2012 (8) TMI 553 - AT - Income Tax

Exemption u/s 80G - refusal on account of expenditure on religious activities, expenditure incurred on jewellery meant for dressing up of Goddess, engagement in business activities - alleged violation of section 13 by giving Trust premises on rent to Dr. Sharma, without charging adequate compensation - Held that - On objections of DIT (Exemption), assessee contended that temple in question is very small in size and the same was not constructed by the Trust - amount spend on jewellery is less than 5% of the capital of the Trust - Dr Sharma, Chairman of the Trust, is mainly engaged in conducting Memory Classes for the objects of the Trust and is rendering services to the Trust without charging any fee - Services rendered by Dr.Sharma should be deemed as other compensation - sale of CDs, medicines, etc. are intrinsically linked connected with the trust activity of teaching and conducting memory classes. In view of aforesaid, matters are set aside to the file of the DIT (Exemption) for fresh examination of the arguments and counter arguments - Decided in favor of assessee for statistical purposes.

Issues involved:
1. Denial of approval under S.80G(5) of the Act by the Director of Income-tax(Exemption) Hyderabad.
2. Objection regarding expenditure on religious activities and denial of exemption under S.80G by the Director.
3. Applicability of clause (ii) of Explanation 2 of S.80G and the restriction of 5% on capital account.
4. Allegation under clause (b) of sub-section 2 of S.13 regarding charging adequate compensation for premises rented to Trust Chairman.
5. Denial of deduction instead of exemption for violation of S.13(2)(b) of the Act.
6. Business activity of selling CDs, medicines, and books by the trust affecting charitable status and eligibility for recognition under S.80G.

Analysis:

1. The appeal challenged the rejection of approval under S.80G(5) by the Director of Income-tax(Exemption) Hyderabad. The appellant argued the Director's decision was arbitrary, focusing on the objection related to expenditure on religious activities. The appellant contended that the temple on the premises was small and not constructed by the Trust, and the jewelry for Goddess Saraswathi was a small fraction of the Trust's capital. The Tribunal found merit in these arguments and remanded the matter for fresh examination by the Director.

2. The issue of charging adequate compensation for premises rented to the Trust Chairman was raised under clause (b) of sub-section 2 of S.13. The appellant argued that the services rendered by the Chairman should be considered as 'other compensation,' and the charges paid by the Trust should be seen as equitable. The Tribunal agreed with the appellant's arguments and directed the Director to reexamine the rental income and charges, emphasizing the need for reasonable opportunity of hearing to the assessee.

3. The appellant also contested the denial of deduction for violation of S.13(2)(b) of the Act. The Tribunal set aside the Director's order on this issue and remanded it for fresh adjudication, aligning with the findings on other aspects of the case.

4. The final issue pertained to the business activity of selling CDs, medicines, and books by the trust, impacting its charitable status under the proviso to Section 2(15) of the Act. The Tribunal noted that the business activity was linked to the trust's educational objectives and should not be viewed in isolation. The matter was remanded to the Director for further examination, considering relevant legal precedents and providing a fair hearing to the assessee.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a thorough reevaluation by the Director of Income-tax(Exemption) Hyderabad on various grounds raised by the appellant.

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