2014 (1) TMI 942 - AT - Income Tax

Failure to maintain separate records Held that - In the assessment order, the AO himself has clearly stated that separate books of account for the exhibition held during the year under consideration were maintained by the assessee and the same were also produced for verification during the course of the assessment proceedings Decided against Revenue. Nature of Activity Holding of exhibition incidental to the main object or not Entitlement for exemption u/s 11(4A) of the Act Held that - Exhibition for the purpose of promotion of industry connected with electrical manufacturing of goods and equipments is incidental to the objects of the assessee - the assessee is engaged in holding exhibitions for the trade and industry of machine tools in India - thus, the activity is incidental to the objects of the assessee - the findings of CIT(A) upheld that the conditions of Section 11(4A) are fulfilled by the assessee as the assessee has also maintained separate books for the activity Decided against Revenue. Claim for carry forward of deficit Set off/adjustment against the surplus of subsequent years Assessee contended that the deficit was clearly claimed by the assessee in the computation of the total income filed along with the return of income, the same was not determined by the A.O. in the assessment order so as to enable the assessee to carry forward the same for set off or adjustment against the surplus of the subsequent years - Held that - The decision in CIT vs. Institute of Banking 2003 (7) TMI 52 - BOMBAY High Court followed Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under section 11(1)(a) of the Act - the matter remitted back to the AO for fresh adjudication Decided partly in favour of Assessee.

Summary

Issues:
1. Whether the activity of holding exhibitions by a charitable trust is incidental to the attainment of the trust's main object.
2. Whether the trust has maintained separate books of account for the exhibition activity.
3. Whether the trust fulfills the conditions laid down under section 11(4A) of the Income Tax Act, 1961 for exemption under section 11.
4. Whether the trust can carry forward deficit for set off/adjustment against future surplus.

Analysis:

Issue 1:
The appeals were filed by the Revenue and the assessee against the order of the ld. CIT(A) regarding the activity of holding exhibitions by a charitable trust. The trust claimed exemption under section 11 for income from exhibitions, stating it was incidental to promoting the machine tool industry in India. The A.O. disputed this, but the ld. CIT(A) upheld the trust's claim, citing past tribunal decisions. The Tribunal also referred to previous rulings in favor of the trust, stating the activity was incidental to the trust's main object. The Tribunal dismissed the Revenue's appeal on this issue.

Issue 2:
The Revenue raised concerns about the maintenance of separate books of account for the exhibition activity by the trust. However, the A.O. confirmed that the trust had indeed maintained separate books of account, which were produced for verification. The Tribunal found no merit in the Revenue's argument and dismissed this ground.

Issue 3:
Regarding the conditions under section 11(4A) for exemption, the Tribunal relied on past decisions in the trust's favor for similar issues. The Tribunal upheld the ld. CIT(A)'s order, stating the trust had fulfilled the conditions and was entitled to exemption under section 11 for income from exhibitions. The Tribunal dismissed the Revenue's appeal on this issue.

Issue 4:
The assessee's appeal raised concerns about carrying forward deficit for set off/adjustment against future surplus. The trust claimed the deficit in its return but the A.O. did not address it in the assessment order. The Tribunal, considering the trust's submission and the absence of objections, directed the issue to be decided in line with a decision of the Hon'ble Bombay High Court. The Tribunal treated this issue as allowed for statistical purposes.

In conclusion, the Tribunal dismissed the Revenue's appeal, partly allowed the assessee's appeal for statistical purposes, and provided detailed reasoning for each issue raised in the appeals.