2024 (4) TMI 595 - AT - Income Tax

Trust activities qualify as charitable under section 2(15) despite commercial appearance, exemption granted under section 11

The Institute of Indian Foundrymen Versus ITO, Ward-1 (3), Exempt, Kolkata

ITAT Kolkata held that the trust's activities qualified as charitable under section 2(15) and granted exemption under section 11. The AO had incorrectly ... Exemption u/s 11 - Charitable activity u/s 2(15) - AO has treated that the activities of the trust as commercial activity by invoking the proviso to section 2(15) - HELD THAT:- As relying on decision by the Co-ordinate Bench in assessee’s own case [2024 (3) TMI 944 - ITAT KOLKATA] we are inclined set aside the order of ld. CIT(A) and further uphold that the assessee is entitled to exempt u/s. 11 of the Act during the year on the ground that the profit derived from the services rendered as public utility service is very meager or there is deficit. Accordingly, the AO is directed to allow the exemption u/s. 11 of the Act. Appeals of the assessee are allowed. Issues Involved:1. Treatment of Trust Activities as Commercial Activity2. Denial of Exemption u/s 113. Depreciation on Fixed Assets4. Addition of Sale Value of Motor Car5. Computation of Deduction u/s 11(1)(a)Treatment of Trust Activities as Commercial ActivityThe common issue raised by the assessee in all these appeals is against the orders of Ld. CIT(A) upholding the assessment orders passed by the AO, wherein the AO has treated the activities of the trust as commercial activity by invoking the proviso to section 2(15) of the Act, thereby denying the exemption u/s 11 of the Act. The assessee argued that its activities are for general public utility and not commercial, despite gross receipts exceeding Rs. 10 lakhs. The AO rejected this contention, stating that the activities were not for charitable purposes due to the income exceeding the threshold.Denial of Exemption u/s 11The Ld. A.R. submitted that the case is covered by the Coordinate Bench in the assessee's own case for AY 2014-15, which decided in favor of the assessee by following the decision in the case of Indian Chamber of Commerce vs. DCIT. The Tribunal found that the assessee's main object is general public utility, which is covered u/s 2(15) of the Act. The receipts from the said activity exceeded Rs. 10 lakhs, but the profit was meager, thus not falling within the ambit of the proviso to Section 2(15).Depreciation on Fixed AssetsThe assessee claimed depreciation on fixed assets as an application of income. The AO and Ld. CIT(A) did not allow this deduction. The Tribunal referred to the decision of the Hon'ble Supreme Court in CIT vs. Rajasthan and Gujarati Charitable Foundation, which held that up to AY 2015-16, the assessee is entitled to claim the cost of acquisition of fixed assets as application of income and further depreciation thereon in subsequent years. Consequently, the Tribunal set aside the order of Ld. CIT(A) and directed the AO to allow the depreciation.Addition of Sale Value of Motor CarThe AO treated the entire sale consideration of a motor car as income, arguing that the cost had been claimed as an application of income when the car was purchased. The Tribunal found that even if the entire cost was claimed as an application of income, the assessee is entitled to claim the deduction of WDV from the sales consideration to calculate capital gain, following the decision in CIT vs. Rajasthan and Gujarati Charitable Foundation.Computation of Deduction u/s 11(1)(a)The AO computed the deduction u/s 11(1)(a) on the net receipt, while the assessee argued it should be on the gross receipt. The Tribunal agreed with the assessee, citing the Supreme Court decision in ACIT vs. A.L.N. Rao Charitable Trust, which held that statutory accumulation u/s 11(1)(a) has to be computed on the gross receipts. The AO was directed to allow the accumulation u/s 11(1)(a) on the gross receipt.Final DecisionConsidering the facts on record and the decision by the Co-ordinate Bench in the assessee's own case, the Tribunal set aside the order of Ld. CIT(A) and upheld that the assessee is entitled to exemption u/s 11 of the Act during the year. The appeals of the assessee were allowed.