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Facts
The assessee, running a Dharmashala since 1887, applied for registration under section 12AA of the Income Tax Act, 1961. The CIT(A) rejected the application, observing that the assessee was renting out Dharmashala rooms and halls, which was considered a commercial activity. The assessee contended that these activities were not for profit motive, with nominal rents charged to the needy, and any surplus was used for charitable purposes like providing artificial limbs.
Held
The Tribunal acknowledged the assessee's long-standing charitable activity and the nominal rents charged. While agreeing that the activity of raising funds should not be in the nature of trade or business, the Tribunal found that the factual assertion that the activity is not commercial needs to be examined by the CIT(E) with relevant documents. Therefore, the matter was restored to the CIT(E) for a fresh decision.
Key Issues
Whether renting out Dharmashala rooms and halls at nominal rates for charitable purposes constitutes a commercial activity, disentitling the assessee from registration under section 12AA.
Sections Cited
12AA, 12A, 2(15)
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Income Tax Appellate Tribunal, PATNA BENCH, VIRTUAL HEARING AT KOLKATA
Before: SRI SANJAY GARG & SHRI SANJAY AWASTHI
Shri Bhudharmal Dhandhania ………….. Appellant MP Road (Devi Babu Dharamshala) Bhagalpur, Bihar-812002. (PAN: AAPTS8132G) Vs. CIT (Exemption), Patna .............. Respondent Appearances: Appellant represented by: Shri Sudipta Sannigrahi, CA Respondent represented by: Shri Ashok Kumar, CIT Date of concluding the hearing : 20.01.2025 Date of pronouncing the order : 20.01.2025 ORDER
Per Sanjay Garg, Judicial Member:
The captioned appeal has been preferred by the assessee against the order dated 26.05.2023 of the Ld. Commissioner of Income Tax (Exemption), Patna related to registration u/s. 12AA of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).
The assessee is aggrieved by the action of the Ld. CIT(A) in rejecting the application of the assessee for registration as a charitable institution u/s. 12AA of the Act. The Ld. Counsel for the assessee has submitted that the assessee is a charitable organisation. It runs a Dharmshala and a hall. It also holds medical camps and also provide artificial limbs to the needy. That the assessee trust applied for registration u/s. 12A of the Act. However, the ld. CIT(A) rejecting the same observing that the assessee has been giving the rooms of Dharmshala complex on rent and also offering marriage hall for I.T.A. No.: 231/PAT/2023 Bhudharmal Dhandhania, consideration. Therefore, the activity of the assessee was commercial in nature and not charitable.
Before us, the Ld. Counsel for the assessee has submitted that the assessee trust has been running the Dharmashala since 1887. That the said Dharmashala is being operated without any profit motive. That the Dharmashala rooms are offered for stay to the needy at a very nominal rent as compared to the market rates. Similarly, the Dharmashala hall is also used by the community which is offered at a very nominal rent so that the weaker section of the society may be able to perform their social functions, not only of marriages etc. but also, relating to the other ceremonies etc. That apart from that, the surplus is used in providing artificial limbs to the needy persons. The Ld. Counsel in this respect has referred to a chart given at page 10 of the paper book, which reproduced as under :
By referring to the aforesaid chart, the Ld. Counsel has submitted that the aforesaid chart would reveal that the assessee trust is operating the Dharmshala/marriage hall without any profit motive. The Ld. Counsel has also referred to another chart which is a comparative chart of the market rates Page 2 of 6
I.T.A. No.: 231/PAT/2023 Bhudharmal Dhandhania, as compared to the amount received by the assessee in respect of Dharmashala hall and rooms etc. The same is reproduced as under:
The Ld. Counsel has further submitted that the Ld. CIT(E) has taken note of the fact that the assessee trust has total deposits of Rs.3,27,00,000/- . He in this respect has submitted that the building of the assessee trust had become old and was in dilapidated condition. Therefore, the funds were raised for self survival purpose so that the charitable activity may not be stalled and for that the assessee trust had rented out some shops out of the building and on renting out pf the saod shops, security deposits were taken from the tenants so that the property of the trust may be secured. The Ld. Counsel Page 3 of 6
I.T.A. No.: 231/PAT/2023 Bhudharmal Dhandhania, has submitted that the aforesaid funds were raised so that the assessee trust may run its charitable activity smoothly. He has further submitted that the said funds were used for building of new block of Dharmasala which is also offered at nominal rent to the needy and, therefore, the amount, if any received by the assessee has been spent on charitable activity. The Ld. Counsel has further submitted that the observation of the Ld. CIT(E) that the activity of the assessee is in the nature of trade, commerce or business is factually incorrect. That the assessee is not involved in the activity of Dharmasala for any profit motive and, therefore, it is not in the nature of trade, commerce or business. He in this respect has submitted that a nominal fee is charged from the users so as to firstly avoid that the non-needy persons should not exploit the property and further the amount is charged for self- survival/self-existing purpose and not for profit motive.
