2006 (6) TMI 189 - AT - Income Tax

Summary

Issues:
- Applicability of section 11 benefit on earthquake relief expenditure
- Applicability of section 13(1)(b) to the trust
- Applicability of the first proviso to section 13 to the appellant

Analysis:
- The appeal was filed against the CIT(A)'s order for the assessment year 2002-03, with three main grounds raised by the assessee. The first ground challenged the denial of section 11 benefit on the expenditure incurred for earthquake relief. The second ground contested the application of section 13(1)(b) to the trust, leading to the denial of section 11 benefit. The third ground questioned the applicability of the first proviso to section 13 to the appellant.

- The Trust, registered under the Bombay Public Trust Act and the Income-tax Act, incurred Rs. 4,82,221 on earthquake relief. The Assessing Officer denied the expenses, stating that the charitable activities were limited to a small community, thus contravening section 11A. Consequently, section 11 benefit was denied, invoking section 13(1)(b) of the Income-tax Act.

- The CIT(A) upheld the Assessing Officer's decision, stating that the fund application benefited a religious community, falling under section 13(1)(b). The contention that section 13(1)(b) did not apply as the trust was established before the Income-tax Act 1961 was rejected for not being raised before the Assessing Officer.

- The Tribunal analyzed the concept of "object of general public utility" under section 2(15), emphasizing that benefiting a section of the public qualifies as serving a charitable purpose. It was highlighted that the trust's focus on a specific community did not disqualify it from section 11 benefits.

- Regarding section 13(1)(b), it was established that the trust was incorporated before the Income-tax Act 1961, making the provision inapplicable. The legal issue raised before the CIT(A) was deemed acceptable, following a Supreme Court verdict, and the trust was entitled to exemption under section 11.

- Citing a precedent from the Hon'ble Madhya Pradesh High Court, it was affirmed that trusts established before the 1961 Act for the benefit of a particular religious community are not subject to section 13(1)(b) restrictions, entitling them to income exemption.

- Ultimately, the Tribunal allowed all four grounds of the assessee's appeal, granting relief and upholding the trust's entitlement to exemption under section 11.

- Therefore, the appeal of the assessee was allowed, providing a favorable judgment in the matter.