2015 (4) TMI 335 - HC - Income Tax

Entitlement to benefits of exemption u/s. 11/12 - the assessee trust is controlled by two families and entire income and benefits are passed over to the said families - Tribunal wconfirming the deletion of addition on account of donation given for charitable activities despite of the fact that the assessee is not entitled for any exemption/ deduction and treating the construction expenses of ₹ 566627/- as revenue expenditure - Held that - All the authorities have recorded concurrent findings of fact that the respondent-Trust stands registered under Section 12A of the Act, vide order dated 25.03.1976, which is still valid. It is not denied that the certificate under Section 12A, is still valid. The details of the expenses incurred on charitable activities, were filed along with the returns. We have gone through these details, which include expenditure of major part of donation on religious and other charitable purposes on 27 items. The amount spent on free food distributed in Rain Baseras in evening at ₹ 17,75,289.53, Prasad distribution on various functions, donation provided to the SMS Hospital for maintenance of Polytroma ward at ₹ 4,13,819/-, and other activities, clearly fall within the meaning of charitable purposes under Section 2(15) of the Act. Thus the findings recorded by the Income Tax Authorities that so long the registration under Section 12A of the Act is valid and the income is found to have been spent for charitable purposes, such income has to be excluded from the total income of the previous year, does not raise any substantial question of law for consideration in this appeal. - Decided against Revenue.

Issues:
1. Interpretation of trust status under Sections 11/12 of the Income Tax Act.
2. Application of exemption under Sections 11/12 of the IT Act.
3. Compliance with provisions of Section 13(1)(a) of the IT Act.
4. Treatment of donation for charitable activities.
5. Classification of construction expenses as revenue expenditure.

Analysis:

Issue 1: Interpretation of trust status under Sections 11/12 of the Income Tax Act
The appeal raised concerns regarding the classification of the assessee trust as a public and charitable trust, despite being controlled by two families with all income and benefits accruing to them. The court examined the trust's registration under Section 12A of the Act, which remained valid since 1976. It was noted that the trust's objectives were charitable in nature, and it was also registered under the Devasthan Vibhag, controlled by the State Government. The trust's activities and funds were overseen by the State Government through the Devasthan Commissioner, indicating compliance with regulatory requirements.

Issue 2: Application of exemption under Sections 11/12 of the IT Act
The Tribunal found that the trust had spent a substantial amount on charitable activities, supported by evidence such as receipts, account books, and news clippings. The trustees were also individually filing tax returns and paying taxes on their income. The court acknowledged the trust's expenditure on various charitable purposes, including donations for hospitals and free food distribution, aligning with the definition of charitable activities under Section 2(15) of the Act. As long as the income was utilized for charitable purposes and the registration under Section 12A was valid, the court held that no substantial question of law arose regarding the trust's eligibility for exemption under Sections 11/12.

Issue 3: Compliance with provisions of Section 13(1)(a) of the IT Act
The Department contended that the amount spent by the trust did not benefit the public, thus questioning its classification as a charitable trust under Section 13(1)(a). However, the court observed that the expenses incurred on charitable activities, including donations for hospitals and food distribution, demonstrated the trust's commitment to charitable purposes, as defined under Section 2(15). The court concluded that the trust's activities aligned with the legal requirements for exemption under Sections 11/12, dismissing the Department's argument.

Issue 4: Treatment of donation for charitable activities
The court reviewed the details of expenses filed by the trust, highlighting significant expenditures on various charitable activities, such as food distribution and hospital donations. The court concluded that the trust's utilization of funds for charitable purposes, as evidenced by the expenditure details, justified the exemption under Sections 11/12, emphasizing the trust's compliance with legal standards for charitable trusts.

Issue 5: Classification of construction expenses as revenue expenditure
The court addressed the treatment of construction expenses as revenue expenditure, emphasizing that the trust's expenditure on infrastructure and equipment for charitable activities was well-documented and supported by evidence. The court upheld the Tribunal's decision regarding the trust's construction expenses, affirming that such expenditures were justified and aligned with the trust's charitable objectives.

In conclusion, the High Court dismissed the Income Tax Appeal, affirming the trust's eligibility for exemption under Sections 11/12 of the Income Tax Act based on its compliance with regulatory requirements and utilization of income for charitable purposes.

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