2022 (3) TMI 379 - AT - Income Tax

Denial of exemption u/s.11 - assessee is registered as a Public Charitable Trust under the BPT Act, 1950 - denial of exemption by the AO on merits is based on the fact that the assessee was mainly pursuing objects of general public utility by getting engaged in letting out its building and halls and was hence hit by the proviso to section 2(15) - HELD THAT - Assessee was genuinely pursuing activities in the nature of Medical help to the patients, Education expenses of the deserving students and Relief to the poor. It is discernible that albeit the assessee has the objects of advancement of any other object of general public utility in its trust-deed, but none of such objects was actually pursued during the year under consideration. Whereas the objects and activities of the trust are germane at the time of grant of registration u/s 12AA of the Act, what becomes relevant for consideration at the time of assessment is to see which of the objects, having charitable purpose, were actually carried out so as to decide the question of exemption. The above discussion makes it graphically clear that the assessee actually pursued only the objects as classified in categories (a) to (c). viz., Medical Relief to the poor patients, Education to the deserving students and Relief to the needy sections of the society and hence shied away from taking up any of the objects in category (d), viz., advancement of any other object of general public utility. Once this is the position, it becomes explicitly clear that the proviso to section 2(15), which attracts only when objects of the category (d) above are pursued, did not trigger in the instant case. The sequitur is that the assessee is entitled to exemption. It is pertinent to mention that the AO did not dispute the fulfillment of any other requirements for claiming exemption u/s 11 of the Act. We, therefore, hold that the assessee is entitled to exemption. The impugned order is, therefore, set-aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income-tax Act, 1961.
2. Assessment of the nature of activities pursued by the assessee-trust.
3. Application of the proviso to Section 2(15) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of exemption under Section 11 of the Income-tax Act, 1961:
The primary issue in this case was the denial of exemption under Section 11 of the Income-tax Act, 1961. The assessee, a Public Charitable Trust registered under the BPT Act, 1950, filed a return of income declaring Nil income. The Assessing Officer (AO) rejected the claim for exemption on the grounds that the assessee failed to obtain registration under Section 12A of the Act. However, this aspect was resolved in favor of the assessee by the Commissioner of Income Tax (Appeals) [CIT(A)], who confirmed the registration under Section 12AA of the Act effective from the assessment year 1978-79. The Tribunal noted that the denial of exemption by the AO was primarily based on the nature of activities pursued by the trust, which were deemed to be in the nature of business activities, thus ceasing to have any 'Charitable purpose' as per the proviso to Section 2(15) of the Act.

2. Assessment of the nature of activities pursued by the assessee-trust:
The AO observed that the assessee had shown income from various sources, including cultural hall rent, other income, and interest from fixed deposits. The AO noted that the assessee let out its halls and buildings, generating significant income, and concluded that these activities were in the nature of trade, commerce, or business. The Tribunal examined the objects of the assessee-trust, which included social, educational, physical, cultural, and industrial progress of society, setting up and managing cultural centers, sanatoriums, dharmashalas, hostels, halls, industrial units, libraries, reading rooms, health centers, business centers, and other centers of social utility. The Tribunal found that certain objects pertained to education and relief to the poor, which fall under categories (a) and (b) of Section 2(15), while others fell under the category of 'advancement of any other object of general public utility' (category (d)).

3. Application of the proviso to Section 2(15) of the Income-tax Act, 1961:
The Tribunal noted that the proviso to Section 2(15) applies only to the category (d) objects, i.e., 'advancement of any other object of general public utility,' and not to the categories (a) to (c). The Tribunal examined the expenses incurred by the assessee and found that the major items of expenses were for medical help, education help, and relief to the poor. The Tribunal scrutinized the evidence provided by the assessee, including details of scholarships granted to deserving students, medical help extended to patients, and charity expenses for relief to the poor. The Tribunal concluded that the assessee was genuinely pursuing activities in the nature of medical help, education, and relief to the poor, and not any objects under category (d). Consequently, the proviso to Section 2(15) did not apply, and the assessee was entitled to the exemption under Section 11 of the Act.

Conclusion:
The Tribunal held that the assessee was entitled to exemption under Section 11 of the Income-tax Act, 1961, as it was genuinely pursuing charitable activities in the nature of medical help, education, and relief to the poor. The impugned order was set aside, and the appeal was allowed.