption under Section 11 of the Act. Depreciation in respect of the assets, the cost of which was already allowed as application of income under Section 11 - Held that - Depreciation under Section 32 of the Act falls under Chapter IV of the Act which provides for computation of total income. Section 11 of the Act falls under Chapter III of the Act which deals with income which does not form part of total income. Therefore, this Tribunal found that provisions of Section 32 of the Act cannot override the provisions of Section 11 of the Act. In other words, the provisions of Section 11 which falls under Chapter III would override the provisions of Section 32 of the Act which provides for depreciation which falls under Chapter IV of the Act. The assessee is not eligible for depreciation in respect of the assets, the cost of which has already been allowed as application of income under Section 11 of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. See The Music Academy Madras Versus The Deputy Director of Income Tax (Exemptions) , Chennai 2016 (5) TMI 165 - ITAT CHENNAI

Summary

Issues Involved:
1. Exemption under Section 11 of the Income-tax Act, 1961.
2. Depreciation on assets whose cost was allowed as application of income under Section 11 of the Act.

Detailed Analysis:

1. Exemption under Section 11 of the Income-tax Act, 1961:

The primary issue in both appeals was the exemption claimed by the assessee under Section 11 of the Income-tax Act, 1961. The Revenue contended that the activities of the assessee-society were commercial in nature, thus disqualifying it from the exemption. The assessee-society, established to promote sports in Tamil Nadu and Pondicherry, derived income from various sources including subscriptions, rent, sponsorships, and advertisements. Despite being registered under Section 12AA of the Act, the Assessing Officer disallowed the exemption claim, citing the commercial nature of activities and the applicability of the proviso to Section 2(15) of the Act due to gross receipts exceeding the prescribed limit.

The Tribunal examined the activities of the assessee for assessment years 2008-09 to 2010-11 and concluded that the activities did not constitute business. The Tribunal noted that the assessee was not providing services to trade, commerce, or industry, and thus, the proviso to Section 2(15) was not applicable. The Tribunal reiterated that the sole object of the assessee-society was to promote cricket, which was a charitable purpose under Section 2(15). The Tribunal also clarified that the assessee merely hosted matches organized by the BCCI and did not conduct business activities. Consequently, the Tribunal directed the Assessing Officer to grant exemption under Section 11 for the assessment years under consideration.

2. Depreciation on Assets:

The cross-objections by the assessee pertained to the claim of depreciation on assets, the cost of which was already allowed as application of income under Section 11. The Tribunal had previously examined this issue for assessment years 2008-09 to 2010-11 and concluded that the assessee was not eligible for depreciation under Section 32 of the Act. The Tribunal emphasized that depreciation under Section 32 is applicable only for assets used for business or profession. Since the assessee claimed to be a charitable organization and not engaged in business or profession, Section 32 was deemed inapplicable.

The Tribunal referred to its previous decisions and the Kerala High Court's ruling in Lissie Medical Institution, which held that claiming depreciation after allowing the full cost of capital expenditure as application of income would result in generating surplus outside the books, violating Section 11(1)(a). The Tribunal also noted that the provisions of Section 11, which fall under Chapter III, override Section 32, which falls under Chapter IV. Consequently, the Tribunal upheld the lower authority's decision, denying the depreciation claim.

Conclusion:

The Tribunal concluded that the assessee was entitled to exemption under Section 11 for the assessment years in question and directed the Assessing Officer to grant the exemption. However, the Tribunal dismissed the assessee's cross-objections regarding depreciation, affirming that the assessee was not eligible for depreciation on assets whose cost was already allowed as application of income under Section 11.