2017 (12) TMI 1177 - AT - Income Tax

Denial of benefit of section 11 and 12 - non charitable activities - assessee has rented out various commercial properties and reported commercial receipts in the form of rental income which is separate activity purely commercial in nature and does not have any relation between educational activities - Held that - In the present case the Revenue has brought no such evidence or material on record except that the assessee has earned rental income. Further the allegation against the assessee that it is giving the dharmashala on rent to its inmates and charges room rent from them is devoid of any merit because the amount of donation received by the assessee is not classified based on the room used by such guest. Further the actual receipt of the money at dharmashala is also stated to be the voluntary contribution. It is not the case of the revenue that the rooms used by the inmates for the year shows the actual receipts based on some pre-decided room tariffs or based on certain facilities. Further merely because the ld AO has found some entries of the voluntary donation/ contributions correlated with their stay in guest house cannot lead to the conclusion that assessee are charging guesthouse/dharmashala on commercial basis. In fact it is tradition whenever the people stay in the dharmashala etc, they contribute according to their capacity to contribute and not in accordance with the pre-fixed tariff rates. No infirmity in the order of the ld CIT (A) in holding that the rental income received by the trust is not hit by the proviso to section 2(15) of the Income Tax Act. Appellant is engaged in the business of selling education - Held that -The claim of the revenue is that assessee has to demonstrate that it exists for the poor and needy people. We do not subscribe to that view as while reading the provision of section 2 (15) no such condition is available. According to that section charitable purposes includes education in its literal meaning. If the trust is providing education it carries on charitable activity, hence we reject this argument of the revenue. In view of this, the reliance placed upon by the ld Assessing Officer on the decision of the Uttarakhand High Court is incorrect. The Next issue raised by the ld AO is that assessee trust when amended the trust deed did not initiate the same to the ld AO/ Revenue. It is required to be noted that assessee has amended the deed but it has not amended any of the objects of the deed. Only amendment was with respect to the borrowings powers of the trust for loan. Therefore, it is irrelevant that such amendment was not intimated to the Assessing Officer. As we have already held that the assessee is not hit by the first proviso to section 2(15) of the Act the issue of receipts of the activities exceeding the specified limit does not apply. In view of this ground Nos. 2 and 3 of the appeal of the revenue is dismissed. Donation given to another trust who is not eligible -Held that - The provision of section 13(1)(c) provides that if any income of the trust eligible for computation of income u/ss 11 and 12 uses or applies its income directly or indirectly for the benefit of any person specified under sub-section 3 then it loses the exemption. In the present case we do not find that assessee has violated any such condition. The assessee has given donation to the trust having the object of education, which is also one of object of the assessee trust. In view of this according to us assessee has utilized its income for the purposes of its own object by donating to that trust. It is not the case of the revenue that such donations are given to the trust, which does not have the objects of education. Six vehicles have been purchased in the name of the trustees - Held that - revenue must first establish that income or the property of the trust is diverted during the previous year in favour of specified persons. The vehicles are stated to be purchased in earlier years and not in this year. Therefore it is apparent that during the year assessee trust has not diverted any income for purchasing such vehicles during the year. However it is the claim of the revenue that assessee is paying interest on loans taken for various vehicles. In the order of the ld AO it has not been established that how the amount of interest paid amounts to the application of income is diverted in favour of the specified persons. Ld AO has only established that six out of none vehicles have been registered in the name of specified persons but it has not been established that how the income is diverted by the assessee in favour of the specified persons. Therefore as the full facts of the issue are not available on record this issue is set aside to the file of ld AO to first establish that there is any diversion of income of the trust during the year in favour of the persons specified when the vehicles are registered in the name of persons other than the assessee. Anonymous donation received - Held that - AR has stated that the complete name and address of the donors is placed at pages No 286 to 340. We have carefully considered the rival contention of this aspect and perused the relevant documents placed at pages No 286 to 340 of the paper book. In these papers, assessee has tabulated the name, address, date, and amount of donation received. In view of this we do not find any infirmity in the order of ld CIT (A) in holding that such voluntary contribution cannot be said to be anonymous donation. However on verification of the details submitted by the assessee it shows such total donation at ₹ 39,68,455/- whereas the ld AO has computed such donation at ₹ 4081528/-. In view of it, this ground is set aside to the file of the ld AO to reconcile difference of ₹ 113073/- with the donation list given by the assessee and amount of donation computed by him. In the result ground No 6 to the extent of only ₹ 113073/- is set aside to verify whether the assessee has name and address of such donors available with it or not. Loss of exemption on whole of its income or only part of the income to the extent of violation when the assessee loses exemption u/ss 11 & 12 - Held that - We do not agree with the contention of the revenue that the trust loses exemption on whole of its income, we agree with the view of the ld AR that the denial of exemption under section 11 should be limited to the amount which was diverted in violation of section 13 of the Act. See CIT v. Fr. Mullers Charitable Institutions 2014 (2) TMI 1033 - KARNATAKA HIGH COURT

