2018 (4) TMI 250 - AT - Income Tax

Urban improvement trust granted tax exemption under Income Tax Act with High Court and Tribunal support

The appellant, an urban improvement trust, sought exemption under section 11 of the Act, which was initially denied by the AO due to pending registration ... Exemption u/s 11 disallowed - activities of the appellant authority are not charitable as the registration of the trust is pending - assessee was not granted registration 12A - Held that:- Now the registration u/s 12A has been granted by the ld. CIT(E) vide order dated 15.12.2016 w.e.f. 01.04.2013 therefore, the activity of the assessee has been accepted as charitable in nature. The Hon’ble jurisdictional High Court in case of Urban Improvement Trust, Alwar, Kota and Ajmer (2018 (4) TMI 192 - RAJASTHAN HIGH COURT) the assessee is eligible for the benefit u/s 10(20) of the Income Tax Act being a local authority for the purpose the carrying out the improvement and development functions of the state. Hence, in view of the decision of the Hon’ble Jurisdictional High Court (supra) as well as the registration granted u/s 12AA of the CIT(E). We are of the opinion that the assessee’s income is not taxable in view of the provisions of section 10(20) of the I.T. Act. As regards the disallowance of depreciation it is now settled principle of law that the cost of acquisition of the asset is allowed an application would not be a ground of disallowance of deprecation. Hence, the addition/disallowance made by the AO are deleted. - Decided in favour of assessee. Issues:- Denial of exemption u/s 11 of the Act- Addition of profit on sale of land- Disallowance of depreciation- Benefit of section 10(2) of the Income Tax Act- Eligibility for benefit u/s 10(20) of the Income Tax ActDenial of Exemption u/s 11 of the Act:The appellant, an urban improvement trust, sought exemption u/s 11 of the Act, but the AO denied it citing pending registration under section 12A. The ld. CIT(A) upheld the AO's decision. However, the appellant contended that registration was granted subsequently, and being a local body, its income should be exempt under section 10(20). The Hon'ble jurisdictional High Court's decision supported the appellant's claim, stating that the trust's functions were for urban development and fell within the state government's activities. Consequently, the appellant's income was deemed non-taxable under section 10(20) due to the granted registration u/s 12AA.Addition of Profit on Sale of Land:The AO added Rs. 50 lakhs as profit on land sale, alleging that the trust sold land above acquisition cost. The appellant argued against this, asserting that the AO's estimation lacked basis and that the denial of depreciation was unwarranted. The Tribunal ruled in favor of the appellant, stating that the AO's actions were unjustified, and the appellant's income was not taxable, considering the granted registration and the trust's nature as a local authority.Disallowance of Depreciation:The AO disallowed depreciation of Rs. 20,73,551, claiming the asset's cost was already expensed. The Tribunal overturned this decision, emphasizing that the asset's acquisition cost being allowed as an application did not warrant depreciation disallowance. Thus, the AO's disallowances were deemed invalid, and the appellant's appeal was allowed.Benefit of Section 10(2) of the Income Tax Act:The appellant sought the benefit of section 10(2) of the Income Tax Act, which was initially denied due to pending registration. However, with subsequent registration and the nature of the appellant as a local authority for urban development, the Tribunal held that the appellant was eligible for the benefit under section 10(20). The appellant's income was thus considered non-taxable under the provisions of the Income Tax Act.In conclusion, the Tribunal allowed the appellant's appeal, ruling in favor of the appellant on all grounds. The judgments delivered by the Hon'ble jurisdictional High Court and the granted registration under section 12AA played pivotal roles in establishing the appellant's eligibility for tax benefits under the Income Tax Act.