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Facts
The assessee, Gandhinagar Arogya Nilayam Charitable Trust, applied for approval under Section 80G(5)(iii) of the Income Tax Act. The CIT(E) rejected the application, observing that rental income constituted 99.66% of the total receipts, which exceeded the 20% limit for charitable activities as per Section 2(15). The CIT(E) held that deriving rental income was not incidental to the trust's objects.
Held
The Tribunal set aside the impugned order of the CIT(E) and remanded the matter back for de novo consideration. The Tribunal noted that the impugned order lacked factual findings on key aspects like active/passive rental income, property ownership from inception, and whether the business was part of the trust deed. The CIT(E) was directed to reconsider the application after examining all documents.
Key Issues
Whether the rental income derived by the trust is incidental to its charitable objects, and whether the property generating this income can be considered as 'property held under trust' as per Section 11(4) of the Act.
Sections Cited
80G(5)(iii), 2(15), 143(3), 11(4)
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI S. R. RAGHUNATHA
आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)
The captioned appeal preferred by the assessee is against the impugned order dated 26.08.2024 passed by the ld. Commissioner of Income Tax (Exemption), Chennai.
The assessee/applicant filed an application online in Form No.10AB seeking approval u/s 80G(5)(iii) of the Income Tax Act, 1961 (‘Act’ in short) on 27.02.2024. Thereafter, the ld.CIT(E) vide letter/show cause notice dated 30.05.2024 & 31.07.2024 requested the assessee to furnish the requisite details and documents and its clarifications. The assessee responded to the show-cause notice on 07.08.2024 and explained the activities of the trust on 23.08.2024. On perusal of the submissions of the assessee, it was noted by the CIT(E) that the assessee trust has shown Rs.15,000/- as donation received out of gross receipts of Rs.42,93,117/- which is only Rs.0.34%, whereas rental receipts are to the extent of Rs.42,78,117/- which is 99.66% of total receipts. The CIT(E) has opined that deriving rental income from properties let out is nowhere connected or linked with the object of the trust, hence, its activity of letting out its properties cannot be treated as activity incidental to the objects of the trust. Since the receipts from rental income of the assessee trust exceeds the limit of 20% prescribed u/s.2(15) of the Act, the activity of the assessee trust is not charitable in nature and hence rejected the application of the assessee as not eligible u/s.80G(5) of the Act.
Aggrieved by the order of CIT(E), the assessee is in further appeal before us.
Before us, the learned counsel for the assessee submitted that main object of the assessee trust is to provide medical relief to the public and protect health of common man. He further submitted that construction of immovable property situated at No.56, 4th Main Road, Gandhi Nagar, Adyar, Chennai-20 by the assessee trust was started in the year 2009 and ground and first floor were completed in 2011. Further, the construction of 2nd floor was started in the year 2017 and completed in the year 2018. The learned counsel for the assessee also submitted that hospital run by the trust is located in the 2nd floor of the property. For the past 10 assessments, there was no scrutiny assessment u/s.143(3) of the Act by the Revenue. According to the ld. counsel, the property held under the trust as per section 11(4) of the Act is an inclusive definition, which includes a business undertaking. The legal ownership of the asset lies with the trustee while the beneficial ownership remains with the beneficiary stated in the trust deed. The learned counsel for the assessee also drew our attention to the decision of the co-ordinate Bench of this Tribunal in in the case of Lingammal Ramaraju Shastra Prathistha Trust in support of its claim. Therefore, he submitted that the order of CIT(E) dated 26.08.2024 rejecting the application filed by the assessee trust u/s.80G is not valid in the eye of law.
Per contra, the Ld.DR, Mr. R. Clement, CIT submitted that as per the trust deed executed on 26.06.2019, vide clause no. XXVIII, the following point is stated: "The trust does not own any immovable / movable property as on date'. From the above, it is evident that the trust does not possess any property at the time of execution of the trust deed i.e. no property/ land / building was bequeathed at the time of deed executed on 26.06.2019. As per the application filed in Form 10AB, the date of creation of trust is 15.11.1991 As per col.14 of the said application, it is stated that the trust got the land/ building measuring 947.27 square meters by way of gift on 08.04.2009, whose stamp value was Rs.9,47,240/-. Considering the above, it is evident that the trust acquired the property only after its inception and as such the same cannot be considered as "Property held under trust" as envisaged u/s. 11(4) of the Act. Therefore, the Ld.CIT-DR submitted that the assessee trust’s rental income receipt was not from the 'property held under trust'. The Ld.CIT-DR further submitted that in the case of Smt. Lingammal Ramaraju Shastra Prathistha Trust, it was held that the petrol bunk is a 'property held under trust'. On the contrary, in the assessee's case, the immovable property held is not a 'property held under trust' for the reasons stated above. The learned DR further submitted that if the business of the assessee trust is held as a property of the trust and subject to section 11(4), then the business may or may not be incidental to the charitable activities of the organization. The property under discussion does not fall under the category 'property held under trust' and hence, section 11(4) is not applicable in the assessee's case.
