2019 (8) TMI 1125 - AT - Income Tax

Tribunal rules in favor of Bengaluru Transport Corp for tax benefits and depreciation

Bangalore Metropolitan Transport Corporation Shanthinagar, Bengaluru Versus Addl. Director of Income-tax (Exemptions), Deputy Commissioner of Income-tax (Exemptions) Circle 17 (1), Bengaluru.

Bangalore Metropolitan Transport Corporation Shanthinagar, Bengaluru Versus Addl. Director of Income-tax (Exemptions), Deputy Commissioner of Income-tax ... Issues Involved:1. Whether the assessee's activities fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, thereby disqualifying it from the benefit of exemption under section 11 of the Act.2. Whether the assessee is entitled to claim depreciation on assets, the cost of which has already been claimed as capital expenditure towards application of funds for charitable purposes.Issue-wise Detailed Analysis:1. Applicability of Proviso to Section 2(15) of the Income-tax Act, 1961:The primary issue was whether the assessee's activities fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, which would disqualify it from the benefit of exemption under section 11 of the Act. The assessee, Bengaluru Metropolitan Transport Corporation, claimed exemption under section 11, asserting that its activities were for charitable purposes as defined in section 2(15) of the Act. The revenue authorities contended that the assessee's activities were in the nature of trade, commerce, or business, citing reasons such as providing luxury buses on hire, earning revenue from advertisements, and letting out commercial spaces.The Tribunal examined several precedents, including the decisions of the Karnataka Industrial Area Development Board, Bangalore Development Authority, and the India Trade Promotion Organization case by the Delhi High Court. The Tribunal emphasized that the dominant and prime objective of the assessee was not profit-making but providing transportation facilities to the public, which is charitable in nature. The Tribunal highlighted that the revenue did not allege any private profit earned by the assessee. Citing the principles laid down by the Delhi High Court, the Tribunal concluded that the proviso to section 2(15) did not apply to the assessee, and it was entitled to the benefits of section 11 of the Act.2. Entitlement to Depreciation on Assets:The second issue was whether the assessee could claim depreciation on assets, the cost of which had already been claimed as capital expenditure towards application of funds for charitable purposes. The Assessing Officer (AO) denied the depreciation claim, arguing that it would amount to double deduction. The AO relied on the Supreme Court's decision in Escorts Limited, which held that no depreciation is allowable on assets for which capital expenditure has already been claimed.The Tribunal referred to several decisions, including those of the Karnataka High Court in All Saints Church and Society of Sisters of St. Ann, which held that allowing depreciation on capital assets does not amount to double deduction. The Tribunal also cited the Punjab & Haryana High Court's decision in Market Committee, Pipli, which distinguished the Escorts Limited case and upheld the allowance of depreciation for charitable institutions. The Tribunal concluded that the assessee was entitled to claim depreciation, as it was necessary for computing income in a normal commercial manner.Conclusion:The Tribunal held that the assessee's activities did not fall within the ambit of the proviso to section 2(15) of the Income-tax Act, 1961, and it was entitled to the benefits of section 11 of the Act. The Tribunal also upheld the assessee's claim for depreciation on assets, rejecting the revenue's argument of double deduction. Consequently, the appeals by the assessee were partly allowed, and the appeal by the revenue was dismissed. The Tribunal directed the AO to allow the benefit of section 11 to the assessee and re-compute the total income in accordance with the law.