Indian Kanoon - Search engine for Indian Law

This appeal preferred by the Revenue is directed against the order dated 7-4-2011 passed by the ld. CIT(A)- 1, Mumbai for the assessment year 2008-09.

2. Briefly stated facts of the case are that the assessee trust is a public charitable trust established with the objects for providing relief to the poor, 2 ITA 5773/M/2011 education, medical relief and promotion of vegetarianism, distribution of Prasad, distribution of food to the general public especially to the poor and needy people and advancement of any other objective of general public utility and in furtherance of ethical and philosophical principles of Krishna Consciousness. The assessee filed its return of income on 24-9-2008 along with audit report in Form No. 10B and audited Income and Expenditure Account, Balance Sheet declaring total deficit of Rs. 86,06,051/- after claiming benefit of accumulation of 15% as per section 11(1)(a) of the Income Tax Act, 1961 (the Act). During the course of assessment proceeding, the assessee was asked to show cause as to why claim of exemption u/s 11 Act should not be disallowed and the assessee's income be not treated as business income. In response, the assessee vide letter dtd. 14-12-2010 submitted a note on the activities of the trust and claimed that the assessee's activities are commensurate with its objects and donations given. Regarding the business activity carried out by it during the previous year, the assessee submitted that it is in the business of running of an eating house/restaurant. It was further submitted that the Income Tax Act does not prohibit a trust from running a business which is in accordance with its objects and/or incidental to its objects. However, the A.O. after considering the assessee's submission inter alia observed that assessee is not acting as a charitable organization. The entire character and focus of assessee has become totally commercial. There is generation of huge profits year after year a part of which is diverted to the 3 ITA 5773/M/2011 related concern. According to the A.O. since the activities of the trust are being carried on commercial lines not in conformity with the objects of the assessee society, the assessee is not eligible for exemption u/s 11 of the Act. Therefore, the assessee is required to be taxed as AOP without granting exemption u/s 11 of the Act. He further observed that without prejudice to the treatment of the assessee as business concern as above, it is seen that the assessee has claimed deficit of Rs. 86,06,051/- and depreciation on assets, cost of which has already been claimed to be application towards the object of the trust in earlier years for the purposes of availing exemption under the Act, the said claims of the assessee are not allowable as section 11 of the Act provides for deduction of expenditure incurred for the objects of the trust as application from such income and does not specifically and expressly provide for double deduction on account of expenditure out of exempt income and double deduction on account of depreciation on the same very assets acquired from such capital expenditure amounts to claiming a double deduction which in view of the ratio of judgment of Hon'ble Supreme Court in the case of Escorts Ltd. vs. Union of India (1993)199 ITR 43 and J.K. Synthetics Ltd. v. Union of India (1992) 65 Taxman 420, cannot be allowed. He further observed that the assessee has given donation to ISKCON amounting to Rs. 1,85,66,772/- and the same has been debited to the Profit and Loss Account. Since the assessee has not submitted any documentary evidences suggesting that ISKCON has a valid 80G certificate, hence the A.O. also disallowed the deduction u/s 80G of the Act.

"I have perused the contention raised by the appellant as well as in the assessment order. The figure of net profit as worked out by the assessing officer is incorrect and the net profit actually comes to Rs. 5.29 lakhs. The amount of Rs. 1.20 lakhs also does not represent sale proceeds as alleged by the assessing officer and is only a donation from one Public Charitable Trust to another. This incorrect fact as mentioned in the assessment order suggests that the accounts were not properly perused by the assessing officer and he was deeply influenced by the bumper profit in arriving at the conclusion that the appellant was conducting the business solely with the profit motive. Besides, the assessing officer has simply ignored the main object of the appellant that is promotion of vegetarianism. The business of preparing vegetarian food items and selling the same was very much incidental to the objects of the appellant and such business can be of section 11(4A). In case the public charitable trust is engaged in a business which is incidental to its object the same will not disqualify the charitable trust from exemption u/s 11. In my 8 ITA 5773/M/2011 opinion the preparation of vegetarian food items and selling the same was mainly for popularizing the vegetarian food habits and in this way the appellant was engaged in promoting the vegetarianism among the people, which is undoubtedly a charitable object of the appellant. The major portion of the income received by the appellant was donated to ISKCON which is a public charitable trust of worldwide recognition and reputation and any donation from one charitable trust to another constitute application of income for the charitable purposes. The ISKCON are also publishing booklets and brochures for the promotion of vegetarianism among the people. Thus the contribution of the appellant to the ISKCON also helps to promote its own object indirectly. In view of the above discussion it is held that the appellant trust is conducting the business which is very much incidental to its charitable objects and the income from such business is applied for the fulfillment of charitable purposes and the appellant is eligible for the benefit of exemption u/s. 11. In view of the clear cut provision of section 11(4A), the exemption u/s 11(1) has to be allowed to the appellant. The Assessing Officer is directed to allow the same and to grant other consequential benefits of application and accumulation of income to the appellant trust u/s 11(1). However, the accumulation u/s 11(1) is hereby restricted to the extent of positive income which remain after allowing the expenses of the appellant trust for the application of income for its object.