2015 (4) TMI 93 - AT - Income Tax

Charitable purpose u/s 2(15) - Application for registration under section 12A rejected - application of funds of the trust outside India which renders it ineligible for exemption - Held that - The objects of the trust suggest that the trust has been formed to promote art and culture of India within India and globally which, in our view, fall in the definition of any other object of general public utility and hence included in the definition of charitable purposes. So far as the application of income outside India is concerned, the Ld. A.R. has vehemently stressed that the projects, conferences and seminars had been carried out by the trust to promote Indian culture and art at international level, further that the activities such as to host artists-inresidence programmes for national as well as international artists for the benefit of society are the objects that promote international welfare in which India is interested. He has further stressed that the trust has received permission from the Home Ministry, Government of India, to carry out such activities outside India. Considering the overall discussion as made above, it is to be held that the activities of the trust would fall in the definition of charitable purposes. However, so far as the application of income outside India, as claimed to have been applied to promote international welfare in which India is interested is concerned, it is to be proved with necessary evidences and also subject to approval of the Board for entitlement of exemption from tax on such income. However, the registration cannot be refused on the ground that the income is applied for charitable purposes outside India. Applicant trust had made payments of salary to its trustees/persons covered under section 13(3) of the Act - Held that - If the activities otherwise are charitable and fall in the definition of charitable purposes as defined under section 2(15) of the Act and further the property is held wholly and exclusively under trust for charitable and religious purposes as provided under section 11 of the Act, then such a trust subject to the fulfilment of other conditions as laid down by the different provisions of the Act, will be entitled to registration and it cannot be denied registration because of the fact that its activities are extended outside India. However, while computing the income as per the provisions of section 11 of the Act, the income which is applied on such an activities in India only, will be eligible for exemption and subject to the provisions of section 11(1)(c) wherein the income applied outside India is also eligible for exemption, if the activities tend to promote the international welfare in which India is interested and the approval has been granted by the Board for such application of income. However, so far as the second ground regarding the salary received by the trustees in excess of what may be reasonably paid for such services is concerned, the matter is restored to the file of the Ld. DIT(E) for decision afresh after granting proper opportunity to the appellant trust to present its case and produce necessary evidences, if any, in this regard. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Rejection of the appellant trust's application for registration under section 12A of the Income Tax Act.
2. Application of trust funds outside India.
3. Payment of salary to trustees and its reasonableness.

Issue-wise Detailed Analysis:

1. Rejection of the appellant trust's application for registration under section 12A:
The appellant trust challenged the order dated 29.11.2012 by the Director of Income Tax (Exemption) [DIT(E)], which rejected its application for registration under section 12A of the Income Tax Act for the assessment year 2012-13. The DIT(E) observed that the trust deed included both charitable and non-charitable objects, such as hosting international artist-in-residence programs and organizing trips, seminars, and conferences globally. This led to the conclusion that funds might be utilized outside India, contravening section 11 of the Act, which mandates that income application must be within India for exemption eligibility. Additionally, the DIT(E) noted that the trust paid salaries to trustees without sufficient justification or evidence of the services rendered, invoking provisions of section 13(2) and section 13(3)(cc) of the Act. Consequently, the DIT(E) concluded that the trust's objects and the genuineness of its charitable activities were not established, leading to the rejection of the registration application.

2. Application of trust funds outside India:
The appellant argued that the main object of the trust was to promote non-commercial artistic activities and education initiatives about arts and emerging media forms for the general public. The trust aimed to promote Indian art and culture both within India and globally. The appellant contended that merely having an object clause allowing international artist programs did not imply non-charitable activities. They argued that working with international artists helped promote Indian culture at an international level, aligning with the ethos of India. The appellant referenced section 11(1)(c) of the Act, contending that their activities fell within the definition of "to promote international welfare in which India is interested," and thus, the provisions did not prohibit incurring expenditure outside India. They further clarified that the trust had not expended any money outside India to date and that international activities were funded by organizers. The appellant emphasized that the trust had deleted the words "or outside India" from the trust deed before submission for registration under the BPT Act, 1950, and had already received registration from the Charity Commissioner.

The tribunal examined sections 11 to 13 of the Act, focusing on section 11(1), which exempts income derived from property held under trust wholly for charitable or religious purposes, to the extent applied for such purposes in India. The tribunal noted that while charitable purposes are not confined to activities within India, exemption from total income is limited to income applied in India. They highlighted that section 2(15) defining charitable purposes does not restrict activities to India only. The tribunal concluded that activities promoting Indian art and culture globally fell within the definition of "any other object of general public utility" and were charitable. However, the application of income outside India for promoting international welfare in which India is interested required proof and approval from the Board (CBDT) for exemption eligibility.

3. Payment of salary to trustees and its reasonableness:
The DIT(E) had observed that the trust paid significant salaries to trustees without providing details or evidence of services rendered, raising concerns under sections 13(2) and 13(3)(cc) of the Act. The appellant argued that the DIT(E) did not raise this issue during the application process, denying them the opportunity to justify the salary payments. They requested an opportunity to prove that the salaries were reasonable and did not violate the provisions.

The tribunal agreed that the second ground required re-evaluation by the DIT(E). They directed the DIT(E) to reconsider the matter, allowing the appellant trust to present its case and produce necessary evidence regarding the reasonableness of the salaries paid to trustees.

Conclusion:
The tribunal held that if the trust's activities fell within the definition of charitable purposes under section 2(15) and the property was held wholly for charitable purposes as per section 11, the trust was entitled to registration. The application of income outside India for charitable purposes did not disqualify the trust from registration. However, exemption from total income was limited to income applied in India, with specific provisions for international welfare activities requiring Board approval. The tribunal restored the issue of salary payments to trustees to the DIT(E) for fresh consideration, granting the appellant an opportunity to justify the payments. The appeal was allowed in terms discussed above.