2009 (7) TMI 358 - HC - Income Tax

Whether, Tribunal was justified in holding that the income of the assessee-trust is exempt on the interpretation of the provisions of sub-section (4A) of section 11 of the Income-tax Act, 1961 ? - We may mention that the Revenue has not sought reference questioning the validity of the findings recorded by the Tribunal. As already stated herein above, the Tribunal has found that the activities of Educational Agency was carried out by the trust as clause 4 of the trust deed empowered the trust to start educational agencies for earning income to achieve aims and objects of the trust. The Tribunal has further found that the surplus was transferred to the trust and utilised in purchase of land and construction of building (sabha bhavan) - Thus, on the basis of finding recorded by the Tribunal we are of the considered opinion that sub-section (4A) of section 11 of the Act is not applicable in the present case. - We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.

Summary

Issues:
Interpretation of provisions of sub-section (4A) of section 11 of the Income-tax Act, 1961 for the exemption of income of the assessee-trust.

Analysis:
The judgment by the High Court of Allahabad involved the interpretation of the provisions of sub-section (4A) of section 11 of the Income-tax Act, 1961 to determine the exemption of income for the assessee-trust. The case revolved around the validity of the trust formed by a Professor of Mathematics to educate the masses and work for social welfare activities. The trust had been registered under section 12A of the Act and granted benefit of section 80G. The Assessing Officer initially held that the trust was not valid and its income was earned by the founder individually, not qualifying for exemption under section 11 as it was considered business income falling under section 11(4A). However, the Commissioner of Income-tax (Appeals) later held the trust to be valid but still denied exemption under section 11 due to section 11(4A). The Tribunal, after detailed examination, found that the trust was genuine and valid, and the income belonged to the trust, not the founder individually, as the activities undertaken were in line with the trust's objectives. The Tribunal observed that the surplus income was transferred to the trust and utilized for the trust's purposes, such as land purchase and building construction.

The High Court analyzed the findings of the Tribunal and concluded that sub-section (4A) of the Act was not applicable in the case based on the trust's genuine nature and the utilization of income for trust-related activities. The Court emphasized that the activities of the "Logarithmica Educational Agency" were carried out by the trust itself, as empowered by the trust deed, and not by the founder individually. Therefore, the income was deemed to belong to the trust and not the founder. The Court highlighted that the trust's objectives were charitable in nature, focusing on educating the masses about cultural heritage, Vedic education, and social welfare activities, aligning with the definition of charitable purpose under section 2(15) of the Act. The judgment favored the assessee, ruling in favor of the trust and against the Revenue, with no order as to costs.

In conclusion, the High Court's judgment clarified the application of sub-section (4A) of section 11 of the Income-tax Act, 1961 in determining the exemption of income for a trust. The decision emphasized the genuine nature of the trust, the alignment of activities with trust objectives, and the utilization of income for trust-related purposes as key factors in establishing the income's exemption under section 11.