TaxTMI 
TaxTMI 
2026 (8) TMI 876
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.... exemption under section 11 of the Income-tax Act, 1961. 2. That the ld. CIT(A) erred in confirming the action of ld. Assessing Officer in holding that the earning of rental income and fees from exploitation of properties held under trust was in the nature of trade, commerce or business, without attributing any profit motive or commercial intent to the appellant. 3. That the ld. CIT(A) erred in confirming the action of ld. Assessing Officer without appreciating that the rental income and fees earned from properties held under trust were in furtherance of the appellant's per se charitable objects of education, medical relief and relief of the poor. 4. That the ld. CIT(A) erred in confirming the action of ld. Assessing Officer in holding that the appellant trust falls under the category of "advancement of any other object of general public utility" and in consequently invoking the proviso to section 2(15) of the Act. 5. That the ld. CIT(A) erred in confirming the action of ld. Assessing Officer in invoking the proviso to section 2(15) of the Act in disregard of CBDT Circular No. 11/2008 dated 19 December 2008, which clarifies that the said prov....
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....oper to take up both the appeals together by passing this consolidated order. We take appeal in ITA No.1921/Mum/2026 for AY 2015-16 as the lead case to draw the facts and make our observations and findings thereon which shall apply mutatis mutandis to the other appeal for AY 2016-17. 4. Briefly stated, the facts culled out from the record are that assessee is a charitable trust registered under section 12A vide registration no. TR/K(a)/37/74-75 and also u/s 80G of the Act. It is also registered with the office of Charity Commissioner, Mumbai vide registration no. A-1176(Mumbai). Assessee trust is stated to have been constituted with the principal objects of imparting education, providing medical relief and undertaking activities for relief of the poor. The main objects of the assessee trust as listed in para 4 of the impugned assessment order which are also available in the Trust Deed in clause (g) placed in the paper book at page 7, are as under: a) Educational: To help or to give assistance in cash or in kind, fees, school uniform. Textbooks, Lon, Prise, books and other articles for educational purpose to needy and deserving students of Lohana Cast in Particular and o....
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....,470 h. Rent -Ground Floor Rs. 1,37,500 i. Donation Rs. 9,100 j. Misc. Income Rs. 2,38,700 k.. Property Tax Refund Rs. 7,26,508 1. Interest Income and other income Rs. 12,50,396 GROSS RECEIPTS s:::: Rs. 1,89,31,265 4.3. As against the above gross receipts, assessee applied following amounts towards its objects, including for administration of its properties - a. Wadi Expenses Rs. 59,28,120 b. Block Expenses Rs. 1,15,49 c. Medical and Clinic Expenses and Medical Aid Rs.47,40,985 d. Mandir Expenses Rs.6,91,604 e. Education Aid to Needy People Rs. 17,33,775 f. Food Aid Rs.16,62,764 g. General Expenses Rs. 2,13,852 h. Administration Expenses Rs. 7,35,098 TOTAL AMOUNT APPLIED TOWARDS OBJECTS Rs. 1,58,21,696 4.4. It was submitted from the above data that its income is predominantly from exploitation of its property (wadi rent, tower rent, rent for hoarding, rent/recovery from caterers, etc.) and interest income. Similarly, after meeting administrative expenses, the amount is spent on its per se objects, namely education, medical relief and the relief of poverty. Balance unspent amount being ex....
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....t, "The activity of letting out properties on rent for consideration is not per se a charitable activity." While quoting the CBDT circular no. 11/2008 dated 19.12.2008, he noted "The Circular further clarifies that the decisive test is the nature of the activity actually carried on and not merely the objects stated in the trust deed." Consequently, the denial of exemption under section 11 was affirmed. Aggrieved, assessee is in appeal before the Tribunal. 6. Before us, ld. Counsel for the assessee reiterated the submissions advanced before the authorities below. Ld. Sr. DR supported the orders of the lower authorities and submitted that the systematic exploitation of immovable properties resulting in substantial receipts clearly demonstrates that the activities possess commercial attributes. It was therefore submitted that ld. Assessing Officer was justified in invoking the proviso to section 2(15) and denying exemption under section 11. 7. We have heard both the parties and perused the material on record. We have also carefully gone through the orders of the authorities below and the judicial precedents relied upon by the respective parties, to the extent available on record....
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....y, do not fall within the ambit of the restrictive proviso merely because they incidentally earn income while carrying out their charitable activities. In the present case before us, assessee has consistently maintained that its dominant objects are education, medical relief and relief of the poor. Neither ld. Assessing Officer nor the ld. CIT(A) has recorded any categorical finding that these objects have ceased to exist or that assessee has abandoned the same during the relevant previous year. It is worth noting a fact that ld. Assessing Officer has not recorded any adverse observation to the effect that assessee has not carried out any charitable activities during the year. On the contrary, the denial of exemption has proceeded solely on the basis that substantial rental receipts have been generated by exploitation of trust properties. In our considered view, the source from which income is derived cannot, by itself, determine the true character of a charitable institution. The decisive test always remains the predominant object for which the institution exists and the manner in which the income is ultimately applied. 7.3. On the observation of ld. CIT(A) in the context of CB....
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....ity continues to remain merely a mode of deriving income from property held under trust. The character of an activity has to be judged with reference to its dominant purpose and not merely by the volume of income generated therefrom. 7.5. We also find that the authorities below have overlooked the distinction between an activity undertaken for earning profit and an activity undertaken for generating resources to fulfil charitable obligations. The latter cannot automatically assume the character of trade, commerce or business merely because income incidentally arises therefrom. The predominant object test, which has consistently guided judicial interpretation of charitable institutions, continues to hold the field even after insertion of the proviso to section 2(15), duly affirmed by the CBDT circular referred in the above paragraphs. 8. Revenue also relied on the decision of Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority v. CIT [2022] 143 taxmann.com 278 (Sc). We have carefully considered the ratio laid down by Hon'ble Supreme Court in the said judgment. There can be no quarrel with the proposition that where an institution falling under th....
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....of the present case. It is to be noted that if the primary and substantive purpose remains charitable and the income generated is merely incidental to achieving such purpose, the institution cannot be denied exemption merely because it adopts economically prudent methods for augmenting its resources. 9. We also note that CBDT, in its aforesaid circular while explaining the scope of the amendment brought to section 2(15) by way of proviso, categorically clarified that the restrictive proviso was intended to operate only in respect of institutions falling under the residual category of "advancement of any other object of general public utility". It further clarified that entities engaged in relief of the poor, education or medical relief would continue to enjoy the benefit of exemption notwithstanding the fact that they incidentally generate receipts in the course of carrying out their charitable objects. Therefore, once the Board itself clarified that the proviso has no application to institutions engaged in education, medical relief or relief of the poor, it was incumbent upon the authorities below to first determine the true character of assessee's objects before invoking t....