2012 (8) TMI 524 - AT - Income Tax

Exemption u/s 11 - charitable Trust established with the objects for providing relief to the poor, promotion of vegetarianism, distribution of Prasad, and advancement of any other objective in furtherance of ethical and philosophical principles of Krishna Consciousness - denial on ground that entire character and focus of assessee has become totally commercial and there is generation of huge profits year after year a part of which is diverted to the related concern - Held that - Preparation of vegetarian food items and selling the same was mainly for popularising the vegetarian food habits and in this way the assessee is engaged in promoting the vegetarianism among the people so that they can change their living habits and take the necessary steps for the betterment of humanity, which is undoubtedly a charitable object of the assessee. Deduction u/s 80G - denial - Held that - The major portion of the income received by the assessee was donated to ISKCON which is a Public Charitable Trust of worldwide recognition and reputation and any donation from one charitable trust to another charitable trust constitute application of income for the charitable purposes - Decided in favor of assessee.

Summary

Issues Involved:
1. Eligibility of the assessee trust for exemption under Section 11 of the Income Tax Act.
2. Disallowance of donation to ISKCON under Section 80G of the Income Tax Act.
3. Allegation of double deduction on account of depreciation on the same assets.

Detailed Analysis:

1. Eligibility for Exemption under Section 11:
The primary issue revolves around whether the assessee trust qualifies for exemption under Section 11 of the Income Tax Act. The Assessing Officer (A.O.) argued that the trust's activities were commercial in nature, generating significant profits, and thus, it should be taxed as an Association of Persons (AOP) without exemption under Section 11. The A.O. contended that the trust was not acting as a charitable organization and its activities were not in conformity with its stated objectives.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the trust's business of preparing and selling vegetarian food was incidental to its charitable objectives, specifically the promotion of vegetarianism, and thus, it qualified for exemption under Section 11(4A). The CIT(A) relied on a previous Tribunal decision in a similar case, where it was held that such activities were in furtherance of charitable objectives.

The Tribunal upheld the CIT(A)'s decision, agreeing that the preparation and sale of vegetarian food items were incidental to the trust's charitable objectives. The Tribunal referenced the case of Sri Sri Radha Rasbihariji Prasadam Viniyog Trust, where it was established that engaging in business activities incidental to charitable objectives does not disqualify a trust from exemption under Section 11.

2. Disallowance of Donation to ISKCON under Section 80G:
The A.O. disallowed the deduction of Rs. 1,85,66,772/- donated to ISKCON, arguing that the assessee failed to provide documentary evidence of ISKCON's valid 80G certificate. The CIT(A) found that ISKCON, a public charitable trust of worldwide recognition, had a valid 80G certificate, and thus, donations to it constituted application of income for charitable purposes.

The Tribunal confirmed the CIT(A)'s findings, noting that the assessee provided the necessary 80G certificate for ISKCON, valid for the relevant period. The Tribunal emphasized that donations from one charitable trust to another are considered application of income for charitable purposes under the Income Tax Act.

3. Allegation of Double Deduction on Depreciation:
The A.O. argued that the assessee claimed double deduction on depreciation for assets, which had already been accounted for in earlier years. The CIT(A) and Tribunal disagreed, referencing the Punjab & Haryana High Court decision in CIT v. Market Committee, which clarified that depreciation should be considered for determining the percentage of funds applied for charitable purposes, and does not constitute double deduction.

The Tribunal concluded that there was no double deduction claimed by the assessee. The depreciation was correctly accounted for in determining the application of income for charitable purposes, aligning with the provisions of Section 11.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to allow the assessee trust's exemption under Section 11 and the deduction of donations to ISKCON under Section 80G. The Tribunal affirmed that the trust's activities were incidental to its charitable objectives and that depreciation was correctly accounted for without constituting double deduction.