2013 (7) TMI 382 - AT - Income Tax

Entitlement to exemption u/s. 11 - Held that - AO has not doubted the fact that the assessee is imparting education and as per the settled law of taxation imparting education is covered by the word charitable activity. If income earned by a trust is utilised for charitable purposes it cannot be held that trust is carrying out business. FAA has rightly pointed out that there is no evidence on record that profit earned by the assessee-trust were not utilised by it for non charitable purposes. It is also a fact that there is no instances of violation of provisions of sections 11-13 by the trust. See Gujarat Maritime Board 2007 (12) TMI 7 - SUPREME COURT OF INDIA and Surat City Gymkhana 2008 (4) TMI 16 - SUPREME COURT - In favour of assessee. Claim of depreciation - AO held that the provisions of section 11 provided for deduction on expenditure incurred for objects of the trust and the deduction of depreciation on capital assets would amount to double deduction thus disallowed - Held that - As decided in case of Institute of Banking Personal Selection, Bombay 2003 (7) TMI 52 - BOMBAY High Court in case of trusts, so called double deductions are allowable. Income of a charitable trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets - In favour of assessee.

Summary

Issues:
1. Exemption u/s. 11 of the Income Tax Act, 1961.
2. Allowance of depreciation under section 11 of the Act.

Issue 1: Exemption u/s. 11 of the Income Tax Act, 1961:

The Assessing Officer (AO) raised concerns regarding the entitlement of the assessee-trust to exemption u/s. 11 of the Act due to the receipt of donations for admissions in the school, which was perceived as a commercial activity. The AO denied trust benefits under section 11, citing the case of Vodithala Education Trust Society. However, the First Appellate Authority (FAA) overturned this decision, emphasizing that the trust was not collecting capitation fees and that the activities were charitable. The FAA highlighted that the trust's profits were utilized for charitable purposes and no violations of sections 11-13 of the Act were evident. Relying on judgments by the Hon'ble Supreme Court, the FAA deleted the addition made by the AO. The Appellate Tribunal supported the FAA's decision, stating that imparting education is considered a charitable activity and that the trust was indeed engaged in charitable activities. The Tribunal found no evidence of profit misuse and upheld the exemption for the trust, citing precedents from the Hon'ble Supreme Court.

Issue 2: Allowance of Depreciation under Section 11 of the Act:

The AO disallowed the claim of depreciation amounting to Rs. 5.58 lakhs, contending that allowing depreciation on capital assets would result in double deduction under section 11 of the Act. The AO relied on judgments by the Hon'ble Supreme Court in the cases of Escorts Ltd. and J K Synthetics to support this decision. However, the FAA disagreed, noting that the trust was registered under section 12A of the Act, and allowed the depreciation claim based on the judgment in the case of Institute of Banking Personal Selection, Bombay. The Departmental Representative argued against double deductions but the Tribunal referenced the judgment in the case of CIT vs. Munisuvrat Jain to support the allowance of depreciation for charitable trusts. The Tribunal highlighted that depreciation could be considered a legitimate deduction under section 11(1)(a) of the Act. Consequently, the Tribunal decided against the AO, affirming the FAA's decision to allow the depreciation claim for the trust.

In conclusion, the Appellate Tribunal upheld the decisions of the FAA regarding both the exemption u/s. 11 of the Act and the allowance of depreciation for the assessee-trust. The appeal filed by the AO was dismissed, and the orders were pronounced on 7th May 2013.