Summary

Issues Involved:

1. Applicability of Proviso to Section 2(15) of the Income Tax Act.
2. Allegations of Profit Motive in Educational Activities.
3. Donations to Other Trusts and Applicability of Section 13(1)(c).
4. Registration of Vehicles in Trustees' Names and Applicability of Section 13(2)(g).
5. Anonymous Donations and Applicability of Section 115BBC.
6. Consistency in Applying Exemption under Sections 11 and 12.

Detailed Analysis:

1. Applicability of Proviso to Section 2(15) of the Income Tax Act:

The primary contention of the Revenue was that the assessee trust rented out various commercial properties and reported commercial receipts in the form of rental income, which should be considered a business activity under the amended provisions of Section 2(15). The Tribunal held that the rental income received by the trust was not in the nature of trade, commerce, or business. It was determined that the properties were primarily used for charitable activities, and the rental income was incidental. The Tribunal emphasized that there was no evidence that the trust exploited property ownership in a commercial manner.

2. Allegations of Profit Motive in Educational Activities:

The Revenue argued that the assessee trust was engaged in business activities under the guise of educational activities, citing the surplus generated and various fees charged. The Tribunal referred to the Supreme Court's decision in Queen's Educational Society v. CIT, which clarified that incidental surpluses do not negate the charitable nature of an educational institution. The Tribunal concluded that the trust's primary objective was education, and the fees charged were within permissible limits, thus not indicating a profit motive.

3. Donations to Other Trusts and Applicability of Section 13(1)(c):

The Revenue contended that donations to other trusts with common trustees violated Section 13(1)(c). The Tribunal found that the donations were made to trusts with similar charitable objects and were not for the benefit of specific individuals. The Tribunal upheld the CIT (A)'s decision, noting that there was no evidence of collusion or misuse of funds. The Tribunal also referenced CBDT Instruction No. 1132, which supports the view that donations to other charitable trusts are considered proper application of income.

4. Registration of Vehicles in Trustees' Names and Applicability of Section 13(2)(g):

The Revenue claimed that the registration of vehicles in the names of trustees violated Section 13(2)(g). The Tribunal noted that the vehicles were used for the trust's purposes and were not for personal use by the trustees. The Tribunal remanded the issue back to the Assessing Officer to establish whether there was any diversion of income in favor of the specified persons during the year.

5. Anonymous Donations and Applicability of Section 115BBC:

The Revenue argued that the donations received by the trust were anonymous and should be taxed under Section 115BBC. The Tribunal found that the trust maintained complete details of donors, including names and addresses, and thus, the donations could not be classified as anonymous. However, the Tribunal directed the Assessing Officer to reconcile a minor discrepancy in the donation amounts.

6. Consistency in Applying Exemption under Sections 11 and 12:

The assessee trust argued for the application of the principle of consistency, given that its activities and sources of income had remained the same over the years. The Tribunal acknowledged the principle of consistency but emphasized that it should not override the need for a reappraisal of facts. The Tribunal ultimately decided the issues on their merits, without solely relying on past assessments.

Conclusion:

The Tribunal upheld the CIT (A)'s decision to grant the assessee trust the benefits of Sections 11 and 12, dismissing most of the Revenue's contentions. However, it remanded specific issues (registration of vehicles and reconciliation of donation amounts) back to the Assessing Officer for further examination. The cross-objection filed by the assessee was dismissed. The Tribunal's order emphasizes the importance of examining the predominant objectives and actual application of income by charitable trusts in determining their eligibility for tax exemptions.