2013 (10) TMI 1361 - AT - Income Tax

Exemption u/s 11 - Held that - In the present case, there is no dispute on the fact that the assessee is carrying on the business of running an International Guest House (IGH) and Working Women s Hostel (WWH). Assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of IGH and WWH is a business incidental to the attainment of the objectives of the trust or not. By any stretch of imagination, it is not possible to hold that the business of running IGH and WWH are incidental to the above stated objectives of the assessee-Trust. Incidental means offshoot of the main activities; inherent by-product of principal activities. Activities to compliment and support the main objectives are not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities and another source for incidental activities. In the present case, even if the activities of the assessee are stated to be relief of the poor, medical relief and education, it is not at all possible to hold that running of the business in the form of IGH and WWH are business incidental to the carrying on of main objective of the assessee-Trust. Therefore, the assessee is not protected by the provision stated in Section 11(4A), either.

Summary

Issues:
Assessment of charitable institution's income under Section 11 and applicability of proviso to Section 2(15) and Section 11(4A).

Analysis:
The case involved an appeal by a charitable institution, Young Women's Christian Association (YWCA), against the order of the Commissioner of Income-tax(Appeals)-XII at Chennai regarding the assessment year 2009-10. The primary issue was whether the income generated by the institution, mainly from interest, subscriptions, donations, and running a Working Women's Hostel (WWH) and an International Guest House (IGH), qualified for exemption under Section 11 of the Income-tax Act, 1961. The Assessing Officer contended that the proviso to Section 2(15) applied to the institution, limiting its eligibility for exemption under Section 11 due to the business receipts from IGH and WWH.

The assessee argued that its activities, focusing on relief of the poor, education, and medical relief, were charitable in nature and fell within the scope of Section 11. The institution emphasized that the income from IGH and WWH was used for charitable purposes, and therefore, should not be excluded from the relief under Section 11. The institution also relied on Section 11(4A) to support its claim that the business activities were incidental to its main objectives.

Upon detailed consideration, the Tribunal found that the activities of the institution, though beneficial to the poor, did not strictly align with relief of the poor, education, or medical relief as defined under Section 2(15). Instead, the institution's activities were categorized as "advancement of any other object of general public utility," triggering the proviso to Section 2(15) and disqualifying it for exemption under Section 11 for income from IGH and WWH. Additionally, the Tribunal ruled that the business operations of IGH and WWH were not incidental to the institution's main objectives, as required by Section 11(4A), further justifying the denial of exemption under Section 11 for the income generated from these commercial activities.

In conclusion, the Tribunal upheld the lower authorities' decisions, dismissing the appeal of the assessee. The judgment emphasized the importance of aligning the institution's activities with the specific charitable purposes outlined in the law to qualify for tax exemption under Section 11, highlighting the significance of maintaining a clear distinction between charitable and commercial operations for tax purposes.