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2017 (11) TMI 1663 - AT - Income TaxBenefit of section 11 denied - assessee does not have registration u/s 12AA for the PY 2011-12 relevant to AY 2012-13 - Held that - As decided in assessee s own case 2016 (1) TMI 1024 - ITAT HYDERABAD there being no dispute to the fact that dominant object of assessee is charitable in nature, proviso to section 2(15) cannot be applied to deny exemption to assessee u/s 11 of the Act. AO without examining the issue in proper perspective has abruptly concluded that assessee is not entitled to exemption u/s 11 of the Act only because proviso to section 2(15) was introduced w.e.f. 01/04/09. Proviso to section 2(15) of the Act will not apply automatically to every trust or institution irrespective of the fact, whether the dominant object of the trust or institution is charitable purpose or earning profit. When in the present case assessee is registered as charitable institution and there is no change in the aims and objects of assessee in the impugned AY and the activities of assessee over the years remains the same, the proviso to section 2(15) cannot be applied to assessee to deny exemption u/s 11 of the Act. - Decided against revenue Disallowance u/s 40(a)(ia) - Held that - we confirm the finding of the CIT(A) that as exemption u/s 11 is allowed the disallowance would consequently get deleted and accordingly, this ground of appeal is also dismissed.
Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act. 2. Applicability of proviso to Section 2(15) of the Income Tax Act. 3. Disallowance under Section 40(a)(ia) of the Income Tax Act. Detailed Analysis: 1. Eligibility for exemption under Section 11 of the Income Tax Act: The assessee, a trust registered under Section 12A, filed its return for AY 2012-13 declaring a total income of Rs. Nil after claiming exemption under Section 11 amounting to ?1,16,38,669/-. The Assessing Officer (AO) denied the exemption on the grounds that the trust had undergone amendments in its aims and objectives effective from 01/04/2008, which necessitated fresh registration under Section 12AA. The AO asserted that the trust did not apply for fresh registration, thus disqualifying it from the benefits of Section 11 for the relevant assessment year. 2. Applicability of proviso to Section 2(15) of the Income Tax Act: The AO observed that the trust earned ?47,45,479/- from renting out a function hall, which he deemed as a commercial activity under the proviso to Section 2(15). Since the income exceeded ?10 lakhs, the AO concluded that the trust's activities could not be termed charitable, thereby disqualifying it from Section 11 benefits. 3. Disallowance under Section 40(a)(ia) of the Income Tax Act: Upon treating the trust as an Association of Persons (AOP) due to the loss of Section 11 benefits, the AO noted a failure to deduct TDS on security charges amounting to ?20,29,067/-. Consequently, this amount was disallowed under Section 40(a)(ia). Appellate Proceedings: The assessee appealed to the CIT(A), who referenced earlier favorable decisions for the assessee, including ITAT orders for AY 2011-12 and other years. The CIT(A) directed the AO to allow the exemption under Section 11 and recompute the income accordingly. This decision also led to the deletion of the disallowance under Section 40(a)(ia). Tribunal's Decision: The Tribunal reviewed similar issues in the assessee’s cases for earlier years. It upheld the CIT(A)'s decision, confirming that the assessee's activities, including constructing a temple and letting out a function hall, were in line with its charitable objectives. The Tribunal emphasized that the dominant objective of the trust was charitable, and income-generating activities were ancillary. Key Findings: - The Tribunal reiterated that the proviso to Section 2(15) applies only if the dominant purpose of the trust is profit-making, which was not the case here. - The Tribunal noted that the trust's registration under Section 12A since 1995 and its consistent charitable activities justified the exemption under Section 11. - Consequently, the disallowance under Section 40(a)(ia) was invalidated as the trust was entitled to Section 11 benefits. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order to allow the exemption under Section 11 and delete the disallowance under Section 40(a)(ia). The decision was pronounced in the open court on 10th November 2017.
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