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2016 (5) TMI 1131 - AT - Income TaxCharitable trust - whether the assessee is to be assessed as a charitable trust deriving income from property held under trust wholly for charitable purposes and more specifically for the object of general public utility or to be assessed as a trust carrying on business activities? - Held that:- CIT vs. Gujarat Maritime Board, reported in (2007 (12) TMI 7 - SUPREME COURT OF INDIA ), wherein the Hon’ble Apex Court has observed that the appellant is established for the predominant purposes of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of section 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in the State of Gujarat and therefore, they are entitled to be registered as charitable trust u/s 12A of the Income-tax Act, 1961. Therefore, respectfully following the decision of Hon’ble Apex Court and the Co-ordinate Bench, Ahmedabad in assessee’s own case, we are inclined to believe that the assessee is a charitable trust carrying on activity of advancement of public utility without any profit motive and is required to be assessed as per the provisions of Section 11(1) of the Income-tax Act, 1961. - Decided in favour of assessee Revenue expenditure as application of income by way of payment to the Gujarat Government towards waterfront/royalty charges - Held that:- the assessee, being a charitable trust u/s 12A, was certainly under legal obligation to make payment to the State Government towards waterfront/royalty charges which was inevitable for the functioning of the assessee-trust and such payment was made towards the object of the trust embedded in the Gujarat Maritime Board Act, 1981 and certainly these payments which have been made to the State Government have been applied for the public welfare projects which in this case is waterfront project. Therefore, the assessee is eligible to claim as application of income against the gross income received and the same should be accounted while calculating 85% of the gross income which needs to be applied for charitable activities by the assessee-trust. Applacabilty of provision of sec 43B - Held that:- As profit earned by the assessee are not subject to tax being out of the ambit of provisions of Section 11(4) of the Income-tax Act and the income of the organization being exempt as per the provisions of Section 11(1) of the Incometax Act, this ground has become redundant and accordingly the provisions of Section 43B of the Act are not applicable on the payment above Clubbing income under two provisions of Section 22(1) of the Act and also u/s 11(4) - Held that:- From going through the above referred provisions of Section 11(1) and Section 11(4) of the Act, we are able to understand that Section 11(4) of the Act is applicable when the ”property held under trust” includes a business undertaking so held and the Assessing Officer have power to determine the income of such business undertaking in accordance with the provisions of the Act and where any such income so determined is in excess of income as shown in the accounts of the undertaking, then such excess income shall be deemed to have been not applied for charitable purposes. However, in the case of the assessee, we have already decided that the assessee is carrying on charitable activities without profit motive and the income is to be calculated as per the provisions of Section 11(1) of the Act and therefore, ld. CIT(A) has erred in calculating the income u/s 11(1) and 11(4) of the Act and therefore, in our view, subject to our adjudication of other grounds of this appeal, the income of the assessee is to be assessed as per the provisions of Section 11(1) of the Act. Addition as notional income on account of premium of Alang plots - Held that:- As already held that the assessee is not carrying on any business activity, rather carrying on charitable activities in the form of providing services relating to general public utility which in the case before us relates to maintaining of ports in the State of Gujarat. We further observe that both the lower authorities have not appreciated the fact that the accounts of the assessee were being maintained on cash basis upto Financial Year 2001-02 and certainly in the case of the assessee who carries on cash basis of accounting of what is received in a year has to be accounted for and there is no concept of bifurcating or apportioning any advance premium received. Further, it is also undisputed fact that the appellant-Board was covered under the provisions of Section 10(20A) of the Act as a Local Authority upto Assessment Year 2002-03 and the income was exempt under this section and certainly whatever amount which have been received prior to 01.04.2002 gets covered therein. Therefore, in our view, no addition was called for of ₹ 12,92,00,000/- on account of Revenue recognition of the premium received on allotment of plots by way of spreading the revenue for a period of 10/20-25 years on the basis of AG(Audit) Report. Granting deduction for accumulation u/s 11(1) of the Act only on net surplus and not on its gross receipts - Held that:- From going through the decision of the Hon’ble Apex Court in the case of CIT vs. Programme for Community Organization (2000 (11) TMI 4 - SUPREME Court ), it is crystal clear that calculation of 15% as mentioned in provisions of Section 11(1A) have to be applied on the gross income of the assessee and not the net surplus. Therefore, in our view, in the case of the assessee, 15% has to be calculated on gross income for the year, i.e., ₹ 221.19 crores and not on the net surplus of ₹ 64.96 crores. Disallowance of deduction in relation to increase in the fixed assets being application of income - Held that:- There remains no dispute because the ld. CIT(A), while determining the income u/s 11(1) of the Act, has himself allowed the addition to fixed assets at ₹ 20,68,73,986/- as deduction towards application of income and therefore, this substantive ground needs no further adjudication on this ground relating to allowability of deduction in relation to increase in the fixed assets being application of income amounting to ₹ 20,68,73,968/-, as it has already decided in favour of the assessee by ld. CIT(A) and therefore no interference is called for in the ld. CIT(A)’s order for this ground. Eligibility for deduction of depreciation as per Income-tax Act while determining the income under the provisions of Section 11(1) - Held that:- If the depreciation is not allowed as a necessary deduction in computing the income of the charitable/religious trusts, then there would be no way to preserve the corpus of the trust and therefore, a charitable/religious trust is entitled to depreciation in respect of the assets owned by it. In the present case, due to the variation of figures of depreciation as per Income-tax Act in between the assessee as well as Department, it will be appropriate to set aside the matter to the file of the ld. Assessing Officer for the limited purpose of calculating the correct amount of deprecation as per Income-tax Act for the year under appeal. It is needless to mention that proper opportunity of being heard to be given to the assessee and both the parties should arrive at a consonance on the correct figure of depreciation as per Income-tax Act and the same should be allowed as application of income for the purposes of determining income u/s 11(1) of the Act.
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