According to the ld.DR, neither the property of the assessee trust was SETTLED at the time of foundation of the trust nor was the property ACQUIRED with help of the fund originally settled upon the trust. Further, in this case, the assessee trust had received more than 99% of its total receipts from rental receipts. Further, it is apparent from the Trust Deed that the property is not given to the trust at the time of formation of the Trust and as such it cannot be treated as property held under trust. Besides, the applicant's claim that letting out the properties and deriving income from the same can be treated as carrying on the activity incidental to the objects of the trust since as per the incidental objects of the trust deed, in clause (8) 'doing all such other lawful things as are incidental or conducive to the attainment of the above objects' has been mentioned. Therefore the learned DR submitted that assessee trust’s claim also cannot be acceptable since a business cannot be said to be incidental only because the surplus from it is applied for charitable purposes.
The ld.CIT-DR also drew our attention to the facts that the property which was let out for rental income was not held under the Trust in its original Deed by the settler or donor in the Trust, to get covered u/s 11(4) of the Income Tax Act, 1961. The assets shown in the balance sheet, can be considered as business held under the Trust as per the provisions u/s 11(4) of the Income Tax Act only when the same is originally bequeathed in the deed but in the instant case the property for rental income was not bequeathed in the trust deed. Further, as per the application filed in Form 10AB, the date of creation of trust is 15.11.1991 and as per col.14 of the said application, it is stated that the trust got the land/building measuring 947.27 square meters by way of gift on 08.04.2009, whose stamp value was Rs.9,47,240/-. In view of the above, it is evident that the trust acquired the property only after its inception and as such the same cannot be considered as Property held under trust" as envisaged u/s.11 (4) of the Act. The learned CIT-DR also relied on the case Laws in support of his contention. (a) DCIT(E) v. Chennai Kammavar Trust (2017) 56 TTR (Trib) (S.N.) 61 (Chny): "A business not in existence at the time of formation of the trust and not spelt out in the trust deed of the assessee was not business property held under the trust. The assessee was running a community hall which was not in the contemplation of the trust deed on the basis of which the society was formed. It was held that the business carried on behalf of a trust was not held in trust but a business of the trust run by the assessee. (b) ACIT v. Ahmedabad Urban Development Authority (2022) 143 taxmann.com 278/(2023) 291 Taxman 11 (SC): "It was clarified that the business should have been either SETTLED at the time of the foundation of the trust (or) should have been ACQUIRED WITH THE HELP OF THE FUND ORIGINALLY SETTLED UPON THE TRUST." The learned DR also submitted that a business cannot be said to be incidental only because the surplus from it is applied for charitable purposes. The Hon'ble Supreme Court of India, in the case of New Noble Educational Society VS CCIT [2022] 143 taxmann.com 276 (SC) held that a business can be said to be incidental to the attainment of the objective of the organisation only when it is intrinsically related with the main activity/objectives of the society and the same is absent in the instant case.
The assessee relied upon the judgment of the Hon’ble Supreme Court in the case of Commissioner of Customs Vs. Dilip Kumar & Company & Ors, in Civil Appeal No.3327 of 2007 dated 30.07.2018. The ld.CIT-DR also relied upon the para 52 of the in the case of Commissioner of Customs Vs. Dilip Kumar & Company & Ors, in Civil Appeal No.3327 of 2007 dated 30.07.2018 which reads as under:
(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the asses see to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in sun export case (supra) is not correct and all decisions which took similar view as in sun export case (supra) stands over- ruled.
We have heard the rival submissions and perused the appeal papers and case laws citations filed. We find that in the impugned order there is no factual finding regarding active or passive rental income. We also find in the impugned order that there is no factual finding regarding whether the trust have own any immovable / movable property right from inception of the trust and impact of section 11(4) of the Act. Whether business was in existence at the time of formation of the trust? Whether business was spelt out in the trust deed of the assessee? We find that the ld.CIT(E) has not considered the documents as called by him vide notice dated 31.07.2024 and submitted by the assessee vide response dated 07.08.2024. We further note that the ld. CIT(E) has given a decision on the basis of ‘one para’ submission by the assessee which is not justified in our view. Therefore, we set aside the impugned order and remand back this appeal to the ld. CIT(E) to re-look afresh after considering the all documents filed by the assessee and also as called by the ld.CIT(E). The ld.CIT(E) may call for further documents and explanation if need arises. The assessee is also given liberty to file documents in support of the application u/s 80G(5)(iii) filed in Form 10AB on 27.02.2024. We make it clear that we have not said anything on the merits of the case. Therefore, the ld. CIT(E) can take his independent view while considering the application u/s 80G(5)(iii) filed in Form 10AB on 27.02.2024. We also direct the assessee to appear before the Ld. CIT(E) on the date of hearing without fail and furnish complete details for his denovo adjudication. Needless to say that the ld.CIT(E) will grant proper opportunity of hearing to the assesse before proceeding to decide the aforesaid application denovo.
In result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 30th , day of June, 2025