M/S. LAKSHMI AMMAL MEMORIAL TRUST,CHENNAI vs. ITO, TIRUPPUR

आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal is filed by the assessee , aggrieved by the order of the Learned Commissioner of Income Tax(A)-2, Coimbatore dated 30.06.2016 pertaining to assessment year 2011-12. 2. The assessee has raised the following grounds for adjuduciation.

ITA No.2852/Mds/2016 2

ITA No.2852/Mds/2016 3

Rs.2,13,926/- are not to be deducted in computing taxable income before application of Income for charitable purposes.

action of charging income of the trust from a Kalyana Mandapam to

tax. The background facts are that the appellant is a Registered

Charitable Trust u/s 12A, running a Kalyana Mandapam at Nehru

Street Tiruppur and in the return filed for this year, income derived

therefrom was also claimed exempt u/s 11 along with other incomes.

The return was processed u/s 143(1) and thereafter taken up for

scrçitiny. During the assessment proceedings, the AC observed that

exemption in respect of income from Kalyana Mandapam was

wrongly claimed as it was run on commercial lines and therefore hit

by proviso to section 2(15), being an activity not falling within the

meaning of ’‘Charitable Purpose’. When confronted with this

observation and asked to file submissions on why exemption should

not be denied for the income from , there was no explanation or

objection on this issue. The AO took a strong view that running of the

ITA No.2852/Mds/2016 4

Kalyana Mandapam is a separate business activity and it does not fit

in to any activity incidental to providing education, medical relief or

any relief to the poor. On the other hand, the appellant had not

created any institution of the above nature during its existence in the

past few decades, The only activity constitutes of some scholarship

payments. On that view, the AO proceeded to treat the income

derived from the Kalyana Mandapam as business income. Thereafter

the AO considered certain expenses viz., Car maintenance, Loss or

Sale of Car, Depreciation of Car and Donation aggregating to

Rs.5,37,744/- and held that these expenses need not have been

incurred for running a marriage hall and disallowed the expenses.

Aggrieved by the order of ld. Assessing Officer, the assessee carried

the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A) following

the decision of Co-ordinate Bench of Chennai Tribunal in the case of

M/s.SNR Sons Charitable Trust vide order in ITA No.2630/Mds./2014

dated 12.06.2015 wherein held that income derived from Kalyana

Mandapam does not qualify for exemption u/s.11 as this activity is

covered under the proviso to sec.2(15) of the Act and therefore does

not fall under the purview of charitable purpose, observed that the AO

ITA No.2852/Mds/2016 5

is justified in denying exemption u/s.11 of the Act. Against the order

of Ld.CIT(A), now the Revenue is in appeal before us.

deduction u/s.11 of the Act to be allowed. We carefully gone through

the argument of the ld.A.R and we have also gone through the

“Income and Expenditure Account” filed by the assessee in the

assessment year under consideration, the assessee earned total gross receipt of `51,26,337/-. However, it has spent only an amount

of `40,000/- towards donation and the assessee has not carried on

any charitable activities under consideration. The main plea of the

assessee is that it can accumulate the income for the application in

subsequent assessment years. In our opinion, the main issue in this

appeal whether the assessee hit by Explanation to section 2(15) of

the Act. 5. We have heard both the parties and perused the material on record and also various case laws relied by ld. A.R, which were kept on record. The issue before us is whether, on the facts and circumstances of the case and having regard to the terms of the

Trust Deed, it can be said that the activities carried on by the

ITA No.2852/Mds/2016 6

assessee in the form of running of Kalyana Mandapam was itself held

under the Trust. The objects for which the Society established are :-

a. To establish, build, maintain and run and to aid in the

establishment, building maintenance and running of community

centres for the celebration of marriages and other functions and

for conducting performances of art.

b. To establish, build, maintain and run and to aid in the

establishment, building maintenance and running of hospitals,

nursing homes and dispensaries to provide medical aid and to

render financial assistance to any such institutions.

c. To establish, build, maintain and run and to aid in the

establishment, building maintenance and running of homes for

old and destitute persons and to render financial assistance to

any such institutions.

d. To establish, maintain and run, develop, improve, extend, grant

donations for, and to aid and assist in the establishment,

maintenance, running, development, improvement and

extension of nursery schools, elementary schools, secondary

schools, high schools, colleges, industrial, technical, vocational

ITA No.2852/Mds/2016 7

and other art, craft and science schools and colleges and

institutions of English, Tamil, Hindi, Gujarathi, Parsi, Telugu,

Canarese or Sanskrit learning, hostels for the benefit of

students, and generally all kinds of Educational institutions,

whether general, technical, vocational, professional or of any

other description whatsoever, for the welfare and uplift of the

general public in India and to institute and award scholarships

for study, research and apprenticeship for all or any of the said

purposes.

e. To establish, maintain and run, develop, improve, extend, grant

donations for, and to aid and assist in the establishment,

maintenance, running, development, improvement and

extension of libraries, reading rooms, recreation centres and all

other facilities as are calculated to be of use in imparting

education to the public in India.

f. To conduct, institute, and carry on, discourses, lectures and

classes for propagation of adult education in India.

g. To take over any existing educational institution in India and to

conduct, run, maintain, develop and improve the same.

