2022 (4) TMI 1124 - AT - Income Tax

Prayer Hall Construction Deemed Charitable, Exemption Granted under Section 11

The Tribunal held that the construction of the prayer hall by the assessee was in line with its charitable objects and not religious in nature. The ... Exemption u/s 11 - denial of benefit as activities of the assessee were not in consonance with its object clause being charitable in nature - AO was of the opinion that the activities of the assessee are in the nature of religious which were camouflaged as charitable in nature, thus the activities carried out by the assessee were not in accordance with the trust deed - Whether the activity of the assessee in relation to the construction of the prayer hall is religious in nature ? - HELD THAT:- CIT-A has allowed the appeal of the assessee after passing the detailed and reasoned order - DR at the time of hearing has not brought anything contrary to the finding of the learned CIT-A. In this regard we find support and guidance from the order UNITED BREWERIES LTD. [2010 (1) TMI 86 - KARNATAKA HIGH COURT] wherein held that in the absence of any material on appreciation of which material the finding is required to be recorded, there is no question of the matter being remanded to the Tribunal as the Tribunal will not be able to record a finding in the absence of any material. The conclusion of the Tribunal to reverse the well considered and well recorded findings of the assessing authority and the first appellate authority, on disallowing claim it is nothing short of perverse conclusion as it is neither conclusion based on any material on record nor after giving any reasons to reverse the findings of the assessing authority and the first appellate authority who have givenwell supported reasons and discussed the material available. Whether the advance made by the assessee is in violation of the provisions of section 11 read with section 13(1)(d)? - We note that the advance was made by the assessee in the financial year 2011-12 which was subject to the assessment under the provisions of section 143(3) of the Act and there was no allegation against the assessee for having contravened the provisions of section 11(5) read with section 13(1)(d). Likewise the amount of advance received back in full in the assessment AR 2016-17 which was also the subject matter of assessment under section 143(3) of the Act but no adverse inference was drawn by the AO during the relevant assessment proceedings. Accordingly, the case of the assessee was in its favour based on the principles of consistency. Furthermore, the assessee has achieved its own goals by advancing money without charging any interest to the institution which was engaged in charitable activities. Thus no adverse inference can be drawn against the assessee Not applied the income derived from property held under trust for the purpose of charitable activity and therefore it is not eligible for exemption under the provisions of law - As provision of section 11(1)(d) provide that voluntary contribution made with a specific direction which shall form the part of corpus of the trust will be excluded from the income. Under the provision of section 11(1)(d) only twin condition that the contribution has been made voluntary and made with specific direction has to satisfy. As such with regard to corpus donation there is no criteria to apply the 85% of receipt toward charitable purpose. Coming to the case on hand, we find that out of the total receipt of ₹ 8,21,15,600/- a sum of ₹ 5,83,47,006/- represents the corpus fund which was received for the specific purposes i.e. construction of prayer hall. Thus in our considered view, the corpus fund represents the capital receipt which has to be utilized for the specific purposes and therefore the same cannot be subject to tax being receipt in the nature of capital. See SRI DURGA NIMISHAMBA TRUST [2011 (9) TMI 576 - KARNATAKA HIGH COURT]. Other receipts i.e. interest income and regular donations - We find that the assessee has incurred an expense of ₹ 30.92 Lacs leaving a surplus amount of ₹ 2.06 crore approx. which in our considered view at the most can be brought to tax in the situation where the benefit of section 11 is denied to the assessee. Admittedly, in the case on hand, the benefit of section 11 has been denied to the assessee for the activities carried out for the construction of the prayer hall. Accordingly, we hold that the activity of the assessee was in consonance with the object clause and therefore the assessee is entitled for the exemption under section 11 of the Act. Hence the ground of appeal of the revenue is hereby dismissed. Issues Involved:1. Whether the activity of the assessee in relation to the construction of the prayer hall is religious in nature.2. Whether the advance made by the assessee for Rs. 1.50 crore to Shri Sardar Patel Cultural Foundation is in violation of the provisions of section 11 read with section 13(1)(d) of the Income Tax Act.Issue-wise Detailed Analysis:1. Construction of the Prayer Hall:The primary contention by the Revenue was that the assessee's construction of a prayer hall was religious in nature, thus not aligning with the charitable objects of the trust. The Assessing Officer (AO) argued that the prayer hall was essentially a temple, citing features like 'Garbhagrah' and 'Rangmandap,' and the presence of multiple deities, which are typical of Hindu temples. The AO also noted that the trust's website and activities indicated a primarily religious nature, and thus, denied the exemption under section 11 of the Act.The assessee countered that the prayer hall was for meditation, open to all irrespective of religion, and not limited to any particular caste or creed. The architecture and presence of deities were argued to be for cultural and social purposes, not religious. The CIT(A) supported this view, emphasizing that the trust's objects were verified and approved by the Commissioner of Income Tax when granting registration under section 12A. The CIT(A) also noted that the trust had incurred significant expenses towards charitable activities, and the construction of the prayer hall was funded from the corpus donations, which were exempt under section 11(1)(d).The Tribunal upheld the CIT(A)’s decision, noting that the AO's interpretation was narrow and not supported by facts. The Tribunal found that the prayer hall's construction was in line with the trust's objects, which included cultural and social development. The presence of multiple deities and architectural features did not convert the trust's activities into religious ones. Therefore, the assessee was entitled to the exemption under section 11.2. Advance to Shri Sardar Patel Cultural Foundation:The AO also denied the exemption under section 11, citing a violation of section 11(5) and section 13(1)(d) due to an advance of Rs. 1.50 crore made to Shri Sardar Patel Cultural Foundation. The AO argued that this advance was not in line with the prescribed modes of investment under section 11(5).The assessee contended that the advance was made in the financial year 2011-12 and was fully recovered in the assessment year 2016-17, both of which were assessed under section 143(3) without any adverse findings. The CIT(A) noted that the advance was made to a trust with similar charitable objects and was not a violation of section 11(5). The CIT(A) referenced several judicial precedents where interest-free loans to associate trusts with similar objects were not considered violations of section 13(1)(d).The Tribunal concurred with the CIT(A), emphasizing that the advance was not made during the year under consideration and had been fully recovered. The Tribunal also noted that the assessee’s activities were charitable, and the advance did not contravene the provisions of section 11(5) or section 13(1)(d). Hence, the assessee was eligible for the exemption under section 11.Conclusion:The Tribunal concluded that the assessee's activities, including the construction of the prayer hall, were in line with its charitable objects and not religious in nature. Additionally, the advance to Shri Sardar Patel Cultural Foundation did not violate the provisions of section 11(5) or section 13(1)(d). Consequently, the assessee was entitled to the exemption under section 11 of the Income Tax Act, and the Revenue's appeal was dismissed.