2014 (2) TMI 187 - HC - Income Tax

Charitable purpose - Nature of Investment made in immovable property Corpus fund - Application of Section 13(1)(bb) of the Act - Whether the investment made in immovable property was not for charitable purpose despite the provisions of Section 11(5) of the Income Tax Act, 1961 treating such investment as application for charitable purpose Held that - in order to get the benefit under Sections 11 and 12, factually it has to be established that income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes - If this factual aspect is not established, the registration does not help otherwise - the application of the fund is not made for charitable activity but for construction of the building, which again does not directly reflect the charitable activities - Even on the record, it does not appear that the assessee had intended to apply the future income, which might be derived from the building so constructed -Tribunal has passed just and correct order there was no reason to interfere as there was no question of law arises which is required to be decided Decided against Assessee.

Summary

Issues Involved:
1. Whether the Tribunal was correct in law in holding that the investment made in immovable property was not for charitable purposes despite the provisions of Section 11(5) of the Income Tax Act, 1961.
2. Whether the Tribunal was correct in applying Section 13(1)(bb) despite its omission from the statute with effect from 01st April 1984.

Detailed Analysis:

Issue 1: Investment in Immovable Property and Charitable Purpose
The Tribunal upheld the Commissioner of Income Tax (Appeals) and the Assessing Officer's decision, denying exemption under Section 11 of the Income Tax Act, 1961, for the income derived from the appellant's business activities. The appellant argued that the funds were used for constructing a building, which would generate income to support charitable activities. The Tribunal found that the funds were used to construct a commercial complex, which was not listed among the trust's charitable objectives. The Tribunal noted that the income generated from the building was not fully utilized for charitable purposes but was reinvested in income-generating assets.

Issue 2: Application of Section 13(1)(bb)
The appellant contended that Section 13(1)(bb) was wrongly applied for the assessment year 2001-02, as it had been omitted from the statute effective from 01st April 1984. The Tribunal did not explicitly address this argument but focused on whether the funds were used for charitable purposes. The Tribunal found that the application of funds for constructing a commercial building did not align with the trust's charitable objectives.

Tribunal's Findings:
1. The Tribunal found that the funds were used for constructing a commercial complex, which was not a charitable activity according to the trust's objectives.
2. The Tribunal noted that the donations received were not clearly earmarked for the corpus fund, as the letters from donors were stereotyped and lacked specific directions.
3. The Tribunal emphasized that the trust's registration under Section 12 of the Act did not automatically entitle it to benefits under Sections 11 and 12. The trust must factually establish that the income was applied to charitable purposes.

Legal Provisions and Precedents:
- Section 11 of the Income Tax Act, 1961: The Tribunal highlighted the conditions under Section 11 for income to be exempt from tax, emphasizing that the income must be applied to charitable purposes.
- Section 12(A) and 12AA: The Tribunal noted that registration under these sections recognizes the charitable nature of the trust but does not guarantee tax benefits unless the income is applied to charitable purposes.
- Relevant Case Laws: The Tribunal distinguished the present case from other cases cited by the appellant (e.g., J.H. Gotla, St. George Forana Church, Hyderabad Race Club Charitable Trust, Janmabhumi Press Trust) by emphasizing the factual findings that the funds were not used for charitable activities.

Conclusion:
The Tribunal concluded that the authorities below were justified in refusing to grant the benefit under Section 11 of the Act. The appeal was dismissed, as the Tribunal found no question of law requiring a decision. The Tribunal's decision was based on clear factual findings that the funds were not applied for charitable activities, and the donations were not specifically directed towards the corpus fund.