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Issues involved: Interpretation of charitable purpose u/s 2(15) of the Income Tax Act, 1961 and determination of tax exemption eligibility for a trust based on its activities.
Summary: The High Court of Madhya Pradesh considered a case involving a trust registered under the Madhya Pradesh Public Trusts Act. The trust's primary objective was to construct and maintain a Dharmshala for public use, with income from shops to be used for charitable purposes. The Income Tax Officer (ITO) disallowed tax exemption, stating that the trust's activities were profit-oriented due to charging halting fees. The Appellate Authority Commissioner (AAC) upheld this decision, emphasizing profit-making from room rentals. However, the Income-tax Appellate Tribunal ruled that excess income not used for charitable purposes was taxable. The Tribunal found that 75% of the trust's income was accumulated and not applied as required by the Income Tax Act. The court analyzed the provisions of Section 11 and 2(15) of the Act, defining charitable purpose and income tax exemptions for trusts. Referring to precedent cases, the court clarified that profit-making should not overshadow charitable objectives. It concluded that the trust's main goal was public utility, not profit, as income was used for maintenance and upkeep. Therefore, the trust qualified for tax exemption under Section 2(15) as its activities were not primarily profit-driven. In conclusion, the court held that the trust did not engage in activities solely for profit and was eligible for tax exemption under the Income Tax Act.
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