2016 (4) TMI 955 - AT - Income Tax

Exemption u/s 11 - Held that - As decided in assessee s own case the appellant is engaged in preservation of monuments and articles/ things of historic nature, which is the predominant object of the appellant. The aforesaid activities are incidental to the main object only. As has been held in various decisions relied upon charging of fee to meet a part of the cost for rendering charitable services cannot, result in the services being regarded as business activities and, accordingly, the appellant does not cease to be a charitable institution, notwithstanding proviso to section 2(15) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Applicability of proviso to Section 2(15) of the Income Tax Act.
3. Incurrence of expenses beyond the objects of the trust.
4. Beneficiary status of Maharaja Gaj Singh of Jodhpur.
5. Applicability of Section 13(1)(c)(ii) of the Income Tax Act.
6. Allowance of capital expenditure as application of income.
7. Allowance of foreign contribution as corpus donation.
8. Benefit of Section 11(2) and other consequential benefits.
9. Engagement in commercial activities.
10. Relief amounting to Rs. 2,99,07,827/-.

Detailed Analysis:

1. Exemption under Section 11:
The Revenue challenged the CIT(A)'s decision to allow exemption under Section 11. The Tribunal found that the appellant trust was consistently pursuing its charitable activities and had been allowed exemption in previous assessments. The Tribunal upheld the CIT(A)'s decision, confirming that the trust's activities were charitable and not commercial in nature.

2. Applicability of Proviso to Section 2(15):
The Revenue argued that the appellant's activities fell under the proviso to Section 2(15), which disqualifies entities engaged in commercial activities from being considered charitable. The Tribunal, however, noted that the trust's primary objective was the preservation of monuments and historical objects, which is explicitly listed as a charitable purpose under Section 2(15). The Tribunal concluded that the proviso did not apply to the appellant.

3. Incurrence of Expenses Beyond Objects of the Trust:
The Revenue contended that the trust incurred expenses beyond its stated objectives, particularly on the repair and maintenance of commercial assets. The Tribunal found that the expenses were in line with the trust's objectives of preserving monuments and historical objects, and thus, did not exceed the trust's purposes.

4. Beneficiary Status of Maharaja Gaj Singh of Jodhpur:
The Revenue claimed that the ultimate beneficiary of the trust's activities was Maharaja Gaj Singh of Jodhpur, a specified person under Section 13(3). The Tribunal dismissed this argument, stating that the trust's activities were for the public benefit and not for the Maharaja's personal gain.

5. Applicability of Section 13(1)(c)(ii):
The Revenue argued that Section 13(1)(c)(ii) applied as Maharaja Gaj Singh held substantial shares in companies benefiting from the trust's activities. The Tribunal found no evidence that the trust's activities were conducted for the benefit of these companies, and thus, Section 13(1)(c)(ii) did not apply.

6. Allowance of Capital Expenditure as Application of Income:
The Tribunal upheld the CIT(A)'s decision to allow capital expenditure as an application of income, noting that the expenditure was incurred in furtherance of the trust's charitable objectives.

7. Allowance of Foreign Contribution as Corpus Donation:
The Tribunal agreed with the CIT(A) that foreign contributions received by the trust were to be treated as corpus donations, which are exempt from tax under Section 11.

8. Benefit of Section 11(2) and Other Consequential Benefits:
The Tribunal upheld the CIT(A)'s decision to allow the benefits of Section 11(2) and other consequential benefits available to a trust where exemption under Section 11 is allowed.

9. Engagement in Commercial Activities:
The Revenue argued that the trust was engaged in commercial activities, such as running a hotel. The Tribunal found that these activities were incidental to the trust's primary objective of preserving monuments and did not constitute commercial activities.

10. Relief Amounting to Rs. 2,99,07,827/-:
The Tribunal upheld the CIT(A)'s decision to allow the assessee's appeal, resulting in relief amounting to Rs. 2,99,07,827/-, as the trust's activities were found to be charitable and not commercial.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decisions on all counts, confirming that the appellant trust's activities were charitable in nature and eligible for exemption under Sections 11 and 12 of the Income Tax Act. The cross-objections filed by the assessee were dismissed as withdrawn.