Trust exemption under Section 11 upheld despite small commemorative expenses for deceased founder's birthday celebration

ITAT Surat upheld CIT(A)'s decision allowing exemption under Section 11 to a trust. Revenue challenged disallowance of expenses for deceased chairperson's birthday celebration. ITAT ruled that small commemorative expenses for the founder who devoted efforts to establish the institution cannot constitute violation of Section 13. No benefit to interested persons under Section 13(3) was found. The honestly disclosed negligible amount did not warrant disallowance. Revenue's appeal was dismissed.

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Issues Involved:
1. Deletion of addition of Rs. 7,786/- made by the Assessing Officer for chairperson's birthday celebration expenses.
2. Deletion of disallowance of application of income under Section 11 and 13 of the Income Tax Act amounting to Rs. 30,52,808/-.

Issue 1: Deletion of Addition of Rs. 7,786/- for Chairperson's Birthday Celebration Expenses

Facts:
The assessee, an educational trust, filed its return of income for AY 2014-15 declaring NIL income after claiming application under Sections 11 and 13 of the Income Tax Act. During scrutiny, the Assessing Officer (AO) noted an expense of Rs. 7,786/- for the chairperson's birthday celebration and deemed it personal expenditure, not for the trust's objects. The AO issued a show-cause notice, and despite the assessee's explanation that the expense was for the benefit of school staff and students, the AO disallowed the expense.

CIT(A) Decision:
The CIT(A) held that incurring such small expenses in memory of the founder, who had devotedly set up the institution, could not be treated as an infringement of Sections 13(1)(c) and 13(3) of the Act. Therefore, the CIT(A) allowed the expenses.

Tribunal Decision:
The Tribunal noted that the tax effect of Rs. 2,920/- was below the limit for filing an appeal before the Tribunal. Despite this, the AO filed the appeal citing an exception clause in CBDT Circular No. 03/2018. The Tribunal found no reference to any audit objection in the assessment order. On merits, the Tribunal agreed with the CIT(A) that the small expense incurred in memory of the chairperson did not benefit any trustee personally and was for the institution's benefit. Therefore, the Tribunal dismissed the revenue's appeal.

Issue 2: Deletion of Disallowance of Application of Income under Sections 11 and 13 amounting to Rs. 30,52,808/-

Facts:
The AO disallowed the application of income under Sections 11 and 13, amounting to Rs. 30,52,808/-, on the grounds that the trust had benefited persons specified under Section 13(3) by incurring Rs. 7,786/- on the chairperson's birthday celebration. The AO reopened the case under Section 147 and issued a notice under Section 148. During reassessment, the AO found that the assessee did not furnish adequate documentary evidence and thus disallowed the application of income.

CIT(A) Decision:
The CIT(A) noted that the AO's basis for denying exemption under Section 11 was the personal nature of the birthday celebration expense. However, the CIT(A) had already allowed the expense in a separate appeal, stating there was no benefit to any interested person under Section 13(3). Consequently, the CIT(A) held that the AO was unjustified in denying the exemption under Section 11 and allowed the statutory accumulation of 15% of the receipts.

Tribunal Decision:
The Tribunal observed that the tax effect in the appeal was below the monetary limit specified by CBDT Circular No. 17/2019. The Tribunal found no evidence of any audit objection that could justify reopening under the exception clause of the CBDT Circular. On merits, the Tribunal agreed with the CIT(A) that the trust did not benefit any trustee personally and that the expense was for the institution's benefit. Therefore, the Tribunal dismissed the revenue's appeal.

Conclusion:
Both appeals by the revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions, finding no personal benefit to trustees from the chairperson's birthday celebration expenses and confirming the trust's eligibility for exemption under Sections 11 and 13.

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