2022 (6) TMI 1385 - AT - Income Tax

Denying of exemption u/s 11 by invoking the first proviso to section 2(15) - assessee argued that civil works carried out by him are not commercial in nature by mentioning that they are fund-raising activities - HELD THAT:- We are of the opinion that similar issue came for consideration before this Tribunal in the case of Zilla Nirmithi Kendra [2022 (2) TMI 1362 - ITAT BANGALORE] as held that the application of income generated by the business is not relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives. It was contended by the assessee that the surplus funds generated from the construction business was spent towards charitable activities and therefore, the assessee is entitled for exemption under section 11(4). This contention is not acceptable. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) is applicable. The tribunal held that there is no nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self reliance among the members of the public etc. Being so, the assessee is not entitled for any exemption under section 11. Decided against assessee. Also see M/S. NIRMITHI KENDRA case [2018 (11) TMI 117 - ITAT COCHIN]

Income tax liability - tax on income of a State - assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution - HELD THAT:- Assessee is not a State but it is registered as a Society and hence it is to be treated as an AOP or Trust for the purpose of Taxation.

The assessees Dakshina Kannada Nirmithi Kendra & Udupi Nirmithi Kendra are separate entities and distinct from state, having its own legal identity. It could sue or be sued in its own name. It has its own assets & liabilities. But only when the State Government decides that purpose of Nirmithi Kendra has been achieved and there is no need to continuation of this Nirmithi Kendra, then it may pass the order of dissolution of the same. In that event, the income, assets, liabilities of the Nirmithi Kendra will be vested with the State Government and not otherwise. Thus, it is apparent from the record that the Hon’ble Supreme Court has already dealt with this matter and we are completely agreeing with the argument of Ld. D.R. and the Article 289 of the Constitution cannot be applied to the assessee’s case. Accordingly, this additional ground of the assessee is dismissed.

Disallowance u/s 43B - AO disallowed an amount in respect of expenditure claimed towards labour cess outstanding - HELD THAT:- As per this Act, certain payments could be claimed as expenses in the year in which they have been paid and not in the year in which the liability to pay such sum was incurred. In other words, certain statutory expenses are allowed to be claimed in the year of payment only. In the case of this payment of it has not been paid within the due date of filing return of income and which was paid only on 21.3.2014 and the said payment cannot be allowed as in the assessment year under consideration. Accordingly, we dismiss this ground of the assessee in AY 2013-14. However, the assessee has liberty to claim on actual basis in the year in which it was paid.

Activities carried on by the assessee along with object clause of the Trust Deed - No infirmity in the order of the lower authorities in observing that the assessees’ herein carried out activities not in accordance with the object clauses mentioned in Trust Deed. Accordingly, this additional grounds in both cases are also dismissed.