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TMI Blog2019 (8) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of appellate authority. All these appeals involve common issues and were heard together. We deem it convenient to pass a common order. 3. The issue which requires to be considered for decision as a preliminary issue in the appeals by the Assessee in ITA No.779/Bang/2013 & ITA No.532/Bang/2014 is as to whether the revenue authorities were justified in coming to the conclusion that the assessee's activities fall within the ambit of the proviso to section 2(15) of the Income-tax Act,1961 ['the Act' for short] and therefore, not entitled to benefit of exemption u/s 11 of the Act. The facts and circumstances under which the aforesaid issue has to be adjudicated are as follows: 2. The assessee is Bengaluru Metropolitan Transport Corporation formed by the Government of Karnataka with the specific purpose of providing general public a secure and economical and progressive transport services as specified u/s 18 of the Road Transport Corporation Act, 1950 ['RTC Act' for short]. The entire equity of the assessee is owned by the Central Government and Karnataka State Government. The assessee was granted the benefit of registration u/s 12A of the Act on 22/12/2000. The Assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the CIT(A) were passed which earlier to the decision of the Tribunal restoring registration u/s 12AA of the Act. 4. In the assessment proceedings for assessment year 2009-10, AO firstly referred to the fact of cancellation of registration u/s 12AA of the Act by order dated 8/11/2011 and also came to conclusion that the assessee was involved in activities in the nature of business and was, therefore, not existing for charitable purposes as per proviso to section 2(15) of the Act for the following reasons: i) It was providing luxury buses fully air-conditioned on hire for excursion, wedding, pilgrimage etc., to general public and charges for such letting are collected on commercial basis. ii) The assessee was providing advertisements on busus and charging substantial fees. iii) The non-operating revenue was less than non-traffic revenue. iv) In all bus depots in the city of Bengaluru commercial buildings have been constructed above bus terminus and let out on commercial basis to shops, restaurants, etc. These are the primary reasons assigned by the AO for coming to the conclusion that the assessee was not existing for charitable purpose and therefore was not entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee in the present case and hence, we are of the view that the aforesaid decisions will not be of any assistance to the case of the revenue. 7. We have given careful consideration to the rival submissions. As we have already seen, the assessee is formed under the RTC Act, 1950 to provide economic and efficient transport system to the public. It cannot be denied that this purpose is charitable in nature i.e., "advancement of any other object of public utility". The only ground on which the revenue authorities came to the conclusion that the assessee was not existing for charitable purpose is on the basis of source of revenue derived from renting of space and advertisements. It is not the case of the revenue that there has been any private profit earned from the activities carried out by the assessee. The Bengaluru Bench of Tribunal in the case of Bangalore Industrial Area Devl.Corpn.(supra), has taken the view that the predominant object of charitable organization has to be examined before coming to a conclusion regarding application of the proviso to section 2(15) of the Act. This aspect has been highlighted by the Hon'ble Delhi High Court in the case of India Trade Promotio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. (iii) The meaning of the expression "charitable purposes" has to be examined in the context of "income", because, it is only when there is income the question of not including that income in the total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income would not make it any less a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption would have to be determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. (emphasis supplied). 8. Keeping in mind the principles laid down as above, let us examine the case of the Assessee. The Assessee is a statutory corporation established under the RTC Act, 1950. It is not driven b profit motive but is for providing transportation facilities to members of the public. The State Government fixes fares f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee for assessment year 2010-11 is concerned, facts are identical and in view of the conclusion for the assessment year 2009-10, the assessee could be entitled to the benefit of sec.11 of the Act and the other issues would become academic and require no consideration. We hold and direct accordingly. 12. As far as ITA 599/Bang/2014 which is appeal by the revenue for AY 2010-11, the issue is with regard to grant of depreciation. As we have already seen the Assessee exists for a charitable purpose. In the course of assessment u/s. 143(3) of the Act for AY 2010-11, the AO noticed from the details of depreciation claimed, that depreciation was claimed on assets, the cost of acquisition of the said assets had been claimed by the assessee as capital expenditure towards application of funds towards the objects of the trust and allowed as such. According to the AO, allowing such a claim would amount to allowing double deduction. On the facts of the present case, he was of the view that the decision of the Hon'ble Supreme Court in the case of Escorts Limited & another Vs. Union of India 199 ITR 43 is squarely applicable, wherein it has been categorically held that when deduction u/s 35(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. On further appeal by the Revenue, the Tribunal held as follows:- "20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income. It was so held by the Hon'ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under:- "(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year." 17. As already stated, the aforesaid amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) has to be confirmed and the appeal of the revenue dismissed. There is no merit in this appeal of the revenue. 18. As far as ITA No.1536/Bang/2016 is concerned, learned counsel for the assessee did not press for adjudication of this appeal. Accordingly, the same is dismissed as not pressed. 19. In view of the conclusion on the preliminary issue in the assessee's appeals for AY 2009-10 & 2010-11, other issues ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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