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2006 (6) TMI 153 - AT - Income TaxStock Exchange - charitable institution - Grant of exemption u/s 11 - benefit of accumulation of income - Objects of General Public Utility - whether the objects of the company are charitable or not? - claimed depreciation - HELD THAT - The AO in the present case has failed to point out any specific instance that the assessee has not complied with the conditions mentioned in s. 11(5) of the Act. The AO has herself contradicted her own statement mentioning that the assessee does not have business income. Therefore, following the decision of the Tribunal in assessee's own case in the AY 1988-89 and consistency thereafter, we are of the view that the assessee is a charitable institution u/s. 2 sub-s. (15) of the Act and is eligible to exemption u/s 11 of the Act. The main decisions relied upon by the AO were in respect of Delhi Stock Exchange 1997 (3) TMI 11 - SUPREME COURT , Madras Stock Exchange 1976 (4) TMI 47 - MADRAS HIGH COURT , and Ahmedabad Stock Exchange 1990 (6) TMI 84 - ITAT AHMEDABAD-A . All the said cases relied upon by the AO have been discussed in the paras hereinbefore wherein the said stock exchanges have been held to be a charitable institution u/s 2(15) of the Act and have been allowed exemption u/s 11 of the Act. Therefore, in the circumstances of the present case, following decision in assessee's own case and decisions of various stock exchanges referred to in this para, we hold the assessee as a charitable institution u/s 2(15) of the Act and assessee is eligible for grant of exemption u/s 11 of the Act and the assessee is allowed the benefit of accumulation of income. Thus, ground Nos. 1 and 2 of the Revenue are dismissed. Whether the depreciation claimed by the assessee on fixed assets is allowable deduction to arrive at the income available for application to charitable purposes - Assessee has relied upon judgments of various High Courts and the headnotes of said judgments by the various High Courts are CIT VS. Society of the Sisters of St. Anne 1983 (8) TMI 44 - KARNATAKA HIGH COURT . Following the same, Depreciation on fixed assets is an allowable deduction which is necessary to arrive at the income available for application to charitable purposes. Hence, depreciation on fixed assets in the present case is an allowable deduction. Therefore, the AO is directed to examine the claim of depreciation as per rules and allow the same to the assessee. Thus, ground No. 3 of the Revenue is dismissed. In the result, both the appeals of the Revenue are dismissed.
Issues Involved:
1. Whether the assessee company qualifies as a charitable institution under Section 2(15) of the IT Act, 1961. 2. Eligibility of the assessee company for exemption under Section 11 of the IT Act. 3. Disallowance of depreciation claimed by the assessee. 4. Treatment of admission fees as capital or revenue receipts. Detailed Analysis: 1. Charitable Institution Status under Section 2(15) of the IT Act: The Department contended that the assessee company should not be considered a charitable institution as per Section 2(15) of the IT Act. The assessee argued that its primary objectives, as stated in its Memorandum of Association (MOA), were for the promotion and protection of interests related to stock trading and the general public utility. The assessee emphasized that the income and property were solely applied towards the promotion of these objectives and not distributed among members. The Tribunal, referencing previous judgments including the Tribunal's own decision for the assessment year 1988-89, held that the primary or dominant purpose of the assessee was of the nature of "general public utility." The Tribunal noted that the assessee had not exercised discretionary powers in a manner that would harm its primary charitable objectives. Consequently, the assessee was deemed a charitable institution under Section 2(15) of the IT Act. 2. Eligibility for Exemption under Section 11 of the IT Act: The Department argued that registration under Section 12A alone does not entitle the assessee to exemption under Section 11. The AO had rejected the exemption claim due to perceived non-compliance with Section 11(5) and Section 13(1)(d) regarding the investment of surplus funds. The Tribunal, however, found that the assessee had not made any investments in contravention of Section 11(5). Furthermore, the Tribunal cited multiple judicial precedents, including the Supreme Court's decision in CIT vs. Madras Stock Exchange, which supported the view that stock exchanges could be considered charitable institutions eligible for exemption under Section 11. The Tribunal directed the AO to allow the benefit of accumulation of income to the extent of 25% as per Section 11(1)(a). 3. Disallowance of Depreciation: The AO disallowed the depreciation claimed by the assessee, arguing that it was not a charitable institution and had no business income. The assessee countered by citing various High Court decisions that allowed depreciation as a necessary deduction for computing the income of a charitable institution. The Tribunal, agreeing with the assessee, referenced decisions such as CIT vs. Society of the Sisters of St. Anne and CIT vs. Seth Manilal Rachhordas Vishram Bhawan Trust, which held that depreciation should be deducted to arrive at the income available for application to charitable purposes. Consequently, the Tribunal directed the AO to allow the depreciation claim after due verification. 4. Treatment of Admission Fees: The assessee claimed that admission fees were capital receipts, while the AO treated them as revenue receipts. The CIT(A) confirmed the AO's view, referencing the Tribunal's earlier decision for the assessment year 1988-89, which treated such fees as revenue receipts under Section 28(iii) of the IT Act. The Tribunal upheld the CIT(A)'s decision, affirming that both admission fees and listing fees constituted revenue receipts and not capital receipts, following the precedent set in the assessee's own case for the earlier assessment year. Conclusion: The Tribunal dismissed both appeals of the Revenue and the cross-objections of the assessee, affirming that the assessee is a charitable institution under Section 2(15) of the IT Act, eligible for exemption under Section 11, and entitled to claim depreciation. The admission fees were correctly treated as revenue receipts.
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