2016 (10) TMI 714 - AT - Income Tax

Eligibility for exemption u/s. 11 - charitable activity - Held that - In the instant case, the AO has examined the nature of activities in the light of statement of accounts, balance sheet and the activities undertaken by the assessee. The CIT(Appeals) has also examined the activities of the assessee and has noted that the main activity of the assessee is letting out of kalyana mantapa on hire charges and by doing so, assessee has earned some of ₹ 37,45,915. Besides, assessee has also collected generator hire charges and interest on FDRs, etc. Similarly, from the expenditure side, it is also noted that assessee has not incurred any major expenditure on account of education and medical relief to the poor. During the impugned assessment year, income over expenditure was of ₹ 30,72,028.44. From a careful perusal of the Income & Expenditure account for AY 2009-10, it is noticed that the main activities of the assessee was only letting out of kalyana mantapa and whatever income over expenditure was earned during the year, it was put in FDRs to earn interest thereon. No charitable activity as defined under the Act was undertaken by the assessee. In the light of these facts, it is of the considered view that the assessee has not undertaken charitable activity during the year, therefore, it is not eligible for exemption u/s. 11 of the Act. Accordingly find no infirmity in the order of the CIT(Appeals) and confirm his order.

Issues Involved:
1. Whether the income derived from letting out Kalyana Mantapa qualifies for exemption under Section 11 of the Income Tax Act.
2. Whether the activities of the assessee are considered charitable under Section 2(15) of the Income Tax Act.
3. Whether the cancellation of registration under Section 12AA was justified.
4. Jurisdictional issues concerning the assessment and cancellation of registration.
5. Applicability of interest under Sections 234-B, 234-C, and 234-D of the Income Tax Act.

Detailed Analysis:

1. Income from Letting Out Kalyana Mantapa:
The primary issue was whether the income derived from letting out Kalyana Mantapa could be considered as income from a charitable activity and thus eligible for exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) noted that the assessee earned significant income from hiring out Kalyana Mantapa, generator hire charges, and interest on fixed deposits. The AO concluded that these activities did not qualify as charitable purposes under Section 2(15) of the Act and denied the exemption under Section 11.

2. Charitable Activities Under Section 2(15):
The CIT(Appeals) and the Tribunal examined the nature of the activities undertaken by the assessee in light of the amendments to Section 2(15) by the Finance Act, 2008. The CIT(Appeals) observed that the major activities of the assessee involved hiring out Kalyana Mantapa and earning income therefrom, which did not constitute charitable activities as defined under the Act. The Tribunal upheld this view, noting that the assessee's activities were more aligned with commercial activities rather than charitable purposes.

3. Cancellation of Registration Under Section 12AA:
The Tribunal had previously set aside the order of cancellation of registration under Section 12AA, which was confirmed by the High Court. However, the High Court's decision was based on procedural grounds, stating that registration can only be canceled if the activities are not carried out in accordance with the trust's objects. The High Court did not delve into whether letting out Kalyana Mantapa was a charitable activity. The AO, while assessing the exemption under Section 11, was deemed competent to examine the actual activities and deny the exemption if they were found to be non-charitable.

4. Jurisdictional Issues:
The assessee contended that after the cancellation of registration by the DIT(E), the AO lost jurisdiction over the assessee. However, the CIT(Appeals) rebutted this by referring to the CBDT notification granting jurisdiction to the DIT(E), Bangalore. The Tribunal upheld this view, confirming that the AO had the jurisdiction to assess the assessee's activities and deny the exemption under Section 11.

5. Applicability of Interest Under Sections 234-B, 234-C, and 234-D:
The assessee argued against the applicability of interest under Sections 234-B, 234-C, and 234-D, contending that it was not liable to be charged interest under these sections. However, the Tribunal did not find merit in this argument and upheld the levy of interest as per the provisions of the Act.

Conclusion:
The Tribunal concluded that the assessee's activities primarily involved letting out Kalyana Mantapa and earning income from it, which did not qualify as charitable activities under Section 2(15) of the Act. Consequently, the assessee was not eligible for exemption under Section 11. The Tribunal dismissed the appeals, confirming the orders of the CIT(Appeals) and upholding the denial of exemption and the applicability of interest under the relevant sections of the Income Tax Act.

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