Case Law Details
Sri Palaniappa Charitable Vs ITO (ITAT Chennai)
In the case of Palaniappa Charitable Vs ITO, the Income Tax Appellate Tribunal (ITAT) Chennai recently upheld that income from commercial activities, such as providing uniforms, books, and transport services to students, is not exempted under Section 11 of the Income Tax Act. The Tribunal deemed these activities as not the main objects of the trust but commercial in nature, and hence, income generated from these activities cannot claim tax exemption.
The assessee, a charitable trust, was registered under Section 12AA of the Act and was primarily involved in running educational institutions. In the assessment year 2018-19, while the Assessing Officer (AO) did not question the receipts from the main object of the trust, i.e., education, he disallowed the claim of exemption on the receipts from incidental objects, i.e., bus fee, uniform fee, etc., thereby assessing the surplus from these activities as the trust’s income. The Commissioner of Income Tax (Appeals) supported the AO’s stand, referencing a recent Supreme Court ruling in the case of New Noble Educational Society vs. CIT.
The ITAT, after considering the arguments from both sides, upheld the AO’s and CIT(A)’s decisions, stating that the income generated from activities considered commercial in nature is not exempted from income tax. This ruling further reinforces the distinction between a charitable trust’s primary and incidental activities and the need to scrutinize the latter’s nature for tax purposes.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Please become a Premium member. If you are already a Premium member, login here to access the full content.
