9911796707
TMI Blog2024 (9) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... hool 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to hold a business undertaking as a property held under a trust. Sec. 11(4A) of the Act provides that when the business of the trust is incidental to the attainment of the objectives of the trust and the trust is maintaining separate books of account in respect of such business, the provisions of sec. 11 would be applicable and the assessee is entitled for exemption. The Assessing Officer, in fact, found that running of community hall is incidental to the attainment of the objects of the trust, therefore, entitled for exemption u/s 11 of the Act. This Tribunal is of the considered opinion that when the main object of the assessee is education and providing scholarship to the needy people, the assessee naturally needs money to feed the charitable activity and performing the objects of the trust. Therefore, the business can be held as property under the trust. However, the assessee is expected to maintain a separate books of account and the business of the assessee-trust shall be incidental to the main activity. 13. In the case before us, the CIT(E) has received petitions regarding tax evasion by the assessee. The assessee was receiving corpus donation in the guise of letting out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the material on record with regard to utilization of the income for charitable activity. The Ld. AO was directed to examine the utilization of the income of the assessee-trust and thereafter decide the claim of exemption u/s 11, in accordance with law. The aforesaid order attained finality since the assessee as well as revenue did not prefer any further appeal against the same. The Ld. AO gave effect to the order of Tribunal which is discusses slightly later in the order. 1.3 In the light of revision order u/s 263 for AY 2010-11, Ld. AO reopened assessments of other years and framed assessments for AYs 2009-10, 2011-12 to 2017-18 rejecting claim of exemption u/s 11. The assessee, in batch of appeals, assailed notices issued by Ld. AO u/s 148 by way of Writ Petitions before Hon ble Single Judge of Hon ble High Court of Madras in WP Nos.30843 ors. The same was disposed-off on 26-07-2022 with certain directions. It was noted in the order that the assessee was constituted under a Deed of Trust dated 27-08-1991 having thirteen specific objects. The Hon ble Court noted the revision made by appropriate authority u/s 263 for AY 2010-11 and also noted the adjudication of Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated / set aside and the Appellate Authority is directed to decide the appeals, if filed on merits and uninfluenced / unobsessed by the observations of the learned Single Judge. The captioned writ appeals stand disposed of accordingly. No costs. It was thus directed by Hon ble Court that appellate authority was to decide the appeal on its merits uninfluenced by the observations of learned single judge. In other words, the observation of learned Single Judge was not to be considered during appellate proceedings. 2. Assessment Proceeding 2.1 Pursuant to revision order passed u/s 263 as well as after considering the order of Tribunal dated 18-03-2016, revision effect order was passed by Ld. AO u/s 143(3) r.w.s. 263 on 31-03-2016. The Ld. AO noted that the assessee trust was registered u/s 12AA of the Act. The revisionary authority flagged the issued that the assessee was in receipt of income from PT Rajan Hall Kalyana Mandapam at Madurai. The assessee was also found to be in receipt of corpus donation. 2.2 The assessee s registered office premises at Chennai as well as Kalyana Mandapam at Madurai was inspected on 08-01-2016 wherein day cash book was impounded from Kalyana Mandapam at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der various heads which were as under: - No. Description Amount 1. Donations 64,87,875 2. Hall Rent 4,11,011 3. Refundable Deposit 23,68,500 4. Amenities 2,96,695 5. Extra Rooms 1,71,000 6. Service Tax 1,63,635 7. Diesel 7,40,885 8. Gas 6,53,940 9. Electricity 3,95,978 10. Water Cleaning 5,06,225 11. Misc. 2,62,590 Total 1,24,58,334 The Ld. AO observed that contributions under above heads were made by those persons who had booked Kalyana Mandapam for conducting various functions. The person who booked Kalyana Mandapam only contributed donations which would show that the same were nothing but Kalyana Mandapam receipts. The donors were the same person who paid for above expenditure. It was also noted that the assessee offered only an amount of Rs. 24.54 Lacs as Kalyana Mandapam receipts and accordingly there was suppression of receipts to the extent of Rs. 100.03 Lacs (Rs. 124.58 Lacs Rs. 24.54 Lacs). 