Charitable trust denied tax exemption for commercial activities, allowed depreciation claim.

The Tribunal held that the assessee, a charitable trust, was not entitled to exemption under Section 11 of the Income-tax Act due to engaging in commercial activities. The Tribunal allowed the assessee to claim depreciation up to Assessment Year 2014-15, following the Supreme Court's decision. The appeals were partly allowed in favor of the assessee.

---

---

Issues Involved:
1. Entitlement to exemption under Section 11 of the Income-tax Act, 1961 in view of the amended Section 2(15).
2. Deduction of depreciation in computing income liable for application for charitable purposes.

Summary:

Issue 1: Entitlement to Exemption under Section 11 in View of Amended Section 2(15)
The principal issue in the appeals is whether the assessee, a society registered as a charitable trust under Section 12AA of the Income-tax Act, 1961, is entitled to exemption under Section 11 in light of the amended Section 2(15). The amendment, effective from April 1, 2009, states that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves any activity in the nature of trade, commerce, or business, and the gross receipts exceed the specified threshold.

The assessee claimed exemption under Section 11(1) for its surplus on account of application on capital assets, relying on its antecedents and its role in promoting IT infrastructure in Kerala. The Revenue denied the claim, arguing that the principal activity of letting built-up space and providing amenities is in the nature of trade, commerce, or business, thus falling under the proviso to Section 2(15).

The Tribunal endorsed the Revenue's understanding, referencing the Supreme Court's decision in Ahmedabad Urban Development Authority, which clarified that a charity engaged in the advancement of an object of general public utility cannot engage in any activity in the nature of trade, commerce, or business for any consideration. The Tribunal found that the assessee's activities, including leasing built-up space and providing amenities, are commercial in nature and thus not eligible for exemption under Section 11.

Issue 2: Deduction of Depreciation
The second issue is whether depreciation should be deducted in computing income liable for application for charitable purposes, given that the cost of the capital assets had already been allowed in full by way of application of income. The Tribunal noted that while Section 11(6) disallows such a claim from AY 2015-16 onwards, the Supreme Court in CIT v. Rajasthan and Gujarathi Charitable Foundation held that no disallowance would obtain for years prior to AY 2015-16. Therefore, the assessee is entitled to claim depreciation up to AY 2014-15.

Conclusion:
The Tribunal concluded that the assessee is not entitled to exemption under Section 11 for the relevant years due to its commercial activities and the provisions of the amended Section 2(15). However, it is entitled to claim depreciation up to AY 2014-15. The appeals were thus partly allowed.

---