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2016 (8) TMI 80 - ITAT CHENNAI

2016 (8) TMI 80 - ITAT CHENNAI - TMI - Entitlement to exemption u/s 11 - activities carried on by the assessee in the form of running of community hall, "Suguna Auditorium Hall" - treatment of income earned from auditorium as business income instead of treating the same as income exempted u/s.11 of the Act - Held that:- We fail to see any connection between the activities relating to running of "Suguna Auditorium Hall" was carried on and the attainment of the objects of the trust. The mere fact .....

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hose objectives. - Being so, we are inclined to hold that the assessee is not entitled for any exemption u/s. 11 of the I.T. Act. - 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. - Decided against assesse .....

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ich a condonation petition has been filed. Reasons shown are justifiable and hence delay is condoned and appeal admitted. 2.1 The grievance of the assessee in this appeal is with regard to treatment of income earned from auditorium as business income instead of treating the same as income exempted u/s.11 of the Act. 3. The facts of the case are that the assessee is a charitable trust whose income is exempt u/s.11 of the Act. The assessee trust was formed with the main objective of alleviating hu .....

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onal institution claiming exemption u/s.11 to 13 of the Act. The AO having accepted the assessee trust s predominant objective as educational in nature should have appreciated the fact that its excess income over expenditure will not attract the proviso to sec.2(15) of the Act. The main objective of assessee trust is charitable purpose, which enables the proviso to sec.2(15) of the Act and therefore, the excess of income over expenditure is not liable to tax as per the provisions of the Act.The .....

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ld that the income from the auditorium is directly hit by the provisions of Section 11(4A) and also Section 2(15) of the Act. In the case of the appellant Trust, the predominant objective are educational in nature. Running an Auditorium in the name of Community Hall is in no way incidental to the objects of educational, medical and relief to the-poor. It is a fact that the surplus of income from the Community Hall is used for the objectives of the Trust. However, running of the Community Hall on .....

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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. Provided further, that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ₹ 10 Lakhs or less in the previous year. Thus, provisions of sec.2(15) are abundantly clear and does not require any interpretation. The AO has rightly treated the receipts from the running of community hall as .....

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ature of trade, commerce or business. It was further submitted that the AO invoked sec.13(8) and made sections 11 & 12 not applicable. It was also stated that the main objects of the Trust mentioned in Clause 2(a),(b) and (c) are educational in nature and mentioned in Clause 2(d) is medical relief to poor. 4.1 The ld. AR contended that the AO erred in treating the receipts of "Suguna Auditorium Hall" as business income and denied exemption u/s 11(4A) of the Act. The ld. AR also con .....

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n. 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. 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. He further argued that the major activity of the trust is running of the educational insti .....

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th 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 the case of the assessee and plea was made to delete the additions made. He submitted that the assessee being a registered Trust, having constructed an Auditorium on the land owned by the assessee trust for the said purpose and letting out the same for social and charitable activities collecting only nominal rent as per agreed .....

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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, "Suguna Auditorium Hall" was itself held under the Trust. For this purpose it is proper to go through the objects for which assessee-Trust is formed. The objects for which the Trust established are : a. To spread education and for achieving the said object to establish, maintain, run, develop an .....

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a, for the study, research and apprenticeship for all or any of the aforesaid educational purposes. d. To establish, maintain, run, develop, improve, extend, grant donations for and to aid and assist in the establishment, maintenance, running, development, improvement and extension of hospitals, clinics, X-ray plants, dispensaries, materinity houses, recreation centres and all similar institutions, as well afford treatment, cure, rest, recuperation and other advantages calculated to alleviate hu .....

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h such income is applied to such purposes in India. There is no exhaustive 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 .....

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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 .....

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ect of its income u/s. 11(1) of the I.T. Act and 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 formatio .....

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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, was 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 the property is itself held under trust or ot .....

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ss 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 "Suguna Auditorium Hall& .....

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nected 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 "Suguna Auditorium Hall" 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. Th .....

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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 employed, the provision must be construed in a manner that benefits the assessee . 13. Prima facie the above observa .....

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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 attainment of the object of the trust, namely that of imparting education and the profits of the newspaper business are utilized by the trust for ach .....

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upreme 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 con .....

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