2024 (11) TMI 597 - AT - Income Tax

Exemption u/s 11 - object is about the kuri and finance business in order to enhance the finance of the trust - as per revenue activities of the appellant is coming under residual entry of sec 2(15) are hit by the provisions of sec 13(8) - HELD THAT - As perused the financial statement filed by the assessee and in nowhere it is mentioned that the income earned through kuri and finance business is utilized for the welfare of the trustees and infactthe amounts were spent towards achieving the objects mentioned in the byelaws of the trust. Further, by way of conducting kuri and finance business, the assessee is receiving a small amount and that amounts were utilized by the assessee for conducting various charitable activities. We find that the assessee is not doing the kuri and finance business solely for the purpose of earning income like various other corporate entities doing. In order to do various charitable activities, the assessee is also doing small kuri and finance business and rightly spent the amount to achieve the objects mentioned in the byelaws. A.O. as well as the CIT(A) has misconstrued the provisions of sec.2(15) of the Act and denied the exemption claimed u/s.11 of the Act. Conducting of kuri and finance business itself came up for consideration before the case of Bharthashemam 2020 (11) TMI 1125 - KERALA HIGH COURT considered kuri and finance business carried out by the trust and held that the trust is eligible for deduction u/s.11 of the Act since they are doing charitable activities out of the incomes received through kuri and finance business. The assessee is also entitled for exemption u/s.11 of the Act in respect of the incomes earned from the kuri and finance business. Further, all along the department had accepted the claim of the assessee and granted exemption but only for the above mentioned assessment years a different view has been taken which in our opinion is not correct. As decided in Navodaya Gramin Vikas Charitable Trust 2023 (9) TMI 256 - ITAT BANGALORE the money lending business carried out by the trust in order to do the various charitable activities would not be a reason for denying the deduction u/s.11. Decided in favour of assessee.

Issues Involved:

1. Denial of exemption under Section 11 of the Income Tax Act.
2. Classification of income from kuri and finance business as business income.
3. Applicability of proviso to Section 2(15) of the Income Tax Act.
4. Consistency in applying the principles of exemption for charitable trusts.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 11:

The primary issue in the appeals was the denial of exemption under Section 11 of the Income Tax Act to the assessee trust, which is registered under the Act since 1962 and engaged in charitable activities. The Assessing Officer (A.O.) treated the income from kuri and finance business as business income, thereby denying the exemption under Section 11. This decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], leading to the present appeals. The Tribunal noted that the income generated was utilized for charitable purposes, and the denial of exemption was based on a misinterpretation of the provisions of the Act.

2. Classification of Income from Kuri and Finance Business:

The A.O. classified the income from kuri and finance business as business income, arguing that it contravened Section 2(15) of the Act, which pertains to the advancement of any other object of general public utility. The Tribunal observed that the income from these activities was not used for personal gain but was instead directed towards charitable objectives as outlined in the trust's byelaws. The Tribunal emphasized that the activities were not conducted solely for profit but to support the trust's charitable endeavors.

3. Applicability of Proviso to Section 2(15):

The Tribunal addressed the applicability of the proviso to Section 2(15), which restricts the exemption for activities falling under the residual category of general public utility if they involve trade, commerce, or business. The Tribunal referenced the jurisdictional High Court's decision in a similar case, which allowed exemption for income used for charitable purposes, even if generated through business activities. The Tribunal concluded that the assessee's activities, including kuri and finance business, were incidental to its charitable objectives and did not warrant denial of exemption under Section 11.

4. Consistency in Applying Principles of Exemption:

The Tribunal highlighted the principle of consistency, noting that the department had previously accepted the assessee's claim for exemption in earlier and subsequent assessment years. The Tribunal criticized the deviation from this practice for the contested assessment years, emphasizing that the trust had consistently utilized its income for charitable purposes. The Tribunal also referenced various judicial precedents supporting the view that incidental business activities, when directed towards charitable objectives, should not lead to denial of exemption.

Conclusion:

The Tribunal allowed the appeals, setting aside the orders of the A.O. and CIT(A). It concluded that the assessee trust was entitled to exemption under Section 11, as the income from kuri and finance business was utilized for charitable purposes, aligning with the trust's objectives. The Tribunal's decision was based on the principles of consistency, judicial precedents, and the proper interpretation of the relevant provisions of the Income Tax Act. The judgment was applied to all the appeals, as the issues were common across the assessment years.

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