TMI Blog2021 (2) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... e said rate cannot be considered to be at exorbitant rate, as observed by the tax authorities. Assessee is running a women s hostel charging rent of ₹ 5,300/- per month for twin sharing room and ₹ 4000/- per month for four sharing room - We notice that the AO does not appear to have confronted the inspector s report with the assessee. No comparable cases to prove the above said submission has also been brought on record. In any case, the Ld A.R submitted that the above said rate includes three times meals, electricity charges, water charges etc. Under these set of facts, in the absence of any other comparable case, we are of the view that there is merit in the submissions made by Ld A.R on this issue. Assessee is generating surplus year after year - The important point to be noted here is that, so long as the assessee has been utilizing its income derived from the property held under the trust for its charitable objectives, the provisions of sec.11 do not deny exemption to a charitable trust. Hence, mere generation of surplus cannot be a reason to deny exemption u/s 11 of the Act. The AO might have highlighted this aspect to drive the point that the activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of this Hon ble Tribunal in the case of Asst. Director of Income-tax (Exemptions) vs. Bharatha Swamukhi Samsthe dt. 24.12.2008 in ITA No.1121/Bng/2008 (A.Y. 2005-06) with regard to micro finance activities of the appellant trust. 3. The CIT(A) further grossly erred in seriously ignoring the binding circular relied on by the appellant viz., circular no.11/2008 F.No.134/34/2008-TPL dated 19.12.2008 wherein it has been categorically clarified that even if a trust carries on commercial activity incidentally, the same is not violative of section 11(4A) of the Act. 4. Without prejudice, the CIT(A) ought to have appreciated that the case of the appellant was mainly providing relief of the poor since the appellant trust mainly works for upliftment of under privileged women/destitute/women prisoners released from jail etc and therefore the case of the appellant is covered under section 2(15) clause (i) itself and accordingly he ought to have reversed the disallowance made by the assessing officer. 3. The facts relating to the case are stated in brief. The assessee is a charitable Trust and it was granted registration u/s 12A of the Income-tax Act,1961 ['the Act' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee cannot be treated as charitable in nature. He also expressed the view that the assessee is generating surplus year after year, which is not possible if the assessee is involved in relief of poor. Accordingly, the A.O. rejected the claim of exemption u/s 11 of the Act. The A.O. also observed that he has made a proposal for cancellation of registration u/s 12A of the Act to Director of Income Tax (Exemption). Accordingly, he denied exemption u/s 11 of the Act and computed total income of the assessee by ₹ 81.69 lakhs. 6. The Ld CIT(A) confirmed the assessment order passed by the AO and hence the assessee has filed this appeal before us. 7. The Ld. A.R. submitted that the assessee is engaged in the activity of providing relief to poor, particularly for poor and destitute women. Its charitable activities, inter alia, include running a women s hostel at concessional rates. As per the report of the Inspector of Income tax, the rent charged by the assessee was in the range of ₹ 5300/- ₹ 4000/- per month depending upon number of beds in a room. The AO has held that the rates charged by the assessee are at par with commercial rates, even though the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on micro finance activities and hence it would not fall under the category of trade, commerce or business mentioned in the proviso to sec. 2(15) of the Act. Further, the assessee is a Charitable Trust providing relief to the poor. The proviso to sec. 2(15) shall apply only to those trusts which carry on objects of general public utility. Hence the proviso to sec. 2(15) would not apply to it. Further, the Ld. A.R submitted that the AO has also observed that the assessee is making surplus year after year. She submitted that surplus generated by the assessee year after year would not dis-entitle it from claiming exemption u/s 11 of the Act, when the surpluses are used for the objects of the trust. In support of above said propositions, the Ld. AR. placed reliance on the following case laws:- a) CIT Vs. Lucknow Development Authority (2014) 98 DTR 0183 (Allahabad) b) Ahmedabad Urban Development Authority Vs. ACIT (2017) 396 ITR 323 (Gujarat) 10. The Ld. A.R. submitted that the AO has also expressed the view that the amendment made by the assessee to the object clause of the Trust deed was not intimated to DIT (E) and his approval was not obtained. However, the said amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. She submitted that the activities carried on by the assessee fall under the category of relief to poor and the same has been accepted by the AO in the past and in the subsequent years. Hence the AO should not have taken a different view during the year under consideration alone. 14. We have heard rival contentions and perused the record. We notice that the Ld CIT has granted registration u./s 12A of the Act to the assessee accepting that the assessee is a public charitable trust. The original objects of the assessee trust as per Trust deed dated 02-04-1987 read as under:- The objects for which the Trust has been created is for Charitable purposes and object of promotion integral development of people physical, educational, mental, psychological, economic, social and character development of deserving and needy people in India . The activities of the Trust shall be aimed at improving and developing the living conditions and general welfare of the people in India and their environment, including farmers and other indigent people, irrespective of language, race, community, caste, religion or creed. Subsequently, it has amended the Trust deed by registering a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period under consideration. Accordingly the ld A.R has contended that the rate of interest charged by the assessee cannot be considered to be exorbitant. We find merit in the said contentions. As submitted by Ld A.R, the rate of interest of 14% is the normal rate charged by the banks for its lending and hence the said rate cannot be considered to be at exorbitant rate, as observed by the tax authorities. Hence the case laws relied upon by the tax authorities, viz., Kalanjiam development financial services (supra) and Janalakshmi Social Servicies (supra) are distinguishable on facts. 16. The next reason given by the AO is that the assessee is running a women s hostel charging rent of ₹ 5,300/- per month for twin sharing room and ₹ 4000/- per month for four sharing room. According to the AO, which is based on report given by an Inspector, the above rates are commercial rates. We notice that the AO does not appear to have confronted the inspector s report with the assessee. No comparable cases to prove the above said submission has also been brought on record. In any case, the Ld A.R submitted that the above said rate includes three times meals, electricity charges, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellation of registration granted to the assessee u/s 12A of the Act. The Ld A.R submitted that the AO himself has granted exemption in all the years except the year under consideration and further the registration granted u/s 12A also remain intact till date. In any case, there is no dispute with regard to the fact that the assessee was having registration u/s 12A of the Act during the year under consideration. In that case, the proposal of the AO, if accepted, would apply to the future years only. Hence the exemption u/s 11 should not have been denied by the AO for the year under consideration on this reasoning. 20. In view of the above said discussions, we are of the view that none of the reasons given by the AO would enable him to reject the exemption u/s 11 of the Act. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the assessment order passed by the AO for the year under consideration. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to grant exemption u/s 11 of the Act to the assessee for the year under consideration. 21. In the result, the appeal filed by the assessee is allowed. Order pronounced in the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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