2012 (3) TMI 345 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 13(1)(b) to the assessee-trust.
2. Applicability of section 11(4A) regarding business income and maintenance of separate books of accounts.

Summary:

Issue 1: Applicability of section 13(1)(b) to the assessee-trust

The Revenue challenged the Commissioner of Income-tax (Appeals) decision that section 13(1)(b) does not apply to the assessee-trust, arguing that the trust, established in 1934 and trifurcated in 1977, works exclusively for the benefit of Khoja Muslims. The assessee claimed that section 13(1)(b) only applies to trusts created or established after 1961. The Commissioner of Income-tax (Appeals) found that the trifurcation did not create a new trust but merely divided the original trust for better management without altering its original objects. Therefore, section 13(1)(b) was deemed inapplicable, and the trust continued to enjoy exemption u/s 11. The Tribunal upheld this view, noting that the trust's charitable nature and objectives remained unchanged since its inception in 1934.

Issue 2: Applicability of section 11(4A) regarding business income and maintenance of separate books of accounts

The Assessing Officer argued that the assessee-trust was running a hotel business and thus required to maintain separate books of accounts u/s 11(4A). The Commissioner of Income-tax (Appeals) concluded that the trust was not engaged in business activities but merely received rental income from M/s. Vembly Hotels, which conducted the hotel business independently. Clause 41 of the agreement explicitly prohibited the trust from interfering in the hotel operations. Consequently, the income was considered rental income, not business income, and section 11(4A) was deemed inapplicable. The Tribunal affirmed this decision, noting that the trust's income was not from business activities but from property rent, thus maintaining its exemption u/s 11.

Conclusion:

Both appeals by the Revenue were dismissed, and the Tribunal upheld the Commissioner of Income-tax (Appeals) decisions, confirming that the assessee-trust is entitled to exemptions u/s 11 and that sections 13(1)(b) and 11(4A) do not apply to the trust's circumstances.