JCIT Vs S. M. Sehgal Foundation (ITAT Chandigarh)
The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) [CIT(A)], which had allowed the assessee’s appeal by holding that the Assessing Officer was not justified in denying exemption under Sections 11 and 12 of the Income-tax Act, treating the assessee trust as an Association of Persons (AOP), making an addition of ₹10,00,000, and restricting application of income to 85% of the receipts. The Revenue contended that the assessee had earned rental income commercially, paid excessive remuneration to its Chief Executive Officer, incorrectly accounted for a payment of ₹10,00,000 from Sehgal Family Foundation, USA, and was not entitled to exemption as its activities were commercial in nature. It also raised an additional ground invoking the proviso to Section 2(15).
The Tribunal noted that the CIT(A), after examining the assessment records, remand reports and supporting documents, had found that the Assessing Officer himself had accepted reconciliation of FCRA receipts and miscellaneous receipts during remand proceedings. The CIT(A) had also held that the denial of exemption, addition of ₹10,00,000 and ad hoc restriction of expenditure were unsustainable.
On the issue of rental income, the Tribunal observed that the CIT(A) had incorrectly recorded that leasing property was one of the trust’s objects. After examining the original trust deed and the addendum dated 15.06.2010, the Tribunal held that the trust’s objects were charitable and included genetic research, agricultural education, conservation of natural resources, sustainable agriculture, environmental protection, family planning, improvement of women’s status and literacy, relief to the poor and education. The provision permitting acquisition and management of immovable properties was merely an enabling power for trustees and not an independent charitable object. Nevertheless, the Tribunal upheld the CIT(A)’s conclusion because the Revenue had not produced any material showing that rental income was diverted for non-charitable purposes. The Tribunal found that the rental income was only an incidental source of funds and was applied towards the charitable objects of the trust. Accordingly, exemption under Sections 11 and 12 could not be denied merely because the trust earned rental income.