2.5 The assessee submitted that all that was required to claim exemption u/s 11 was application of income to the extent of 85%. Donations made and additions to fixed assets should be treated as an application of the income. Further refundable deposit and contra entries should be exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am etc., for the use and benefit of the public . The Ld. AO opined that this activity would fall in the category of activity in the nature of advancement of general public utility as held by Chennai Tribunal in the case of M/s SNR Sons Charitable Trust [ITA No.2630/Mds/2014 dated 12.06.2015]. Therefore, first proviso to Sec. 2(15) would apply to the case of the assessee and benefit of exemption could not be extended to the assessee considering the provisions of Sec. 13(8). The assessee, in such a case, would be treated as an Association of Person (AOP) and its income would be determined in a commercial sense. The expenditure which was not connected with the income earning activity would not be allowable to the assessee. Therefore, the donations paid for Rs. 4.88 Lacs was added to the income of the assessee. The corpus donation of Rs. 52 Lacs would form part of income of the assessee. Finally, the income of the assessee was determined at Rs. 172.80 Lacs and assessment was finalized. 2.10 The assessment for AY 2009-10 was reopened and an order was passed u/s 143(3) r.w.s. 147 on 31-03-2016. The assessment was reopened pursuant to findings unearthed in the course of proceedings u/s 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities would fall under advancement of general public utility (GPU) and accordingly, it is hit by proviso to Sec. 2(15). The major portion of application of income was claimed as administrative expenditure and the excess income was not applied for the object of the trust. 3.3 The assessee assailed the remand report of Ld. AO, inter-alia, by stating that none of the documents as supplied by the assessee were considered in the remand report. It was also stated that the direction given by Tribunal were also to considered wherein Tribunal directed Ld. AO to look into the aspect of utilization of income for charitable purposes. The assessee also pleaded to rejection of remand report on various grounds. 3.4 On the contrary, the assessee submitted that its activities were incidental to attainment of objective of the trust and therefore, it would be entitled for exemption u/s 11. The object was not for advancement of general public utility (GPU). The main object was to establish educational and medical institution and also providing scholarships to the needy people. The Ld. AO overlooked the provision of Se.11(4) which enable charitable institution to hold a business undertaking as a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the financial statements for which exemption was claimed u/s 11(1)(d) of the Act. This same would be evidenced by the fact that the assessee disclosed corpus donations as rental receipts under VCES and paid additional service tax. If corpus donations were considered as regular rental receipts, the assessee would be making high profits and therefore, it could not claim that running of kalyanamandapams was a charitable venture. The object in Clause 3(k) were not incidental activity but carried out as predominant activity. Such activity would fall as advancement of general public utility and accordingly, it would be hit by first proviso to Sec. 2(15). 3.8 Regarding interpretation of Tribunal order, it was held that Tribunal remitted the matter to the file of Ld. AO to re-examine the activities carried out by the assessee in the light of material on record and in case, the objects would fall under main limb of charities then proceed to examine the utilization or application of income. 3.9 The Ld. AO verified and decided that the primary object of the assessee was running of kalyanamandapams and therefore, this activity would fall under GPU and therefore, AO invoked the proviso to Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surplus / profit from kalyanamandapams which being an object of advancement of GPU, even if used for charitable purposes could not entitle the assessee to claim exemption u/s 11. This argument would not hold good after the amendment in Sec. 2(15) w.e.f. AY 2009-10 onwards. Only the main limb charities, by virtue of Sec.11(4A), can involve an incidental business and if the profits are ploughed back, they are eligible for exemption u/s 11. However, the same is not applicable for GPU charities by virtue of proviso to Sec.2(15) w.e.f. AY 2009-10. Therefore, the relevant grounds urged by the assessee were dismissed. 3.11 The Ld. CIT(A) also observed that the marriage hall was not let out to poor people at 50% concessional rent as stipulated by Govt. of Tamil Nadu. The Hon ble Supreme Court in the decision of AUDA introduced the concept of nominally above cost and held that charging of any amount towards consideration of an activity or which is on cost-basis or nominally above cost, cannot be termed as trade, commerce or business or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uble addition, in para 12.15.5, issued suitable directions to Ld. AO regarding double addition of donations, refundable deposits, miscellaneous income etc. Accordingly, the arguments raised by the assessee, in this regard, were partly allowed. 3.13 The assessee s claim of depreciation was not allowed since the cost of purchase of assets was already claimed as application of income in earlier years. The Ld. CIT(A) referred to amendment made by Finance Act, 2015 w.e.f. AY 2015-16, in this regard. The provisions of Sec.11(6) were noted in this regard at para 12.16 of the impugned order. Before AY 2015-16, this claim could be allowed to the assessee in terms of various judicial decisions. The Ld. CIT(A) directed Ld. AO to allow depreciation up-to AY 2014-15. With effect from 01-04-2015, depreciation would be allowed only in terms of amendment made by Finance Act, 2015. 