TaxTMI 
TaxTMI 
2022 (3) TMI 1330
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....e case. Ground No.2 : 2.1. The learned CIT(A) erred in holding that the assessee is entitled to exemption of all its income, including rental income out of letting, interest income on investments and miscellaneous income, under Secs.11 & 13 of the I.T. Act, 1961. 2.2. The learned CIT(A) failed to appreciate that letting out of buildings (without any charitable activity carried on, by the assessee) involves activity in the nature of trade, commerce of business, which would cause invocation of first proviso to Sec.2(15) of the I.T. Act, 1961. 2.3. The learned CIT(A) ought to have noted that the Hon'ble ITAT, Bangalore Bench, in the case of Subharam Trust v. OIT (E) (126 ITO 33) has held that in view of the amended definition of 'charitable purpose', the activity of letting out of buildings I halls is in the nature of business. 2.4. The learned CIT(A) failed to note that the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Halai Nemon Association (243 ITR 439) squarely applies to the facts of the case. 2.5. Having regard to the observation of the learned CIT(A) himself in Para 5.6, Page 11 of his order that the assessee maintains sepa....
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....ered. 5.3. The learned CIT(A) ought to have noted that the lease deed executed by the assessee with various commercial establishments in respect of the subject building reveals that the lease has been granted by the assessee for 10 years, commencing from 2010, and therefore, there is no scope for the assessee to utilise the constructed building for research activities within 10 years, i.e., up to 2020. 5.4. The learned CIT(A) failed to observe that it would not serve the purposes of the trust, if no charitable activity is carried on, for ten years and the trust's version that it will utilise the building for research activities in future, i.e., after ten years, is far-fetched. 5.5. The learned CIT(A) ought to have appreciated the decision of the Hon'ble Kerala High Court in the case of ell v. Sree Seetharama Anjaneya Veda Kendra 336 ITR 65, wherein, the Court has propounded the ratio that accumulating income u/s.11 (2), without carrying on any activity towards the objects of the trust will cast aspersions on the genuineness of the trust and the same has to be examined. Ground No. 6 For these and other grounds that may be adduced at the time of hearing, it is praye....
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....for charitable purposes ensuring for the benefit of the public in the discretion of the trustees. (i) To obtain grants of lands and buildings and other gifts of property movable and immovable and moneys by way of block-grants, recurring grants, maintenance grants and stipendiary grants from any Government or from any quasi-governmental corporations or bodies or from any municipal and local bodies as may be acceptable to the Governing body for carrying out the objects of the trust. (j) To acquire by purchase or lease and to construct immovable property to carry out the objects as above. (k) To obtain by lease of other arrangement possession and use of land and buildings from any person, body or government on such terms as may appear reasonable to the governing body for the purposes of the objects of the trust. (l) To investment surplus moneys belonging to the trust in approved securities. (m) To collect and maintain a fund to be contributed by voluntary donation and by subscription for the objects and purposes of the trust and (n) Finally, to do such other lawful acts and things as may be necessary or incidental and conducive to the attainment of the above objects of the....
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....rust under the Income-tax Act 1961.The same has been fully completed and rental income has come to the Trust". 3.4 The Assessing officer further noted on perusal of the approved building plan submitted by the assessee that the building was constructed in a land belonging to the assessee, M/s. Willington Charitable Trust and M/s. Tamil Nadu Educational Trust in R.S.No.1629/1, 1629/2 & 1629/7. The assessee has not obtained any approval either from the Director of Income tax (Exemptions), Chennai or from the Court having jurisdiction over the assessee to enter into an agreement to align its land with other trust. The building construction approval was given to M/s. Wellington Charitable Trust by the Chennai Metropolitan Development Authority vide Letter dated 14.12.2009. The Assessing Officer has discussed the facts in paragraphs 15 to 30 elaborately and also noted that the assessee has accumulated the trust income in the earlier yeas only to construct building and not for doing charity. Out of the total income of Rs..3,58,21,185/- for the assessment year 2011-12, the amount donated to some concern/trust was only 10%. 3.5 Further, on verification of the income tax return filed for t....
