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2023 (12) TMI 1259 - AT - Income TaxExemption u/s 11 - charitable activities u/s 2(15) - Accumulation of income - CIT(A) has treated activities of meetings, conferences and seminars of the assessee not for charitable purpose and thus denying exemption u/s 11 of the Act in respect of entire receipts of the assessee - HELD THAT - We note that during the instant assessment year, the receipt form business activities of the assessee from the activities of holdings and organizing meetings, seminars and conferences and the profit as computed by the AO constituted only 2% of such receipts. Therefore we are inclined to hold that the consideration charged by the ICC is just a cost basis and nominally above the cost. However if we allocate the administrative expenses on a rational and scientific basis between the activities of holding meetings, seminars and conferences on the one hand and other charitable receipts such as interest, rental and misc. income on the other , then there would be huge loss from these activities of organizing and holding meetings, seminars and meetings meaning thereby that the assessee has not been even charging from these sponsors, participants, members or non-members which are barely enough to cover the cost of the ICC and therefore it can be reasonable presumed that ICC has provided these activities even below the cost. We are inclined to hold that the ICC is not carrying on any activity of holding meetings, seminars and conferences for business purpose but only in support its main object and it charges from its participants, members and non-members the amount of fee which does not even covers the cost of holding such events. So much so that the administrative and other incidental expenses of holding and organizing such seminars, conferences and meetings are met out of other charitable income received form interest on FDRs, rental and miscellaneous income. Therefore in view of that the ICC is entitled to exemption u/s 11 of the Act as the activities of the advancement of main object is not hit by the proviso to Section 2(15) of the Act even post amendments. Accumulation of income and investment - Provisions of 11(1) provides for accumulation of income of the trust to the extent of 15% of the gross receipts in perpetuity. The institution can retain 15% from the application of income without applying for charitable purpose in which accrued meaning thereby that 15% is indefinite accumulation and the assessee is not obliged to apply the same in subsequent years and can be retained as part of the corpus of the body. AO has accepted which the same. But the institution has to comply with the requirements of section 11(5)(iii) of the Act. The ICC has fully complied with the provisions of section 11(5)(iii) of the Act and kept the funds invested in terms of the said section. So the ld CIT(A) has erred in treating the same as taxable income. But in any case we have allowed the main contentions of the ICC by allowing exemption u/s 11 of the Act on the entire receipts of the ICC. We set aside the order of ld CIT(A) and direct the AO to allow exemption u/s 11 of the Act in respect of entire receipts/income. Consequently ,the grounds of assessee allowed. Depreciation claim of assessee trust - HELD THAT - The assessee s case is squarely covered by the decision of Rajashthan and Gujrati Charitable Foundation 2017 (12) TMI 1067 - SUPREME COURT in the context of amendment in Section 11(6) of the Act by the Finance (NO.2) Act 2014 w.e.f 01.04.2015 wherein it has been held that up to AY 2015-16 the assessee is entitled to claim the cost of acquisition of fixed asset as application of income and further depreciation thereon in subsequent years. We set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation on fixed asset as application of income/expenses. Addition treating the sale value of motor car as income - cost of car has been treated allowed as application of income when the car was purchased - HELD THAT - We find that up to AY 2015-16 even if fixed asset purchased by the assessee was claimed as application of income while computing the income, even then it is presumed that WDV is there in the books of account. We have even perused the provisions of Section 11(1)(a) of the Act which provide that if the sale consideration received on sale of assets is utilized for acquiring another asset then the same is treated as having applied for the charitable purposes. The case of the assessee also find support from the decision of Rajashthan and Gujrati Charitable Foundation 2017 (12) TMI 1067 - SUPREME COURT wherein it was held that besides claiming the full deduction of cost of fixed asset in the year and the assessee would be entitled to depreciation thereon. By considering the ratio laid down in the said decision, we are of the view that even if the entire cost has been claimed as application of income even then the assessee is entitled to claim the deduction of WDV from the sales consideration in order to calculate the capital gain. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition. Deduction u/s 11(1)(a) @ 15% on the net income and not on the gross receipt of the ICC - HELD THAT - We find that accumulation u/s 11 is to be computed on the gross receipts and not the net receipts. The issue settled by the Hon ble Surpeme Court in the case of ACIT vs. A.L.N. Rao Charitable Trust 1995 (10) TMI 2 - SUPREME COURT wherein it has been held that statutory accumulation u/s 11(1)(a) has to be computed on the gross receipts of the assessee - Thus we are inclined to direct the AO to allow the accumulation u/s 11(1)(a) of the Act on the gross receipt of the assessee and not on the net receipt. Accordingly ground raised by the assessee is allowed.
Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act. 2. Treatment of membership fees. 3. Treatment of other income (interest, rental, and miscellaneous income). 4. Allowance of depreciation as an application of income. 5. Treatment of sale value of motor car. 6. Computation of deduction under Section 11(1)(a). Issue 1: Denial of Exemption under Section 11 of the Income Tax Act The primary issue was whether the activities of the assessee, including organizing meetings, conferences, and seminars, constituted trade, commerce, or business, thus disqualifying it from exemption under Section 11. The AO and CIT(A) denied the exemption, treating these activities as business activities due to the receipts exceeding Rs. 25 lakhs. The Tribunal, however, concluded that the activities were incidental to the main charitable object of promoting trade, commerce, and industry. The Tribunal emphasized that the fees charged were nominal and did not cover costs, indicating no profit motive. Thus, the assessee was entitled to the exemption under Section 11. Issue 2: Treatment of Membership Fees The Tribunal held that membership fees, including annual and entrance fees, are not taxable due to the principle of mutuality. The fees were considered part of the receipts and not income, as there exists no difference between the contributors and participators, aligning with the principle that a person cannot make a profit from himself. Issue 3: Treatment of Other Income (Interest, Rental, and Miscellaneous Income) Interest income from fixed deposits, rental income, and miscellaneous income were considered as part of the charitable activities. The Tribunal noted that these incomes were derived from investments compliant with Section 11(5) and should be eligible for exemption under Section 11. Issue 4: Allowance of Depreciation as an Application of Income The Tribunal allowed the claim for depreciation on fixed assets as an application of income, referencing the Supreme Court's decision in CIT vs. Rajasthan and Gujarati Charitable Foundation. The Tribunal emphasized that depreciation should be allowed even if the cost of acquisition was treated as an application of income in the year of purchase. Issue 5: Treatment of Sale Value of Motor Car The Tribunal directed that the sale value of the motor car should be adjusted against the written down value (WDV) of the asset, aligning with the principle that the sale proceeds should be reduced from the WDV for calculating capital gains. The Tribunal referenced Section 11(1)(a) and the Supreme Court's decision in CIT vs. Rajasthan and Gujarati Charitable Foundation to support this view. Issue 6: Computation of Deduction under Section 11(1)(a) The Tribunal directed that the deduction under Section 11(1)(a) should be computed on the gross receipts and not on the net income. This aligns with the Supreme Court's decision in ACIT vs. A.L.N. Rao Charitable Trust, which held that statutory accumulation should be computed on gross receipts. Conclusion: The Tribunal allowed the appeals, directing the AO to grant the exemption under Section 11 for the entire income, allow depreciation as an application of income, adjust the sale value of the motor car against the WDV, and compute the deduction under Section 11(1)(a) on gross receipts. The Tribunal emphasized the principle of mutuality for membership fees and compliance with Section 11(5) for other incomes.
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