2014 (5) TMI 328 - HC - Income Tax

Appeal dismissed as donations for educational purposes fell below exemption limit. Trust qualifies for tax exemption.

Commissioner of Income Tax (Ii) Versus M/s. Hardayal Charitable & Educational Trust

The appeal by the revenue challenging the exemption claimed by the assessee under section 10(23C) of the Income Tax Act was dismissed. The Assessing ... Allowability of exemption u/s 10(23C)(iiiad) of the Act – Trust not solely for charitable purpose – Held that:- The Tribunal was of the view that there may be certain dormant objects which have never been pursued in reality by the assessee and the mere existence in a Memorandum constituting the assessee would not be sufficient to decline an exemption - it has never been the contention of the revenue either before the CIT(A) or before the Tribunal that the assessee had carried on any activity other than education - The AO relied on the prospectus of the assessee which made a reference to the business carried on by a Private Limited Company in the same 'group' as the assessee - The observations which are extracted in the order of the AO are from the order passed by the CIT-II, Agra on 23 August 2011 rejecting the request of the assessee for registration u/s 12AA - the assessee is a trust and not a Private Limited Company - The trust does not carry on any other business save and except conducting education - the entitlement of the assessee to the exemption u/s 10(23C) was dealt with by the CIT(A) – there was no reason or justification to hold that the CIT(A) ought to have remitted the proceedings before the AO – no substantial question of law arises for consideration – Decided against Revenue. Issues:1. Exemption under section 10(23C)(iiiad) of the Income Tax Act, 1961.2. Eligibility for exemption under section 10(23C)(iiiad) based on educational purposes.3. Addition made by the Assessing Officer without registration under section 12AA.Analysis:Issue 1: Exemption under section 10(23C)(iiiad)The appeal by the revenue under section 260-A of the Income Tax Act, 1961 was based on the decision of the Income Tax Appellate Tribunal regarding the exemption claimed by the assessee under section 10(23C). The Assessing Officer brought the donations received by the assessee to tax since registration under section 12AA was declined. However, the CIT(A) allowed the exemption based on confirmations from donors that the donations were specifically for educational purposes. The Tribunal upheld this view, considering the total receipts were below the prescribed limit of Rs.1 crore for exemption under section 10(23C)(iiiad).Issue 2: Eligibility for exemption based on educational purposesThe Assessing Officer's decision was influenced by a previous order rejecting registration under section 12AA. However, a subsequent judgment by the High Court overturned this decision, indicating that the trust solely engaged in educational activities, which aligns with the requirements for exemption under section 10(23C)(iiiad). The Tribunal emphasized that having additional objects in the trust's memorandum does not disqualify it from exemption as long as the primary activity is educational, citing relevant case laws.Issue 3: Addition made without registration under section 12AAThe Assessing Officer's reliance on the lack of registration under section 12AA was challenged, especially after a court judgment favored the trust's registration. The revenue's contention that the trust engaged in non-educational activities was refuted, as the trust's sole focus was on educational endeavors. The CIT(A) appropriately handled the exemption claim without the need for further assessment by the Assessing Officer.In conclusion, the appeal was dismissed as it did not raise substantial questions of law, affirming the CIT(A)'s decision to grant the exemption under section 10(23C)(iiiad) to the assessee.