KANDIVLI HALAI LOHANA MITRA MANDAL TRUST,MUMBAI vs. ITO (EXEMPTION) WARD 1(4), MUMBAI

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: J BEFORE HON’BLE SHRI PAWAN SINGH, JUDICIAL MEMBER AND HON’BLE SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA Nos. 1921 and 1920/MUM/2026 िनधा�रण वष�/Assmt. Years: 2015-16 and 2016-17 Kandivli Halai Lohana Mitra Mandal Trust Commissioner of Income Tax Halai Lohana Mahajan Wadi, (Exemption), Near Shankar Mandir, Vs. Mumbai S.V. Road, Kandivali West, Mumbai – 400 067 (अपीलाथ� Appellant) (��थ� Respondent) Permanent Account Number of AAATK0526H Assessee: िनधा�रती �ारा/Assessee represented by: Shri Natwar Thakrar, CA राजस्व �ारा/Revenue represented by: Shri Aditya M Rai, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 06.05.2026 घोषणा की तारीख / Date of pronouncement: 04.08.2026 आदेश / ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These two appeals filed by assessee are against the orders of ld. ADDL/JCIT(A)-1, Vadodara vide order Nos. ITBA/APL/S/250/2025- 26/1084662389(1) and ITBA/APL/S/250/2025-26/1084662553(1), both dated 12.01.2026 passed against the assessment orders by the Income Tax Officer (Exemption), Ward – 1(4), Mumbai, u/s 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 13.12.2017 and 27.12.2018 for the Assessment Years 2015-16 and 2016-17 respectively.

ITA No. 1920/MUM/2026 for AY 2016-17 1. That the ld. Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the denial of exemption under section 11 of the Income-tax Act, 1961. 2. That the ld. CIT(A) erred in confirming the action of ld. Assessing Officer in holding that the earning of rental income and fees from exploitation of properties held under trust was in the nature of trade, commerce or business, without attributing any profit motive or commercial intent to the appellant. 3. That the ld. CIT(A) erred in confirming the action of ld. Assessing Officer without appreciating that the rental income and fees earned from properties held under trust were in furtherance of the appellant's per se charitable objects of education, medical relief and relief of the poor.

b) Medical: To give assistance in cash or kind for medical treatment and rehabilitation to needy & deserving members of Lohana cast particularly and other persons in general residing in kandivali. c) Relief of poverty: relief of Poverty to gibe subsidy to needy, Deserving Lohana community members particularly caste and other person in General residing in Kandivali. d) to provide assistance to those who are affected by natural calamities. e) To manage maintain, renovate, canitorium at Kandivali or elsewhere if the fund available for the benefit of needy person particularly from Lohana caste and other person in General. f) To manage and maintain renovation, reconstruct Mahajanwadi for enable in the performance of marriage by the member of Lohana caste and also by all vegetarian Hindus or elsewhere if funds ae available. g) To manage, maintain, renovate, rebuilt the kedreshwar Mahadev Temple at Kandivali for the benefit of Hindus community and celebrate all festivals connected herewith and to assist maintaining such Mandir. h) Use of temple Income: To Maintain and Conduct gograss fund for feeding cows and running gaushala or in giving financial assistance to other institution for carrying our similar object, including the veterinary treatment. To maintain and to conduct Mandir Jirnodhan fund as to give financial assistance to other Temple.

4.1. For achieving the aforesaid charitable objects, it owns certain immovable properties from which rental income and license fees are derived. According to the assessee, such receipts constitute income from property held under trust and are utilized solely towards attainment of its charitable purposes. Assessee maintains regular books of account including Bank Book, Cash Book, Journal, Ledger which are audited under the provisions of The Maharashtra Public Trust Act, 1950.

