2024 (9) TMI 262 - AT - Income Tax

Exemption u/s 11 - corpus donations receipts - activities of running Kalyana Mandapam was in the nature of business, first proviso to Sec. 2(15) would be attracted - AO has alleged that the corpus donations as received by the assessee were nothing but rental receipts since the same was received from only those persons who had hired halls on various occasions - second proviso would also not apply since aggregate receipts from Kalyana Mandapam were exceeding Rs. 10 Lacs per year - HELD THAT - Assessee has confined itself to carry out objects of the trust though the substantial activity has remained confined toward one activity as mentioned in Clause 3(k) of Trust Deed. Nevertheless, that fact would remain that the assessee-trust is working within the boundaries set out by trust deed. It could also be seen that the surplus generated out of this activity has been utilized by the assessee in furtherance of other charitable purposes viz. payment of school fees, contribution to relief funds etc. The surplus so generated out of this activity has been utilized in furtherance of other objects of the assessee-trust. It is quite clear that the assessee has confined itself to carry out those activities only which has been mentioned in the trust- deed. There is no material to indicate that the assessee has drifted from any of its objects and carried out any other activity which is not mentioned in the trust deed. Corpus donations were voluntary in nature and the same could not be treated as part of rental receipts. Further, the fact of application of income has also to be considered and kept in mind while examining the charity claim of the assessee considering the specific directions of Tribunal in its order dated 27-03-2015. Therefore, we do not concur with the re-working of profit by Ld. CIT(A) of impugned order. We would go by overall analysis of receipts and funds expended by the assessee during all these years to ascertain whether the aforesaid activity of Kalyan mandapam could be said to be carried out with profit motive with utter disregard to the other charities objective of the assessee. Going by above analysis, we find that though the activities of Kalyan mandapam may have resulted into some surplus for the assessee, nevertheless, the surplus funds were fully utilized to carry out charitable activities and therefore the assessee s claim of deduction u/s 11 could not be usurped merely on the finding that the assessee s activities resulted into surplus funds for the assessee. Thus, we would concur with assessee s claim of exemption u/s 11. AO is directed to grant the impugned exemption, in all the years and re-compute the income of the assessee for all these years. The assessee has also assailed reassessment proceedings on legal grounds. However, we concur with the adjudication of Ld. CIT(A) on legal grounds and find no reason to interfere in the same.

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Classification of activities under "General Public Utility" (GPU).
3. Taxation of corpus donations.
4. Suppression of receipts and treatment of donations.
5. Reopening of assessments.
6. Penalties under Section 271(1)(c).

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The Tribunal remitted the matter back to the Assessing Officer (AO) to re-examine the utilization of income for charitable activities. The AO observed that the substantial activity of the trust was running Kalyana Mandapams, which fell under GPU. The surplus generated was used for charitable purposes like school fees and relief funds. The Tribunal concluded that the trust worked within the boundaries of its trust deed, and the surplus was utilized for charitable activities. Therefore, the assessee's claim of exemption under Section 11 was upheld.

2. Classification of Activities under "General Public Utility" (GPU):
The AO and CIT(A) classified the trust's activities under GPU, invoking the first proviso to Section 2(15). The Tribunal found that the trust's primary activity was running Kalyana Mandapams, but the surplus was used for charitable purposes. The Tribunal disagreed with the lower authorities' classification, stating that the activities were within the trust deed's objects and the surplus was used for charitable purposes.

3. Taxation of Corpus Donations:
The AO treated corpus donations as rental receipts based on the assessee's declaration to the Service Tax Department. The Tribunal held that the concept of taxable service under the Service Tax Act differs from income under the Income Tax Act. The Tribunal found no evidence that corpus donations were non-voluntary or forced and concluded that corpus donations could not be equated with rental receipts.

4. Suppression of Receipts and Treatment of Donations:
The AO alleged suppression of receipts based on impounded day books. The Tribunal found no evidence that the assessee received unrecorded amounts. The assessee provided a complete reconciliation of receipts, and the Tribunal rejected the AO's allegations of suppressed receipts.

5. Reopening of Assessments:
The assessee challenged the reopening of assessments for various years. The Tribunal upheld the CIT(A)'s decision, stating that no regular scrutiny was done under Section 143(3) for those years, and the AO had sufficient material and reasons for reopening the assessments.

6. Penalties under Section 271(1)(c):
The AO levied penalties for AYs 2013-14 to 2015-16, which the CIT(A) upheld. However, the Tribunal concluded that the penalties would not survive in light of the findings on the quantum appeals and directed the AO to recompute the income, thereby allowing the penalty appeals.

Conclusion:
The Tribunal partly allowed the quantum appeals for AYs 2009-10 to 2017-18, directing the AO to grant exemption under Section 11 and recompute the income. Consequently, the penalty appeals for AYs 2013-14 to 2015-16 were also allowed. The Tribunal's order emphasized the proper utilization of income for charitable purposes and rejected the lower authorities' findings on corpus donations and suppressed receipts.

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