K.C. Social Welfare Trust Vs ACIT (Exemption) (ITAT Chandigarh)
Violation of Sec.13 Triggers Tax on Benefit – But Charitable Exemption Cannot Be Denied in Full
Assessee, a registered trust under s.12A & approved u/s 10(23C)(vi), was denied exemption by AO on ground that it had advanced interest-free loans to persons/entities covered u/s 13(3). AO treated this as violation & disallowed exemption, further taxing notional interest on such advances. CIT(A) confirmed AO’s action.
Before Tribunal, it was argued that issue was identical to earlier year 2014-15 where Tribunal had already set aside matter to AO for fresh adjudication. Tribunal examined record & noted that surplus funds of a charitable trust cannot be treated at par with business surplus of a commercial entity. A charitable institution holds its funds in fiduciary capacity, hence they can only be applied towards charitable objects or accumulated u/s 11(5). However, Tribunal clarified that even if there is violation under s.13(1)(c)/(d), the charitable status of the trust as a whole cannot be denied. Only the undue benefit extended to specified persons u/s 13(3) can be brought to tax.
Tribunal held that AO erred in denying exemption u/s 11 & 12 in entirety, while CIT(A) failed to examine issue analytically. It directed AO to re-examine purpose of advances, determine if undue benefit was extended, & whether any notional interest could be attributed, but without disturbing overall charitable status. Accordingly, Tribunal set aside orders of both lower authorities & restored matter to AO for fresh adjudication in accordance with law, granting proper opportunity to Assessee.
