Anjaneya Swamy Mattu Someshwara Swamy Devalaya Samithi Vs ITO (ITAT Bangalore)
Bangalore ITAT: Charitable Trust Cannot Be Taxed on Gross Receipts—Even If Section 11 Exemption Fails, Only Net Income After Admissible Expenditure Can Be Taxed
The Bangalore ITAT restored the assessment of a charitable trust to the AO, making the important observation that even if the trust is ultimately found ineligible for exemption under Section 11, its entire gross receipts cannot automatically be treated as taxable income; only net taxable income after admissible expenditure/application is to be computed in accordance with law.
The CPC, while processing the return under Section 143(1), had treated the trust’s entire gross receipts of ₹19,82,647 as taxable income, without allowing deduction for application/expenditure or considering exemption under Section 11. The assessee’s application seeking condonation of a 645-day delay in filing Form 10A was stated to be pending.
The first appeal itself was dismissed by the Addl./JCIT(A) because of a 44-day delay. The assessee explained that the trust was managed by persons from a rural background who were unfamiliar with email facilities and depended upon an accountant and tax professional. The email account had been created for e-filing purposes and was not regularly accessed. The assessee became aware of the demand when it received communication regarding adjustment of refund against the outstanding demand.
The ITAT accepted the explanation as plausible and constituting sufficient cause, condoned the 44-day delay and admitted the appeal for adjudication.
On merits, the Tribunal observed that the eligibility for Section 11 exemption, the outcome of the pending Form 10A condonation application, the nature of receipts including corpus donations, and the actual application/expenditure incurred by the trust required proper factual verification. These matters had not been examined either by CPC or by the first appellate authority.
Accordingly, the entire matter was restored to the AO. The Tribunal specifically directed that if the assessee is ultimately found not eligible for exemption under Section 11, only the net taxable income should be computed after allowing admissible deductions towards expenditure/application. Reasonable opportunity of hearing was also directed to be given.
Key principle
Denial of Section 11 exemption does not by itself justify taxation of the entire gross receipts of a charitable trust. Even where exemption is unavailable, taxable income has to be determined on a net basis after allowing expenditure/application that is otherwise admissible under law.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
