2018 (8) TMI 191 - AT - Income Tax

Tribunal upholds assessee's exemption under Section 11, charitable activities, prior period expenses, tax provision, and depreciation allowance.

Asst. Commissioner of Income-tax (Exemptions), Hyderabad Versus Institute for Development and Research in Banking Technology, Hyderabad

Asst. Commissioner of Income-tax (Exemptions), Hyderabad Versus Institute for Development and Research in Banking Technology, Hyderabad - TMI Issues Involved:1. Denial of exemption under Section 11 of the Income-tax Act, 1961.2. Treatment of technological services provided by the society to banking sectors.3. Allowance of prior period expenses.4. Provision for payment of tax as application of income.5. Allowance of depreciation on assets already treated as application of income.Issue-wise Detailed Analysis:1. Denial of Exemption under Section 11:The assessee, registered under Section 12A, filed returns claiming exemption under Section 11. The Assessing Officer (AO) denied this exemption and made several additions. The CIT(A), following previous ITAT orders and AP High Court decisions, directed the AO to allow the exemption. The Tribunal upheld this direction, noting that the assessee's activities were charitable and not in the nature of trade, commerce, or business, thus qualifying for exemption under Section 11.2. Treatment of Technological Services:The revenue contended that the technological services provided by the society to banking sectors were commercial and not charitable. The CIT(A) disagreed, considering the services as charitable. The Tribunal supported this view, referencing previous rulings that the society's activities did not constitute trade or commerce, thus maintaining the charitable status.3. Allowance of Prior Period Expenses:The AO disallowed prior period expenses, but the CIT(A) allowed them, considering the assessee's entitlement to exemption under Section 11. The Tribunal agreed, citing that expenses incurred in earlier years for charitable purposes could be adjusted against subsequent income, as per commercial principles and judicial precedents.4. Provision for Payment of Tax as Application of Income:The AO disallowed provisions for tax payment, but the CIT(A) allowed them as application of income for charitable purposes. The Tribunal upheld this, stating that payment of tax to preserve the corpus of the trust is considered an application of income for charitable purposes. However, it directed that the provision for taxation should be allowed only in the year of actual payment.5. Allowance of Depreciation on Assets Already Treated as Application of Income:The revenue argued that allowing depreciation on assets already treated as application of income led to double deduction. The CIT(A) allowed the depreciation, and the Tribunal upheld this, referencing multiple High Court decisions that depreciation must be allowed to compute income available for charitable purposes. The Tribunal noted that this issue was settled by various judicial precedents favoring the assessee.Conclusion:The Tribunal dismissed the revenue's appeals for both assessment years, upholding the CIT(A)'s orders. It confirmed the assessee's entitlement to exemption under Section 11, the charitable nature of its activities, the allowance of prior period expenses, the provision for tax payment as application of income, and the allowance of depreciation on assets. The Tribunal's decision was in line with previous ITAT and High Court rulings, reinforcing the principles of commercial accounting for charitable institutions.