2024 (7) TMI 135 - AT - Income Tax

Denial of exemption u/s 11 - assessee was doing commercial activity and is covered by proviso to Section 2(15) - HELD THAT - We find that the facts of the instant assessment year before us are similar to the facts in AY 2014-15 2015-16 2016-17 and 2017-18 in assessee s own case and in all the preceding assessment years the issue has been decided by the Co-ordinate Bench in favour of the assessee by holding that the assessee is entitled to exemption u/s 11 of the Act on the ground that the profit derived from services rendered as general public utility is very meager after following the decision of Indian Chamber of Commerce 2023 (12) TMI 1259 - ITAT KOLKATA wherein an identical issue has been decided in favour of the assessee. We also note that the Co-ordinate Bench while passing the above order has followed the decision passed by in the case of ACIT vs. Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT and also other various High Court decisions. Thus direct the AO to allow the exemption u/s 11 of the Act to the assessee by holding that the profit derived from the services rendered by the assessee as public utility services is very meager and therefore the same is held to be charitable. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act.
2. Allowance of depreciation as an expense.
3. Treatment of sale value of motor car.
4. Computation of deduction under Section 11(1)(a).

Issue-wise Detailed Analysis:

1. Denial of exemption under Section 11 of the Income Tax Act:
The assessee, registered under Section 12A, derived income from various sources including membership fees, advertisements, and publication of journals. The Assessing Officer (AO) denied the exemption under Section 11, citing that the assessee's activities were commercial in nature as per the proviso to Section 2(15) since the gross receipts exceeded Rs. 10 lakhs. The assessee argued that the surplus from these activities was minimal, thus qualifying as charitable under the "general public utility" clause. The Tribunal noted that in previous assessment years (2014-15 to 2017-18), similar issues were decided in favor of the assessee, citing the Co-ordinate Bench's decision in the case of Indian Chamber of Commerce vs. DCIT and the Supreme Court's ruling in ACIT vs. Ahmedabad Urban Development Authority. The Tribunal concluded that the assessee's profit from public utility services was very meager, thus qualifying for exemption under Section 11.

2. Allowance of depreciation as an expense:
The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] denied the depreciation claimed by the assessee, arguing that the cost of acquisition of fixed assets had already been considered as an application of income. The Tribunal referred to the Supreme Court's decision in CIT vs. Rajasthan and Gujarati Charitable Foundation, which allowed depreciation as an application of income up to AY 2015-16. The Tribunal directed the AO to allow the depreciation claimed by the assessee.

3. Treatment of sale value of motor car:
The AO treated the entire sale consideration of an old motor car as income, arguing that the cost of the car had been claimed as an application of income at the time of purchase. The Tribunal referred to the Supreme Court's decision in CIT vs. Rajasthan and Gujarati Charitable Foundation, which allowed the deduction of the written down value (WDV) from the sale consideration for calculating capital gains. The Tribunal directed the AO to delete the addition and allow the deduction of WDV.

4. Computation of deduction under Section 11(1)(a):
The AO computed the deduction under Section 11(1)(a) on the net income, while the assessee argued it should be on the gross receipts. The Tribunal referred to the Supreme Court's decisions in ACIT vs. A.L.N. Rao Charitable Trust and CIT vs. Programme for Community Organization, which held that accumulation under Section 11(1)(a) should be computed on gross receipts. The Tribunal directed the AO to compute the accumulation on the gross receipts.

Conclusion:
The Tribunal allowed the appeal, directing the AO to:
1. Grant exemption under Section 11, considering the minimal profit from public utility services.
2. Allow depreciation as an application of income.
3. Deduct the WDV from the sale consideration of the motor car for capital gains calculation.
4. Compute the accumulation under Section 11(1)(a) on the gross receipts.