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....previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or], as the case may be, of the previous year immediately following the expiry of the period aforesaid.] 3.8 The Assessing Officer further noted that for the assessment year under consideration, the assessee has spent Rs..15,72,61,182/- within 6 months as additions to building and Rs..2,42,69,477/- in the second half of the year summing up to Rs..18,15,30,659/- which was not spent for the purpose of charity and the same is not an application. However, the assessee trust has paid only Rs..14,02,12,514/- for the financial year 2010- 11 to Willington charitable Trust and ultimately to M/s. Chettinad Builders Pvt. Ltd. The exemption under section 11 of the Act is not allowed the application of the above provisions and concluded that the assessee's activities are not in the nature of charity and only construction of Multi Storied Building & letting out for rent for corporate houses are the objects of the assessee trust. The Assessing Officer has further concluded that assessee trust has unreasonably paid extra consideration to the buil....
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....s under: "a) The purpose of construction of Sigapi Achi Building, to earning of rental income and use the income for objects of the Trust. An activity for generating income for pursuing the approved object and there should not be any attempt in approving such activities as commercial in as much as the finding on the commerciality of such activities is not at all relevant to the factual matrix of the Assessees. The Sigapi Achi building which is let out and the income where from was used for the objects was held as application of income by the Trust in CIT Vs. Saint George Forana Church 170 ITR 62. We have applied the rental income of the Sigapi Achi Building and other receipts for Charitable objects for the Financial years 11-12, 12-13 and 13-14 Rs. 34,37,500/- , Rs. 3,02,01,137/- and Rs. 3,47,64,278/- respectively. b) The Gross receipts for the year under construction is Rs. 3,58,21,185/- and we have an expenditure of Rs. 70,94,341/- to earn the above mentioned income of the trust and we have applied excess of income during the year after charities done to the extent of Rs. 3,06,166/- the balance amount towards construction of building and the subsequent years we earn the incom....
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....ity is not totally correct. 5.3 Moreover, in the case of Willingdon Charitable Trust case, the Jurisdictional High Court held that when a business income was used towards the achievement of the object of the trust it would be incidental to the .achievement of the object of the trust notwithstanding the profit and gain involved therein. That section 11(4A) of the Act did not exclude section 11(1)(a). The exemption under section 11(4A) would be available only when the business was incidental to the attainment of the object of the trust. In the absence of any specific bar under section 11(4A) of the Act prohibiting the application of section 11(4A) it could not be construed that it was independent of section 11 (4A) of the Act. Hence, Section 11(4A) and section 11 (4) of the Act were complementary to each other and section 11 (4A) did not restrict the power under section 11 (4) of the Act. That in so far as the compliance with the maintenance of separate books of account as required under section 11 (4A) of Act was concerned, it was mandatory and a condition precedent for the assessee to maintain the same while seeking exemption. It was not in dispute that the assessee had maintai....
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....he sum spent on the construction of additions to the buildings owned by a religious institution, which were let out, and the income where from was used for religious purposes, can be said to be an application of income for religious or charitable purpose. Even, repayment of loan for construction of building is treated as application as per the decision of the Jurisdictional High Court in case of CIT Vs. Kannikaparameswari Devasthanam Charities 133 ITR 779 Mad. That being the case, the expenditure on construction of buildings and income wherefrom is used for charitable purposes is definitely a clear case of "Application of income". Further, the Appellant had applied the rental income of Sigapi Achi Building for the financial years 2011-12, 2012-13 and 2013-14 to the extent of Rs. 34.38 Lacs, Rs. 3.02 Crores and Rs. 3.48 Crores respectively towards charitable purposes. 5.6 I have also gone through the books of accounts produced before me to confirm the fact that the Appellant maintains separate books of accounts for letting activities as required under law which is as per the findings of the Hon'ble Jurisdictional High Court. Moreover, the AO's observation that the busine....
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....ble purposes. Hence, the case of Info Parks is not applicable since Info Parks is not a charitable trust and its objectives are totally different from that of the Appellant trust. 5.9 The A.O had again stated that the accumulations had been aimed to construct buildings and not to do charity. Also it had not complied with the purpose for which the accumulations have been meant as mentioned in Form no.10.He has also referred to the provisions of sec 11(3) of the Income Tax Act. He has again added that the Appellant had spent Rs. 15.72 Crores in six months and Rs. 2.43 Crores in second half of the year totalling to Rs. 18.15 Crores and the Appellant trust had paid Rs. 14.02 Crores to Willingdon Charitable Trust and ultimately to M/s Chettinad Builders Pvt. Ltd. a construction Company. The Appellant trust had submitted the total cost of construction as Rs. 45.38 Crores and its share worked out to Rs. 18.15 Crores. The moneys have been paid to M/s Willingdon Charitable Trust and not to M/s. Chettinad Builders Pvt. Ltd as alleged by the A.O. The Appellant reiterates that construction of building is to augment the resource for achieving the charitable objectives is permitted as per the ....
