2014 (10) TMI 495 - AT - Income Tax

Entitlement for claim of exemption u/s 11 - Whether the CIT(A) was justified in holding that the assessee is entitled for exemption u/s.11 without appreciating the fact that the poultry business of the assessee is the primary objective and hence not incidental to education Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the assessee is a Charitable Trust registered u/s.12A of the Act vide No.3866 dated 21-01-1985 - The trust is also registered with the Charity Commissioner, Pune vide No.F/2811/Pune dt. 12-02-1985 - The trust is also registered with the Registrar of Co-op Societies vide registration No.MAH/1707/84/Pune dt.10-10-1984 - The trust is engaged in imparting training in poultry management as well as business of poultry farming hence it is conducting a number of courses relating to Poultry farming, hatcheries etc. and carrying out the activities of research in poultry science and allied activities and to promote educational research development. The assessee trust has been granted registration u/s.12A(a) of the I.T. Act as per the order of the CIT, Pune vide his order dated 21-01-1985 and the same is continuing and has not been cancelled or withdrawn - Merely because the receipts are more from the Poultry activity, it cannot be a ground to conclude that the dominant purpose of the activity is not education in poultry management - CIT(A) was rightly of the view that the assessee has created facilities of high standard by utilising surplus generated over the years along with donations etc., and that no money has been diverted for purposes other than the objective of the trust or that provisions contained in section 13 of the I.T. Act have not been violated could not be controverted by the revenue thus, the assessee is entitled for exemption u/s 11 Decided against revenue.

Issues Involved:
1. Whether the assessee is entitled to exemption under Section 11 of the Income Tax Act.
2. Whether the poultry business of the assessee is the primary objective and not incidental to education.
3. Whether the receipts from the poultry business disqualify the assessee from exemption under Section 11(4A) of the Income Tax Act.

Detailed Analysis:

1. Entitlement to Exemption under Section 11:
The primary issue is whether the assessee, a charitable trust registered under Section 12A of the Income Tax Act, is entitled to exemption under Section 11. The Assessing Officer (AO) denied the exemption, arguing that the trust's activities were not charitable as they were primarily business-oriented, focusing on poultry farming rather than education. The AO contended that the income from poultry farming was substantial and not incidental to educational activities, thus disqualifying the trust from exemption.

The Commissioner of Income Tax (Appeals) [CIT(A)], however, held that the trust was entitled to exemption under Section 11. The CIT(A) noted that the trust was registered with the Charity Commissioner and the Commissioner of Income Tax, and its primary objective was to impart practical training in poultry management. The CIT(A) emphasized that the trust maintained separate books of accounts for its activities and that the income generated from poultry farming was used to improve the institute's infrastructure. The CIT(A) concluded that the poultry farming was incidental to the main objective of imparting education and that the trust complied with the legal requirements under Section 11(4A).

2. Primary Objective of the Trust:
The AO argued that the primary objective of the trust was to carry out the business of poultry farming, as evidenced by the substantial income from this activity compared to the income from educational activities. The AO stated that the trust's activities did not provide relief to the poor or needy and were not charitable in nature.

The CIT(A) disagreed, stating that the trust's primary objective was education in poultry management. The CIT(A) pointed out that the trust provided practical training to students, which required a full-fledged poultry farm. The CIT(A) noted that the size of the poultry farm was necessary for providing hands-on experience to the students and that the income from the farm was used to enhance the educational facilities. The CIT(A) concluded that the trust's activities were charitable as they were focused on education, and the income from poultry farming was incidental to this objective.

3. Compliance with Section 11(4A):
The AO argued that the trust violated Section 11(4A) as the poultry business was not incidental to the attainment of the trust's objectives and that the trust did not maintain separate books of accounts for this activity.

The CIT(A) found that the trust maintained separate books of accounts for its poultry farming and educational activities, as required under Section 11(4A). The CIT(A) noted that the trust's activities were recognized by various national and international organizations, which supported the trust's claim that its primary objective was education. The CIT(A) concluded that the trust complied with the provisions of Section 11(4A) and was entitled to exemption under Section 11.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s order, agreeing that the trust was entitled to exemption under Section 11. The ITAT noted that the trust was registered under Section 12A and that its primary objective was education in poultry management. The ITAT found that the trust maintained separate books of accounts and that the income from poultry farming was incidental to its educational activities. The ITAT dismissed the Revenue's appeal, stating that the trust's activities were charitable and that the exemption under Section 11 was correctly granted by the CIT(A).

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