2014 (8) TMI 840 - AT - Income Tax

Building for Buddhist Studies Trust Qualifies for Tax Exemption

Shambhala Chartiable Trust Bokar Versus ITO, Ward-2 Darjeeling

The Tribunal allowed the assessee trust's appeal, holding that the building constructed primarily for an institute of higher Buddhist studies qualified ... Exemption u/s 11 denied – Assessee charitable trust and fulfilled all conditions – Settlor of trust himself Buddhist scholar - Held that:- The AO made detailed enquiries and conducted hearings on several dates and made detailed noting in the order sheet entries - the assets acquired by the assessee trust out of the capital outlay must be with the objects of charitable or religious purposes and in such circumstances, even the construction of temple or construction of institute for higher Buddhist studies and research, if accepted, at its on face value, even then the AO could not have denied exemption u/s. 11 of the Act because such an application of income for construction of temple as well as institute for Buddhist higher studies amounted to application of income for charitable purposes as well as religious purposes - the building which the assessee constructed was a temple even then the AO could not have denied exemption u/s 11 of the Act because exemption u/s 11 is permissible to religious as well as charitable trust. Relying upon Commissioner of Income-Tax Versus Rajneesh Foundation [2005 (7) TMI 37 - BOMBAY High Court] - the meaning of words advancement of any other object of general public utility has been subject of discussion and adjudication - the definition of chartable purpose u/s.2(15) of the Act includes the words advancement of any other object of general public utility and the objects claims the activities of the trust are for the advancement of objects like the teachings of Buddha to spread and for that purpose the assessee has claimed application of income towards construction of study and research centre for higher Buddhist study including construction of Buddhist temple - Since inception the assessee trust is pursuing the activities connected or associated with preaching, spreading and disseminating the ideas, ideals and the teachings of Lord Buddha. It is also a temple and assessee trust is performing religious functions and it is established for charitable purposes - The present trust was for the higher Buddhist study and research centre to propagate the Buddha thought and philosophy which would admittedly be an object of general public utility - Be it a construction of temple which is a religious activity or construction of institute for higher Buddhist learning which is for the object of general public utility, both qualifies for exemption u/s 11 of the Act – the exemption u/s. 11 of the Act is allowed to the assessee trust - Decided in favour of Assessee. Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income-tax Act.2. Denial of exemption under Section 11 of the Income-tax Act to a charitable trust.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment Under Section 147 of the Income-tax Act:The first issue raised by the assessee trust was against the order of the CIT(A) confirming the action of the AO in reopening the assessment under Section 147 of the Income-tax Act. The grounds raised were identically worded for all three years. However, the assessee's counsel, Shri D. S. Damle, stated that he had instructions from the assessee trust not to press these grounds. Consequently, these grounds were dismissed as withdrawn.2. Denial of Exemption Under Section 11 of the Income-tax Act:a. Charitable Nature of the Trust:The assessee trust, established by a declaration of trust deed dated 10.07.1998, was registered under Section 12A of the Income-tax Act. The objects of the trust were charitable in nature, as evidenced by the trust deed and the registration certificate. Despite this, the AO denied the exemption under Section 11 for the income applied towards the construction of a building, which the AO deemed to be a temple.b. AO's Findings:The AO based the denial on the fact that the trust had taken permission for constructing a Buddha Temple, which was not explicitly mentioned in the trust's objects. The AO concluded that the exemption under Section 11 was not available for the amount spent on the construction of the temple, citing that the trust's objects were too wide and included non-charitable purposes.c. CIT(A)'s Confirmation:The CIT(A) upheld the AO's decision, emphasizing that the NOC obtained from the Gram Panchayat was for constructing a Buddha Temple. The CIT(A) rejected the assessee's contention that the NOC was issued in a casual manner and that the building was meant for an institute for higher Buddhist studies and research. The CIT(A) further noted that the revised NOC obtained in 2012, after the assessment order, could not alter the initial purpose of the construction.d. Assessee's Arguments:The assessee argued that the building was intended for an institute of higher Buddhist studies, which included a temple. The assessee provided a valuation report from a Chartered Engineer, which described the building as an institute with classrooms, a hostel, and a small temple occupying only 3.05% of the total area. The assessee also highlighted that the AO had allowed the exemption under Section 11 for subsequent years (AY 2010-11 and 2011-12) for expenses incurred on operating the institute.e. Tribunal's Findings:The Tribunal noted that the assessee trust was engaged in activities connected with spreading the teachings of Lord Buddha. The building constructed was primarily for an institute of higher Buddhist studies, with a small temple as part of it. The Tribunal emphasized that the AO and CIT(A) had not conducted any physical inspection of the building to ascertain its true nature. The Tribunal also observed that the provision of Section 11 permits exemption for income applied for charitable or religious purposes, including capital expenditure.f. Legal Precedents:The Tribunal cited various legal precedents, including the case of CIT (Addl.) Vs. A. A. Bibijiwala Trust (1975) 100 ITR 516 (Guj), which held that a trust with both charitable and religious objects is entitled to exemption under Section 11 as long as no part of the income is applied for non-charitable purposes. The Tribunal also referred to the case of CIT Vs. Rajneesh Foundation (2006) 280 ITR 553 (Bom), which discussed the advancement of objects of general public utility and the exemption under Section 11.Conclusion:The Tribunal concluded that the building constructed by the assessee trust was primarily for an institute of higher Buddhist studies, which qualifies for exemption under Section 11. The Tribunal held that even if the building included a temple, the exemption under Section 11 would still be available as the construction served both charitable and religious purposes. Consequently, the Tribunal allowed the exemption under Section 11 and reversed the orders of the lower authorities.Final Order:The appeals of the assessee were allowed, and the order was pronounced in the open court on 05.08.2014.