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2018 (1) TMI 1415 - AT - Income TaxCharitable activity - exemption u/s 11 - application of proviso to Section 2(15) - predominant activity of the assessee - Held that - It is not disputed that apart from the two Kalyanamandapams, assessee was having properties from which a school, a health centre and a library were run. It might be true that the school was run by another trust. However, rental received by the assessee for running the school called Avichi school was nominal. We find great strength in the argument of the AR, that property from which the School was run, if given out on market rates, would fetch tens of crores in income, and forgoing such income for educational purpose, was nothing but charity in the nature of education. Especially so, since the school was run by a trust which was undisputedly having registration u/s.12A of the Act. Apart from this assessee had earned little revenue from its diabetic centre. It had also given out a premises to the Government for a library. All the activities of the assessee were either in the field of education or in field of medical care. No doubt, ld. Commissioner of Income Tax (Appeals) has observed that assessee could not produce evidence for the charity done by it. However, it is not disputed that assessee had maintained books of accounts and produced the books and records before ld. Assessing Officer. Such books were subject to audits and assessee had filed Audit reports in form 10A of the Act. In such circumstances, we find no reason to uphold the finding of the lower authorities that predominant activity of the assessee was not charity. Coming to the application of proviso to Section 2(15) of the Act assessee s charitable activities were directly or indirectly in the nature of relief to the poor or education or medical relief. It was not an organization which was pursuing an activity of general public utility, different from education, medical relief or relief to the poor. First proviso to Section 2(15) is attracted only where an assessee carries on activities which was of general public utility other than those mentioned specifically in the definition of charitable purpose given in Section 2(15). In the circumstances, we are of the opinion that assessee was eligible for the exemption claimed by it u/s.11(1) of the Act for the impugned assessment years. Orders of the lower authorities are set aside and the ld. Assessing Officer is directed to give assessee the exemption claimed by it u/s.11(1) - Decided in favour of assessee.
Issues Involved:
1. Legality of the order of the Commissioner of Income Tax (Appeals). 2. Disallowance of deduction claimed under Section 11 of the Income Tax Act. 3. Classification of income from kalyanamandapam as business income. 4. Presumption of incidental activities as business activities. 5. Misconstruction of provisions of Section 11(4) and Section 11(4A) of the Act. 6. Application of the test laid down by the Apex Court in the case of Thanthi Trust. 7. Denial of exemption under Section 11 despite income being used for charitable purposes. 8. Alleged failure to furnish data supporting the claim. 9. Dispute on the treatment of income derived from kalyanamandapam. 10. Application of the proviso to Section 2(15) of the Act. Detailed Analysis: 1. Legality of the Order of the Commissioner of Income Tax (Appeals): The assessee challenged the legality of the order passed by the Commissioner of Income Tax (Appeals), asserting it was contrary to law, facts, and circumstances of the case, and violated principles of natural justice. The Tribunal examined the procedural and substantive aspects of the order and found it necessary to reassess the conclusions drawn by the Commissioner. 2. Disallowance of Deduction Claimed Under Section 11 of the Income Tax Act: The primary contention was the denial of exemption under Section 11, which the assessee claimed for income derived from kalyanamandapams. The Tribunal scrutinized the nature of the income and the application of funds towards charitable purposes, ultimately determining that the income was indeed used for charitable purposes, thus qualifying for the exemption under Section 11. 3. Classification of Income from Kalyanamandapam as Business Income: The Tribunal agreed with the lower authorities that the income from kalyanamandapams should be treated as business income rather than property income. This classification was based on the nature of transactions, which involved renting out the premises for events, thereby constituting a business activity. 4. Presumption of Incidental Activities as Business Activities: The Tribunal evaluated whether the activities related to kalyanamandapams were incidental to the main objectives of the trust. It concluded that these activities were indeed incidental and aligned with the trust's charitable objectives, thereby not disqualifying the income from exemption under Section 11. 5. Misconstruction of Provisions of Section 11(4) and Section 11(4A) of the Act: The Tribunal addressed the alleged misconstruction of Sections 11(4) and 11(4A), which pertain to the treatment of income from business undertakings held under trust. It clarified that the income from kalyanamandapams, though business income, was still considered income from property held under trust, thus eligible for exemption. 6. Application of the Test Laid Down by the Apex Court in the Case of Thanthi Trust: The Tribunal referred to the Apex Court's decision in the Thanthi Trust case, which provided a framework for determining the eligibility of business income for exemption under Section 11. The Tribunal applied this test and found that the assessee met the criteria for exemption. 7. Denial of Exemption Under Section 11 Despite Income Being Used for Charitable Purposes: The Tribunal found that the income from kalyanamandapams was fully utilized for charitable purposes, as evidenced by the audited financial statements and other records. Therefore, the denial of exemption under Section 11 was unjustified. 8. Alleged Failure to Furnish Data Supporting the Claim: The Tribunal reviewed the records and concluded that the assessee had furnished adequate data supporting the application of income for charitable purposes. The lower authorities' finding of failure to provide data was deemed perverse and not supported by the material on record. 9. Dispute on the Treatment of Income Derived from Kalyanamandapam: The Tribunal resolved the dispute by affirming that the income derived from kalyanamandapams was business income but still eligible for exemption under Section 11, as it was applied towards charitable purposes. 10. Application of the Proviso to Section 2(15) of the Act: The Tribunal examined the applicability of the proviso to Section 2(15), which excludes entities engaged in trade, commerce, or business from being considered charitable. It concluded that the assessee's activities were predominantly charitable, focusing on education and medical relief, thus not falling under the proviso's exclusion. Conclusion: The Tribunal allowed the appeals for all assessment years, directing the Assessing Officer to grant the exemption claimed under Section 11 of the Act. The order emphasized the charitable nature of the assessee's activities and the proper application of income towards its charitable objectives.
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