2018 (3) TMI 887 - AT - Income Tax

Allowability to exemption to the assessee u/s 11 & 12 - sale the immovable property for medical facilities - benefit denied as activities of the trust were not chargeable in nature to trust - proof of charitable activities - Held that - It is undisputed fact that there was no change in the object clause of the trust since its inception. On the basis of same objects Clauses, the trust was granted registration under Section 12A / 80G of the Act. The assessee during the year has sold its plots no. 1202, 1203 and 1204 admeasuring 5.692 Acres to M/s OSL Health Care Private Limited for an amount of ₹ 47,69,97,000/-. On perusal of the balance-sheet enclosed at pages 42 of the paper book as on 31st March, 2011, it was observed that the amount of sale consideration was deposited in saving bank account and term deposited for ₹ 58,11,71,654/- which is an eligible investment as per Section 11(5) of the Act. Thus, there remains no doubt that the fund was not used other than the charitable purposes. Thus the activities of the trust are carried out in accordance with objects mentioned in the trust deed and accordingly there is no violation under the provisions of Section 11 / 12 - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the trust is entitled to exemption under Sections 11 and 12 of the Income Tax Act.
2. Whether the activities of the trust are charitable in nature.
3. Whether the trust has violated the provisions of Section 13(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Sections 11 and 12 of the Income Tax Act:
The primary issue raised by the Revenue was whether the trust is entitled to exemption under Sections 11 and 12 of the Income Tax Act. The trust, established in 1987, was granted registration under Section 12A in 1988 and under Section 80G(5)(vi) in 2008. The Assessing Officer (AO) denied the exemption, arguing that the trust was engaged in commercial activities rather than charitable ones. However, the CIT(A) allowed the exemption, noting that the trust’s activities aligned with its objectives of providing medical facilities, as specified in the trust deed. The CIT(A) emphasized that the trust's income was being accumulated and applied solely for charitable purposes, as required by law. The Tribunal upheld the CIT(A)’s decision, noting that the trust's activities had been consistently deemed charitable in previous judicial decisions, including by the Delhi High Court.

2. Charitable Nature of the Trust’s Activities:
The AO argued that the trust was not engaged in charitable activities, citing its sale of land and rental of office space as evidence of commercial activity. The trust countered that these actions were incidental to its main objective of providing medical facilities and were authorized by the trust deed. The CIT(A) and Tribunal agreed with the trust, noting that the income from these activities was used for charitable purposes. The Tribunal also referenced the CBDT Circular No. 11/2008, which clarified that the proviso to Section 2(15) of the Act does not apply to trusts providing relief to the poor, education, or medical relief, even if they engage in commercial activities incidentally.

3. Violation of Provisions of Section 13(3):
The AO contended that the trust violated Section 13(3) by renting office space to DLF Limited, a specified person, at below-market rates. The trust argued that the rent charged was actually above the prevailing market rate and that no undue benefit was extended to DLF Limited. The CIT(A) found no evidence of a violation and noted that the trust’s actions were in line with its objectives and authorized by the trust deed. The Tribunal upheld this finding, emphasizing that the trust’s income was being used for charitable purposes and that previous judicial decisions had consistently supported the trust’s entitlement to exemption under Sections 11 and 12.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s decision to grant the trust exemption under Sections 11 and 12. The Tribunal concluded that the trust’s activities were charitable in nature and aligned with its objectives, and that there was no violation of Section 13(3). The trust’s entitlement to exemption under Sections 11 and 12 was thus upheld, consistent with previous judicial decisions and the CBDT’s clarifications.