1986 (1) TMI 175 - AT - Income Tax

Issues Involved:
1. Whether the assessee foundation falls within the ambit of charitable purposes as defined in section 2(15) of the Income-tax Act, 1961.
2. Whether the foundation was entitled to exemption under section 11 of the Income-tax Act as a charitable institution.
3. The correctness of the computation of business income at Rs. 1,08,973 by the Commissioner.
4. Denial of depreciation amounting to Rs. 17,398.

Issue-wise Detailed Analysis:

1. Charitable Purposes Under Section 2(15):
The primary contention was against the finding that the foundation did not fall within the ambit of charitable purposes as defined in section 2(15) of the Act. The Commissioner held that the foundation's objects were not of general public utility and involved activities for profit, thus disqualifying it from being considered a charitable institution.

However, the Tribunal found that the foundation's primary object was to help new entrepreneurs by giving interest-free loans, which indirectly promoted industry. The Tribunal emphasized that the foundation's activities did not involve the carrying on of any activity for profit. The Tribunal referred to the Supreme Court's ruling in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association, which stated that the purpose of a trust or institution must not involve the carrying on of any activity for profit, irrespective of how the funds are raised.

2. Entitlement to Exemption Under Section 11:
The Commissioner withdrew the exemption under section 11, asserting that the foundation's activities were not charitable. The Tribunal disagreed, noting that the foundation's income and property were applied solely towards its charitable objects and no portion thereof was paid to its members as profit.

The Tribunal noted that the foundation's activities, such as advancing interest-free loans without securities and charging minimal service fees, did not constitute profit-making activities. The Tribunal concluded that the foundation was engaged in an object of general public utility and its activities did not involve the carrying on of an activity for profit, thus qualifying for exemption under section 11.

3. Computation of Business Income:
The Commissioner computed the taxable income of the foundation at Rs. 1,08,973. The Tribunal found this computation to be erroneous, as it was based on the incorrect assumption that the foundation was engaged in profit-making activities. The Tribunal vacated the Commissioner's order and restored the assessment made under section 143(3), which had correctly recognized the foundation's charitable status and exempted its income.

4. Denial of Depreciation:
The issue of denial of depreciation amounting to Rs. 17,398 was also contested. However, the Tribunal's decision to vacate the Commissioner's order and restore the original assessment implicitly addressed this issue, as the original assessment had allowed the depreciation.

Conclusion:
The Tribunal allowed the appeal, holding that the foundation was engaged in charitable activities as defined under section 2(15) and was entitled to exemption under section 11. The Tribunal vacated the Commissioner's order and restored the original assessment, thereby addressing the issues of business income computation and depreciation denial.

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