CIT-II CHANDIGARH vs. SARVHITKARI EDUCATIONAL SOCIETY, CHANDIGARH

The revenue has preferred this appeal under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order of Income Tax Appellate Tribunal, Chandigarh Bench dated 30.06.2008 passed in ITA No. 360/Chandi/2007 for the assessment year 2003-04, proposing to raise following substantial question of law:- “Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in holding, that the assessee is entitled for exemption u/s 11(1)(a) of the Act, 1961 and capital expenditure incurred on fixed assets is application of income for charitable purpose, without appreciating the fact that the assessee was registered under Societies Act, 1860 and not under Indian Trust Act, 1882 as such does not qualify for exemption u/s 11 (1)(a) of the Income Tax Act, on the income which is derived from the property not held (2) under a trust.”

The assessee is a charitable trust registered under the Society Registration Act, 1860 and is also registered under Section 12A of the Act. It is running schools.

The assessee claimed exemption under Section 11/12 and also under Section 10 (23C) (iiiad). The Assessing Officer rejected the claim holding that the assessee being an Institution was governed by Section 11 (1) (d) read with Section 12 (1) of the Act. It was held that exemption under Section 11 (1)(a) was applicable only to Trust. On appeal, the CIT(A) upheld the claim of the assessee, which order has been affirmed by the Tribunal.

The Tribunal observed:- “In this case the Assessing Officer held that the assessee was not trust but only an institution wherease exemption under section 11/12 was available only in respect of the income of the property held under trust. The Assessing Officer has taken a view that the assessee is a charitable society but not a Trust. In this regard a reference has also been made to the decision of the Hon'ble Delhi High Court in the case of Charat Ram Foundation 250 ITR 64 Del). A similar issue was dealt with in the case of Shimla Chandigarh Diocese Catholic Church (supra). The Tribunal after taking into consideration the following judgments:- (i) CIT Vs. Market Committee (2007) 294 ITR 563 (P&H); (ii)CIT Vs. Gujarat Maritime Board (2007) 295 ITR 561 (SC) held that the assessee could not be denied exemption under section 11 of the Act on the ground that it was not (3) a Trust but a society/institution.”

It was further observed that the Assessing Officer was required to verify the claim that expenditure had been factually incurred.

We have heard learned counsel for the revenue.

Contention raised on behalf of the appellant is that the Assessing Officer was justified in declining exemption as there was distinction in a Trust and an Institution, as pointed out by the Hon'ble “income derived from property held under Trust” irrespective of the fact whether income is derived by a Trust or any other Institution. Requirement is only of holding the property under Trust. The Commissioner, referring to the definition of 'person' under Section 2 (31) of the Act, observed that neither society was specified as a separate category nor trust was specified as a separate category and both were covered by the expression 'association of persons' in clause (v) or by residue clause (vii). Thus, question raised cannot be held to be a substantial question of law.

The appeal is dismissed (ADARSH KUMAR GOEL) JUDGE August 19, 2009