2019 (9) TMI 661 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - assessee is an organisation incorporated under section 25 of the Companies Act, 1956 as not-for-profit organisation, registered under section 12A - grant of approval to the petitioner under Section 10(23C)(iv) - HELD THAT - As decided in own case 2015 (1) TMI 928 - DELHI HIGH COURT where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. Thus, while we uphold the Constitutional validity of the proviso to Section 2(15) of the said Act, it has to be read down in the manner indicated by us. As a consequence, the impugned order dated 23.01.2013 is set aside and a mandamus is issued to the respondent to grant approval to the petitioner under Section 10(23C)(iv) of the said Act within six weeks from the date of this judgment. The writ petition stands allowed as above. Depreciation to assessee trust - HELD THAT - As decided in own case 2015 (8) TMI 89 - DELHI HIGH COURT The equally plausible and consistent interpretation of clause (a) of Section 11(1) of the Act is that income derived from property must be calculated as per the principles of the Act. The said clause is not a computation provision and does not disturb the income earned or available but postulates that the income as computed in accordance with the provisions of the Act to the extent of 86% must be applied. Application of income may include purchase of a capital asset. The said purchase is valid and taken into consideration for the purpose of ensuring compliance, i.e., application of money or funds and is not a factor which determines and decides the quantum of income derived from property held under trust. Addition on a/c of space rent income on the basis of disclosure in Notes to Accounts of the assessee - HELD THAT - We are of the considered view that when income on account of space rent has not been accrued, as in the instant case due to dispute, there cannot be any rent even though entry in the books of account have been made on account of notional income. So, when the income would be received its taxability can be examined by the Revenue. Ld. DR for the Revenue has not brought on record any document if the dispute between the parties qua the space rent has been resolved. So, in these circumstances, we are of the considered view that there is no illegality or perversity in the findings returned by the ld. CIT (A) - Decided against revenue

Issues Involved:
1. Charitable Purpose and Exemption under Section 11/12
2. Depreciation on Assets for which Capital Expenditure Deduction is Allowed
3. Addition of Space Rent Income Not Accounted in Books

Issue-wise Detailed Analysis:

1. Charitable Purpose and Exemption under Section 11/12:
The primary issue was whether the activities of the assessee qualify for charitable purposes under Section 2(15) of the Income Tax Act, 1961, thereby making the income eligible for exemption under Sections 11/12. The Assessing Officer (AO) denied the exemption, arguing that the assessee's activities were in the nature of business. However, the Commissioner of Income Tax (Appeals) [CIT(A)] relied on a decision by the Hon'ble Delhi High Court in the assessee's own case, which held that the expression "charitable purpose" must be interpreted in the context of Section 10(23C)(iv). The High Court ruled that if an institution's primary objective is not profit-making but rather the advancement of an object of general public utility, it should be considered charitable. Consequently, the CIT(A) allowed the exemption, and the Tribunal upheld this decision, determining the issue against the Revenue.

2. Depreciation on Assets for which Capital Expenditure Deduction is Allowed:
The AO disallowed depreciation on the ground that allowing both capital expenditure deduction and depreciation would lead to double deduction. The CIT(A) allowed the depreciation based on a decision by the Hon'ble Delhi High Court in the assessee's own case, which supported the view that income derived from property held under trust should be computed as per the principles of the Act. The High Court emphasized consistency and certainty in legal interpretation, upholding that depreciation should be allowed even if capital expenditure had been deducted. The Tribunal found no illegality in the CIT(A)'s order and determined this issue against the Revenue.

3. Addition of Space Rent Income Not Accounted in Books:
The AO added amounts to the income of the assessee on account of space rent income based on disclosures in the Notes to Accounts. The CIT(A) deleted these additions, noting that the space rent was disputed by two Government Departments, making the income uncertain. The CIT(A) examined documents and discussions between the disputing parties and concluded that no addition could be made until the dispute was resolved. The Tribunal agreed, stating that income not accrued due to a dispute cannot be taxed, and upheld the CIT(A)'s decision, determining this issue against the Revenue.

Additional Judgment:
In the appeal challenging the order passed under Section 154/143(3), the Tribunal noted that the issues had already been covered in the preceding grounds and dismissed the appeal without separate findings.

Conclusion:
All four appeals (ITA Nos. 1919/Del./2016, 3359/Del./2016, 2508/Del./2016 & 3135/Del./2016) were dismissed by the Tribunal, upholding the CIT(A)'s decisions in favor of the assessee. The order was pronounced in open court on September 13, 2019.

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