SUDHA RATNA CHARITABLE TRUST,BEED vs. ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 4(2), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.109/Mum/2026 (Assessment year: 2018-19)

Sudha Ratna Charitable Trust vs ACIT, C.C.-4(2), Mumbai A/p, Parli, Ambjogai, Beed, 1918, 19th Floor, Air India Building, Beed, Mumbai-431122 Nariman Point, Mumbai-400021 PAN: AAFAS6058N APPELLANT RESPONDENT Assessee by : Shri Pratik Sandbhor-CA (virtually present) Revenue by : Shri Pasale Naganath Bhimrao- (Sr.DR) Date of hearing : 21/05/2026 Date of pronouncement : 26/05/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee filed against the order of the Ld. Commissioner of Income Tax (Appeals)-52, Mumbai [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’) for Assessment Year 2018-19, date of order 30.08.2025. The impugned order emanated from the order of the Ld. Assistant Commissioner of Income Tax C.C.

2 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust 4(2), Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) of the Act date of order 15.04.2021. 2. The registry informed that the appeal was filed with a delay of 65 days. The trustee of the assessee-trust, Mr. Deepak N Phunde has filed a notarized affidavit duly executed on 02.01.2026 and explained the delay for filing appeal. The Ld. DR had not made any strong objection against the submission of the assessee. We find there is sufficient cause for delay in filing appeal. Accordingly, the delay for filing appeal is duly condoned and the appeal is taken for adjudication. 3. The brief facts of the case are that the assessee is a charitable trust registered u/sec. 12AA of the Act and providing education in society. The assessee filed the return by declaring total income nil by claiming exemption u/sec. 11 of the Act. The assessment was taken up by the revenue and in the assessment proceeding the Ld. AO observe that the assesse trust has claimed depreciation amount to Rs.31,41,087/- and the assessee had claimed deduction amount to Rs.40,81,691/- u/sec. 10(23C) of the Act. The Ld. AO had asked the explanation from the assessee. The assessee submitted that the assessee society is in deficit of Rs.40,81,691/- A.Y. 2018-19 and alleged amount had been erroneously mentioned as deduction u/sec. 10(23C) of the Act. The Ld. AO further observed that the assessee had collected Rs.50,77,036/- towards school uniform, books and bus fares from its students and proposed to disallowed the same business income. The assessee explained that the school books, uniform and bus services are inevitable for providing the education. The same is wholly and exclusively related to the object of providing education to students. Since the students are travelling distance of about 13 to 15 km from villages to school. It is necessary to provide school bus facility for. Similarly, school uniform and books are inevitable

3 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust providing education to the students. Therefore, provision of section 11(4A) are not attracted for the assessee. However, the Ld. AO had added back amount to Rs.31,41,088 & Rs.50,77,036 with the total income of the assessee. The aggrieved assessee filed an appeal before the Ld. CIT(A). But the Ld. CIT(A) deleted the addition amount to Rs.31,41,088/-. But the addition amount to Rs.50,77,036/- is sustained. So, the appeal of the assessee was partly allowed. Being aggrieved assessee filed an appeal before us. 4. The Ld. AR argued filed a paper book which is containing pages 1 to 94 which has been placed on record. The Ld. AR contended that the assessee is charitable trust and having a charitable object of providing education. The assessee trust runs two school units. The assessee operates the units in rural area in Wadgaon, Taluka Sonpeth, District Parbhani. The school operates in a remote area and numbers of students have to travel to school from a long distance of about 10-15 km every day. Therefore, in order to facilitate easy access of the students to education the assessee had provided the school bus services which helps in resolving the difficulty of commute faced by the students and also enables more students to access quality education. He further submitted that the school books and uniform are also the integral part of this education. Ld. AR submitted the detail chart of the expenses which are reproduced as below: Particulars Amount School Bus Receipts 24,20,335/- Uniform Collection 15,42,667/- Books Collection 10,19,034/- Form/Prospect Fee 95,000/- Gross receipts 50,77,036/- Less: Vehicle Expenses 16,55,160/-

4 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust Diesel Expenses 14,41,925/- Uniform Expenses 6,52,150/- Uniform Expenses ITI 22,706/- School Shoes and Socks 1,13,325/- Bus Drivers Salary 14,55,432/- Book Purchase 81,9153/- Gross Expenses 61,59,851/- Surplus/Deficit 10,82,815/-

