2006 (6) TMI 64 - HC - Income Tax

Land given to assessee for use in charitable purpose filed returns admitting income from business on account of receipts of voluntary donations held that mere filing of returns would not take away the right of assessee to claim the benefit of exemption u/s 11

Summary

Issues:
1. Entitlement to exemption u/s. 11 of the Income Tax Act based on registration u/s. 12AA.
2. Whether income from letting out Kalyana Mandapam assessable under business head is applied for charitable purposes.

Analysis:
1. The case involved an appeal by the revenue against the Income Tax Appellate Tribunal's decision granting exemption u/s. 11 of the Income Tax Act to a Society registered under the Tamil Nadu Societies Registration Act. The Society was allotted land to build a Kalyana Mandapam for local people, mainly weavers and agriculturists. The revenue contended that since the Society had not conducted charitable activities and the income from letting out the Mandapam was assessed as business income, it should not be granted exemption.

2. The assessing officer found that the Society had not undertaken any charitable activities apart from running the Mandapam, leading to the computation of income for various assessment years. However, the Commissioner and the Tribunal held that the dominant and primary object of the Trust was charitable, allowing exemption under Sections 11 and 12AA of the Act. The Tribunal considered the construction and letting out of the Mandapam as fulfilling the charitable purpose, even without diverting funds to other charitable activities.

3. The Court emphasized that the construction and letting out of the Mandapam for nominal rent to benefit local people satisfied the charitable object, as per the conditions set by the Collector. The registration granted with retrospective effect further supported the Society's claim for exemption. The Court cited precedents to establish that income from such activities should be considered property income entitled to exemption under Section 11, regardless of the failure to divert funds to other charitable purposes.

4. The Court rejected the revenue's arguments that each transaction should be scrutinized for exemption eligibility, emphasizing the Trust's primary charitable object. It also clarified that admitting income as business income in certain years did not preclude the Society from claiming exemption under Section 11. Ultimately, the Court dismissed the appeals, finding no substantial question of law and upholding the exemption granted to the Society.

Judgment Summary:
The High Court of Madras dismissed the revenue's appeals challenging the exemption granted to a Society under Sections 11 and 12AA of the Income Tax Act. The Court upheld the Tribunal's decision, emphasizing that the construction and letting out of a Kalyana Mandapam for local people constituted a charitable activity, entitling the Society to exemption. The Court highlighted the Trust's primary charitable object and the conditions set by the Collector, concluding that the income earned should be considered property income exempt under Section 11. The Court's analysis focused on the fulfillment of the charitable purpose through the Mandapam activities, disregarding the revenue's contentions against granting automatic exemption.