Document Fragment View

Matching Fragments

9. This distinction was recognized by the Supreme Court in the case of Addi. CIT v. Surat Art Silk Cloth Manufacturers Association [1978] 121 ITR 1/[1979] 2 Taxman 501 wherein it was observed that if a business undertaking is held under trust for a charitable purpose, the income there from would be entitled to the exemption u/s. 11(1) of the Act. In the present case, the finding of the CIT(A) is that running of community Hall was incidental to the object of the trust, it was not business commenced/carried on by the assessee. Though the business was commenced by the trust and it was carried on by the Trust after its formation. it cannot be said to constitute property held under trust. U/s. 11(4), it is only the business which is held under the trust that would enjoy exemption in respect of its income u/s. 11(1) of the I.T. Act and there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purpose of the trust. Though the objects of the trust were charitable, they were mere powers conferred upon the trustees to carry on the business and the profits from such business would benefit the charitable objects. The exemption u/s. 11 cannot be granted on the reason that the business itself was not in existence at the time of formation of the trust and the property held under trust at the time of formation of the trust was not spelt out in the Trust Deed of the assessee. The running of Community Hall was not at all in existence at the time of formation of the trust so as to say that the business is property held under trust. Thus, the activities relating to running of "Community Hall was not even in the contemplation of the Trust Deed on the basis of which the Society is formed and therefore, could not have been settled upon trust. The business carried on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the assessee. In this case, the activities viz., running of community hall, was carried on by the assessee for and on behalf of the trust and it was not business held under trust. Section 11(1) of the Act confers exemption from tax only where the property is itself held under trust or other legal obligation; it does not apply to cases where a trust or legal obligation is not created on any property but only the income derived for a charitable or religious purpose. Surplus funds of a trust, which was claimed to be exempt on the footing that it was property held under trust within the meaning of sec. 11(1) of the Act, was not property held under trust since the property from which the surplus was generated was itself not held under trust In other words, merely carrying on business for and on behalf of the trust and applying the profits of the same for the object of the trust does Whole Sale Cloth Merchant Association, Kota.

not entitle for exemption us. 11(4) of the Act unless the business is incidental to the attainment of the objects of the trust. 10. We now proceed to consider the question whether the said activities carried on by the assessed were ---------

----------In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee", 13. Prima facie the above observation would appear to support the assessee's case in the sense that even if running of "Community Hall" is held not to constitute a business held under trust, but only as a business carried on by or on behalf of the trust, so long as the profits generated by it are applied for the charitable objects of the trust, the condition imposed u/s. 11(4A) of the Act should be held to be satisfied, entitling the trust to the tax exemption. 14. In our opinion, these observations have to be understood in the light of the facts before the Supreme Court in the case of Thanthi Trust (supra), wherein the trust carried on the business of a newspaper and that business itself was held under trust. The charitable object of the trust was the imparting of education which falls u/s. 2(15) of the Act. The newspaper business was incidental to the attainment of the object of the trust, namely that of imparting education and the profits of the newspaper business are utilized by the trust for achieving the object of imparting education. In this case, there is no such nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge. upliftment and education and to create an awareness of self- reliance among the members of the public etc. We are therefore, of the opinion that the observations of the Supreme Court must be understood and appreciated in the background of the fact in that case and should not be extended indiscriminately to all cases, Being so, we are inclined to hold that the assessee is not entitled for any exemption u/s. 11 of the I.T. Act. 15. In this case, it is brought on record by the AO that the assessee collected Rs. 11,28,000/- as corpus donation from 93 persons who performed functions at "Chennai Kamawar Kalyana Mahal". In addition to this, Rs.4,70,000/- was rent for utilizing the facilities of "Chennai Kamawar Kalyana Mahal" by 53 persons, totaling is Rs.15,98,000/-. As against this, in guise of corpus donation collected Rs.11,28,000/- from the persons, who have performed the functions in the "Chennai Kamawar Kalyana Mahal". That amount of Rs.11,28,000/- cannot be considered as corpus donation instead it should be a rental income. On enquiry by assessing officer. it was proved that the persons who paid rent of community hall and who paid the corpus donation were same. This is an act of quid pro for hiring the hall and no question of voluntary contribution in this payment. It is also to be noted that the dates exhibited in both cases were same. Being so, the provisions of sec.2(15) of the Act is squarely applicable as total receipts of rent from community hall exceeds Rs.10 lakhs, and we do not Whole Sale Cloth Merchant Association, Kota.

Only on these reasons the ld. AO denied the exemption u/s 11 of the act and the ld. CIT(A) has also confirmed the action of the by misinterpreting the submission of the assessee.

3. No denial of exemption u/s 11 and 12 for the misappropriation of fund by other persons:It is submitted that as the ld. AO has denied the exemption u/s 11 on the misappropriation of fund by other persons, which is also incorrect. 3.1. In the case of CIT v. State Urban Development Agency (Suda) (2013) 85 CCH 0179 AllHC.It has been held thatCharitable trust--Registration u/s 12A--Denial of-- Assessee a registered co-operative society and State Autonomous body applied for registration u/s 12A--CIT(A) declined registration u/s 12A to assessee on basis of report submitted by Accountant General (GOI), where it was mentioned that accounts were not properly maintained and funds were not properly utilised and kept idle in bank--Tribunal granted registration to assessee u/s 12A--Held, defect in maintenance of account was curable--Refusal of registration u/s 12A on basis of report submitted by Accountant General was unjustified--Non utilization of fund and keeping same in Bank cannot be ground for cancellation of registration--Expression "any other object of general public utility" u/s 2(15) includes all objects which promote welfare of general public--Even if there is some profit in activity carried on by trust/institution, so long as dominant object is of general public utility, it cannot be said that the trust/institution was not established for charitable purposes--Tribunal had given a categorically finding that objects of assessee were of General Public utility--Registration u/s 12A was rightly granted to assessee 3.2. In the case of CIT v. A.S. Kupparaju Brothers Charitable Foundation Trust (2012) 205 TAXMAN 0009It has been held that Charitable trust - Registration under S. 12A - Genuineness of - Refusal to grant registration certificate to assessee trust on the ground that the trust does not exist genuinely for the purpose of the objects mentioned in the deed - Held, once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges are being run and educational institutions are being run, nothing more requires to be established to show that the trust in question is a genuine trust - Misappropriation of funds is not a ground to deny the registration - Exemptions under ss. 11 & 12A are not automatic but available only when the assessee satisfies the requirement of section 13 - Assessee entitled to the registration under s. 12AA Whole Sale Cloth Merchant Association, Kota.