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Facts
The assessee, a Trust registered under Section 12A and 80G, filed its return for AY 2018-19 showing Nil income. The Assessing Officer (AO) denied exemption under Section 11 of the IT Act, holding that the Trust's activities were confined to its members and involved business-like activities such as renting a hall and running a motor driving school for consideration.
Held
The Tribunal held that the Trust was registered under Section 12A and had been granted exemption in earlier years without any change in its activities. The expenditure on Golden Jubilee celebrations, funded by specific donations, was a one-time event and not a basis for denying exemption. The principle of consistency, as upheld by the Supreme Court, was applied.
Key Issues
Whether the denial of exemption under Section 11 of the IT Act by the lower authorities was justified, considering the Trust's registration, past allowance of exemption, and the nature of its activities (renting property and running a driving school).
Sections Cited
11, 12, 143(3), 143(3A), 143(3B), 250, 12A, 80G, 2(15)
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Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आदेश /O R D E R PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre, Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1062011994(1) dated 05.03.2024 for the (A.Y. 2018-19) The Krishna District Lorry Owners Associations A.Y.2018-19 arising out of the order passed under section 143(3) of Income Tax Act, 1961 (in short ‘Act’) dated 13.04.2021.
Brief facts of the case are that, assessee being a Trust filed its return of income on 22.09.2018 for the A.Y. 2018-19 disclosing Nil income. Subsequently, the case was selected for complete scrutiny under the e-assessment scheme, 2019 on the issue of “Receipts of Trust”. Thereafter, notices under section 143(2) and 142(1) of the Act along with questionnaire were issued from time to time. It was noticed that the assessee is a Trust Registered under 12AA and also 80G(5)(vi) of the Act. After perusing the financial statements and submissions made by the assessee, Ld. Assessing Officer [hereinafter in short “Ld. AO"] observed that activities of the Trust are confined to the benefits of its own business people in a single district and not for the benefit for the public at large. Further, the Ld. AO observed that the assessee is engaging in providing business services for a consideration. Ld. AO also observed that the renting of the hall for commercial exploitation of the property and running of motor driving school for a fee is in the nature of business of trade and commerce and such activities cannot be considered as charitable in nature as defined in section 2(15) of the Act. Ld. AO therefore held that the assessee is carrying out activities in nature of business and professions under the guise of public charitable trust and therefore denied the exemption claimed by the assessee under section 11 of the Act. He framed the Page No. 2
On being aggrieved by the order of the Ld. AO, assessee filed an appeal before Ld. CIT(A). Assessee made similar submissions before Ld. CIT(A). Assessee also submitted before Ld. CIT(A) that the assessee was considered as a charitable society and the exemption under section 11 of the Act was allowed in the earlier years and subsequent years. However, Ld. CIT(A) rejected the submissions made by the assessee thereby partly allowed the appeal of the assessee.
4. On being aggrieved by the order of the Ld. CIT(A), assessee is in appeal before us by raising following grounds of appeal: -
1. The orders passed under sections 143(3), 143(3A), and 143(3B) of the Income Tax Act, dated 13.04.2021, and upheld by the orders under section 250 of the IT Act, dated 05.03.2024, are contested on the basis of being contrary to the facts of the case and provisions of the law.
2. The contention of the Learned CIT(A) that the assessee, operating as a public charitable trust, is engaging in activities resembling business and profession is erroneous. The claim of benefit under section 11 of the IT Act has been unjustly denied under the misapprehension that the trust's activities are profit-driven.
3. The finding of the Learned CIT(A) that there exists a profit motive in the trust's activities, particularly regarding property leasing and school fee collections, is flawed. Such activities cannot be construed as commercial ventures; rather, they are integral to the trusts charitable objectives.
The Learned CIT(A) overstepped jurisdiction by negating the charitable nature of the trust's objectives, despite prior approval and registration under section 12A of the IT Act. This decision lacks a valid basis and contravenes established legal principles.
