2019 (7) TMI 1889 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - proof of charitable activity undertaken by assessee trust - income from business As applied or accumulated for application for the charitable or religious purpose of the trust - HELD THAT - We agree with the contentions of the Ld. AR that the assessee s case is covered in its favour by the orders of the Coordinate Benches of the Tribunal in assessee s own cases for three different assessment years. We would like to make a reference to the Tribunal s order for assessment year 2009-10 wherein detailed findings have been recorded by the Tribunal. This order was upheld by the Hon ble Uttarakhand High Court in 2019 (2) TMI 1616 - UTTARAKHAND HIGH COURT - there is no bar in the charitable trust/institution carrying on business provided the conditions prescribed in section 11(4)/11(4A) of the Act are satisfied. The Hon ble Supreme Court in the case of P. Krishna Warriers 1964 (4) TMI 13 - SUPREME COURT has been pleased to hold with reference to income tax Act 1922 that if the trust carried on business and the business itself is held in trust and the income from such business is applied or accumulated for application for the charitable or religious purpose of the trust the conditions prescribed in section 4(3)(i) and fulfilled and the income is exempt from taxation. Authorities below have grossly erred in holding that the appellant s activities in relation to production and sale of ayurvedic preparations are not incidental to its main objective as the same are commercial in nature. We thus hold that in the present case the authorities below have failed to appreciate that the business set up and held by the appellant under trust is to sub serve the predominant charitable objects of providing medical relief education and relief to poor. Furthermore since separate books of accounts were maintained and the entire profits are for charitable objects the conditions prescribed in section 11(4A) of the Act too were fulfilled. - Decided against revenue.

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Disallowance under Section 43B of the Act.
3. Addition on account of interest on TDS.
4. Disallowance of PF and ESI contributions made after due date.
5. Treatment of donations and other income.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The assessee, a registered trust under Section 12A(a) of the Act, claimed exemption under Section 11. The Assessing Officer (AO) denied this exemption, asserting that the trust was engaged in business activities under the guise of charitable purposes. The AO highlighted the trust's gross receipts and profits from various business undertakings and concluded that the trust's primary purpose was to avoid tax. The AO's denial of exemption was based on previous assessments, which were overturned by the ITAT but appealed by the department to the High Court.

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal, referencing the ITAT's previous findings that the trust's activities aligned with providing medical relief, education, and relief to the poor. The CIT(A) emphasized that the trust's business activities supported its charitable objectives and were not covered by the fifth limb of Section 2(15), thus entitling the trust to exemptions under Sections 11 and 12.

The ITAT upheld the CIT(A)'s decision, noting that the trust's case was consistent with previous years where the ITAT had ruled in favor of the trust. The ITAT referenced the Tribunal’s detailed findings in the assessment year 2009-10, which were upheld by the Uttarakhand High Court. The ITAT confirmed that the trust's activities, including providing medical relief through yoga and Ayurveda, imparting education, and offering relief to the poor, fell within the purview of charitable purposes under Section 2(15).

2. Disallowance under Section 43B of the Act:
The AO disallowed ?1,18,722 under Section 43B, which pertains to certain deductions only being allowed on actual payment. The CIT(A) deleted this disallowance, and the ITAT upheld this deletion, noting that the assessee had already disallowed this amount in its income computation. Hence, the AO's addition was unnecessary.

3. Addition on account of interest on TDS:
The AO added ?15,584 on account of interest on TDS. The CIT(A) deleted this addition, and the ITAT agreed, observing that the assessee had already accounted for this amount in its income computation, making the AO's addition redundant.

4. Disallowance of PF and ESI contributions made after due date:
The AO disallowed ?3,70,331 for PF and ESI contributions made after the due date. The CIT(A) deleted this disallowance, and the ITAT upheld this decision, noting that the assessee had already disallowed these contributions in its income computation, rendering the AO's addition superfluous.

5. Treatment of donations and other income:
The AO questioned the treatment of donations and other income amounting to ?13,95,69,790, suggesting they were not applied for charitable purposes. The CIT(A) ruled in favor of the assessee, stating that donations to Patanjali Yogpeeth Trust constituted application of income for medical relief purposes. The ITAT upheld this ruling, referencing the Tribunal's previous decisions and the Uttarakhand High Court's dismissal of the department's appeal for the assessment year 2009-10.

Conclusion:
The ITAT dismissed the department's appeal, affirming the CIT(A)'s decisions on all grounds. The ITAT reiterated that the trust's activities were consistent with charitable purposes under Section 2(15) and that the AO's additions were either redundant or previously adjudicated in favor of the assessee. The appeal was dismissed in its entirety.

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