2014 (1) TMI 125 - AT - Income Tax

Application for registration u/s 12AA - Held that - None of the activities of the assessee-trust, from which the income was received, falls in the definition or scope of the purpose of relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest but at the most can be included within the scope of an activity for advancement of any other object of general public utility - During the previous financial year 2011-12 is concerned, the total receipts of the assessee was much more than the prescribed limit of Rs.10,00,000 - The assessee has also failed to prove that the alleged sanatorium at Lonowala was in fact not used as a Guest house - A perusal of the record on file reveals that the most of the occupants stayed there for a very short duration and the occupancy remained much more during week-ends/holidays - Even on the deposit receipts, it has been mentioned as Atithi Griha and further no one is allowed to stay there for more than seven days - Even if the activities of the assessee trust are considered to be falling in the definition or within the scope of an activity for advancement of any other object of general public utility , still the case of the assessee trust is hit by the second proviso to section 2(15) of the act being its total receipts much more than the prescribed limit of Rs.10 lakhs for the year under consideration - Activities of the institution were not motivated by a spirit of genuine charity but in fact were business or commercial activities - Decided against assessee.

Issues Involved:
1. Rejection of registration as a Charitable Trust under section 12AA of the Income Tax Act, 1961.
2. Determination of whether the activities of the trust were charitable or commercial.
3. Interpretation of "Charitable Purposes" under section 2(15) of the Income Tax Act.
4. Applicability of the provisos to section 2(15) concerning income limits and commercial activities.

Issue-wise Detailed Analysis:

1. Rejection of registration as a Charitable Trust under section 12AA of the Income Tax Act, 1961:
The Assessee-trust filed an appeal against the order dated 29.11.2012 by the Director of Income Tax (Exemptions) [DIT(E)], Mumbai, rejecting its application for registration as a Charitable Trust under section 12AA of the Income Tax Act, 1961. The DIT(E) held that the activities of the trust were not motivated by genuine charity but were business or commercial activities.

2. Determination of whether the activities of the trust were charitable or commercial:
The DIT(E) observed that the trust's activities, including the celebration of Ganesh Utsav and Navratri Utsav, were religious and not permissible for charitable registration. The trust earned significant income from these activities, indicating commercial motives. The trust also generated income from renting utensils at concessional rates and running a guest house under the guise of a "Sanatorium." The assessee contended that these activities were cultural and charitable, not commercial. The trust argued that the sanatorium provided clean air and convalescent facilities, aligning with charitable purposes.

3. Interpretation of "Charitable Purposes" under section 2(15) of the Income Tax Act:
The term "Charitable Purposes" under section 2(15) includes relief of the poor, education, medical relief, preservation of the environment, and advancement of any other object of general public utility. The proviso to section 2(15) excludes activities involving trade, commerce, or business from being considered charitable if they exceed a specified income limit. The tribunal noted that the definition is inclusive and not exhaustive, covering various charitable activities.

4. Applicability of the provisos to section 2(15) concerning income limits and commercial activities:
The assessee's total receipts for the financial year 2011-12 exceeded the prescribed limit of Rs.10,00,000/-, triggering the second proviso to section 2(15). The tribunal observed that the assessee's activities, including the operation of the guest house, did not fall within the scope of relief of the poor, education, medical relief, or preservation of the environment. The trust's activities were considered commercial, and the receipts exceeded the limit, disqualifying it from registration as a charitable trust.

Conclusion:
The tribunal upheld the DIT(E)'s decision to reject the registration of the assessee-trust as a Charitable Trust. The appeal was dismissed, and the order was pronounced in the open court on 31.12.2013. The tribunal emphasized that the trust's activities were commercial and did not align with the definition of charitable purposes under the Income Tax Act.

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