1996 (11) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Refusal of exemption under Section 10(22A) of the Income-tax Act, 1961.
2. Denial of benefit of exemption under Section 11 of the Income-tax Act, 1961.
3. Non-allowance of depreciation under Section 35(1)(iv) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Refusal of Exemption under Section 10(22A) of the Income-tax Act, 1961:

The assessee, a charitable trust running a Skin Institute, claimed exemption under Section 10(22A) for the assessment year 1992-93. The Assessing Officer (AO) denied this exemption, citing several reasons, including discrepancies in donations and the sale of medicines, lack of separate books of accounts for different services, and payments made to related parties. The CIT(A) upheld the AO's decision, emphasizing that the trust's activities were not solely philanthropic and involved profit-making elements. The CIT(A) noted that the trust charged fees from most patients, with only a small percentage receiving free treatment. Additionally, the CIT(A) highlighted that the trust's managing trustee, Dr. P.N. Behl, received 50% of the income from treating payee patients, which was significantly higher than the remuneration of other doctors, constituting a violation of Section 13(1)(c) and Section 13(2) of the Act. The CIT(A) concluded that the trust's activities were akin to running a business concern and thus did not qualify for exemption under Section 10(22A).

2. Denial of Benefit of Exemption under Section 11 of the Income-tax Act, 1961:

The assessee also claimed exemption under Section 11, which was denied by the AO and upheld by the CIT(A). The CIT(A) pointed out that the trust failed to maintain separate books of accounts as required under Section 11(4A) for its business activities. The CIT(A) also noted that the trust's income was being used for the benefit of related parties, particularly Dr. P.N. Behl, who received a substantial portion of the trust's income, thereby violating Section 13(1)(c) and Section 13(2). The CIT(A) emphasized that the trust's activities were not solely for charitable purposes and involved significant profit-making elements, which disqualified it from exemption under Section 11.

3. Non-allowance of Depreciation under Section 35(1)(iv) of the Income-tax Act, 1961:

The AO disallowed the depreciation claimed by the assessee under Section 35(1)(iv), which was upheld by the CIT(A). The CIT(A) reasoned that since the trust was not eligible for exemptions under Sections 10(22A) and 11, it could not claim depreciation under Section 35(1)(iv). However, the Tribunal directed the AO to allow the depreciation, as the trust was not granted exemptions under Sections 10(22A) and 11.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to deny exemptions under Sections 10(22A) and 11, citing the trust's profit-making activities and violations of Sections 13(1)(c) and 13(2). However, the Tribunal directed the AO to allow depreciation under Section 35(1)(iv), as the trust was not granted exemptions under Sections 10(22A) and 11. The appeal was partly allowed, granting the assessee depreciation but denying the claimed exemptions.