4.2. During Assessment Year 2015-16, gross receipts of the trust from various sources was as follows – a. Receipt From Wadi Rs.61,07,270 b. Receipt From Block Rs. 11,73,454 c. Receipt From Caterers & Decorators Rs. 7,51,828 d. Receipt From Medical Canter Rs. 46,02,294 e. Receipt From Mandir Rs. 9,06,432 f. Receipt From Advertisement H Rs.14,02,313 Board g. Receipt From BTC tower Rent Rs.16,25,470 (Mobile) h. Rent -Ground Floor Rs. 1,37,500 i. Donation Rs. 9,100 j. Misc. Income Rs. 2,38,700 k.. Property Tax Refund Rs. 7,26,508 1. Interest Income and other income Rs. 12,50,396 GROSS RECEIPTS s:::: Rs. 1,89,31,265

4.3. As against the above gross receipts, assessee applied following amounts towards its objects, including for administration of its properties – a. Wadi Expenses Rs. 59,28,120 b. Block Expenses Rs. 1,15,49 c. Medical and Clinic Expenses and Medical Aid Rs.47,40,985 d. Mandir Expenses Rs.6,91,604 e. Education Aid to Needy People Rs. 17,33,775 f. Food Aid Rs.16,62,764 g. General Expenses Rs. 2,13,852 h. Administration Expenses Rs. 7,35,098 TOTAL AMOUNT APPLIED TOWARDS OBJECTS Rs. 1,58,21,696

4.4. It was submitted from the above data that its income is predominantly from exploitation of its property (wadi rent, tower rent, rent for hoarding, rent/recovery from caterers, etc.) and interest income. Similarly, after meeting administrative expenses, the amount is spent on its per se objects, namely education, medical relief and the relief of poverty. Balance unspent amount being excess of income of Rs.31,09,568 /- is less than 15% of the gross receipts of Rs. 28,39,689/- which is accumulated under section 11(1)(a)/(b) and is therefore, exempt from tax. In this regard, assessee filed its return of income on 15.09.2015, reporting total income at Rs. nil. Erroneously, the gross receipts of the trust from various sources were offered under the head "profits and gains of business or profession”.

4.5. During the course of assessment proceedings, ld. Assessing Officer was of the view that the systematic exploitation of the trust properties for earning rental income and license fees amounted to carrying on commercial activities. Proceeding on the said premise, ld. Assessing Officer held that the activities of assessee fell within the ambit of "advancement of any other object of general public utility" and consequently invoked the proviso to section 2(15) as total receipts exceeds the prescribed threshold of Rs. 25 lacs. Having so held, ld. Assessing Officer denied the benefit of exemption under section 11 of the Act. Aggrieved, assessee went in appeal before ld. CIT(A).

5.1. According to him, nature and magnitude of the receipts justified the conclusion that assessee was engaged in activities having commercial characteristics, thereby attracting the mischief of the proviso to section 2(15). He noted in para 6.1.2. that “principal and predominant source of income of the appellant trust is rental income, earned from letting out its properties…”. He further notes in the same para that, “The activity of letting out properties on rent for consideration is not per se a charitable activity.” While quoting the CBDT circular no. 11/2008 dated 19.12.2008, he noted “The Circular further clarifies that the decisive test is the nature of the activity actually carried on and not merely the objects stated in the trust deed.” Consequently, the denial of exemption under section 11 was affirmed. Aggrieved, assessee is in appeal before the Tribunal.

7.1. At the outset, it is an undisputed position emerging from the records that the registration granted to the assessee under section 12A continues to remain in force during the year under consideration. It is equally not the case of the Revenue that such registration has either been withdrawn or cancelled in accordance with law. Once the competent authority, after examining the objects of the trust and the genuineness of its activities, has granted registration under section 12A, the charitable character of the institution cannot be disregarded during assessment proceedings unless the Revenue is able to demonstrate, on the basis of cogent material, that the activities carried on by the trust are alien to its stated charitable objects or are otherwise not genuine. No such finding, however, emanates either from the assessment order or from the order of the ld. CIT(A). The foundation of the assessment, as well as the first appellate order, rests upon the premise that since assessee derives rental income and license fees from its immovable properties, it is carrying on activities in the nature of trade, commerce or business and is therefore hit by the proviso to section 2(15) by breaching the prescribed threshold, assessee falling within the expression "advancement of any other object of general public utility".

