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The Deputy Director of Income Tax (Exemptions) -I Versus M/s The Booksellers & Publishers Association of South India

Claim of exemption as charitable institution - exemption u/s 11 - CIT(A) allowed the claim - Held that:- The receipt in question is only incidental to the activity of the assessee. In fact, the registration granted to the assessee was cancelled on the ground that the assessee is collecting sale of tickets on book fair, rent on stalls and service tax. For the very same assessment year under consideration, this Tribunal found that the cancellation of registration is not justified. In view of the d .....

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Claim of the assessee towards depreciation - Held that:- When the assessee claims the cost of the capital expenditure as exemption under Section 11 of the Act, then the cost of the capital asset becomes NIL. Admittedly, depreciation under Section 32 of the Act has to be allowed only on written down value of the asset. When the written down value of the asset becomes NIL since the entire cost was allowed as application of income under Section 11 of the Act, this Tribunal is of the conside .....

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, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : Shri A. B. Koli, JCIT For the Respondent : Sh. N. Devanathan, Advocate Sh. N. Muralidharan, CA Sh. S. Sridhar, Advocate ORDER Per N. R. S. Ganesan, Judicial Member This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-VII, Chennai, dated 07.02.2014 and pertains to assessment year 2009-10. 2. The first issue arises for consideration is with regard to claim of exempt .....

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the assessee-trust falls under the fourth limb of Section 2(15) of the Act, namely, advancement of any other object of general public utility. According to the Ld. D.R., collection on sale of tickets, rent on stalls, service tax, etc. are in the nature of trade, commerce, business, etc. Referring to proviso to Section 2(15) of the Act, the Ld. D.R. submitted that the activities of the assessee are commercial in nature, therefore, its object cannot be treated as charitable activities. Therefore, .....

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e assessee is not eligible for exemption under Section 11 of the Act. 4. The Ld. D.R. further submitted that the CIT(Appeals) has allowed the claim of the assessee for depreciation. According to the Ld. D.R., when the assessee claims that it is carrying on charitable activities, depreciation cannot be allowed under Section 32 of the Act. According to the Ld. D.R., depreciation under Section 32 of the Act is available only to business or profession and not for charitable activities. Furthermore, .....

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5. On the contrary, Shri S. Sridhar, the Ld. counsel for the assessee, submitted that admittedly the assessee was registered as charitable institution under Section 12AA of the Act. Subsequently, the registration was cancelled by an order dated 23.12.2011. The assessee challenged the order of cancellation before this Tribunal in I.T.A. No. 455/Mds/2012 dated 03.12.2013. The Tribunal found that when the assessee was granted registration as charitable institution and the object of the trust conti .....

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kets and also collecting rent on stalls put by the respective publishers of the books. Therefore, it would not be correct to say that the assessee is doing any trade or commerce. The assessee is not at all doing any trade and activity of collection of rent on the stalls, sale of tickets and service tax is only incidental to the activities carried on by the assessee. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. 6. Coming to the claim of depreciation, the Ld. counsel .....

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efore the Madras High Court for consideration. Therefore, the issue may be remitted back to the file of the Assessing Officer for reconsideration. 7. We have considered the rival submissions on either side and perused the relevant material available on record. The object of the trust appears to be to promote the habit of reading among general public. In furtherance of this object, the assessee is organizing book fair at various places. The assessee is collecting entrance fee on sale of tickets, .....

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trust continues as such without any change. Therefore, the receipts in question are incidental to the activities carried on by the assessee. In fact, this Tribunal in the order dated 03.12.2013 has observed as follows:- Taking cue from the aforesaid case law, we hold that since the DIT(E) had already considered the charitable nature of assessee s objects at the time of granting registration and there is no change in the said factual position, impugned cancellation of registration under challenge .....

