2017 (12) TMI 1321 - AT - Income Tax

Exemption u/s 11 - claim of depreciation in respect of asset which is used in charitable activity - Held that - The assessee is not eligible for depreciation when the cost of asset was allowed as application of income. Income from leasing of medical equipments - exemption under Section 11 denied - Held that - The assessee-trust is admittedly registered as charitable institution under Section 12AA of the Act. The assessee-trust is providing medical relief to the poor. In order to carry out its object of providing medical relief to the poor, the assessee-trust procured certain medical equipments. After using the same for 2-3 years, the unused equipments, which are kept idle, were leased out to another hospital in which the trustee is a Director. The question now arises for consideration is when the assessee-trust leased out the medical equipments, which were kept idle, and received lease rentals, whether the activity of the assessee would amount to advancement of object of general public utility? This Tribunal is of the considered opinion that when the assessee-trust instead of keeping medical equipments idle, leased out the same and utilised the lease amount for charitable activity, it cannot be said that the assessee was carrying on business activity. Therefore, it cannot be said that the activity of the assessee amounts to advancement of any other object of public utility. In this case, the lease amount was again applied back for providing medical relief to the poor. Therefore, this Tribunal is of the considered opinion that leasing of medical equipments in the course of carrying on charitable activity is incidental to the main activity of providing medical relief to the poor. Hence, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of the authorities below are set aside and the Assessing Officer is directed to allow exemption under Section 11 of the Act of the income which is applied for charitable activity.

Summary

Issues:
1. Disallowance of depreciation.
2. Income from leasing of medical equipments.

Issue 1: Disallowance of Depreciation
The Tribunal heard three appeals against the orders of the Commissioner of Income Tax for the assessment years 2010-11, 2011-12, and 2012-13, collectively. The primary issue was the disallowance of depreciation claimed by the assessee. The counsel for the assessee argued that depreciation should be allowed as the income of the trust must be computed commercially. On the other hand, the Departmental Representative contended that the Income-tax Act governs the computation of trust income, and depreciation is not applicable to assets used for charitable purposes. The Tribunal referred to a previous case where it was established that depreciation is only allowed for assets used for business or profession under Section 32 of the Act. The Tribunal concluded that the assessee was not eligible for depreciation when the cost of the asset was allowed as application of income, as per Section 11 of the Act.

Issue 2: Income from Leasing of Medical Equipments
The second issue pertained to income from leasing medical equipment. The counsel for the assessee argued that leasing out surplus medical equipment for charitable purposes should not disqualify the assessee from claiming exemption under Section 11 of the Act. The Departmental Representative contended that leasing equipment to another hospital constituted a business activity, thus disqualifying the assessee from exemption. The Tribunal noted that the lease amount was utilized for charitable activities, and the leasing of medical equipment was incidental to providing medical relief to the poor. Therefore, the Tribunal set aside the lower authorities' decisions and directed the Assessing Officer to allow exemption under Section 11 of the Act for income applied towards charitable activities.

In conclusion, the Tribunal partially allowed all three appeals of the assessee, ruling in favor of the assessee on the issue of income from leasing medical equipment and disallowance of depreciation.