2018 (6) TMI 443 - AT - Income Tax

Disallowance of benefits of section 11 & 12 - activities of the assessee are of commercial nature or not - charging bar code licensing fee - quantum of income - Held that - following the judgement in case of M/S GS1 INDIA VERSUS DIRECTOR GENERAL OF INCOME TAX (EXEMPTION) AND ANOTHER 2018 (3) TMI 1601 - DELHI HIGH COURT and 2018 (2) TMI 1735 - DELHI HIGH COURT the activities of the assessee have been held as charitable in nature - thus assessee is entitled to benefit of section 11 and 12 application of income has to be allowed in accordance with law. Whether depreciation can be claimed if assessee claimed the amount incurred on purchase of assets in earlier years as application of income - Held that - As per the judgement in case of CIT vs. Rajasthan and Gujarati Charitable Foundation, Poona 2017 (12) TMI 1067 - SUPREME COURT Supreme Court has rejected the contention of the Revenue of double benefit and allowed the depreciation on assets as application of income even though capital expenditure in respect of those assets was already claimed as application of income in earlier years - thus the ground of appeal by revenue is dismissed. Claim of accumulated funds under section 11(2) - Held that - Since the activity of the assessee are charitable in nature and, thus, the claim of the assessee for carry forward under section 11(2) has been rightly allowed by the Ld. CIT(A), accordingly, we uphold the same.

Summary

Issues Involved:
1. Eligibility for benefits under Sections 11 and 12 of the Income Tax Act, 1961.
2. Allowance of depreciation claimed by the assessee.
3. Allowance of accumulated funds under Section 11(2) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Eligibility for Benefits under Sections 11 and 12:
The primary issue is whether the assessee's activities qualify as charitable under Section 2(15) of the Income Tax Act, 1961, thereby making it eligible for benefits under Sections 11 and 12. The Assessing Officer (AO) contended that the assessee’s activities, which include earning royalty/fee from licensing the bar-coding system, are commercial in nature and thus not charitable. However, the CIT(A) and subsequent judicial precedents, including decisions by the Hon'ble Delhi High Court and ITAT, determined that the activities are charitable. The Delhi High Court, in ITA No. 691/2017, ruled that the fee received from barcode licensing is not commercial and upheld the charitable nature of the assessee's activities. Consequently, the Tribunal upheld the CIT(A)'s decision, affirming that the assessee is entitled to benefits under Sections 11 and 12.

2. Allowance of Depreciation:
The second issue concerns the allowance of depreciation amounting to ?13,48,881/-. The AO disallowed this on the grounds that the capital expenditure on these assets had already been claimed as application of income, suggesting that allowing depreciation would result in double deduction. However, the CIT(A) allowed the claim, and this was supported by the Hon'ble Supreme Court’s decision in CIT vs. Rajasthan and Gujarati Charitable Foundation, Poona, which rejected the Revenue's contention of double benefit. The Supreme Court held that depreciation on assets should be allowed as application of income even if the capital expenditure on those assets was claimed as application in earlier years. The Tribunal upheld the CIT(A)'s decision, allowing the depreciation claimed by the assessee.

3. Allowance of Accumulated Funds under Section 11(2):
The third issue is the allowance of accumulated funds amounting to ?13,60,51,495/- under Section 11(2). The AO did not allow this claim, arguing that the assessee was not engaged in charitable activities. However, since the Tribunal upheld the charitable nature of the assessee’s activities and its eligibility for benefits under Sections 11 and 12, the claim for accumulated funds under Section 11(2) was also upheld. The CIT(A)'s decision to allow the carry forward of accumulated funds was affirmed by the Tribunal.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, upholding the CIT(A)'s decisions on all grounds. The assessee’s activities were confirmed as charitable, allowing it benefits under Sections 11 and 12. Depreciation claimed was allowed, and the claim for accumulated funds under Section 11(2) was also upheld. The decision was pronounced in the open court on 29th May 2018.