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M/s Asha Nivas Social Welfare Society Versus Deputy Director of Income-Tax (Exemptions-1) , Chennai

2015 (9) TMI 800 - ITAT CHENNAI

Entitlement to exemption under sec.11 - Held that:- Running of working womens hostel, womens service center and canteen is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption under sec.11 of the Act. - Decided against assessee.

Denial of depreciation on the assets purchased before the financial year 2008-09 - Held that:- As the income of th .....

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For the Petitioner : Shri Manuel Thomas, CA For the Respondent : Shri P Radhakrishnan, JCIT ORDER Per Chandra Poojari, Accountant Member These appeals by the assessee are directed against different orders of the Commissioner of Income-tax(Appeals) dated 28.3.2014 and 21.3.2013 for the assessment years 2006-07 and 2009-10, respectively. 2. First, we take up the appeal in ITA No.1374/Mds/2013: The assessee has raised the following grounds: "1.The Order of the Learned CIT Appeals for the asses .....

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de, commerce of business. 3. The Learned CIT Appeals failed to appreciate that, first of all, the Appellant Trust's activities would fall strictly only under the first three limbs of Section 2(15), viz., Relief of the poor, Education and Medical relief and will not come under the limb, advancement of any other object of general public utility'. Secondly, the appellant trust is not carrying on any trade, commerce or business. The running of Women's Hostels and canteen etc., were only .....

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in not appreciating that the activities of the appellant trust since inception had been only the upliftment of poor and destitute women and welfare of poor and orphaned children and also taking care of their education and health needs. 6. The Learned CIT Appeals ought to have observed that right from the inception the appellant trust was only striving to help children in distress, child workers, children in Slums and also women affected by exploitation and violence and who had nobody to take car .....

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laring gross receipts of ₹ 2,58,40,487/-. The assessment was completed u/s.143(3) of the Act, vide order dated 30.12.2011, wherein the Assessing Officer denied exemption u/s.11. The assessee was registered u/s.12A(a) of the Act vide DTE No.1212(62)/77 dated 19.5.1997 and the main objects of the assessee are relief to the poor, marginalized and exploited women living in difficult circumstances and children in distress especially the street children, child workers and children in slums. Howe .....

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i) Expenses of working womens hostels ₹ 21,37,289/- ii) Expenses of womens service centres ₹ 24,40,083/- iii) Expenses of canteen ₹ 27,35,991/- iv) All other expenses Rs. ………. Total ₹ 3,00,21,451/- 4. According to the AO, the nature of services rendered are in relation to trade, business and commerce. Thus, the AO observed that in view of the amended provisions of sec.2(15) of the Act, with effect from 1.4.2009, the assessee looses the character of & .....

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during the year: Sl. No Nature of activity Income Expenditure Surplus 1. Local Contribution Account 87,61,830 1,25,01,567 -37,39,737 2. Foreign Contribution Account 50,29,018 76,80,361 -26,51,283 3. Balwadi 53,750 5,03,617 -4,49,867 4. Canteen 26,76,083 27,35,991 -59,908 5. CM's Noon Meal Programme 0 26,320 -26,320 6. Creche 1,77,667 1,33,398 44,269 7. Working Womens Hostels 35,68,975 21,37,289 41,31,686 8. Welfare of Street Children 53 10,65,411 -10,65,358 9. All Women Service Center 53,96 .....

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tels and women service centers and to some extent running of canteen. The remaining five activities are very nominal. Even the expenses shown in these five activities are only establishment expenses like salaries. 5.3. Accordingly, the CIT(Appeals) concluded that the predominant activities are running of (i) working womens hostels, (ii) women service centers and (iii) canteen. These activities, by no stretch of imagination can constitute charitable activities. 5.4. Further, the CIT(Appeals) obse .....

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ssessee should not to be considered as a charitable organization. 5.5. According to the CIT (Appeals), the assessee has been claiming exemption of its income u/s. 11 of the Act from year to year and the same was being allowed by the revenue up to A.Y.2008-09. However, consequent to the amendment to section 2(15) of the Act, w.e.f. 01.04.2009, the Assessing Officer disallowed the assessee's claim of exemption u/s.11 of the Act on the ground that the activities of the assessee amounts to trade .....

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nning of working womens hostels, women service centers and canteen, which are totally commercial in nature and hence, the assessee was not considered as the one engaged in commercial activities and not charitable activities and confirmed the denial of exemption under sec.11 of the Act. Since, the assessee has already claimed cost of its business assets as application of income in the earlier years u/s.11 of the Act, he directed the AO to withdraw the depreciation, which was allowed on written do .....