Page No. 3 (A.Y. 2018-19) The Krishna District Lorry Owners Associations 5. The Ld.CIT(A) ought to have known that the trust's activities fall within the purview of charitable purposes as defined under section 2(15) of the IT Act. The income generated, including student fees and incidental revenue, is essential for carrying out these charitable activities and does not violate any legal provisions.
6. The appellant seeks a reversal of the lower authorities' orders in the interest of justice and fair play, considering the erroneous interpretations and conclusions drawn by the Learned CIT(A). Additional grounds, if any, may be presented during the course of the hearing to substantiate these contentions.”
Ground Nos. 1 and 6 are general in nature and needs no adjudication.
Ground Nos. 2 to 5 relates to denial of exemption claimed under section 11 of the Act by the assessee. On this issue, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that assessee is a charitable organisation registered under section 12A and 80G of the Act. Assessee was assessed as charitable organization and the benefit of exemption under section 11 of the Act was allowed in the earlier assessment years. He pleaded that the even though the principle of res-judicata does not apply to the income tax proceedings, however, there is no change in the facts and circumstances of the case during the assessment year and hence denial of exemption claimed under section 11 of the Act is not justifiable. Further, he also submitted that the assessee was owning a building and in order to move to a larger premises the old building was let out on rent and the rental income was used for the benefits of its members. He argued that since there is a building existing in the old premises it cannot be discarded and hence being let out for use the proceeds towards benefit
Page No. 4 (A.Y. 2018-19) The Krishna District Lorry Owners Associations of the Members should not be considered commercial in nature. He further argued that the letting the extra space for a renting does not deprive the assessee for being considered as a charitable organization. Further he also submitted that assessee has incurred certain Golden Jubilee expenditure for which the donations were received from various parties. This being a one-time expenditure which was incurred only during the impugned assessment year cannot be led to a conclusion that assessee is not engaged in charitable activities. He therefore pleaded that the denial of benefit under section 11 of the Act is unjustifiable and prayed for deletion of the same.
Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] submitted that the assessee is engaged in the business activities and is confined to a single district and not to the benefit of the public at large. He also submitted that the assessee is charging fee from the driving school activities which shall be considered as commercial in nature. Further he also submitted that assessee has received donation of around Rs.1 Crore which is the more than 20% as per section 2(15) of the Act and hence assessee is not entitled for exemption under section 11 of the Act. He therefore pleaded that the order of the Revenue Authorities be upheld.
Countering the argument of the Ld. DR, Ld.AR submitted that the assessee is charging a nominal fee from the driving school activities in order to Page No. 5 (A.Y. 2018-19) The Krishna District Lorry Owners Associations compensate overhead expenditure incurred by the assessee while maintaining the vehicles used for driving school purpose and therefore it does not amount to assessee being engaged in the commercial activities with a profit motive.
We have heard both the sides and perused the material available on record including the submissions of the assessee. It is an undisputed fact that the assessee is a registered society under section 12A of the Act. It is also an undisputed fact assessee was claiming exemption under section 11 of the Act for the earlier assessment years and even during the scrutiny proceedings of the earlier assessment years this benefit was never denied to the assessee. Even though the principle of res-judicata does not apply to the Income Tax Proceedings, we notice that there is no change in the activities of the assessee during the impugned assessment year except for the fact that the assessee has incurred certain expenditure towards Golden Jubilee Celebrations out of specific donations received from transport companies. We are of the opinion that the expenditure incurred for the Golden Jubilee celebrations is not an annual affair and only one time expenditure during the impugned assessment year which cannot be a ground for denial of exemption claimed under section 11 of the Act. We once again reiterate that the revenue has not denied the benefit of section 11 of the Act for the earlier assessment years and as held by the Hon’ble Supreme Court in the case of Radhasaomi Satsang v. CIT [(1992) 193 ITR 321] in the absence of change in the activities of the trust, the benefit
Page No. 6 (A.Y. 2018-19) The Krishna District Lorry Owners Associations of exemption under section 11 following the principle of consistency cannot be denied to the assessee. We therefore direct the Ld. AO to allow the claim of exemption under section 11 of the Act claimed by the assessee during the impugned assessment year. Thus, grounds raised by the assessee are allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 04th September, 2025.