1.
Whether the Tribunal was right in negating the assessee’s claim for
accumulation of unspent income?
Relevant Case Law - Bharat Krishak Samaj v. Deputy
Director of Income-tax (Exemption) (2008) 306 ITR 153 (Del)
Relevant
Section - 11
·
The assessee, a society registered under
section 12A of the Income-tax Act, 1961, filled inForm No. 10 provided under
the Income-tax Rules, 1962, and submitted it to the AssessingOfficer along with
its resolution, seeking permission to accumulate unspent funds undersection
11(2) of the Act for the objects of the trust.
·
The Assessing Officer was of the view thatthe
objects for which accumulation was sought were not particularised inasmuch as
theycovered the entire range of objects of the trust. On this basis, the
Assessing Officer deniedthe benefit of accumulation to the assessee. This was
upheld by the Tribunal.
·
The High Court held that it is not necessary
for a charitable trust to particularise each andevery object for which
accumulation is sought. It is enough if the assessee seeksaccumulation for the
objects of the trust.
·
Hence, the assessee had sought to accumulate
thesum for purposes of the trust and had specified such objects. It was
therefore, entitled toaccumulate the sum under section 11.
2.
Whether repayment of borrowed funds utilised for construction of commercial
complex augmenting income of trust and amounts to application of income for
charitable purpose eligible for exemption under section 11?
Relevant Case Laws - Director of Income-tax (Exemption)
v. Govindu Naicker Estate (2009) 315 ITR 237 (Mad.)
Relevant
Section - 11
·
During the assessment under section 143(3) of
the Act, the Assessing Officer noted that, thetrust had made part repayment of
a loan taken from the bank for constructing a multi-storiedbuilding.
·
The Assessing Officer opined that the
multi-storied commercial complex was not oneof the objects of the trust and the
expenditure incurred for the construction of the buildingcould not be treated
as charitable in nature, that the repayment of loan could not be regardedas
application of income towards the charitable objects of the trust and rejected
the claim ofthe assessee.
·
The Commissioner (Appeals) allowed the appeal
on the ground that theproperty of the trust was in a dilapidated condition and
fresh construction had to beundertaken by obtaining a loan.
·
The subsequent letting out of the property
was connectedwith the carrying out of the objects of the trust and hence, the
repayment of loan ought tohave been treated as eligible application. The
finding of the Commissioner (Appeals) wasconfirmed by the Tribunal.
·
The High Court held that the Tribunal was
right in holding that the repayment of loan takenfrom the bank for construction
of commercial complex was application of income forcharitable purposes and the
assessee-trust was eligible for exemption under section 11 of theAct.
·
Even though the expenditure incurred is
capital in nature, if the expenditure is incurredfor the purpose of promoting
the object of the trust, it could be considered as application ofthe income for
the purpose of the trust.
·
If the application of the income resulted in
themaintenance of the property held under trust for charitable purpose, is for
the purpose ofaugmenting income in order to pursue the objects of the trust
that would amount toapplication of income for the purpose of the trust.
3.
Whether the Tribunal has erred in law in holding that the assessee carried on
activity for charitable purpose in terms of section 2(15) and directing the
Commissioner of Income-tax to grant registration under section 12AA of the Act
to the assesseesociety?
Relevant Case Law - CIT v National Institute of
Aeronautical Engineering Educational Socieity (2009) 315 ITR 428 (Uttarakand)
Relevant
Section - 12AA
·
The assessee, a registered society, moved an
application before the Commissioner for grantof registration under section
12AA(1)(b)(i) of the Act, in Form 10A. The Commissionerexamined the papers
including the income and expenditure of the assessee for the previousyears and
concluded that the assessee was not carrying on any charitable activity within
themeaning of section 2(15) of the Act, as it was in a profit making business.
·
Consequently, herejected the application for
registration under section 12AA of the Act. The assesseepreferred an appeal
before the Appellate Tribunal, which was allowed.
·
The High Court held that section 12AA of the
Act provides the procedure for registration.Clause (a) of sub-section (1) of
section 12AA empowers the Commissioner to call for suchdocuments or information
from the trust or institution as he thinks necessary in order to satisfyhimself
about the genuineness of the activities of the trust or institution and he may
also makesuch inquiries, as he may deem necessary in this behalf.
·
The Commissioner is not supposedto allow
registration with blind eyes. The Commissioner had considered the relevant
papersbefore him, which included the income and expenditure accounts of the
previous years afterthe assessee society got registered with the Assistant
Registrar of Firms, Societies and Chits.
·
The Commissioner observed that the society
was charging substantial fees from the studentsand making huge profits. Merely
imparting education for the primary purpose of earningprofits could not be said
to be a charitable activity. In the expression "charitable
purpose","charity" is the soul of the expression. Mere trade or
commerce in the name of educationcannot be said to be a charitable purpose and
the Commissioner has to satisfy itself asprovided under section 12AA of the Act
before allowing the registration. The order of theCommissioner was justified.
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