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essee society was not carrying on any trade, commerce or business. The CIT(A) erred in not appreciating that the activities of the Assessee-Society, right from inception, had been only the uplift of poor and destitute women and welfare of poor and orphaned children and also taking care of their education and health needs. The ld. AR further submitted that the CIT(A) has upheld the order of the AO without considering the assurance given by the Hon'ble Finance Minister on the floor of the Hous .....

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rated some surplus. Such activities are closely interlinked with main objects of relief of the poor and education and there was no profit motive or intention to run any business or commercial activities. 6.1 In proof of the above, the ld. AR has given below a list of accolades received by the assessee from the Government over the years in appreciation of the services rendered by the society and submitted that the order of the CIT(Appeals) to be reversed. 1. Best Institution Award from Government .....

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ce in the field of Social Service. 7. On the other hand, the ld. DR relied on the order of the CIT(Appeals). 8. We have heard both the parties and perused the material on record. Sec. 11 of the Act stipulates that the income from property held for charitable or religious purpose shall not be included in the total income of the previous year of the person in receipt of the income to be given effect in the manner as specified therein. The term 'charitable purpose' has not been defined unde .....

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any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity." The Department has taken a stand that by virtue of the amendment as above, the assessee is not .....

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se in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words "not involving the carrying on of any activity for profit". By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when .....

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includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under 'charitable purpose'. Obviously, this was not the intention of Parliament and hence I propose to amend the law to .....

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brought back and that is all. This however will not tilt the balance in any manner in the case of the assessee so as to take the activities outside the charitable purpose, particularly in view of the fact that in running of working women hostels, women service centres and canteen will not constitute any trade or business. According to the ld. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is .....

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ill definitely come within the fourth limb of the amended sec.2(15) of the Act, where the prohibition of activity in the nature of trade, commerce or business for any activity of rendering service or any other consideration, irrespective of the nature of the use or application or retention of the income of such activity is specified and hence, not entitled to any exemption. 8.4. To analyse the activities carried on by the assessee, we have to go through the nature of activities pursued by the as .....

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endment to sec.2(15) brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that, after the amendment by incorporating proviso to s. 2(15), the 4th limb as to the advancement of "any other object of general public utility" will no longer remain as charitable purpose, if it involves carrying on of : (a) any activity in the nature of trade, commerce or business, (b) any activity of rendering any service in relation to any trade, commerce or .....

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iness mentioned therein. To put it more clear, when the matter comes to the service in relation to the trade, commerce or business, it has to be examined whether the words "any trade, commerce or business" as they appear in the second limb of cl. (b) are in connection with the service referred to the trade, commerce or business pursued by the institutions to which the service is given by the assessee. If the said words are actually in respect of the trade, commerce or business of the a .....

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sive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms "any trade, commerce or business" refers to the trade, commerce or business pursued by the recipient to whom the service is rendered (as there may be a situation involving in running of working womens hostel, womens service center and canteen. 8.6. Further, in similar circumstances, the co-ordinate Bench .....

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e activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of relief of the poor; education or medical relief. • The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on 'advancement of any other object of general public utility'. When that is the case, the assessee is hit by the proviso given under section 2(15). • .....

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on 11 for that part of income generated in the hands of the assessee from running its International Guest House and Working Women's Hostel. • Alternatively, one has to look into section 11 (4A). Subsection (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of account are maintained by such trust or .....

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ot possible to hold that the business of running IGH and WWH are incidental to the above stated objectives of the assessee-trust. "Incidental" means offshoot of the main activities; inherent by-product of principal activities. • Activities to compliment and support the main objectives are not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There canno .....

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observed earlier, running of working womens hostel, womens service center and canteen is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption under sec.11 of the Act. 8.8. Now, coming to the denial of depreciation on the assets purchased before the financial year 2008-09, we are of the opinion that the income of the assessee has to be computed in accor .....

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5,700/- as exempt under sec.11 of the Act. There is a short fall in application of income of ₹ 2,02,45,684/-. In the memo of income filed along with the return of income, the assessee stated that it exercised an option u/s.11(2) of the Act. The assessee did not file form 10 along with return of income and not enclosed a copy of the resolution passed by them. The assessment was completed u/s.143(3) of the Act The assessment was taken for scrutiny u/s.143(2) of the Act. During the course of .....

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lling construction of shelter homes, vocational training and running of non-formal education centres for imparting informal education, programmes for disadvantaged children in pre-school, programmes for women welfare through Self Help Groups, programmes for domestic workers training, construction and running of working womens hostel, youth development programmes, etc." In the revised return the assessee trust has included the income of ₹ 1,56,35,700/- which was claimed as exempt u/s 1 .....

