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2016 (5) TMI 545 - ITAT CHENNAI

2016 (5) TMI 545 - ITAT CHENNAI - [2016] 47 ITR (Trib) 629 - Entitlement to exemption u/s. 11 - AO held that the business of running community hall, marriage hall and funeral ceremonies hall cannot be treated as incidental business eligible for exemption u/s 11(4A) - Held that:- 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 at .....

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bjects. 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 objectives.Thus the assessee is not entitled for any exemption u/s. 11 of the I.T. Act. - Decided against assessee

Entitlement to depreciation - Held that:- The assessee is not entitled for .....

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s 32 of the Act. - Decided against assessee - ITA Nos. 664 & 665/Mds/2015 - Dated:- 6-4-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For The Appellant : Shri B. Ramana Kumar, Advocate For The Respondent : Shri Sasikumar, JCIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER These appeals by the assessee are directed against the common order of the Commissioner of Income-tax(Appeals) dated 31.12.2014 for the assessment years 2010-11 and 2011- 12. 2. The as .....

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on for income earned and 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 .....

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tice 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 with the authorized representative, the assessment was completed u/s 143(3) of the Act on 25.02.2013 determining the total income at Rs. .25,42,950/-. 3.1 During the course of assessment proceedings, the AO found that the assessee operates a community hall, kalyana mandapam and a unit to .....

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he nature of business income. The AO also held that the deduction u/s 24(a) is also not allowable and relied on the decision of Calcutta High Court in the case of DIT(E) vs Giridharilal Shewnarain Tantia Trust (1993) 199 ITR 215. 3.2 After perusing the objects of the society, the AO held that they are objects of general public utility and cannot be stated that the society exists solely for educational purposes. Reliance was placed on the decision of Bombay High Court in the case of CIT-l, Pune v .....

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ter of application of income serves no purpose and the character of income has gained preponderance in the newly inserted proviso thereby making these earlier precedents inapplicable in the altered scenario. The claims to get income exempted lose relevance when the transactions undertaken by the society existing for the purpose of charity being the object of general public utility are business in nature and hit by proviso to sec.2(15) of the Act. 3.3 The AO held that the business of running comm .....

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. (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 .....

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t, the same is not treated as application. as well. Reliance was placed on the decision of Delhi High Court in the case of Pt. Kanhya Lal Panj Charitable Trust vs DIT(E) 297 ITR 66. The AO also brought to tax the corpus donation of ₹ 8,07,017/- by observing that since sec.11(1)(d) is not in force, corpus donation is taxable. The AO treated the assessee as an AOP and taxed he income at MMR. The facts are similar to the assessment year 2011-12, except changes in figures. Against this, the as .....

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c utility involving any activity in the nature of trade, commerce or business. It was further submitted that the AO invoked sec.13(8) and made section 11 & 12 not applicable. It was also stated that the main activity now of the society is running the school from where the bulk of receipts are coming. 4.1 The ld. AR contended that the AO erred in treating the receipts of community hall, marriage hall and Gnanavapi as business income and denied exemption u/s 11(4A) of the Act. The ld. AR also .....

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tion. The ld. AR was also contended that the receipt from letting were used towards educational activities, medical relief and relief to the poor which amply provides that such activity has been carried out to accomplish the primary purpose of the society. 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 Supre .....

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apams 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 that sec.2(15) of the Act has no application in th .....

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r the proposition when the assessee acquired assets from the income of trust and depreciation was claimed on use of such assets. Further, he relied on the judgment of the Madras High Court in the case of CIT v. Sengunthar Thirumana Mandapam (283 ITR 355), wherein it was held that the assessee being a registered society, having constructed a kalyana mandapam on the land allotted by the Collector for the said purpose and letting out the same for social and charitable activities collecting only nom .....

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CIT in ITA No.2271/Mds/2014 dated 2.6.2015 for the proposition that depreciation claim would mean double deduction. 6. We have heard both the parties and perused the material on record. The issue before us is whether, on the facts and circumstances of the case and having regard to the terms of the Trust Deed, it can be said that the activities carried on by the assessee in the form of running of community hall, kalyanamandapam and funeral ceremony hall were itself held under the Trust. For this .....

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y. 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 aw .....

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d to carry out any or all of the objects of this Society. l. To provide facilities for conduct of marriages and such other auspicious functions according to Bharathiya cultural and traditional requirements at reasonable rates for the poor and needy without any profit motive. m. To promote the cause of vegetarianism by issuing pamphlets, holding seminars, symposiums etc. or such other methods as the Governing Body may decide n. To acquire land and buildings or erect buildings or conveniences nece .....

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invest, deposit or otherwise employ and deal with funds, belonging to and entrusted to the Society in such a manner as may from time to time be determined by the governing body for the purpose of carrying out objects of the Society effectively. r. To borrow or to raise money otherwise, either with or without interest, with or without security for purpose of promoting all or any of the objects of the Society. s. To do all such others things, as are incidental or conducive for the promotion of the .....

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ive definition of the words property held under trust in the Act; however, sub-section (4) says that for the purposes of section 11, the words Property held under trust includes a business undertaking so held . Subsection (4A) as it stands amended by the Finance (No. 2) Act, 1991, with effect from April 1, 1992, is in the following terms: (4A) Sub-section (1) or sub-section (2) or subsection (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being pro .....

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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 ru .....

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nd there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purpose of the trust. Though the objects of the trust were charitable, they were mere powers conferred upon the trustees to carry on the business and the profits from such business would benefit the charitable objects. The exemption u/s. 11 cannot be granted on the reason that the business itself was not in existence at the time of formation of the trust and the property held under tru .....

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h the Society is formed and, therefore, could not have been settled upon trust. The business carried on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the assessee. In this case, the activities viz., running of community hall, kalyanamandapam and funeral ceremony hall were carried on by the assessee for and on behalf of the trust and it was not business held under trust. Section 11(1) of the Act confers exemption from tax only where .....

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st. 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 relatin .....

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ot 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 objectives. 11. It was contended by the Ld. AR that the surplus funds generated from the running of community hall, kalyanamandapam and funeral ceremony hall were 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 .....

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e Supreme Court in the case of ACIT vs. Thanthi Trust (2001) 247 ITR 785 which is as under: As it stands, all that it requires for the business income of a trust 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 .....

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11(4A) of the Act should be held to be satisfied, entitling the trust to the tax exemption. 14. In our opinion, these observations have to be understood in the light of the facts before the Supreme Court in the case of Thanthi Trust (supra), wherein the trust carried on the business of a newspaper and that business itself was held under trust. The charitable object of the trust was the imparting of education which falls u/s. 2(15) of the Act. The newspaper business was incidental to the attainme .....

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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 v .....

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