5 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust before the DIT (E) to show that the 6th and 7th floors were used for purposes other than the Management Institution or for any other purpose which is not an educational purpose. First Proviso to section 2 (15) of the Act would also not be attracted in this situation. As regards the auditorium the same was also part of the building housing these colleges conducted by LalaLajpatrai Institute which was used by the colleges for 209 days and it was vacant for 76 days and was let out only for 80 days only when it was no needed by the colleges. In the course of this letting out the assessee had incurred expenses for electricity and Air-Conditioners. Letting out of the auditorium was not the dominant object of the trust and admittedly the auditorium was incidentally let out to outsiders for commercial purpose. It thus cannot be said that Such letting out would fall within the first proviso to section 2 (15) of the Act. 16. It is well-settled principle of law that the test to determine as to what would be a charitable purpose within the meaning of section 2 (15) of the Act, is to ascertain what is the dominant object of the activity; whether it is to carry out a charitable purpose or to earn profit. If the pre- dominant object is to carryout a charitable purpose and not to earn profit the purpose would not lose its charitable character merely because the some profit arises from the activity. (See CIT Andhra Pradesh vs APSRTC Hyderabad (1986) 2 Supreme Court Cases 391). 17. The revenue's contention that the tribunal has overlooked the provisions of section 11(4A) is unfounded. We have noted above that the service charges received in respect of 6th and 7th floor were clearly on account of educational purpose. Letting out was incidental and not the principle activity of the assessee-trust. Thus, in our opinion, section 11(4A) which require separate account to be maintained would not be attracted in view of our conclusion that the said amounts as received by the assessee for the assessment year have been received from educational activity which is the dominant activity of the assessee-trust. In our opinion, if this be the case, separate books of accounts cannot be insisted upon as the said activity becomes part and parcel of the educational activities carried About by the assessee-trust. In such a case, the benefit of exemption under section 11 (4A) cannot be denied. An interpretation as urged on behalf of the revenue would render nugatory the very spirit, rationale and the object of the exemption provisions making the same unworkable. In this context, we may usefully refer to the observations of the division bench of this Court in the case of Director of Income Tax (Exemption) vs Vile Parle Kelawani Mandal to which one of us (S.C.Dharmadhikari, J) is a member) in which a similar contention as urged on behalf of the revenue was repelled. The division bench observed as under: "5. The Tribunal has held that the "Management and Development Program & Consultancy Charges' is part and parcel of Narsee Monjee Institute of Management Studies' which has been set up by the respondent-assessee. The respondent-assessee is a trust and has set up 30 schools and colleges. The Commissioner as also the Tribunal has

6 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust found that the element of business is missing in conducting management courses. There may be some surplus generated which itself is applied towards the attainment of the object of the educational institute. The separate books of account cannot be insisted upon because once this programme is part and parcel of the activities undertaken and carried out by the NarseeMoonjee Institute of Management Studies, then the condition precedent set out in sub-section (4A) of section 11 of the I.T. Act is completely satisfied. Such finding of fact cannot be termed as perverse and it is in consonance with the factual aspect regarding activities of the trust and the object that it is seeking to achieve. Similarly, in regard to income from the hiring of the premises and advertisement rights, the said question is also not substantial question of law. Letting out of halls for marriages, sale and advertisement rights has not been found to be a regular activity undertaken as a part of business. The educational institutions require funds. The income is generated from giving various halls and properties of the institution on rentals only on Saturdays and Sundays and on public holidays when they are not required for educational activities, then, this cannot be said to be a business which is not incidental to attain the objects of the trust. This being merely an incidental activity and the income derived from it is used for the educational institute and not for any particular person, separate books of account are also maintained, then, this income cannot be brought to tax. This conclusion is also not perverse and given the facts and circumstances which are undisputed.” 18. The assessee has also appropriately relied on the Circular No.11 of 2008 of the CBDT and which was issued in view of the amendment to section 2 (15) of the Act and insertion of the first proviso in question. The circular further clarifies the position as held by us above. The CBDT in para 2 has clarified the following implications arising from the amendment: "2. The following implications arise from this amendment: 2.1 "The newly inserted proviso to section 2 (15) will not apply in respect of the first three limbs of section 2 (15) i.e. relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incident ally involves the carrying on of commercial activities. 3. The newly inserted proviso to section 2 (15) will apply only to entities whose purpose is 'advancement of any other object of general public utility i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2 (15). Hence such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the

7 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity." 6. The Ld. AR further respectfully relied on the order of the Coordinate Bench of ITAT Mumbai ‘B’ Bench in the case of St. Joseph’s Education and Medical Relief Society vs ITO (E) reported at (2024) 169 taxmann.com 596 (Mumbai- Trib.). The relevant part of the order is reproduced as below: “5. The provisions of section 11(4A) clearly carves out exception qua its non-applicability. Where the business activity is incidental to the attainment of the main objectives of the trust or, as the case may be, maintaining separate books of account are not necessary to be maintained by such trust or institution in respect of such activities. For clarity the provisions of section 11 (4A) of the Act are reproduced hereunder: "Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business." 5.1. CBDT Circular No. 11/2008 dated 19-12-2008 (Point No. 2.1) also clarified that, proviso to section 2(15) of the Act will not apply to medical relief etc. and where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. For clarity relevant clarification reads as under: "The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities." Therefore, as per the provisions of section 11(4A), we have to consider, as to whether the receipts from various activities as analyzed hereinabove are incidental to the objects of the Assessee/trust. 5.2. Hon'ble Bombay High Court in the case of Baun Foundation Trust reported in (2012) 73 DTR 45 took into consideration the situation, wherein the general public was also using the facility of

