2022 (8) TMI 1085 - HC - Income Tax

Exemption u/s 11 - Whether activities of assessee are charitable in nature? - HELD THAT - Decision on the entitlement of the petitioner trust to exemption would have to, in light of the prevailing law, take note of not just the dominant objects/purpose of the trust but the activities undertaken in pursuance of the objects. It must be ascertained as to whether the business activities fuel the charity or whether the charitable activities are merely incidental to the business of running the kalyana mandapam. The impugned orders of assessment have taken note of the object in clause 3(k) of the Trust Deed. At paragraph 3.2 of the impugned orders, the details of income generated from the hire of the Kalyana Mandapam as well as other sources, such as bank were taken note of. The expenses incurred have also been noted with a specific finding that the major expenses include maintenance of the Kalyana Mandapam. A perusal of the impugned orders not reveal the specific charitable activities that the petitioner has engaged in, though the show cause notice to the petitioner as to why the provisions of Section 2(15) not be invoked in its case, has evoked a reply to the effect that the main objects of the Trust are education, medical relief and relief to the poor. The critical issue continues to relate to the usage of funds by the petitioner as this would determine whether its activities are charitable or otherwise, This has then to be set and seen in the context of Section 2(15) of the Act. This exercise necessarily involves an appreciation of facts which this Court is not inclined to embark upon in terms of Article 226 of the Constitution of India. In any event, no legal infirmity is made out to warrant intervention in/with the impugned orders. Faced with this prospect, learned Senior Counsel for learned counsel on record, conveys that the petitioner wishes to withdraw the Writ Petitions, seeking liberty to file statutory appeals. Appeals challenging assessments for AYs 2009-2010 to 2012-2013 and 2016-2017 are stated to be pending before the first appellate authority. Seeing as all the appeals involve the claim of exemption under Section 11, it stands to reason that those appeals as well as the appeals that the petitioner has been granted liberty to file under this order, shall on institution, be consolidated, assigned to one appellate authority, the petitioner afforded personal hearing and orders passed thereafter, all within a period of six (6) months from the date of receipt of this order.

Summary

Issues:

1. Interpretation of Section 2(15) of the Income Tax Act, 1961 regarding charitable purpose.
2. Validity of the revision of assessment initiated by the Commissioner of Income Tax.
3. Examination of the utilization of income from community hall for charitable activities.
4. Applicability of Section 11 for exemption and maintenance of separate books of accounts.
5. Assessment orders rejecting the claim for exemption under Section 11 of the Act.

Issue 1: Interpretation of Section 2(15) of the Income Tax Act:

The judgment revolves around the interpretation of Section 2(15) of the Income Tax Act, specifically focusing on the definition of 'charitable purpose' post-amendment. The court analyzed whether the petitioner trust's activities align with the provisions of the Act, emphasizing the need to ascertain if business activities support charity or vice versa. The court highlighted the importance of considering both the trust's dominant objects and the activities undertaken to determine eligibility for exemption.

Issue 2: Validity of the revision of assessment:

The judgment addressed the validity of the revision of assessment initiated by the Commissioner of Income Tax for the assessment year 2010-2011. The court examined the grounds on which the revision was based, particularly focusing on the amendment to Section 2(15) of the Act and its impact on the petitioner's claim for exemption under Section 11. The court scrutinized the Tribunal's findings and observations regarding the trust's objects and activities to assess the validity of the revision.

Issue 3: Examination of income utilization for charitable activities:

Another crucial aspect of the judgment was the examination of the petitioner's utilization of income from the community hall for charitable activities. The court delved into whether the income generated was effectively used for charitable purposes, emphasizing the need for a detailed examination of the utilization of funds year by year. The court highlighted the importance of maintaining separate books of accounts and ensuring that business activities are incidental to the trust's main charitable objectives.

Issue 4: Applicability of Section 11 for exemption:

The judgment discussed the applicability of Section 11 for exemption and the requirement for the trust to maintain separate books of accounts for business activities. The court analyzed the Tribunal's findings regarding the trust's eligibility for exemption under Section 11, emphasizing the need for the business activities to be incidental to the trust's main charitable activities. The court directed the Assessing Officer to reexamine the utilization of income in light of the material available on record to determine the trust's eligibility for exemption.

Issue 5: Assessment orders rejecting exemption claim:

Lastly, the judgment addressed the assessment orders rejecting the petitioner's claim for exemption under Section 11 for assessment years 2013-14, 2014-15, 2015-16, and 2017-18. The court examined the grounds on which the exemption was denied, considering the trust's objects, activities, and utilization of income. The court highlighted the need for a detailed assessment of the trust's income and expenditure to determine its eligibility for exemption under Section 11.

This detailed analysis of the judgment covers the key issues involved and provides a comprehensive overview of the court's findings and directives regarding the interpretation of relevant legal provisions and the assessment of the petitioner's eligibility for exemption under the Income Tax Act.