2022 (11) TMI 236 - AT - Income Tax

Exemption u/s 11 - whether assessee is eligible for exemption u/s 11 and not hit by the amended provisions of Sec.2(15) under the object of General Public Utility ? - DR has submitted that the assessee was running kalyana mandapams and women s hostel, letting out building for commercial purposes and submitted that no charitable activity has been carried out by the assessee and not entitled for claiming exemption under section 11 - HELD THAT - The assessee has not carried out any charitable activities. Therefore, AO denied the claim of exemption u/s 11 to the assessee. No doubt, the assessee was having 12AA registration, we find that having 12A registration was not automatic to claim the benefit under section 11 of the Act. The assessee has to prove before the AO that the assessee was carried charitable activities and it can claim exemption under section 11 of the Act. In the present case, the assessee has not above to prove that it has carried charitable activities and the business activities was incidental to the charitable activity. The order passed by the CIT(A) that the assessee has carried charitable activity is without any basis and any evidence. Thus, we reverse the order passed by the ld. CIT(A). Accordingly, we restore the assessment order passed by the AO and allow the grounds raised by the Revenue.

Issues Involved
1. Eligibility for exemption under section 11 of the Income Tax Act.
2. Nature of activities carried out by the assessee trust.
3. Applicability of amended provisions of Section 2(15) of the Income Tax Act.
4. Running of working women's hostel as a charitable activity.
5. Payment of service tax and its impact on charitable status.
6. Predominant activities of the trust.
7. Application of accumulated income and inter-trust donations.
8. Claim of depreciation on assets.
9. Disallowance of donations and income tax paid.
10. Right to amend grounds of appeal.

Detailed Analysis

1. Eligibility for Exemption Under Section 11 of the Income Tax Act:
The Revenue challenged the CIT(A)'s decision that the assessee trust is eligible for exemption under section 11, arguing that the trust's activities are commercial in nature. The Tribunal noted that the assessee trust's activities, such as running kalyana mandapams and hostels, did not align with the charitable purposes outlined in its trust deed.

2. Nature of Activities Carried Out by the Assessee Trust:
The Tribunal observed that the main activities of the trust included running marriage halls and hostels, and letting out buildings for commercial purposes. It was noted that these activities do not qualify as charitable under the trust's objects, which primarily focus on education, relief of the poor, and other charitable purposes.

3. Applicability of Amended Provisions of Section 2(15) of the Income Tax Act:
The Tribunal emphasized that the amended provisions of Section 2(15), effective from 01.04.2009, apply to the assessee trust. These provisions state that activities involving trade, commerce, or business are not considered charitable unless they are incidental to the main charitable objectives and the aggregate receipts do not exceed 20% of the total receipts.

4. Running of Working Women's Hostel as a Charitable Activity:
The Tribunal found that the assessee charged substantial fees for hostel services, indicating a commercial nature. There was no evidence that the hostel facilities were provided to poor students, thus failing to qualify as a charitable activity under the trust's objects.

5. Payment of Service Tax and Its Impact on Charitable Status:
The Tribunal dismissed the CIT(A)'s view that the payment of service tax under "mandap-keeper services" does not affect the charitable status. It held that this payment indicates commercial activity, aligning with the amended Section 2(15) provisions.

6. Predominant Activities of the Trust:
The Tribunal concluded that the predominant activities of the trust were commercial, such as running marriage halls and hostels, rather than charitable. This contradicted the CIT(A)'s finding that the trust's activities were primarily charitable.

7. Application of Accumulated Income and Inter-Trust Donations:
The Tribunal noted that the assessee did not file Form No. 10 for accumulating income for the assessment year 2011-12, making it taxable. It also pointed out that inter-trust donations from accumulated income are prohibited under Section 11(3)(d) of the Act.

8. Claim of Depreciation on Assets:
The Tribunal disagreed with the CIT(A)'s decision to allow depreciation on assets whose acquisition costs were already treated as "application of income" for exemption purposes. It cited various court decisions supporting the disallowance of such claims.

9. Disallowance of Donations and Income Tax Paid:
The Tribunal upheld the disallowance of donations and income tax paid, as the assessee lost eligibility for exemption under section 11, invoking the provisions of section 14.

10. Right to Amend Grounds of Appeal:
The Tribunal noted the appellant's right to amend, modify, or add grounds of appeal before or during the hearing, but this did not impact the final judgment.

Conclusion
The Tribunal reversed the CIT(A)'s order, denying the assessee trust the exemption under section 11 of the Income Tax Act. It concluded that the trust's activities were primarily commercial and not aligned with its charitable objects, thus failing to meet the criteria for tax exemption. The appeal filed by the Revenue was allowed, restoring the assessment order passed by the Assessing Officer.

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