1993 (7) TMI 103 - AT - Income Tax

Charitable Trust Must Engage in Specified Activities for Tax Exemption (22A)

Income-Tax Officer. Versus Ahmedabad Hospital.

The Tribunal held that a Public Charitable Trust must actively engage in specified activities, such as treating patients, to qualify for exemption under ... Accounting Year Issues:1. Whether the income of a Public Charitable Trust is exempt under section 10(22A) of the Income Tax Act.2. Whether the provisions of section 11 of the Income Tax Act are applicable, and if the Income Tax Officer should allow accumulation of at least 25% of income.Detailed Analysis:1. The judgment deals with the case of a Public Charitable Trust registered under the Bombay Public Trust Act and the Income Tax Act. The trust's objects included providing medical relief without discrimination, establishing hospitals, convalescent homes, and nursing homes. The trust applied for exemption under section 10(22A) of the Act, claiming its income was exempt. However, the Income Tax Officer (ITO) disallowed the claim, making additions for accumulated income not utilized for 10 years under section 11(3) of the Act. The Deputy Commissioner of Income Tax (Appeals) held in favor of the trust, stating that the income was not liable under section 11. The department appealed these findings.2. The Tribunal found that the trust had not carried out activities for the reception and treatment of persons in the relevant accounting years. The trust argued that exemption under section 10(22A) should apply as it existed solely for philanthropic purposes. However, the Tribunal held that exemption under section 10(22A) is available only if the institution carries out the activities specified in the provision. Citing precedent cases, the Tribunal emphasized that the positive activity of treating patients is essential for claiming exemption under section 10(22A). The Tribunal referred to a recent decision of the Gujarat High Court to support its conclusion that exemption would not apply if the trust did not engage in the required activity. Consequently, the Tribunal ruled that the trust was not eligible for exemption under section 10(22A) for the relevant years.Overall, the judgment clarifies the conditions for claiming exemption under section 10(22A) of the Income Tax Act for charitable trusts and emphasizes the necessity of actively engaging in the specified activities to qualify for the exemption.