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TMI Blog2018 (6) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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. - ITA No.1251/Del/2016 - - - Dated:- 29-5-2018 - SH. AMIT SHUKLA, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Smt. Deepali Chandra, CIT(DR) For The Respondent : Sh. Rishabh Sancheti, Adv. ORDER PER O.P. KANT, A.M.: This appeal by the Revenue has been preferred against the order dated 10/12/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-40, New Delhi [in short the Ld. CIT(A) ] for assessment year, 2012-13 raising following grounds: On the facts and in the case and in law, the Ld. CIT(A) has erred in allowed the benefits of Section 11 12 of the Income tax Act, 1961 ignoring the fact that the assessee s activities are not within the purview of Section 2(15) of the I.T. Act, 1961 during the year. 2. On the facts and in the circumstances of the case and in law, the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court, the learned DGfl granted approval u/s 10(23C)(iv) of the I.T. Act 1961 vide his order dated 23.10.2013 subject to the final decision of the Supreme Court, as the Department filed S.L.P. before the Hon'ble Supreme Court against the orders of the Hon'ble Delhi Court. So far, registration u/s 12A was concerned, the learned ITAT vide its order in ITA No. 3733/Del/2009 dated 11.10.2012 allowed the appeal of the assessee relying on the order in the Hon'ble Delhi High Court dated 26.09.2013. With due honour to the orders of Hon'ble Court, it is submitted that the Department is still in S.L.P. before the Hon'ble Supreme Court against the order of the Hon'ble Delhi High Court. In view of the fact that the matter still being subjudice, undersigned is to proceed as per the previous order in the case of the assessee. 3. The Assessing Officer observed that that the activity of earning royalty/fee on licensing the bar-coding system, is a business and commercial activity. The Ld. Assessing Officer further observed that in view of the section 2(15) of the Act advancement of any other object of general public utility shall not be charitable pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal of the appellant is allowed and the AO is directed to allow exemption u/s 11 of the Act. For the addition made towards disallowance of depreciation (Rs.13,48,881/-), as exemption u/s 11 has been allowed to the appellant in this order there is no justification for the addition on this point and accordingly the AO is directed to allow the depreciation claimed. Finally, with regard to the addition (Rs.13,60,51,495/-) on account of disallowance of the amount carried forward u/s 11 (2) there is no justification for this as the appellant s appeal towards exemption u/s 11 of the Act has been allowed in this order. The AO is directed to delete this disallowance. 4. Aggrieved with the above finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal, raising the grounds as reproduced above. 5. The ground No. 1 of the appeal relates to allowing benefit of section 11 12 to the assessee. 5.1 The Ld. DR relied on the order of the Assessing Officer and submitted that activities of the assessee are of commercial nature and, therefore, in view of the proviso to section 2(15) of the Act, the activities are not of charitable in nature and, therefore, no be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate sector manufacturers and traders. No fee is charged from users and beneficiaries like stockist, whole sellers, government department etc. while a nominal fee is only paid by the manufacturer or marketing agencies i.e. the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming. Any one from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related i.e. dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GSI identification on all their products. Non levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent. 25. Having applied the test mentioned above, including the criteria for determining whether the fee is commensurate and is being charged on commercial or business principles, we find that the petitioner fulfils the charitable activity test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same activity which was carried in assessment year 2011-12 2010-11. As the activities of the assessee have been held as charitable in nature by the Hon ble High Court and the Tribunal, respectfully following the same, we hold the activity of the assessee in the year under consideration as also charitable and the assessee is entitled to benefit of section 11 and 12 of the Act and, thus, application of income has to be allowed in accordance with law. The finding of the Ld. CIT(A) on the issue-in-dispute is upheld. The ground No. 1 of the appeal of the Revenue is accordingly dismissed. 6. In ground No. 2, the Revenue has agitated allowing depreciation of ₹ 13,48,881/- to the assessee despite the fact that the assessee claimed the amount incurred on purchase of assets in earlier years as application of income. 6.1 Before us, the Ld. DR relied on the decision of the Hon ble Delhi High Court in the case of Director of Income Tax Vs. Charanjeev Charitable Trust (in ITA No. 321 to 323/2013) and submitted that in view of the said decision, the Ld. CIT(A) was not justified in allowing depreciation towards the application of income, in respect of the assets, the cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings for assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building @2 % and they also claimed depreciation on furniture @ 5%. The question which arose before the Court for determination was : whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as application of income in the year of acquisition? It was held by the Bombay High Court that section 11 of the Income Tax Act makes provision in respect of computation of income of the Trust from the property held for charitable or religious purposes and it also provides for application and accumulation of income. On the other hand, section 28 of the Income Tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business shall be computed in accordance with section 30 to section 43C. That, section 32(1) of the Act provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. It further provides for deduction subject to section 34. In that matter also, a similar argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department. After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same. 6.4 Further, the Hon ble Supreme Court, has mentioned in the above judgment that the amendment in section11(6) of the Act brought vide Finance Act No. 2/2014, which became effective from assessment year 2015-16, but the said amendment has been held by the Hon ble Delhi High Court as prospective in nature. 6.5 In view of the above finding of Hon ble Supreme Court, the disallowance of depreciation amounting ₹ 13,48,881/- cannot be sustain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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