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....tion under section 11 of the Act. 5.2 The ld. DR further submitted that the original object of the assessee trust to carry on research on Vedas are no more carried by the assessee and the assessee only constructed commercial building and leasing out to corporate houses. Therefore, the income earned by the assessee cannot be exempted under section 11 of the Act. 5.3 the ld. DR further submitted that the Assessing Officer has proved beyond doubt that the assessee has not carried many of the objects and carried only ancillary object and thus, exemption under section 11 of the Act cannot be allowed to the assessee. 5.4 The ld. DR further submitted that the assessee has not carried out any activity relating to medical and education. It was further submission that the ld. CIT(A), without considering any material and by considering only the submissions of the assessee, gave a finding that the Memorandum of Association provides the objectives of education and medical relief and there is no change in the objectives since formation of the assessee trust and the assessee should have a source of revenue to achieve its objectives and in such process it has constructed building, which was let....
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....rental income out of which some portion of amount was donated to educational institution. The assessee has not carried out any activity relating to medical and education or any medical relief. Therefore, the activities carried out by the assessee cannot be said as charitable activity. The assessee was only constructing commercial complex and the same was given to long lease for 99 years. Therefore, there is no possibility that the assessee can again revive its main object of carrying out research on Vedas. We find that in the assessment years under consideration, the assessee has only carrying out construction of building and letting out it to the corporate houses. 8.1 The ld. DR has filed written submissions, wherein, he has submitted that in the assessment year 2010-11, the gross revenues & receipts of the assessee was Rs..3,51,.40,039/- out of which Rs..24,82,284/- was donated, which is only 6.9% of the gross receipts. Similarly, in the assessment year 2011-12, the gross receipts was Rs..3,58,21,185/- out of which Rs..36,06,166/- was donated, which is only 10% of the gross receipts; in the assessment year 2012-13, the gross receipts was Rs..5,59,97,254/- out of which Rs..34,37,....
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....ase of the assessee, i.e., other object of general public utility. Therefore, the Assessing Officer has rightly decided that the assessee has not carried out any charitable activity and not entitled for claiming deduction under section 11 to 13 of the Act. The ld. CIT(A), without examining any material documents and provisions of section 2(15) of the Act, simply reversed the order passed by the Assessing Officer. We find that the order passed by the ld. CIT(A) is without any material and any basis. Therefore, the order passed by the ld. CIT(A) has to be reversed. 8.2 In so far as donation given to the other charitable organization is concerned, only 10% of the assessee's income was donated to other Trust/organization, which is only an incidental activity, though; it is not a main objective of the assessee. Once, the assessee has not carried out its main objectives and only carried out an incidental activity, it cannot be said that the assessee was carrying charitable activities and therefore, the provisions of section 2(215) clearly applies to the assessee's case. 8.3 The decision of the Hon'ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitable Foundation Poona ....
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....in involved therein. That section 11(4A) of the Act did not exclude section 11(1)(a). The exemption under section 11(4A) would be available only when the business was incidental to the attainment of the object of the trust. The above case law has no application to the facts of the present case for the reason that the assessee trust was created and granted 12A registration for carrying out its objects. The assessee's objects are reproduced at para 3 page 5 & 6 hereinabove. The Income and Expenditure Account shows that the assessee has not incurred any expenditure in the nature of charity, in fact, no charitable activity has been carried out by the assessee for which it was established besides carrying out construction and leasing out the buildings to corporate houses and earning income become the main activity of the assessee. The income earned out of construction of multi-storeyed building and leasing out to corporate houses was not at all applied for any of the charitable activity except payment of a small amount of donation. Out of the total income of Rs..3,58,21,185/- for the assessment year 2011-12, only Rs..36,06,166/- was paid as donation out of which, a sum of Rs..25 lakhs w....