2024 (3) TMI 944 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - AO has rejected the exemption on the ground that the activity of the assessee for advancing the object of general public utility cannot be accepted as the society is advancing the object of general public utility and gross receipt of assessee from such activity was more than Rs. 10 lakhs, in the previous year and therefore the activities of the assessee were held to be not for charitable purpose - assessee submitted that the assessee is registered u/s 12A - HELD THAT - We find that the assessee is registered u/s 12A and has derived income by way of contributions from the head office, membership fee, income from publication of Indian Foundry journal , other grants and donations etc. besides receiving interest on fixed deposits . We find that undoubtedly the assessee s main object is general public utility which is clearly covered u/s 2(15) of the Act however the receipts from the said activity is more than 10 lakh and now the issue before us where surplus generated from the said activity is meager so that it does not fall within the ambit of proviso to Section 2(15) of the Act. We note that profit on the receipts is very meager and therefore the decision of Co-ordinate Bench in the case of Indian Chamber of Commerce ( 2014 (12) TMI 256 - ITAT KOLKATA ) is clearly applicable We are inclined set aside the order of ld. CIT(A) and further uphold that the assessee is entitled to exempt u/s 11 of the Act during the year on the ground that the profit derived from the services rendered as public utility service is very meager. The AO is directed to allow the exemption u/s 11 of the Act. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Determination of whether the assessee's activities qualify as charitable under Section 2(15) of the Act.
3. Denial of exemption under Section 11 of the Act.
4. Disallowance of depreciation claimed by the assessee.
5. Treatment of sale value of a motor car.
6. Computation of deduction under Section 11(1)(a) on gross versus net receipts.

Summary of Judgment:

1. Delay in Filing the Appeal:
The Tribunal noted that there was no delay in filing the appeal as the order dated 12.06.2022 was received on 30.06.2023. Therefore, the appeal was treated as filed within the due time.

2. Charitable Activities under Section 2(15):
The primary issue was whether the assessee's activities were charitable under Section 2(15) of the Act. The assessee, registered under Section 12A, derived income from various sources like membership fees, advertisements, and publications. The AO denied the exemption under Section 11, stating that the activities were commercial since the receipts exceeded Rs. 10 lakhs. However, the Tribunal found that the profit from these activities was meager, and the case was covered by the decision in Indian Chamber of Commerce vs. DCIT, which held that such activities, even if generating surplus, were in support of the main charitable object.

3. Denial of Exemption under Section 11:
The Tribunal held that the assessee's activities were not hit by the proviso to Section 2(15) and were entitled to exemption under Section 11. The decision was supported by the principle that activities carried out for the promotion and protection of trade, commerce, and industry, even if generating surplus, do not constitute business activities if the surplus is meager.

4. Disallowance of Depreciation:
The Tribunal allowed the claim for depreciation, citing the Supreme Court's decision in CIT vs. Rajasthan and Gujarati Charitable Foundation, which held that depreciation could be claimed as an application of income even if the cost of the asset was already allowed as an application of income.

5. Treatment of Sale Value of Motor Car:
The Tribunal directed the AO to delete the addition of Rs. 1,95,000/- made on account of the sale of a motor car. It held that the sale consideration should be reduced from the fixed asset's WDV to compute the capital gain, following the Supreme Court's decision in CIT vs. Rajasthan and Gujarati Charitable Foundation.

6. Computation of Deduction under Section 11(1)(a):
The Tribunal directed that the accumulation under Section 11(1)(a) should be computed on the gross receipts and not on the net receipts, following the Supreme Court's decision in ACIT vs. A.L.N. Rao Charitable Trust.

Conclusion:
The Tribunal set aside the order of the Ld. CIT(A) and directed the AO to allow the exemption under Section 11 of the Act for the entire receipts/income of the assessee. The appeal was allowed in favor of the assessee.