2015 (6) TMI 4 - AT - Income Tax

Tribunal affirms tax benefits for charity: exemption under Section 11, depreciation, leave encashment, gratuity deductions.

DDIT, Inv. Cir. -II New Delhi Versus PHD Chamber of Commerce & Industry

DDIT, Inv. Cir. -II New Delhi Versus PHD Chamber of Commerce & Industry - [2015] 44 ITR (Trib) 219 (ITAT [Del]) Issues Involved:1. Whether the activities of the assessee are charitable in nature.2. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.3. Allowance of depreciation on assets.4. Deduction for provision for leave encashment.5. Deduction for provision of gratuity.6. Exemption on earned surplus based on the principle of mutuality.Issue-wise Detailed Analysis:1. Charitable Nature of Activities:The Revenue contended that the assessee was not working according to the aims and objectives of its memorandum and was providing services to non-members, thus engaging in business activities. The assessee argued that its activities were charitable and in line with its objectives, as supported by a previous High Court ruling that the activities were not driven by profit motive and were charitable in nature. The Tribunal upheld this view, noting that the assessee's activities were consistent with its charitable objectives as defined in Section 2(15) of the Act.2. Eligibility for Exemption under Section 11:The AO denied exemption under Section 11, arguing that the assessee was engaged in business activities. The CIT(A) and the Tribunal, however, relied on the High Court's decision, which held that the assessee's activities were charitable and not driven by profit motive. The Tribunal concluded that the assessee was eligible for exemption under Section 11 for both assessment years 2008-09 and 2009-10, as its activities were charitable and not in the nature of trade, commerce, or business.3. Allowance of Depreciation:The AO had denied depreciation on the grounds that the assessee was not eligible for exemption under Section 11. The Tribunal, following the High Court's decision in DIT(E) vs. Indraprastha Cancer Society, held that a charitable institution is entitled to claim depreciation on assets used for its activities. The CIT(A)'s direction to allow depreciation was upheld.4. Deduction for Provision for Leave Encashment:The AO had disallowed the deduction for provision for leave encashment. The CIT(A) directed the AO to allow this deduction, and the Tribunal upheld this direction, finding no merit in the Revenue's objection.5. Deduction for Provision of Gratuity:Similarly, the AO had disallowed the deduction for provision of gratuity. The CIT(A) directed the AO to allow this deduction, and the Tribunal upheld this direction, dismissing the Revenue's objections.6. Exemption on Earned Surplus Based on the Principle of Mutuality:For A.Y. 2009-10, the AO denied exemption on earned surplus based on the principle of mutuality. The CIT(A) granted this exemption, and the Tribunal upheld this decision, noting that the assessee's activities were charitable and not driven by profit motive.Conclusion:The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions to grant exemption under Section 11, allow depreciation, and deductions for leave encashment and gratuity, and to recognize the charitable nature of the assessee's activities. The Tribunal emphasized that the assessee's activities were not driven by profit motive and were consistent with its charitable objectives.