2024 (6) TMI 979 - AT - Income Tax

Denial of depreciation to assessee trust - HEKD THAT - This issue is covered in favour of the assessee and against the Revenue by the order 2022 (12) TMI 397 - ITAT DELHI wherein the assessee s claim of depreciation was negatived by the Ld. AO but on appeal filed by the assessee before the Ld. CIT(A), the assessee s claim of depreciation was allowed against which the Revenue filed appeal before the Tribunal - We therefore set aside the order of the Ld. CIT(A) on the issue and direct the Ld. AO to allow the assessee s claim of depreciation. Exemption u/s 11 to 13 - assessee STPI is established for charitable purposes or not? - assessee is a society registered under the Societies Registration Act, 1860. It is also registered u/s 12A as a charitable society offering services to the nation as the arm of the Govt. of India under Software Technology Park of India (STPI) scheme - HELD THAT - We observe that in the AY 2012-13 2022 (12) TMI 397 - ITAT DELHI the Revenue had come up in appeal before the Tribunal against acceptance of the assessee s claim of being a charitable society and direction of the Ld. CIT(A) to the Ld. AO to compute the income of the assessee in accordance with the provisions of section 11 to 13 which would include accumulation as per section 11(1)(a) and section 11(2) of the Act as established in the reply of the assessee that the prime objective of the society is to encourage Information Technology in the country and the charges received for certification of the entities carrying on activities related to information technology are not directly in the nature of business. Further, the assessee has established that the income generated from this activity is not applied for any individual benefit or transfer to the benefit of any particular person, entity or group of persons but the application is for the benefit of public at large. This amply proves that the Ld. AO accepted the claim of the assessee that the assessee is a charitable society. It was in the backdrop of such a finding of the Ld. AO that the Ld. CIT(A) arrived at the conclusion that the income of the assessee has to be computed in accordance with the provisions of section 11 to 13 which would include accumulations as per section 11(1)(a) and section 11(2). Following the decision (supra) of the Tribunal in assessee s own case for AY 2012-13 we do not find any substance in the grounds taken by the Revenue before the Tribunal which we hereby reject. Appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Denial of depreciation claim by the assessee.
2. Classification of assessee's activities under section 2(15) of the I.T. Act.
3. Eligibility for exemption under sections 11 to 13 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of Depreciation Claim by the Assessee:
The solitary ground raised by the assessee was the denial of depreciation. The Tribunal noted that this issue was already covered in favor of the assessee for AY 2012-13 in ITA No. 4172/Del/2017. The Tribunal had previously determined that the assessee's claim of depreciation did not amount to double deduction, as the income of a charitable trust exempt under section 11 could still claim depreciation. The Tribunal referenced the Hon'ble Supreme Court's decision in Escorts Ltd. 199 ITR 43 and the Hon'ble P & H High Court's decision in CIT vs. Market Committee, Pipli (2011) 330 ITR 16. The amendment to section 11(6) by the Finance Act, 2014, which restricts the claim of depreciation, was deemed prospective and not applicable to AY 2011-12. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the depreciation claim.

2. Classification of Assessee's Activities under Section 2(15) of the I.T. Act:
The Revenue contended that the assessee's activities fell under the last limb of section 2(15) of the I.T. Act, asserting that the activities were commercial in nature. The CIT(A) had previously found that the assessee, a society registered under the Societies Registration Act, 1860, and section 12A of the Act, was established for charitable purposes. The CIT(A) relied on the Hon'ble Delhi High Court's decision in Bureau of Indian Standards vs. DGIT (Exemption) (2012) 27 taxmann.com 127 (Delhi), which held that activities executed as an arm of the government for public utility could not be classified as business activities. The CIT(A) concluded that the assessee's dominant objective was charitable, not profit-oriented, and thus, the activities did not fall under the proviso to section 2(15).

3. Eligibility for Exemption under Sections 11 to 13 of the Income Tax Act, 1961:
The assessee sought relief from tax under sections 11 to 13 of the Act. The AO initially denied this relief, treating all income except interest as business income. However, the CIT(A) found that the assessee's activities were charitable and eligible for exemption under sections 11 to 13. The CIT(A) noted that the assessee's objectives included promoting software development and export, providing statutory services, and supporting IT-related industries, which were not profit-driven but aimed at public utility. The CIT(A) referenced the Hon'ble Delhi High Court's decision in India Trade Promotion Organization vs. DGIT (Exemptions) (2015) 53 taxmann.com 404 (Delhi), which emphasized that activities with a dominant charitable objective, even if generating surplus, do not lose their charitable status.

The Tribunal upheld the CIT(A)'s findings, noting that in AY 2012-13, the Revenue had accepted the assessee as a charitable society and allowed the benefits of sections 11(1)(a) and 11(2). The Tribunal found no infirmity in the CIT(A)'s direction to compute the income under sections 11 to 13 and rejected the Revenue's grounds.

Conclusion:
The Tribunal allowed the appeal of the assessee regarding the depreciation claim and dismissed the Revenue's appeal, affirming the assessee's eligibility for exemption under sections 11 to 13 of the Income Tax Act, 1961. The order was pronounced in the open court on 10th April, 2024.