TMI Blog2016 (5) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration 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.Thus the assessee is not entitled for any exemption u/s. 11 of the I.T. Act. - Decided against assessee Entitlement to depreciation - Held that:- The assessee is not entitled for depreciation on the opening balance of written down value of the assets in the asst. year under consideration, which were purchased in earlier years and the cost of those assets have already considered as application of income in earlier asst. year while granting exemption u/s.11 of the Act. As decided in case of M/s. Kongunadu Arts & Science College Council [2015 (11) TMI 1119 - ITAT CHENNAI ] if the assessee claims exemption u/s 11 under Chapter III of the Act, it cannot claim depreciation u/s 32 of the Act. - Decided against assessee - ITA Nos. 664 & 665/Mds/2015 - - - Dated:- 6-4-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For The Appellant : Shri B. Ramana Kumar, Advocate For The Respondent : Shri Sasikumar, JCIT ORDER PER CHANDRA POOJARI, ACCOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty. The AR contended before the AO that the above receipts are income from house property only and relied on the decision of Madras High Court in the case of Chennai Properties and Investment Limited, 136 Taxman 202. The AO rejected the arguments of the AR and held that the running and maintenance of these units in the normal circumstances would be in the nature of business income. The AO also held that the deduction u/s 24(a) is also not allowable and relied on the decision of Calcutta High Court in the case of DIT(E) vs Giridharilal Shewnarain Tantia Trust (1993) 199 ITR 215. 3.2 After perusing the objects of the society, the AO held that they are objects of general public utility and cannot be stated that the society exists solely for educational purposes. Reliance was placed on the decision of Bombay High Court in the case of CIT-l, Pune vs Rajneesh Foundation (2005), 148 Taxman 396 and Madras High Court decision in the case of Ramalingam Charities vs CIT, 12 taxmann.com 114. The AO also observed that the objects (a) to (d) are directed in promoting a particular philosophy. The AO also invoked proviso to sec.2(15) of the Act to hold that letting out of marriage hall is a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,07,017/- by observing that since sec.11(1)(d) is not in force, corpus donation is taxable. The AO treated the assessee as an AOP and taxed he income at MMR. The facts are similar to the assessment year 2011-12, except changes in figures. Against this, the assessee went in appeal before the CIT(Appeals), who confirmed the findings of the AO. Aggrieved, the assessee is in appeal before us. 4. The ld. AR submitted that the AO treated the receipts from letting out of Ayodhya Aswamedha Mandapam Mithi!apuri kalyana mandapam and Gnanavapi as business income and thereby invoked the provisions of sec.2(15) of the Act. It was also submitted that the society has multiple objects and none of them has profit motive or general public utility involving any activity in the nature of trade, commerce or business. It was further submitted that the AO invoked sec.13(8) and made section 11 12 not applicable. It was also stated that the main activity now of the society is running the school from where the bulk of receipts are coming. 4.1 The ld. AR contended that the AO erred in treating the receipts of community hall, marriage hall and Gnanavapi as business income and denied exemption u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. Further, the ld. AR relied on the judgment of the reported in 114 ITR 483 and DIT vs. Vile Parle Kelavani Mandal(23 Taxman 499) for the proposition when the assessee acquired assets from the income of trust and depreciation was claimed on use of such assets. Further, he relied on the judgment of the Madras High Court in the case of CIT v. Sengunthar Thirumana Mandapam (283 ITR 355), wherein it was held that the assessee being a registered society, having constructed a kalyana mandapam on the land allotted by the Collector for the said purpose and letting out the same for social and charitable activities collecting only nominal rent as per agreed terms of grant, it sufficiently satisfied the charitable object and, therefore, assessee s claim of exemption u/s.11 could not be rejected more so, when registration under sec.12A was granted to the assessee. He has also filed written submissions and he relied on CBDT Circular No.11/2008 dated 19th December, 2008. 5. On the other hand, the ld. DR relied on the orders of the lower authorities and also the order of the Tribunal in the case of Anjuman-E-Himayath-E-Islam v. ACIT in ITA No.2271/Mds/2014 dated 2.6.2015 for the propositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide n. To acquire land and buildings or erect buildings or conveniences necessary for the purpose of carrying all or any of the objects of the Society. o. To build, purchase, sell, mortgage or otherwise transfer take on lease, exchange, hire or otherwise acquire property - movable or immovable for carrying out objects of the Society. p. To receive by way of donations, grants, gifts, subscriptions, interests, dividends, subsidies contributions from governments, municipalities, public bodies, institutions or individuals in cash or properties - movable or immovable. q. To invest, deposit or otherwise employ and deal with funds, belonging to and entrusted to the Society in such a manner as may from time to time be determined by the governing body for the purpose of carrying out objects of the Society effectively. r. To borrow or to raise money otherwise, either with or without interest, with or without security for purpose of promoting all or any of the objects of the Society. s. To do all such others things, as are incidental or conducive for the promotion of the objects and welfare of the Society. t. To perform Sri Rama Navami Mahotsavam every year with traditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(1) of the I.T. Act and there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purpose of the trust. Though the objects of the trust were charitable, they were mere powers conferred upon the trustees to carry on the business and the profits from such business would benefit the charitable objects. The exemption u/s. 11 cannot be granted on the reason that the business itself was not in existence at the time of formation of the trust and the property held under trust at the time of formation of the trust was not spelt out in the Memorandum of Association of the assessee. The running of community hall, kalyanamandapam and funeral ceremony hall were not at all in existence at the time of formation of the trust so as to say that the business is property held under trust. Thus, the activities relating to running of community hall, kalyanamandapam and funeral ceremony hall were not even in the contemplation of the Memorandum of Association on the basis of which the Society is formed and, therefore, could not have been settled upon trust. The business carried on behalf of a trust rather indicates a business which is not held in trust, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) of the Act is applicable. 12. It was contended that if the profits of the business carried on by the trust are utilized by the trust for the purposes of achieving the objectives of the trust, then the business should be considered to be incidental to the attainment of the objects of the trust as observed by the Supreme Court in the case of ACIT vs. Thanthi Trust (2001) 247 ITR 785 which is as under: As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust ..In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee . 13. Prima facie the above observation would appear to support the assessee s case in the sense that even if running of community hall, kalyanamandapam and funeral ceremony hall are held not to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has to be allowed on the cost of the asset. In this case, the cost of the asset was allowed u/s 11 of the Act as application income since the assessee is a charitable institution entitled for exemption u/s 11. Therefore, the cost of the asset becomes NIL. When the cost of the asset becomes NIL, there is no question of allowing any depreciation. If the depreciation is allowed then it would amount to double deduction. The income of the charitable institution has to be computed on commercial principle in case the assessee is not claiming exemption u/s 11 of the Act. The assessee can also claim depreciation in case the exemption u/s 11 was denied by the Assessing Officer. Whatever may be the reasons, since the cost of the asset is NIL as the cost was already allowed as application of income, this Tribunal is of the considered opinion that the assessee is not entitled for depreciation. Section 32 of the Act falls in Chapter IV under computation of business income, however, section 11 falls in Chapter III which provides for incomes which do not form part of the total income. Therefore, this Tribunal is of the considered pinion that provisions of section 11 of the Act will override s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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