Rental Income Not a Bar to 12A Registration When Applied to Charity: ITAT Pune

By Bhuvanesh Kankani Income Tax Judiciary , Trending October 7, 2025

TaxGuru Citation: 2025 taxguru.in 9160
Case Name: Marwadi Navyuvak Vachanalaya Vs CIT(Exemption) (ITAT Pune)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All ITAT, ITAT Pune

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Marwadi Navyuvak Vachanalaya Vs CIT(Exemption) (ITAT Pune)

Summary: The Income Tax Appellate Tribunal (ITAT), Pune Bench, accepted the appeal of Marwadi Navyuvak Vachanalaya, a religious trust operating a library, and directed the Commissioner of Income Tax (Exemption) [CIT(E)] to grant the trust registration under Section 12A of the Income Tax Act, 1961. The CIT(E) had rejected the application, arguing that the trust’s substantial rental income of ₹6.66 lakhs (32.76% of its total income) from letting out shops within its premises indicated a “commercial nature” and amounted to carrying on a “business activity” under the restrictive proviso to Section 2(15), which limits non-charitable receipts to 20%. The Tribunal, however, agreed with the trust’s contention that merely earning passive rental income from letting out surplus property, with the income being entirely applied towards its core charitable objects (like subsidizing the library for underprivileged students), does not constitute “carrying on any activity” in the nature of business. The Bench relied on several judicial precedents, notably the Bombay High Court’s ruling in Director of Income Tax vs. Shri Vile Parle Kelavani Mandal, which held that utilizing rental income from institutional premises for educational activities could not be brought to tax, and the Supreme Court’s affirmation in the CIT vs. Andhra Chamber of Commerce case, which established that the primary object must be profit-making for the restrictive proviso to apply. The ITAT also corrected the CIT(E)’s factual error regarding the trust’s expenditure on charitable activities and concluded that the rental income, being incidental to the main objects, did not attract the restrictive proviso to Section 2(15), thereby mandating the grant of tax registration.