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TMI Blog2016 (5) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... d thus erred in applying the provisions of sec.13(8) of the Act to all the incomes of the assessee. 5. The CIT(A) erred in disallowing exemption u/s 11 and 12 of the Act. 6. The CIT(A) erred in failing to appreciate the charitable nature and functions being carried out by the assessee. 7. For these grounds and such other grounds that may be adduced before or during the hearing of the appeal, it is prayed that the Hon'ble Tribunal may be pleased to pass such other orders as the Hon'ble Tribunal deem fit." 3. The facts of the case as narrated in the assessment year 2010-11, are that the assessee is a society registered under the Societies Registration Act. It got its approval u/s 12AA of the Act from the CIT, TN-III, Madras vide his order in C.No.1146-111(168)/80 dated.09.06.1981. The society filed its return for the AY 2010-11 on 21.10.2010 admitting 'nil' income. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued accordingly. Notice u/s 142(1) of the Act was also issued. In response to the notice, Shri G.Kumar, FCA appeared from time to time and filed the details called for. After scrutinizing the details filed and discussing the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption u/s 11(4A) of the Act. Reliance was placed on the decision of Supreme Court in the case of ACIT vs Thanthi Trust (200) 247 ITR 785. The AO also observed that the activities of the society are covered by the provisos to sec.2(15) of the Act and relied on the following decisions. 1. State of Gujarat vs Raipur Mfg. Co. (1967) 19 STC 1 (SC). 2.State of AP vs H. Abdul Bakhi & Bros. (1964) 15 STC 664 (SC). Since the proviso to sec.2(15) of the Act is invoked, the provisions of sec.11 & 12 of the Act become inoperative. The entire earnings are the income of the society. While the revenue expenditure corresponding to such income earning activity is alone allowed, expenses of capital nature and expenditure not connected to the income earning activity are not eligible to be allowed as expenditure. The taxation of income is not confined to the income derived from the units which operated like a business entity. Sec.13(8) of the Act prohibits applicability of sec. 11 & 12 of the Act in respect of any income of the society and is not restricted to the business activity of the society. Therefore, the surplus derived by the society is entirely brought to taxation. The amount spent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety. 4.2. In the written submission, the ld. AR argued that the question as to whether a particular activity is in the nature of business or not has to be decided on a case to case basis. Reliance was placed by the assessee on the decision of Supreme Court in the case of Sultan Brothers (P) Limited vs CIT (1964) 51 ITR 353 (SC). The ld. AR also argued that the Supreme Court decision in the case of ACIT vs Thanthi Trust (2001) 247 ITR 785 is not applicable to the facts of this case. He further argued that the major activity of the trust is running of the educational institution, as the quantum of receipts show. It was also argued that the rates charged for mandapams and Gnanavapi are small and not a commercial rate of fees charged for mandapams of similar dimensions. It was emphasized that the society has been running the educational institution simultaneously with the other activities. The surplus from the other activities was only going to meet the shortfall in the income of the educational institution. The other activities are not run on commercial lines with the objective of earning a profit and hence the surplus from these activities should be exempted from tax. It was urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Philosophy. c. To organize conferences, lectures, meetings, classes, receptions, competitions, discourses to promote Bharathiya Culture, Art and Philosophy. d. To establish, maintain and subsidise dispensaries to give or aid in giving free medical treatment to peer and deserving. e.To feed and to give clothes, free of cost to the poor and needy, without any distinction of caste or creed. f. To feed and to give clothes, free of cost to the poor and needy, without any distinction of caste or creed. g. To establish schools, colleges, universities, research institutions and public libraries as centers of learning and education. h. To institute and award fellowships, scholarships, school or college fees, gift of school or college books to poor and deserving students. i. To provide for establishment of buildings with facilities for performances of customary and traditional rites connected with funeral obsequies to poor and ne irrespective off caste, creed or religion. j. To subscribe to any public charitable institution and to grant donation for any public charitable purposes. k.To take over or merge with any charitable institution established to carry out any or all of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (3A) 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 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." 8. 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 difference between property or business held under trust and business carried on by or on behalf of the trust. 9. This distinction was recognized by the Supreme Court in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 wherein it was observed that if a business undertaking is held under trust for a charitable purpose, the income therefrom would be entitled to the exemption u/s. 11(1) of the Act. In the present case, the finding of the CIT(A) is that running of community hall Kalyanamandapam and funeral ceremony hall were not held under trust, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust. In other words, merely carrying on business for and on behalf of the trust and applying the profits of the same for the object of the trust does not entitle for exemption u/s. 11(4) of the Act unless the business is incidental to the attainment of the objects of the trust. 10. We now proceed to consider the question whether the said activities carried on by the assessee were incidental to the attainment of the objects of the trust. We fail to see any connection between the activities relating to running of community hall, kalyanamandapam and funeral ceremony hall were carried on and the attainment of the objects of the trust. The mere fact that whole or some part of the income from running of community hall, kalyanamandapam and funeral ceremony hall are used for charitable purposes would not render the business itself being considered as incidental to the attainment of the objects. We are in agreement with the Department that the application of income generated by the business is not relevant consideration 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 obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness are utilized by the trust for achieving the object of imparting education. In this case, there is no such nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, 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 etc. We are therefore, of the opinion that the observations of the Supreme Court must be understood and appreciated in the background of the fact in that case and should not be extended indiscriminately to all cases. Being so, we are inclined to hold that the assessee is not entitled for any exemption u/s. 11 of the I.T. Act. 15. Further, 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. In our opinion, this issue is squarely covered by the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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