2019 (8) TMI 1125 - AT - Income Tax

Benefit of exemption u/s 11 - Charitable activity u/s 2(15) - Bengaluru METRO - on the basis of source of revenue derived from renting of space and advertisements the revenue authorities came to the conclusion that the assessee was not existing for charitable purpose - HELD THAT - It can be seen from the various provisions of the RTC Act, 1950 which we have set out in the earlier part of the order that the dominant and prime objective of the Assessee is not profit making. Prior to the introduction of the proviso to Section 2(15), there was no dispute that the Assessee was established for charitable purposes. The stream of traffic revenue and non traffic revenue by itself would demonstrate that the Assessee does not exist for profit. Keeping in mind the above factual aspects and the provisions of the KIDA Act, and principle laid down in the aforesaid decision of India Promotion Organization 2015 (1) TMI 928 - DELHI HIGH COURT will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The proviso to Sec.2(15) is therefore not applicable to the case of the Assessee. We therefore hold that the Assessee is entitled to the benefits of Sec.11. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15). The said proviso is not applicable to the case of the Assessee, we hold that the Assessee's income is entitled to the benefits of Sec.11. In view of the above conclusion on the preliminary issue, the other grounds of appeal become academic and require no consideration. Allowance of depreciation when the cost has already been recovered by way of exemption as application of income - HELD THAT - As decided in M/S. CUTCHI MEMON UNION 2013 (9) TMI 404 - ITAT BANGALORE u/s. 11(1), income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. The Hon ble Supreme Court in the case of CIT Vs. Rajasthan Gujarati Charitable Foundation Poona, 2017 (12) TMI 1067 - SUPREME COURT has since confirmed the view that depreciation has to be allowed as a deduction even when the cost of acquisition of the depreciable asset has been treated as application of income in the year of its acquisition.

Summary

Issues Involved:
1. Whether the assessee's activities fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, thereby disqualifying it from the benefit of exemption under section 11 of the Act.
2. Whether the assessee is entitled to claim depreciation on assets, the cost of which has already been claimed as capital expenditure towards application of funds for charitable purposes.

Issue-wise Detailed Analysis:

1. Applicability of Proviso to Section 2(15) of the Income-tax Act, 1961:

The primary issue was whether the assessee's activities fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, which would disqualify it from the benefit of exemption under section 11 of the Act. The assessee, Bengaluru Metropolitan Transport Corporation, claimed exemption under section 11, asserting that its activities were for charitable purposes as defined in section 2(15) of the Act. The revenue authorities contended that the assessee's activities were in the nature of trade, commerce, or business, citing reasons such as providing luxury buses on hire, earning revenue from advertisements, and letting out commercial spaces.

The Tribunal examined several precedents, including the decisions of the Karnataka Industrial Area Development Board, Bangalore Development Authority, and the India Trade Promotion Organization case by the Delhi High Court. The Tribunal emphasized that the dominant and prime objective of the assessee was not profit-making but providing transportation facilities to the public, which is charitable in nature. The Tribunal highlighted that the revenue did not allege any private profit earned by the assessee. Citing the principles laid down by the Delhi High Court, the Tribunal concluded that the proviso to section 2(15) did not apply to the assessee, and it was entitled to the benefits of section 11 of the Act.

2. Entitlement to Depreciation on Assets:

The second issue was whether the assessee could claim depreciation on assets, the cost of which had already been claimed as capital expenditure towards application of funds for charitable purposes. The Assessing Officer (AO) denied the depreciation claim, arguing that it would amount to double deduction. The AO relied on the Supreme Court's decision in Escorts Limited, which held that no depreciation is allowable on assets for which capital expenditure has already been claimed.

The Tribunal referred to several decisions, including those of the Karnataka High Court in All Saints Church and Society of Sisters of St. Ann, which held that allowing depreciation on capital assets does not amount to double deduction. The Tribunal also cited the Punjab & Haryana High Court's decision in Market Committee, Pipli, which distinguished the Escorts Limited case and upheld the allowance of depreciation for charitable institutions. The Tribunal concluded that the assessee was entitled to claim depreciation, as it was necessary for computing income in a normal commercial manner.

Conclusion:

The Tribunal held that the assessee's activities did not fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, and it was entitled to the benefits of section 11 of the Act. The Tribunal also upheld the assessee's claim for depreciation on assets, rejecting the revenue's argument of double deduction. Consequently, the appeals by the assessee were partly allowed, and the appeal by the revenue was dismissed. The Tribunal directed the AO to allow the benefit of section 11 to the assessee and re-compute the total income in accordance with the law.