2021 (7) TMI 178 - HC - Income Tax

Exemption u/s 11 - Donation to other trusts - no explanation offered for many donations made by the Trust as to whether they were for activities in conformity with the objects of the Trust - Whether withdrawal of registration u/s.12AA is not a prerequisite for the denial of exemption under Section 11? - HELD THAT - According to Section 2(15), charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. Trust/institution covered under advancement of any other object of general public utility can do commercial activities upto 20% of its total receipts Proviso to section 2(15) In the instant case, the Assessing Officer had first disallowed the entire exemption and subsequently scaled it down to ₹ 14,94,886/- though reiterating that the Respondent/Trust had acted in violation of its own object set out in the Trust deed. If the Assessing Officer had objection regarding the entire amount of donation, then her remand report should not have accepted any of the donations with valid reasons. Charity is clearly defined as relief of the poor, education, yoga, medical relief, preservation of environment, etc., Thus public charitable trust donating to activities other than education cannot be denied exemption u/s.11 of the Act. Therefore, the conclusion of the Assessing Officer is totally unwarranted. No reason to interfere with the order of the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal. We reject the grounds of appeal taken by the Revenue.

Issues Involved:
1. Applicability of exemption under Section 11 of the Income Tax Act.
2. Interpretation of the Trust deed regarding the objects and activities of the trust.
3. Classification of the trust as a public charitable trust.
4. Treatment of donations made by the trust to related individuals, political parties, and others.
5. Requirement of withdrawal of registration under Section 12AA for denial of exemption under Section 11.

Issue-wise Detailed Analysis:

1. Applicability of Exemption under Section 11:
The central issue was whether the trust was entitled to claim exemption under Section 11 of the Income Tax Act, 1961. The Assessing Officer initially denied the exemption, treating all donations as non-exempt. However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) concluded that the trust's income applied to charitable or religious purposes in India is entitled to exemption under Section 11(1)(a). The Tribunal referenced the Andhra Pradesh High Court's decision, stating that even if the trust's objects do not explicitly empower certain expenditures, they are still entitled to exemption if applied for charitable or religious purposes.

2. Interpretation of the Trust Deed:
The Tribunal held that the trust deed dated 19.04.1984 was relevant to conclude the trust's objects and activities. The Assessing Officer's contention that the trust's donations deviated from its educational objects was rejected. The Tribunal emphasized that the trust's income must be applied or accumulated for application as per the Income Tax Act, irrespective of the specific objects in the trust deed.

3. Classification as a Public Charitable Trust:
The Tribunal upheld that the trust was a public charitable trust, as evidenced by the trust deed and supplementary deeds. The trust's activities, including running an educational institution as a deemed university, were consistent with its classification as a public charitable trust under Section 2(15) of the Act. The Tribunal concluded that charging fees for educational services does not disqualify the trust from being considered a public charitable trust.

4. Treatment of Donations:
The Assessing Officer initially disallowed the entire exemption for donations but later accepted most donations except for ?14,94,886/-. The Tribunal found that the donations were made to charitable and religious institutions, and the philanthropy was evident. The Tribunal agreed with the Commissioner of Income Tax (Appeals) that the Assessing Officer's partial acceptance of donations contradicted her initial stance. The Tribunal concluded that donations for charitable purposes, even if not strictly within the trust's objects, are entitled to exemption under Section 11.

5. Requirement of Withdrawal of Registration under Section 12AA:
The Tribunal concurred with the Commissioner of Income Tax (Appeals) that the Assessing Officer lacked jurisdiction to deny exemption under Section 11 without referring the matter for withdrawal of registration under Section 12AA(3). The Tribunal emphasized that the proper procedure was not followed by the Assessing Officer.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the orders of the Commissioner of Income Tax (Appeals) and the ITAT. The Tribunal found no perversity in the lower authorities' orders and upheld that the trust was entitled to exemption under Section 11. The substantial questions of law raised by the Revenue were answered against them, and the appeal was dismissed with no order as to costs.

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