3.14 The Ld. CIT(A), in para 13.3 of the order, tabulated the utilization of funds by the assessee for charitable purposes. The Ld. CIT(A) also considered the ratio of various judicial decisions as cited by the assessee and sought distinction of the same on the ground that all these decisions were rendered prior to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls under the category- any other object of general public utility (GPU activity). 4. The CIT(A) erred in taxing the corpus donation received from hirers and others as income ignoring the various pronouncements of the judicial authorities which have all held uniformly that Corpus donations are capital in nature and hence fully exempt. 5. The CIT(A) erred in not granting the applications of claimed by the appellant as deduction from the income of the appellant. 6. The CIT(A) erred in not allowing the donations of Rs. 4,88,620/- and other sums which were applied, in line with the objects of the trust, during the impugned year. 7. The outright rejection by the CIT(A), of the pricing analysis submitted by the appellant trust to demonstrate that the charges and the mark up are carried at arm's length basis and is as per the established norms, is incorrect. 8. The CIT(A) erred in holding that 5 % profit percentage should be considered as the bench mark for charitable trusts, which view, is totally incorrect and has no basis whatsoever. 9. The CIT(A) erred in merely setting aside the matter to the file of assessing officer to delete the erroneous additions including multiple additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and directed appellate authority to decide the appeal on merits uninfluenced by the observations of Ld. Single Judge. It could thus be seen that ultimately the matter stand remitted back to the file of Ld. AO for re-examination wherein utilization of income for Charitable Activity would be a crucial factor to determine the assessee s claim of exemption u/s 11. 5. In the set-aside proceedings, the Ld. AO observed that though the assessee had multiple objects in the Trust Deed, the substantial activity carried by the assessee remained focused to run Kalyan Mandapams in terms of clause 3(k). We find that the assessee-trust is established by trust deed dated 27-03-1991 and it is a registered entity u/s 12A since 1991 onwards. There is apparently no change in the objects of the assessee-trust. In fact, the 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry contributions only and agreed for such donations with complete understanding of nature thereof. Therefore, to equate the same with rental receipts would not be a correct proposition unless it was shown that the rental charges were bifurcated into hall rental charges and donations. We find that there are no such independent findings by Ld. AO and Ld. AO has merely gone by the declaration made by the assessee before Service Tax Department which could not be held to be justified. We also find that the rental collection has been made by the assessee under various heads viz. hall rent, refundable deposit, charges for amenities, extra rooms, fuel, gas, electricity etc. under full knowledge of the hirer of Kalyan Mandapams who have agreed to pay the amounts under those heads with full knowledge and understanding. Similarly, corpus donations have separately been contributed by those persons with full understanding of nature thereof. Therefore, in the absence of contrary findings, it was to be held that corpus donations were voluntary donations received by the assessee and the same could not be attributed towards rental charges. The findings of lower authorities, to that extent, do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 0 2356847 10892269 10507057 385212 23739805 2014-15 2296129 12158417 14454546 13347424 61900 0 2192309 15601633 12286364 3315269 27055074 2015-16 2984599 14217913 17202512 11726498 0 0 1955360 13681858 14622135 -940277 26114797 2016-17 2979238 15301145 18280383 16024494 0 0 1829844 17854338 15538326 2316012 28430809 2017-18 2613201 14660950 17274151 16045758 0 0 1526209 17571967 14683028 2888939 31319748 17688711 81504461 99193172 84273364 9424276 2000000 19936304 115633944 84314196 31319748 194786319 We find that on an overall basis, gross receipts of the assessee including interest and other income, during all these years, aggregate to Rs. 991.93 Lacs whereas it has incurred expenditure of Rs. 842.73 Lacs which includes charities / donations given by it in these years. The net surplus is Rs. 149.20 Lacs. The assessee has incurred capital expenditure of Rs. 94.24 Lacs whereas its depreciation would be Rs. 199.36 Lacs. If these two items are deducted, the assessee has, in fact, has utilized way much more amount than its net surplus. The Ld. CIT(A) has arrived at profit rates after considering corpus donations as part of gross receipts. Further, the amount expended by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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