2006 (2) TMI 91 - HC - Income Tax

Exemption u/s 11 - Assessee is a society registered under the Tamil Nadu Societies Registration Act - Whether, Tribunal was right in holding that the assessee-society was entitled to exemption under section 11 merely on the ground that the registration under section 12AA has been granted w.e.f. April 1, 1990, without noticing that no charitable activities have been conducted and the income from the letting out of kalyana mandapam assessable under the head Business has not been applied for any charitable purposes like education or any other object of general public utility? - mere fact that the assessee submitted returns for the assessment years 1998-99 and 1999-2000 admitting the income as business income will not take away the rights of the assessee to claim the benefit of exemption, as there cannot be any estoppel against section 11 of the Act, for the simple reason that the Revenue has not raised any question of law in that regard

Summary

Issues Involved:
Interpretation of exemption under section 11 of the Income-tax Act for a society running a kalyana mandapam as a charitable activity.

Analysis:
The case involved an appeal by the Revenue against the Income-tax Appellate Tribunal's decision granting exemption under section 11 of the Income-tax Act to a society running a kalyana mandapam. The society, registered under the Tamil Nadu Societies Registration Act, had received land from the Collector with the condition to build a kalyana mandapam for local people. The society collected nominal charges for letting out the mandapam and received voluntary donations. The Revenue contended that the society did not engage in charitable activities, only commercial ones, and thus, its income should be taxed. The Assessing Officer assessed the income for various years as business income. However, the Commissioner and the Tribunal granted exemption, considering the primary objective of the trust to decide its charitable nature. The Court upheld this decision, emphasizing that the construction and letting out of the mandapam for nominal rent fulfilled the charitable purpose, even without diverting funds to other activities.

The Revenue argued that each transaction should be scrutinized to determine assessable income and that the society's activities were commercial without any charitable element. However, the Court disagreed, highlighting that the society's actions aligned with the Collector's conditions and the primary objective of benefiting local people. The Court noted that the society had obtained registration under section 12AA with retrospective effect, further supporting its claim for exemption under sections 11 and 12AA. The Court distinguished this case from previous rulings, emphasizing that the society's main objective was to operate the kalyana mandapam for charitable purposes, which justified the exemption.

In conclusion, the Court dismissed the Revenue's appeals, stating that no substantial question of law arose. The Court affirmed that the society's activities, including constructing and letting out the kalyana mandapam, qualified as charitable, meeting the conditions for exemption under sections 11 and 12AA. The Court rejected the argument that the society's income should be taxed as business income, emphasizing the charitable nature of the society's operations and the fulfillment of its primary objectives.

Judges Involved:
- P. D. Dinakaran J.
- P. P. S. Janarthana Raja