2022 (3) TMI 1330 - AT - Income Tax

Exemption u/s 11 - Whether assessee is entitled to exemption of all its income, including rental income out of letting, interest income on investments and miscellaneous income, under Sec 11 13? - assessee has established Research Institute for learning and research and study in depth of all Vedas and effect of Vedic chants on human life, nature and universe. The trust also has objects of awarding scholarships to students and gives donation to any trust existing for charitable purpose etc. - HELD THAT - Since the assessee was not able to carry out the activities for which it has obtained 12A registration, started construction activities and letting out to corporate houses and getting rental income out of which some portion of amount was donated to educational institution. The assessee has not carried out any activity relating to medical and education or any medical relief. Therefore, the activities carried out by the assessee cannot be said as charitable activity. The assessee was only constructing commercial complex and the same was given to long lease for 99 years. Therefore, there is no possibility that the assessee can again revive its main object of carrying out research on Vedas. We find that in the assessment years under consideration, the assessee has only carrying out construction of building and letting out it to the corporate houses. If the assessee has to claim relief under charity, it has to carry out charitable activities of relief to poor or education or medical relief. In the case in hand, the assessee neither carried out any activity relating to relief to poor nor education or medical relief. Therefore, the provisions of section 2(15) of the Act clearly attracts in the case of the assessee, i.e., other object of general public utility. Therefore, the Assessing Officer has rightly decided that the assessee has not carried out any charitable activity and not entitled for claiming deduction under section 11 to 13 - CIT(A), without examining any material documents and provisions of section 2(15) of the Act, simply reversed the order passed by the Assessing Officer. We find that the order passed by the ld. CIT(A) is without any material and any basis. Therefore, the order passed by the ld. CIT(A) has to be reversed. Donation given to the other charitable organization is concerned, only 10% of the assessee s income was donated to other Trust/organization, which is only an incidental activity, though; it is not a main objective of the assessee. Once, the assessee has not carried out its main objectives and only carried out an incidental activity, it cannot be said that the assessee was carrying charitable activities and therefore, the provisions of section 2(15) clearly applies to the assessee s case. The income earned out of construction of multi-storeyed building and leasing out to corporate houses was not at all applied for any of the charitable activity except payment of a small amount of donation. Out of the total income of ₹.3,58,21,185/- for the assessment year 2011-12, only ₹.36,06,166/- was paid as donation out of which, a sum of ₹.25 lakhs was paid to a trust which was managed by one of the trustee viz., Smt. Meena Muthiah. If payment of a small amount is treated as charity, then everyone who pays a small amount of donation may claim charity. The assessee can claim deduction under section 80G for the above payment of donation and not exemption under section 11 of the Act. Thus we set aside the order of the ld. CIT(A) for all the assessment years under appeal and that of the Assessing Officer is restored. Thus, the ground raised by the Revenue is allowed. Disallowance of depreciation claimed - HELD THAT - We have perused the decision of the Hon ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation 2017 (12) TMI 1067 - SUPREME COURT as held that even though the cost of asset was allowed as application of income in the year of acquisition of asset, the charitable institution is still entitled for depreciation - the orders of the authorities below are set aside and the Assessing Officer is directed to allow the depreciation as claimed by the assessee for the assessment years 2010-11, 2012-13 and 2013-14. Thus, the ground raised by the assessee is allowed.

Issues Involved:
1. Eligibility for exemption under Sections 11 and 13 of the Income Tax Act, 1961.
2. Nature of activities carried out by the assessee trust.
3. Application of income for charitable purposes.
4. Validity of the construction and letting out of buildings as charitable activities.
5. Maintenance of separate books of accounts for business activities.
6. Applicability of Section 2(15) of the Income Tax Act.
7. Entitlement to depreciation on assets.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under Sections 11 and 13 of the Income Tax Act, 1961:
The Tribunal examined whether the assessee trust was entitled to exemption under Sections 11 and 13 of the Income Tax Act. The trust's primary object was to establish a research institute for Vedic studies and related activities. However, the trust had shifted its focus to constructing commercial buildings and letting them out, which the Revenue argued did not qualify as charitable activities. The Tribunal found that the trust's activities did not align with its primary charitable objectives, and thus, the exemption under Sections 11 and 13 was not applicable.

2. Nature of activities carried out by the assessee trust:
The trust initially aimed to conduct research on Vedas but later engaged in constructing and letting out commercial buildings. The Tribunal noted that the trust's main activities were not charitable but commercial, as it was primarily involved in renting out properties to corporate houses. The Tribunal concluded that the trust did not carry out any significant charitable activities, and the income generated from its commercial activities could not be considered as applied for charitable purposes.

3. Application of income for charitable purposes:
The Tribunal observed that the trust had not applied its income for charitable purposes as required under Section 11(2) of the Act. The trust had accumulated income for constructing buildings but did not utilize it for its stated charitable objectives. The Tribunal noted that only a small portion of the income was donated to other charitable organizations, which was insufficient to qualify for exemption under Section 11.

4. Validity of the construction and letting out of buildings as charitable activities:
The Tribunal examined whether the construction and letting out of buildings could be considered as charitable activities. The Tribunal referred to various case laws and concluded that the construction and letting out of buildings for generating income did not qualify as charitable activities. The Tribunal emphasized that the trust's main activities should align with its charitable objectives, which was not the case here.

5. Maintenance of separate books of accounts for business activities:
The Tribunal noted that the trust had maintained separate books of accounts for its letting activities, as required under Section 11(4A) of the Act. However, the Tribunal found that maintaining separate accounts alone was not sufficient to claim exemption under Sections 11 and 13. The trust's activities should primarily be charitable, which was not established in this case.

6. Applicability of Section 2(15) of the Income Tax Act:
The Tribunal analyzed the applicability of Section 2(15) of the Act, which defines "charitable purpose." The Tribunal found that the trust's activities were not in line with the definition of charitable purpose, as they involved commercial activities without significant charitable outcomes. The Tribunal concluded that the trust's activities fell under the proviso to Section 2(15), which excludes activities in the nature of trade, commerce, or business from the definition of charitable purpose.

7. Entitlement to depreciation on assets:
The Tribunal addressed the issue of depreciation on assets. The Tribunal referred to the Supreme Court's decision in the case of CIT v. Rajasthan & Gujarati Charitable Foundation Poona, which held that charitable institutions are entitled to depreciation even if the cost of the asset was allowed as application of income in the year of acquisition. The Tribunal directed the Assessing Officer to allow the depreciation claimed by the assessee for the relevant assessment years.

Conclusion:
The Tribunal concluded that the assessee trust was not entitled to exemption under Sections 11 and 13 of the Income Tax Act, as its activities were primarily commercial and not charitable. The Tribunal reversed the order of the CIT(A) and restored the Assessing Officer's decision. However, the Tribunal allowed the assessee's claim for depreciation on assets, following the Supreme Court's decision.

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