Income received from a charitable/religious trust will be tax-exempt under Section 11, provided that the activity being performed is incidental to the attainment of objectives set by the trust/institution, and separate books of account are maintained by the particular trust/institution pertaining to the business. In this article, we look at some of the major exemptions provided under Section 11 of the Income Tax Act.
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An assessee that engages itself only or predominantly in activities relating to its ancillary or incidental objects which do not relate to any charitable purpose and does not carry on any activity relating to its main object which pertains to a charitable purpose is not entitled to an exemption under Section 11. A view to the contrary would lead to the most startling results.
Corpus donation could not be considered as general donation in AY 2006-07 and 2007-08, merely on the ground of its utilisation in AY 2008-09 for giving corpus donation to other charitable institutions. Further, as per instruction No. 1132/CBDT dated 05.01.1978, it has been clarified that the payment of a sum by one charitable trust to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable purposes in the hands of the donor trust, and the donor trust will not loose exemption u/s 11.
Assessee filed Form No. 10 under rule 17 of the Rules at the time of filing revised returns in respect of each of the assessment years under consideration. Thus, evidently, the requirements of section 11(2) of the Act had been complied with before the completion of the assessments. Therefore, while completing the assessments for the assessment years under consideration, the Assessing Officer had the necessary information in respect of the claim for exemption under section 11 of the Act made by the assessee before him.
The preparation of vegetarian food items and selling the same was mainly for popularizing the vegetarian food habits and in this way the assessee is engaged in promoting the vegetarianism among the people so that they can change their living habits and take the necessary steps for the better of humanity, which is undoubtedly a charitable object of the assessee. The major portion of the income received by the assessee was donated to ISKCON which is a Public Charitable Trust of worldwide recognition and reputation and any donation from one charitable trust to another charitable trust constitute, application of income for the charitable purposes.
The other ground raised by the revenue that the assessee has not registered under A.P. Charitable & Hindu Religious Institutions and Endowments Act, 1987 and hence the assessee is a non charitable one, is an argument to be admitted only to be rejected. The provisions of Sections 2(15), 11 to 13 are very clear and self contained code in respect of institutions which are considered as charitable in nature and the exemptions that these institutions are eligible for under the Income tax Act.
It is not in dispute that amount of Rs. 1,95,26,116/- was spent for participating in Hannover Fair held in Germany and for such participation, Steering Committee under the chairmanship of Commerce Secretary was constituted and modalities of participation was decided by the Organizing Committee under the Chairmanship of Additional Secretary, Ministry of Commerce & Industry, and as stated, the entire control was with the Ministry.
Assessee here, in our opinion, did fall within the concept of rendering a formal education and could not be equated with a coaching institute. We are, therefore, of the opinion that assessee could not have been denied the eligible exemption under Sections 11 and 12 of the Act for a reason that it was not doing charitable activity as defined under Section 2(15) of the Act.
This Court had the occasion to consider similar issues in a Judgment delivered in the case of DIT (Exemption) v. Chembur Gymkhana [Income Tax Appeal No. 5568 of 2010, dated 13-2-2012]. This Court, following the law laid down by the Supreme Court, has held that the fact that the membership of the club is open to a section of the community would not detract from the fact that the club has been constituted for the advancement of any other object of general public utility.
Assessee has filed writ petition against order passed by the Director General of Income Tax (Exemptions), for denying them exemption under Section 10(23C)(vi) of the Income Tax Act, 196, on the ground that the aforesaid institute was not directly imparting education and had not employed teachers who were teaching or giving lectures to the students.
ADIT (E) Vs International Goudiya Vedanta Trust (ITAT Delhi)- The Hon’ble Punjab & Haryana High Court in the case of CIT vs Tiny Tots Education Society (supra) has held that the income of the assessee, being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining percentage of funds which had to be applied for the purposes of the Trust and as such, it could not be held that double benefit was given in allowing the claim for depreciation for computing the income for purposes of Section 11 of the Act. Respectfully following the aforesaid decision of Hon’ble Punjab & Haryana High Court, we uphold the order of ld. CIT(A) and direct the AO to allow depreciation and reduce the same from the income of the trust for determining the percentage of funds which had to be applied for the purposes of the Trust. The order of the ld. CIT(A) is thus upheld.
