2019 (3) TMI 498 - HC - Income Tax

Charitable activity - exemption u/s 11 - CIT(A) held that asssessee is entitlement for depreciation on the opening balance of written down value of the assets - No appeal filed by Department - Can Tribunal in assessee appeal suo-motu take this isse and decide against assessee - HELD THAT - Assessee entitlement for depreciation on the opening balance of written down value of the assets in the assessment year under consideration. We need not go into the merits of the matter as this issue was decided in favour of the assessee by the CIT (Appeals)-I. Admittedly, the revenue did not file any appeal against the said finding however, the Tribunal suo motu took up the issue and adjudicated the same and rendered a finding against the assessee. The procedure adopted by the Tribunal is impermissible. The assessee can be worse of in their appeal petition. Revenue having not filed any appeal were not aggrieved over the finding rendered in favour of the assessee by the CIT(A). Therefore, the finding rendered by the Tribunal on the said issue needs to be set aside. - Decided in favour of the assessee Income from the auditorium hall - exemption under Section 11 - whether the income arising from the auditorium is from a business activity when the assessee would state that the dominant activity of the assessee is education ? - new proviso introduced by the Finance Act, 2015 (w.e.f April1, 2016) changing the cut-off bench mark as 20% of the total receipts instead of the fixed limit of ₹ 25 lakhs - CBDT s Circular No.21 of 2016 dated 27th May, 2016 held that the new proviso would apply for A.Y. 2009-10 - miscellaneous application filed but reject stating that it will amount to re-writing the order, akin to the power of review - HELD THAT - Since the Circular dated 27.05.2016 was very much in vogue when the main appeal was heard by the Tribunal on 22.06.2016. The circular having been issued after the order passed by the CIT(A) on 12.06.2014, we deem it appropriate that the matter should be remanded to the CIT(A) so as to afford an opportunity to the assessee to canvas the grounds which have been raised by the assessee in their miscellaneous application referred above..For the above reasons, the appeal filed by the assessee is allowed and the order passed by the Tribunal is set aside and the matter is remanded to the CIT(A) for considering the grounds which have been raised by the assessee in the miscellaneous application

Summary

Issues:
1. Interpretation of income from business activity vs. educational purpose under Section 2(15) of the Income Tax Act, 1961.
2. Allowance of depreciation on the opening balance of written down value of assets.

Issue 1: Interpretation of Income from Business Activity vs. Educational Purpose:
The appeal raised substantial questions of law regarding the income arising from the auditorium hall in relation to the dominant educational activity of the trust. The primary contention was whether the income should be considered as arising from a business activity or if it was meant to support the educational objectives of the trust. The Tribunal's decision was challenged based on the argument that the income from the auditorium hall was essential for the educational activities of the trust. The assessee maintained separate accounts for such activities, emphasizing that the income was eligible for exemption under Section 11 of the Act. Despite the CIT(A) accepting that the surplus income was used for the trust's objectives, the Tribunal dismissed the appeal, leading to a miscellaneous application being filed by the assessee.

Issue 2: Allowance of Depreciation on Assets:
Regarding the entitlement for depreciation on the opening balance of written down value of assets, the Commissioner of Income Tax (Appeals)-I had ruled in favor of the assessee in Appeal No.39/13-14. However, the Tribunal, without any appeal from the revenue, decided against the assessee on this issue. The High Court deemed the Tribunal's procedure impermissible, stating that since the revenue did not appeal the CIT(A)'s decision, the Tribunal's finding against the assessee was unwarranted. Consequently, the issue was decided in favor of the assessee, and substantial question of law No.4 was answered in their favor.

In conclusion, the High Court allowed the appeal filed by the assessee, setting aside the Tribunal's order and remanding the matter to the CIT(A) for reconsideration based on the grounds raised in the miscellaneous application. The Court emphasized the relevance of Circular No.21 of 2016 and the binding nature of circulars issued by the Board on the revenue. The decision highlighted the importance of affording the assessee an opportunity to present their case based on the new grounds raised, indicating that the matter should be reconsidered by the CIT(A) in accordance with the law.