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ounts for the year ended 31/03/2006 and copy of resolution dated 19.9.2008. A report on assessee's condonation petition was submitted to the DIT(E). The condonation was not received till 31.12.2008. Hence, the assessment under sec.143(3) was completed on 31.12.2008 rejecting the Form 10 filed by the assessee. The CIT(A) vide ITA No.103/08-09 dated 31.12.2009 dismissed the appeal by the assessee. The assessee then went to ITAT against the order of the CIT(A) which restored the entire issue to .....

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ome of the society while applying 85% of income, to tax, is as per law. However, on appeal, the CIT(Appeals), on this issue as in assessment year 2009-10, observed that the assessee is not a charitable society to grant exemption, as the predominant activities of the assessee is commercial in nature, the assessee cannot be construed as engaged in charitable activities. Accordingly, the CIT(A) directed the AO to withdraw the exemption granted to the assessee u/s.11 of the Act and enhance the asses .....

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society was framed on 13.07.1976 and is duly registered with the District Registrar, Chennai. The society was framed with the following objectives: i) To assist people, to initiate, organize, establish and execute developmental programmes aimed at the relief, and development of the poor of all castes and creeds and to create an awareness in them to improve their socio-economic status. ii) To co-operate and co-ordinate with the various departments of State and Central Government, Non- Governmenta .....

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develop cooperation and collaboration in order to solve their social and economic problems. v) To provide vocational training in tailoring, embroidery, handicrafts acquire self-reliance and opportunities for gainful self-employment and rehabilitation for the socially, intellectually and physically handicapped persons. vi) To encourage community health practices and to impart health care and social awareness education to the weaker sections and marginalized sections of the people especially the .....

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relevant means and methods wherever it is necessary. ix) To organize savings schemes and credit societies procure insurance policies and promote co-operative efforts to enhance their purchasing power and to improve their socioeconomic status of the communities. 13.1 The ld. AR submitted that the assessee filed its return of income for the assessment year 2006-07 on 30.10.2006 admitting income of Rs. NIL after claiming exemption u/s 11 of the Act. The Assessing Officer observed that the assessee .....

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t entitled for exemption u/s 11 of the Act. The assessee filed an appeal against the order of the Assessing Officer before the CIT(A), who dismissed the appeal by order dated 31.12.2009. On further appeal before the Tribunal, vide its order dated 24.03.2010 in ITA No. 253/Mds/10, restored the entire issue to Assessing Officer for fresh adjudication. In the meanwhile the DIT (E) had passed order dated 11.11.2009 condoning the delay in the appellant's filing of Form No.10. 13.2 The Assessing O .....

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and counselling, construction of shelter homes, vocational training and running of non-formal education centres for imparting informal education, programmes for dis-advantaged children in free-school, programme for women welfare through Help-Help Groups, programmes for domestic workers training, construction and running of working women hostel, youth development programmes etc" 13.3 The Assessing Officer held that the purposes specified in Form No.10 were not specific and therefore the asse .....

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er & Children (293 ITR 380)(Delhi) and CIT v. Hotel & Restaurant Association (261 ITR 190)(Delhi). 13.4 On appeal, the CIT(A) upheld the action of the Assessing Officer and confirmed the denial of exemption for the 'excess' accumulation. It is submitted that the CIT(A) has not appreciated that the assessee had not reproduced all the objects in a mechanical fashion. The purpose mentioned in Form No.10 clearly referred to the construction of centre homes, non-formal education centr .....

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thiah Chettiar Family Trust cited supra, the Madras High Court observed that the assessee had verbatim repeated all the objects of the Trust as under: "(i) to establish and maintain and manage hospitals, clinics, laboratories and medical research centres and to provide the poor with medical relief, surgical advice and aid; (ii) to acquire or take over any hospitals, clinics, laboratories or research centres and to maintain and manage them; (iii) to establish, maintain and manage educational .....

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; The Hon'ble Court held that mere repetition of all the object clauses would not be sufficient compliance. 13.5 According to the ld. AR, in the assessee's case, the purpose of construction of buildings to conduct the charitable activity of the assessee have been clearly spelt out. The CIT(A) ought to have accepted the assessee's reliance on the decisions of the Delhi High Court in the cases of DIT(Exemption) v. Daulat Ram Education Society (278 ITR 260), DIT v. Mitsui And Co. Enviro .....

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the CIT(A) also erred in not appreciating that the DIT (E) had condoned the delay after applying his mind to the issue of eligibility of the assessee for exemption and the genuineness of the purposes mentioned in Form No.10. Once the DIT(E) had admitted the Form No.10 filed by the assessee, the Assessing Officer and the CIT(A) could not go into the correctness of the decision of the DIT(E). It is also submitted that the DIT(E) has only followed the CBDT Circular No.273 dated 03.06.1980 in this m .....