The Ld. DR, on the other hand, has submitted that the assessee is involved in renting out the premises from year-to-year basis and the said activity of the assessee is in the nature of trade, commerce and business. That the assessee is regularly involved in renting out the premises as well as the Dharmasala hall. He has further submitted that the assessee has also given shops on rent to earn regular income which is a commercial activity. He, therefore, has submitted that the Ld. CIT(E) rate mentioned has rightly rejected the application of the assessee. He has further submitted that even first proviso to sec. 2(15) of the Act is attracted in this case.
We have heard the rival contentions and gone through the record. In this case, the Ld. Counsel for the assessee has submitted that the assessee trust is running the Dharmasala since 1887 which is more than 150 years. The Dharmasala building is old and dilapidated. The Ld. Counsel has submitted that the said Dharmsala is run by the members of the community and the hall is offered to the needy at a very nominal rent. He has also submitted that the total surplus of the assessee trust, even after renting out the building for the rent more than 150 years, did not exceed Rs. 10 lakh. Page 4 of 6
I.T.A. No.: 231/PAT/2023 Bhudharmal Dhandhania, That so far as the deposits were concerned, the same were raised from the members of the community so that a new block be built in the Dharmasala complex. The shops have been rented out and security deposits were taken for self-survival purpose, so that the charitable activity may not be stalled.
Prima facie, we are convinced with the submissions of the Ld. Counsel for the assessee. To run a trust/organisation and to continue its charitable activity, there is always need of funds. Such funds may be collected either by way of donation or by way of exploitation of the property under the trust. What is to be seen is that the activity of raising such funds should not be in the nature of trade, commerce or business. It has been held time and again by various Courts of law and even by Hon’ble Supreme Court that as to whether an activity is in the nature of trade, commerce or business, what is to be seen is the intention of the organisation as to whether the activity done with the profit motive and also the quantum/percentage of the profit as compared to the expenditure. The overall facts and circumstances are to be examined as to gather as to whether the activity of the organisation or a trust is in the nature of trade, commerce or business. In the case in hand, the Ld. Counsel has demonstrated before us that even after running the said Dharmasala for more than 150 years, there is no much surplus left and even the chart showing the receipts of last three years do not suggest that activity done by the assessee involved huge profits. So far as the contention of the Ld. DR that the receipts from the activity of the assessee since exceed 20% of its total receipts, therefore, the activity of the assessee will be hit by the first proviso to sec. 2(15) of the Act is concerned, as noted above, we have already observed that from the submissions of the Ld. Counsel it does not appear that the activity of the assessee is in the nature of trade, commerce or business. Therefore, the first proviso to sec. 2(15) will not be attracted in such circumstances. However, we agree with the submissions of the Ld. DR that the aforesaid submissions made by the Ld. AR need to be factually examined with relevant documents by the Ld. CIT(E). We, therefore, set aside the impugned order of the Ld. CIT(E) and restore the matter to the file of the Ld. Page 5 of 6
I.T.A. No.: 231/PAT/2023 Bhudharmal Dhandhania, CIT(E) for the limited purpose of examining the contentions of the assessee as to whether the activity of the assessee which is run for almost 150 years, is being done with the intention of earning profit or the profits earned by the assessee are incidental to the activity run by the assessee. The Ld. CIT(E) will also take due consideration of these facts about the submissions of the assessee that it has collected some funds by way of security deposits for building a new block. While deciding the application, the Ld. CIT(E) will also take due note of the application of the funds also. With the above observation, the matter is restored to the file of the Ld. CIT(E) for decision afresh as per the discussion made hereinabove.
In the result, the appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the open Court.