2020 (8) TMI 194 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - assessee trust was engaged in urban development and town planning - AO was of the view that the assessee was carrying out the activities of advancement of other general public utility in the nature of trade/commerce/business, therefore, the provision of section 2(15) r.w. proviso 1 2 were applied to the case - HELD THAT - As decided in Ahmedabad Urban Development Authority 2017 (5) TMI 1468 - GUJARAT HIGH COURT Object and purpose for which the assesses is established / constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Sect/on 2(15). Assessee is eligible to claim exemption/s. 11 of the Act as proviso of section 2(15) are not applicable in the case of the assessee. Carrying forward of excess capital expenditure of earlier years against the income of subsequent year - carry forward the depreciation as well - correctness of decision of Id. CIT(A) of allowing the benefit of the carrying forward - HELD THAT - Gone through the material on record and it is noticed that ld. CIT(A) has placed reliance on decision of Shri Plot Shwetambar Murtipujak Jain Mandal 1993 (11) TMI 17 - GUJARAT HIGH COURT wherein it is held that excess of expenditure over the income would be allowed to be carried forward to be set off against the future income. CIT(A) has also placed reliance on the decision of CIT vs. Rajathan Gujarat Charitable Trust, Pune 2017 (12) TMI 1067 - SUPREME COURT wherein it is held that once the assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. In the light of the above facts/findings of the ld. CIT(A) and the decision of Hon ble Supreme Court in the Subros Education Society 2018 (4) TMI 1622 - SC ORDER as referred by ld. counsel, we do not find any infirmity in the decision of ld. CIT(A). - Decided against revenue.

Issues Involved:
1. Eligibility of the assessee trust for exemption under Section 11 of the Income Tax Act.
2. Application of the proviso to Section 2(15) of the Income Tax Act.
3. Carrying forward of excess capital expenditure of earlier years against the income of subsequent years.

Issue-Wise Detailed Analysis:

1. Eligibility of the Assessee Trust for Exemption under Section 11:

The primary issue was whether the assessee trust, engaged in urban development and town planning, was eligible for exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) had disallowed the exemptions claimed under Section 11, arguing that the trust's activities were in the nature of trade, commerce, or business, thus invoking the provisions of Section 2(15) read with provisos 1 and 2. The AO contended that the trust charged various fees for services rendered to the public, which should be considered as income, and thus the trust was engaged in profit-earning activities, making the exemptions under Sections 11 and 12 inapplicable.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) relied on the judgment of the Hon'ble Gujarat High Court in the case of the assessee itself, which held that the assessee is eligible to claim deduction under Section 11. The High Court had observed that the activities of the assessee trust did not constitute trade, commerce, or business, and the primary objective was not profit-making but providing general public utility services. Therefore, the CIT(A) and ITAT concluded that the assessee trust should be treated as an exempt entity during the year under consideration.

2. Application of the Proviso to Section 2(15) of the Income Tax Act:

The AO applied the proviso to Section 2(15), which excludes entities engaged in activities in the nature of trade, commerce, or business from being considered as having a "charitable purpose." The CIT(A) and ITAT, however, referred to the Gujarat High Court's decision, which clarified that the activities of the assessee trust under the Gujarat Town Planning Act could not be considered as trade, commerce, or business. The High Court emphasized that the trust's activities, such as selling plots and collecting fees, were regulatory and incidental to its primary objective of urban development and public utility services. The High Court also referenced similar judgments from other High Courts, reinforcing that the proviso to Section 2(15) was not applicable to the assessee trust, thus allowing the trust to retain its charitable status and claim exemptions under Section 11.

3. Carrying Forward of Excess Capital Expenditure:

The revenue appealed against the CIT(A)'s decision to allow the benefit of carrying forward excess capital expenditure of earlier years to be set off against the income of subsequent years. The CIT(A) had relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Subros Educational Society, which allowed the carry forward of excess expenditure over income to future years. The ITAT upheld the CIT(A)'s decision, citing the Supreme Court's ruling and additional precedents, including the Gujarat High Court's decision in Shri Plot Shwetambar Murtipujak Jain Mandal, which supported the carry forward of excess expenditure.

Conclusion:

The ITAT dismissed the revenue's appeals, affirming the CIT(A)'s decisions on all issues. The assessee trust was deemed eligible for exemption under Section 11, the proviso to Section 2(15) was found inapplicable, and the carry forward of excess capital expenditure was permitted. The judgments were based on established legal precedents and interpretations of the relevant statutory provisions.

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