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r consideration, this Tribunal found that the cancellation of registration is not justified. In view of the decision of co-ordinate Bench of this Tribunal, to which the Ld. Accountant Member is a party, this Tribunal is of the considered opinion that the collection of sale of tickets, rent on stalls and service tax are incidental to the main activity of the assessee. Therefore, it cannot be construed as trade or commerce. Hence, this Tribunal is of the considered opinion that the CIT(Appeals) ha .....

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s not applicable in respect of charitable activities. This Tribunal, while considering an identical situation in the case of Tamil Nadu Cricket Association has observed as follows:- 11. We have considered the rival submissions on either side and perused the relevant material on record. Let s first take assessment year 2008-09. The assessee is claiming depreciation under Section 32 of the Act. For the purpose of convenience, we are reproducing Section 32 hereunder:- 32 (1) In respect of depreciat .....

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n and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed. (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Provided that no deduction shall be allowed under this clause in respect of-(a) any motor car manufactured outside India, where such motor car is acqired by the assessee after the 28th day of February, 1975 5but before the 1st day of April, 2001, unless it is used-(i) in a bus .....

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f business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this subsection in respect of such asset shall be restricted to fifty per cent. of the amount calculated at the percentage prescribed for an asset under clause (i) 6or clause (ii) or clause (iia), as the case may be: Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, .....

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assenger motor vehicle" but does not include "maxi cab", "motor-cab", "tractor" and "road-roller" ; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road-roller" shall have the meanings respectively as assigned to the .....

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ndment) Act, 1991. Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating com .....

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d company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation - 1. Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relatio .....

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le assets, being buildings, machinery, plant or furniture ; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Explanation - 4. For the purposes of this sub-section, the expression "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including se .....

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iness of manufacture or production of any article or thing, a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Provided that no deduction shall be allowed in respect of-(A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person ; or(B) any machinery or plant installed in any office premises or any residential accommodation, including acc .....

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clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. Explanation - For the purposes of this clause,- (1) "moneys .....

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ars to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso ; (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law fo .....

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nment under sub-section (7) of section 45 of that Act, of any asset by the banking company to the banking institution. (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section .....

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e assessee and used for the purpose of business or profession. In this case, it is not a case of the assessee that they are not doing any business or profession. The assessee is categorically making a statement that they are charitable organization engaged itself in public utility service. Once the assessee claims that it is a charitable organization and not engaged in business or profession, this Tribunal is of the considered opinion that the provisions of Section 32 have no application at all. .....

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ible for depreciation under Section 32 of the Act. For the purpose of convenience, we are reproducing the decision taken by the co-ordinate Bench of this Tribunal in The Anjuman-EHimayath- E-Islam (supra):- 5.2 We find this issue is elaborately discussed in the case of Lissie Medical Institution Vs. CIT reported in [2012] 348 ITR 344(Ker.) and held the issue against the assessee. While doing so, the Hon ble Kerala High Court had considered the Circular No.5P(LLX-6) dated 19.06.1968 which has not .....

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per cent of its total income, for religious or charitable purposes. In other words, it was not permitted to accumulate more than 25 per cent of its total income. The question has been reconsidered by the Board and the correct legal position is explained below. 2. Section 11(1) provides that subject to the provisions of sections 60 to 63 "the following income shall not be included in the total income of the previous year . . . ". The reference in sub-section (a) is invariably to " .....

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ld under trust, its "income" will be the income as shown in the accounts of the undertaking. Under section 11(4), any income of the business undertaking determined by the Income-tax Officer in accordance with the provisions of the Act, which is in excess of the income as shown in its accounts, is to be deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed by the account will be .....

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or capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the e .....

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after writing off the full value of the capital expenditure on acquisition of assets as application of income for charitable purposes and when the assessee again claimed the same amount in the form of depreciation, such notional claim became a cash surplus available with the assessee, which was outside the books of account of the trust unless it was written back which was not done by the assessee. It was not permissible for a charitable institution to generate income outside the books in this fa .....

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