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assessment year 2009-10, which itself was a separate matter challenged in appeal before the CIT(A). Moreover the AO, had relied on the amendments made to Section 2(15) by the Finance Act 2008 with effect from 01.04.2009. By this amendment the definition of charitable purpose was altered to exclude any activity in the nature of business where the purpose of the charitable institution was an object of general public utility. The CIT(A) therefore acted contrary to the provisions of Law as it stood .....

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ahani & Others, dated 20.7.2007, wherein the Tribunal followed its earlier order in the case of Estate of Maligal Merchant v. ADIT & Others in ITA Nos.1524 & 2312 to 2320/Mds/2004 dated 7.6.2005 and held as under: "Taking into consideration the entire conspectus of the facts, we are of the opinion that it is sine quo non for enabling the benefit of section 11(2) that trust must specify its purposes while making application for exemption in Form No.10. Benefit of section 11(2) ca .....

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he view taken by the Revenue Authorities. As such, we uphold the impugned order." Further he submitted that the said order of the Tribunal to be followed and the issue to be decided in favour of the Revenue. 15. We have heard both the sides and perused the material on record. The lower authorities denied the benefit of sec.11 on the reason that the assessee has not specified the "specific purposes" for which the accumulation of income is sought for. In the absence of mentioning of .....

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to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditio .....

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nal High Court in the case of CIT v. MCT Muthiah Chettiar Family Trust (supra), wherein it was held as under: "The trust is allowed to accumulate its income for a maximum period of ten years. The condition is that the trust should specify in the prescribed form the purpose for which the income is accumulated or set apart. It is not enough for the trustees to repeat the objects of the trust, but they must specify a particular purpose for which the income is being accumulated." Similar v .....

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r accumulation may not be precluded but it must depend on the exact and precise purposes for which the accumulation is intended for the statutory period of ten years. The generating of the objects of the trust cannot take the place of specificity of the need for accumulation." 17. Considering the above position of law, we are inclined to uphold the order of the CIT(Appeals) on this issue. 18. Further, the CIT(Appeals) enhanced the assessment on the assessee because the activities carried on .....

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assessee-Trust is formed. Aims and objectives of the trust are as under: i) To assist people, to initiate, organize, establish and execute developmental programmes aimed at the relief, and development of the poor of all castes and creeds and to create an awareness in them to improve their socio-economic status. ii) To co-operate and co-ordinate with the various departments of State and Central Government, Non- Governmental Agencies, local bodies at various levels to enable the Society, to carry .....

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economic problems. v) To provide vocational training in tailoring, embroidery, handicrafts acquire self-reliance and opportunities for gainful self-employment and rehabilitation for the socially, intellectually and physically handicapped persons. vi) To encourage community health practices and to impart health care and social awareness education to the weaker sections and marginalized sections of the people especially the women and children from Chennai City slums in the field of HIV / AIDS, Dru .....

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gs schemes and credit societies procure insurance policies and promote co-operative efforts to enhance their purchasing power and to improve their socioeconomic status of the communities. 20. It is to be noted that section 11(1) of the Act grants exemption to the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. There is no exhaustive definition of the words "property held under .....

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ns of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business." 21. Thus, if a property is held under trust, and such property is a business, the case would fall u/s. 11(4) and not u/s. 11(4A) of the Act. Section 11(4A) of the Act would apply only to a case where the business is not held under trust. Thus, there is di .....

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g of working women's hostel, women's service center and canteen was not held under trust, but it was business commenced/carried on by the Society, subsequent to the formation of trust. Though the business was commenced by the Society and it was carried on by the Society after its formation, it cannot be said to constitute property held under trust. U/s. 11(4), it is only the business which is held under the trust that would enjoy exemption in respect of its income u/s. 11(1) of the I.T. .....

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r trust at the time of formation of the trust was not spelt out in the Memorandum of Association of the assessee. The running of working women's hostel, women's service center and canteen was 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 working women's hostel, women's service center and canteen was not even in the contemplation of the Memorandum of Association .....

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xemption from tax only where the property is itself held under trust or other legal obligation; it does not apply to cases where a trust or legal obligation is not created on any property but only the income derived for a charitable or religious purpose. Surplus funds of a trust, which was claimed to be exempt on the footing that it was property held under trust within the meaning of sec. 11(1) of the Act, was not property held under trust since the property from which the surplus was generated .....

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etween the activities relating to running of working women's hostel, women's service center and canteen carried on and the attainment of the objects of the trust, which are basically to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self-reliance among the members of the public and other objects enumerated in the preceding paragraph in 19. The mere fact that whole or some part of the .....

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idental to those objectives. 24. It was contended by the Ld. AR that the surplus funds generated from the running of working women's hostel, women's service center and canteen was spent towards charitable activities and therefore, the assessee is entitled for exemption u/s. 11(4) of the I.T. Act. We are unable to accept this contention. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provis .....

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t 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". 26. Prima facie the above observation would appear to support the asses .....

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