7.2. In our considered opinion, the aforesaid approach suffers from a fundamental misconception regarding the scheme of sections 2(15) and 11. Section 2(15) classifies charitable purposes into distinct and independent categories, namely, relief of the poor, education, yoga, medical relief, preservation of environment, preservation of monuments and advancement of any other object of general public utility. The proviso inserted by the legislature was intended to regulate only the last residual category, namely, institutions engaged in ‘advancement of any other object of general public utility’. The legislative intent is abundantly clear that institutions pursuing the objects other than the last residual category, do not fall within the ambit of the restrictive proviso merely because they incidentally earn income while carrying out their charitable activities. In the present case before us, assessee has consistently maintained that its dominant objects are education, medical relief and relief of the poor. Neither ld. Assessing Officer nor the ld. CIT(A) has recorded any categorical finding that these objects have ceased to exist or that assessee has abandoned the same during the relevant previous year. It is worth noting a fact that ld. Assessing Officer has not recorded any adverse observation to the effect that assessee has not carried out any charitable activities during the year. On the contrary, the denial of exemption has proceeded solely on the basis that substantial rental receipts have been generated by exploitation of trust properties. In our considered view, the source from which income is derived cannot, by itself, determine the true character of a charitable institution. The decisive test always remains the predominant object for which the institution exists and the manner in which the income is ultimately applied.

7.3. On the observation of ld. CIT(A) in the context of CBDT circular, as quoted above, we are intrigued as to why would anyone put its property under a trust which yields income if the application of that income in carrying out charitable activities is characterized as ‘business income’ by the Revenue. We ask ourselves a question, if such an approach of the authorities below is to be held justified, then will it not be more prudent for anyone, not to put one’s property under a trust but keep it free from the trust obligation and compute the income under the appropriate head as per section 14 and claim deduction u/s 80G for its application by way of donation.

7.4. Assessee is merely deriving income from property held under trust and is not carrying on any activity in the nature of trade, commerce or business. Entire case of the Revenue proceeds on the source and quantum of receipts rather than the nature of activity, which is contrary to settled law. Every charitable institution necessarily requires financial resources for carrying out its charitable programs. The Act itself recognizes this position by granting exemption not to the receipts as such but to the income derived from property held under trust, subject to fulfilment of the conditions prescribed under section 11. Therefore, merely because the trust derives rental income from its properties cannot ipso facto lead to the inference that it has embarked upon a commercial venture. It is pertinent to note that section 11 itself contemplates exemption in respect of income derived from property held under trust wholly for charitable or religious purposes. The expression "property held under trust" has always received a liberal construction and includes immovable properties yielding rental income. The statute nowhere postulates that income generated from such properties would lose its exempt character merely because the receipts are substantial. What is material is whether the property itself is held under trust and whether the income therefrom is applied towards the charitable purposes for which the trust has been established. Ld. CIT(A), while affirming the assessment, has substantially proceeded on the quantum of receipts and the systematic nature of the activity. In our considered opinion, neither of these circumstances, by themselves, are determinative of the issue. The magnitude of receipts cannot alter the intrinsic character of an activity if such activity continues to remain merely a mode of deriving income from property held under trust. The character of an activity has to be judged with reference to its dominant purpose and not merely by the volume of income generated therefrom.

7.5. We also find that the authorities below have overlooked the distinction between an activity undertaken for earning profit and an activity undertaken for generating resources to fulfil charitable obligations. The latter cannot automatically assume the character of trade, commerce or business merely because income incidentally arises therefrom. The predominant object test, which has consistently guided judicial interpretation of charitable institutions, continues to hold the field even after insertion of the proviso to section 2(15), duly affirmed by the CBDT circular referred in the above paragraphs.

8.1. In the case before us, Revenue has not demonstrated that assessee is an institution existing primarily for advancement of any other object of general public utility. On the contrary, the consistent case of assessee is that its dominant purposes are education, medical relief and relief of the poor. We find that ld. Assessing Officer has proceeded primarily on the basis of nature of receipts, without examining the true character of the activities in the context of the objects of the trust and without appreciating the application of income. Thus, in the absence of any contrary finding based on material available on record, the ratio of Ahmedabad Urban Development Authority (supra) cannot be applied to the facts of the present case. It is to be noted that if the primary and substantive purpose remains charitable and the income generated is merely incidental to achieving such purpose, the institution cannot be denied exemption merely because it adopts economically prudent methods for augmenting its resources.

Order is pronounced in the open court on 04 August, 2026 Sd/- Sd/- (Pawan Singh) (Girish Agrawal) Judicial Member Accountant Member Dated: 04 August, 2026 MP, Sr.P.S.