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Income Tax Officer (Exemption) -II, Hyderabad Versus M/s. Kalinga Cultural Trust

2016 (1) TMI 1024 - ITAT HYDERABAD

Eligibility for exemption under S.11 - CIT(A) allowed the claim - Held that:- As decided in assessee's own case for earlier years there being no dispute to the fact that dominant object of assessee is charitable in nature, proviso to section 2(15) cannot be applied to deny exemption to assessee u/s 11 of the Act. In our view, AO without examining the issue in proper perspective has abruptly concluded that assessee is not entitled to exemption u/s 11 of the Act only because proviso to section 2(1 .....

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tion 2(15) cannot be applied to assessee to deny exemption u/s 11 of the Act. In view of the aforesaid, we do not find any merit in the submissions of the ld. DR so as to disturb the finding of the ld. CIT(A) on this issue - Decided in favour of assessee

Disallowance u/s 40A(3) - Held that:- Once the claim of the assessee for exemption under S.11 has been accepted, the disallowance made by the Assessing Officer under S.40A(3) has no legs to stand, and the ground of the assessee before .....

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held that the assessee is eligible for exemption under S.11 of the Act. 2. Brief facts of the case are that assessee is a society registered under S.12A of the Act. The return of income for the year under consideration was filed by it on 27.9.2011 declaring total income of Rs.Nil, after claiming exemption under S.11. During the course of assessment proceedings under S.143(3) of the Act, the claim of the assessee for exemption under S.11 was examined by the Assessing Officer and on such examinat .....

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Account of ₹ 47,34,150. Consequent to the disallowance of exemption u/s.11 of the Act, the Assessing Officer also disallowed an amount of ₹ 39,000 invoking the provisions of S.40A(3), and completed the assessment on a total income of ₹ 47,73,150 vide order of assessment dated 24.3.2014 passed under S.143(3) of the Act. 3. On appeal, the learned CIT(A) following the consistent view taken by the fist appellate authority in assessee s own case for preceding years, viz. Assessment .....

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re us. 5. Having heard both the parties and having considered the rival contentions in the light of the material on record, we find that the claim of the assessee for exemption under S.11 of the Act has been denied on the ground that the activity of the assessee in running the function hall and deriving rental income is of a commercial nature in terms of proviso to S.2(15) of the Act, and also that constructing and maintaining a temple is not amongst the aims and objects of the society and is no .....

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nd 1067/Hyd/2012 for assessment years 2006-07 to 2008-09; and dated 3.7.2015 in ITA Nos.33 and 339/Hyd/2015 for assessment years 2009-10 and 2010-11 respectively. A copy each of both these orders have been furnished before us by the learned counsel for the assessee alongwith the written submissions filed by him. 6. In its recent decision dated 3.7.2015 in assessee s own cases for the assessment years 2009-10 and 2010-11, the Tribunal, besides taking note of the earlier order of the Tribunal date .....

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orders of revenue authorities. As could be seen from the assessment order, AO has denied exemption u/s 11 to assessee primarily on two reasons, firstly, because assessee is constructing Jagannadha Temple, which, according to AO, is neither in accordance with the aims and objects nor a charitable activity. The second reason is, after introduction of proviso to section 2(15) of the Act, assessee looses its character of trust having been established for charitable purpose as it has earned income by .....

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emple is not only in furtherance of the aims and objects of assessee society but, is also a charitable activity. In view of the aforesaid, we do not find any merit in the submissions of the ld. DR that construction of Jagannadha Temple is not a charitable activity. As far as the second reason for denying exemption u/s 11 is concerned, it is the allegation of AO that as assessee was involved in commercial activity by generating income by letting out function hall, selling souvenir, etc, it is not .....

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here is any substantial change in the aims and objects of assessee. Therefore, keeping in view the aforesaid facts, it has to be decided whether the introduction of fist proviso to section 2(15) by the Finance Act, 2008 w.e.f. 01/04/09 would automatically disentitle the assessee from being considered as having been established for charitable purpose and thereby depriving it from claiming exemption u/s 11 of the Act. A plain reading of section 2(15) of the Act, also makes it clear that the provis .....

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n profit. The proviso is never meant to deprive genuine trusts and institutions whose main object is charity but in process of achieving the main object they undertake some income generating activity which is ancillary and incidental to the main object. Further, income generated from such activity is also utilized for achieving the main charitable object. The true import and effect of proviso to section 2(15) of the Act came up for scrutiny before a number of High Courts. The unanimous view of j .....

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s. That being the case, a literal interpretation to the proviso to section 2(15) cannot be given if the objects of the exemption provisions are to be given full effect. The Hon ble Delhi High Court in case of Indian Trade Promotion Organisation Vs. director General of Income-tax (E), 371 ITR 333 while interpreting the effect of proviso to section 2(15) of the Act, after analyzing a number of decisions of the Hon ble Supreme Court as well as different high courts observed that the only thing whic .....

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affect the nature of trust as a charitable institution, if, it otherwise qualifies for such a character. It was further observed by the Hon ble High Court that if a meaning is given to the expression charitable purpose so as to suggest that in case of an institution having an object of advancement of general public utility if derives income it would be falling within the exception carved out in the first proviso to section 2(15) of the Act, then, there would be no institution whatsoever which wo .....

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ld not lose its character of having been established for charitable purpose. The Court observed, in this context, the dominant activity of the institution has to be looked into. If the dominant activity of the institution is not business, trade or commerce, then, any such incidental or ancillary activity would also not fall within the categories of trade or commerce or business. The driving force of the trust or institution should not be a desire to earn profit, but, utilize the same for achievi .....

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proviso to section 2(15) of the said Act then the proviso would be at risk of running fowl of the principle of equality enshrined in article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to section 2(15) of the said Act would be that it carves out an e .....

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prime objective has to be seen. If the dominant and the prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a "charitable purpose". On the flip side, where an institution is not driven primarily .....

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n fact, the AO himself in assessment order has admitted that income/fund of assessee is utilized in construction of the temple. Further, the coordinate bench in the said order held, by letting out function hall assessee is not involved in commercial activity so as to disentitle it from claiming exemption u/s 11. Therefore, considered in the aforesaid perspective, there being no dispute to the fact that dominant object of assessee is charitable in nature, proviso to section 2(15) cannot be applie .....

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