2017 (5) TMI 197 - AT - Income Tax

Entitlement to claim of exemption u/s 11 - excess income over the expenditure - alteration /amendments made to the objects of the trust - Held that - So long as the amendments in objects is restricted to the such scope expansion in India and large number Indians are roped in to reap the benefits of the charitable objects of the Trust, in our opinion, such amendments, if any, ought not work detrimental to the trust in any way. They merely expand the operational scope geographically to various states in India only.As such, it is on records that the CCIT approved the charitable nature of the Object of the Trust during the proceedings u/s 10(23)(vi) of the Act. All the allegations of the AO ie change in name of the trust, and non-utilisation of the 85% of the total receipts, are ill-conceived. As stated earlier, it is a settled legal proposition that the utilization of receipts for capital expenditure needs to be considered for the purpose of working out the said 85%. Further also, it is an undisputed fact that, during the year, the assessee has not earned any commercial receipts relatable to the said amendments / alteration of the objects and no new projects of that nature were initiated by the trust in this year for earning such ineligible income for AO to deny the benefits of the provisions of section 11 of the Act. It is very important to note that the AO/DIT(E) have not disturbed the existing Registration granted u/s 12A of the Act. Therefore, while the registration u/s 12A is in force and while the objects and the activities of the trust are genuine, denying the benefits of the provisions of section 11 of the Act constitutes premature and unsustainable. In our view, the CIT(A) as discussed in his order vide para 4.9 extracted above is very categorical that the amendments are inapplicable to the year under consideration. Revenue has not given any contrary arguments or decisions that necessitate the reversal of the finding of the CIT(A) by us. Thus, we confirm the CIT (A) s findings and order for restoring the claim of deduction in favour of the assessee. - Decided against revenue

Summary

Issues Involved:

1. Exemption under Section 11 of the Income Tax Act.
2. Change in the objects of the trust and its approval timeline.
3. Nature of the trust's activities (charitable vs. religious).
4. Applicability of the Allahabad Agriculture Institute vs. Union of India decision.
5. Omission of Section 10(22) and its impact.
6. Approval for exemption under Section 10(23C)(vi).
7. Violation of Rule 46A of IT Rules 1962.
8. Requirement to spend 85% of total income on the trust's objects.
9. Utilization of accumulation under Section 11(2) for AY 2005-06.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The main issue revolves around the denial of exemption under Section 11 due to alleged violations. The Assessing Officer (AO) denied the exemption, claiming the trust engaged in profit-making activities and did not spend the required 85% of income on its objects.

2. Change in the objects of the trust and its approval timeline:
The AO noted changes in the trust's objects and denied exemption, arguing that these changes were not approved within the relevant assessment year (AY 2011-2012). However, the CIT (A) found that the changes were approved on 12.12.2011, which does not apply to AY 2011-2012, thus invalidating the AO’s denial of exemption.

3. Nature of the trust's activities (charitable vs. religious):
The AO claimed the trust's nature changed from charitable to religious due to amendments. However, the CIT (A) and Tribunal found that the amendments were aimed at expanding educational activities across India without altering the charitable nature of the trust.

4. Applicability of the Allahabad Agriculture Institute vs. Union of India decision:
The AO relied on this decision to argue that the trust's registration under Section 12A should be invalidated due to changes in its objects. The Tribunal found this judgment inapplicable as the trust’s amendments did not alter its charitable nature and the registration under Section 12A was not disturbed.

5. Omission of Section 10(22) and its impact:
The AO argued that since Section 10(22) was omitted, the trust could not claim exemption under this section. The Tribunal noted that the trust claimed exemption under Section 11 and Section 10(23C)(vi), and it had the necessary certification for the latter.

6. Approval for exemption under Section 10(23C)(vi):
The AO contended that the trust did not have approval for exemption under Section 10(23C)(vi). The Tribunal found that the trust had obtained the necessary approval from the competent authority, making it eligible for the exemption.

7. Violation of Rule 46A of IT Rules 1962:
The AO alleged that the capital expenditure of ?3.81 Crs was not disclosed during assessment or appellate proceedings, violating Rule 46A. The Tribunal found that the trust had provided exhaustive replies and written submissions addressing each objection raised by the AO.

8. Requirement to spend 85% of total income on the trust's objects:
The AO argued that the trust did not meet the 85% expenditure requirement. The Tribunal agreed with the CIT (A) that capital expenditure should be included in the calculation of 85%, and the trust met this requirement.

9. Utilization of accumulation under Section 11(2) for AY 2005-06:
The AO claimed that the trust should have utilized the accumulation made under Section 11(2) by the relevant year. The Tribunal found that the trust complied with the required provisions for claiming exemption.

Conclusion:
The Tribunal upheld the CIT (A)'s decision to allow the exemption under Section 11, dismissing the revenue's appeal. The amendments to the trust's objects were not substantial and did not affect its charitable nature. The trust met the 85% expenditure requirement, and the AO’s allegations were found to be ill-founded. The Tribunal confirmed the CIT (A)'s findings and restored the claim of deduction in favor of the trust.