8 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust chemist shop. In Baun Foundation Trust (supra), exemption under Section 10(23C)(via) of the Act was in question. Hon'ble Bombay High Court referred to the decision of the Hon'ble Supreme Court in case of Aditanar Educational Institution reported in (1997) 90 Taxmann 528 to hold that, a hospital must of necessity have a section or department, where medicines can be dispensed, and it is not uncommon for a medical hospital which exists for philanthropic purposes to have a chemist shop where pharmaceutical products are sold. This is a facility which is intended to be used predominantly by patients and their relatives. Though members of the general public are not prohibited from using the facility, the crucial question to determine is whether the establishment of the chemist shop is incidental or ancillary to the dominant object and purpose which is to set up and conduct a hospital for philanthropic purposes. In the facts of that case, it was held that, running of the chemist shop was not the dominant object or purpose of the trust.” 7. The Ld. DR argued and contended that collection of transport charges, books and dress from the students is not at all accepted as the charitable activities. The assessee had grossly violated of section 11(4A) of the Act and separate books of accounts are not maintaining for said activities. So, the Ld. DR stands in favor of the orders of revenue authorities. 8. The Ld. DR invited our attention in impugned appellate order in paragraph no.9 to 9.4 which are reproduced as below: “9. With respect to Ground No.9, the appellant argues that even if the profits from the incidental business activities (bus fees, uniform, books, etc.) are brought to tax, they should be allowed to accumulate 15% of the gross receipts as per Section 11(1) of the Act. 9.1 Section 11(1) allows for the accumulation of 15% of the income of a charitable trust or institution. This exemption is available for income that is otherwise eligible for exemption under Section 11. However, Section 11(4A) is a non-obstante clause that begins with the phrase, "Sub- section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply..." This clearly and unequivocally means that if a trust's income consists of profits and gains from a business for which it has not maintained separate books of account, then none of the other subsections of Section 11, including the provision for 15% accumulation under Section 11(1), will apply to that business income.

9 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust 9.2 The Assessing Officer (AO) has established that the appellant failed to maintain separate books of accounts for its business activities of selling books, uniforms, and providing bus services. The appellant's submission itself admits that it did not maintain "separate books of accounts" but rather separate ledger accounts. While the appellant has cited case law to argue that separate ledgers are sufficient, this contention has been rejected by the AO. The AO's finding, that the receipts from these activities are "in the nature of business receipt," stands. Since the appellant failed to meet the statutory requirement of maintaining separate books of account as explicitly mandated by Section 11(4A), the exemption under Section 11 is not available for this income. 9.3 The purpose of Section 11(4A) is to ensure that profits from a business carried on by a charitable trust are only eligible for exemption if the business is incidental to the trust's objects and if proper, segregated accounts are maintained. The non-compliance with the second condition (maintaining separate books) makes the entire income from that business taxable. Therefore, the question of claiming any deduction or accumulation under Section 11(1) simply does not arise. 9.4 In view of the above discussion, since the income is disqualified from the benefit of Section 11 due to non-compliance with Section 11(4A), the appellant cannot claim the benefit of accumulation under Section 11(1). The appeal on Ground No.9 is hereby dismissed.”

10 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust transportation facilities for the students so as to facilitate access to education. Similarly, supply of school uniforms, books, shoes and related educational material are integral and inseparable components of educational activities carried out by the school. We further find from the financial details placed on record that the assessee had not earned any profit from such activities. On the contrary, the assessee incurred aggregate expenditure of Rs.61,59,851/- against gross receipts of Rs.50,77,036/- resulting into deficit of Rs.10,82,815/-. Therefore, it is evident that the activities were not carried out with any profit motive and the same were only incidental and ancillary to the dominant object of imparting education. We find considerable force in the contention of the Ld. AR that the provisions of section 11(4A) are not attracted in the peculiar facts of the present case. The dominant object test has been consistently upheld by the Hon’ble Courts while examining the charitable nature of educational institutions. The Hon’ble Bombay High Court in the case of Lajpatrai Memorial Trust (supra) has categorically held that incidental receipts connected with educational activities would not disentitle the assessee from exemption under section 11 merely because certain ancillary charges were collected. The Hon’ble High Court further held that where the predominant object is charitable and educational in nature, incidental receipts arising in the course of carrying out such educational activities cannot be construed as business activities within the meaning of section 11(4A) of the Act.

11 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust such activities are inseparable from the principal charitable activity. The CBDT Circular No.11/2008 also clarifies that the proviso to section 2(15) shall not apply in respect of education, medical relief and relief to the poor even if such activities incidentally involve certain commercial receipts. In the present case, the school bus facilities, books and uniforms are directly connected with and incidental to the educational activities of the assessee-trust. The revenue has not brought any material on record to demonstrate that the assessee was carrying out independent business activities with a profit motive. Mere collection of charges from students towards transportation, books and uniforms, which are essential facilities for imparting education in rural areas, cannot convert the charitable activity into a commercial venture. We further find that the assessee has incurred deficit in such activities and therefore the allegation of carrying on business activity is factually incorrect.

12 ITA No.109/Mum/2026 Sudha Ratna Charitable Trust educational activities of the assessee-trust and are eligible for exemption under section 11 of the Act. Therefore, the addition sustained by the Ld. CIT(A) amounting to Rs.50,77,036/- is directed to be deleted. Accordingly, the grounds raised by the assessee stand allowed.