ITA No.2852/Mds/2016 8

to the income derived from property held under trust wholly for

charitable or religious purposes, to the extent to which such income is

applied to such purposes in India. There is no exhaustive definition of

the words “property held under trust” in the Act; however, sub-section

(4) says that for the purposes of section 11, the words “Property held

under trust” “includes a business undertaking so held”. Subsection

(4A) as it stands amended by the Finance (No. 2) Act, 1991, with

effect from April 1, 1992, is in the following terms:

“(4A) Sub-section (1) or sub-section (2) or subsection (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.”

business, the case would fall u/s. 11(4) and not u/s. 11(4A) of the Act.

Section 11(4A) of the Act would apply only to a case where the

business is not held under trust. Thus, there is difference between

ITA No.2852/Mds/2016 9

property or business held under trust and business carried on by or

on behalf of the trust.

case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association

(1980) 121 ITR 1 wherein it was observed that if a business

undertaking is held under trust for a charitable purpose, the income

therefrom would be entitled to the exemption u/s. 11(1) of the Act. In

the present case, the running of Kalyana Mandapam was not held

under trust, but it was business commenced/carried on by the

Society, subsequent to the formation of trust. Though the business

was commenced by the Society and it was carried on by the Society

after its formation, it cannot be said to constitute property held under

trust. U/s. 11(4), it is only the business which is held under the trust

that would enjoy exemption in respect of its income u/s. 11(1) of the

I.T. Act and there is a distinction between the objects of a trust and

the powers given to the trustees to effectuate the purpose of the trust.

Though the objects of the trust were charitable, they were mere

powers conferred upon the trustees to carry on the business and the

profits from such business would benefit the charitable objects. The

ITA No.2852/Mds/2016 10

exemption u/s. 11 cannot be granted on the reason that the business

itself was not in existence at the time of formation of the trust and the

property held under trust at the time of formation of the trust was not

spelt out in the Memorandum of Association of the assessee. The

running of Kalyana Mandapam was not at all in existence at the time

of formation of the trust so as to say that the business is property held

under trust and, therefore, could not have been settled upon trust.

The business carried on behalf of a trust rather indicates a business

which is not held in trust, than a business of the trust run by the

assessee. In this case, the activities Kalyana Mandapam was carried

on by the assessee for and on behalf of the trust and it was not

business held under trust. Section 11(1) of the Act confers exemption

from tax only where the property is itself held under trust or other

legal obligation; it does not apply to cases where a trust or legal

obligation is not created on any property but only the income derived

for a charitable or religious purpose. Surplus funds of a trust, which

was claimed to be exempt on the footing that it was property held

under trust within the meaning of sec. 11(1) of the Act, was not

property held under trust since the property from which the surplus

ITA No.2852/Mds/2016 11

was generated was itself not held under trust. In other words, merely

carrying on business for and on behalf of the trust and applying the

profits of the same for the object of the trust does not entitle for

exemption u/s. 11(4) of the Act unless the business is incidental to

the attainment of the objects of the trust.

activities carried on by the assessee were incidental to the attainment

of the objects of the trust. We fail to see any connection between the

activities relating to running of Kalyana Mandapam was carried on

and the attainment of the objects of the trust. The mere fact that

whole or some part of the income from running of Kalyana

Mandapam was used for charitable purposes would not render the

business itself being considered as incidental to the attainment of the

objects. We are in agreement with the Department that the

application of income generated by the business is not relevant

consideration and what is relevant is whether the activity is so

inextricably connected or linked with the objects of the trust that it

could be considered as incidental to those objectives.

ITA No.2852/Mds/2016 12

generated from the running of Kalyana Mandapam was spent

towards charitable activities and therefore, the assessee is entitled for

exemption u/s. 11(4) of the I.T. Act, or it was accumulated for future

application. We are unable to accept this contention. Initially, the

assessee carried on the business itself which is not at all property

held under trust. This activity is a business activity and the provisions

of section 11(4A) of the Act is applicable.

by the trust are utilized by the trust for the purposes of achieving the

objectives of the trust, then the business should be considered to be

incidental to the attainment of the objects of the trust as observed by

the Supreme Court in the case of ACIT vs. Thanthi Trust (2001) 247

ITR 785 which is as under:

“As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust ………..In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee”.

ITA No.2852/Mds/2016 13

assessee’s case in the sense that even if running of

kalyanamandapam is held not to constitute a business held under

trust, but only as a business carried on by or on behalf of the trust, so

long as the profits generated by it are applied for the charitable

objects of the trust, the condition imposed u/s. 11(4A) of the Act

should be held to be satisfied, entitling the trust to the tax exemption.

light of the facts before the Supreme Court in the case of Thanthi

Trust (supra), wherein the trust carried on the business of a

newspaper and that business itself was held under trust. The

charitable object of the trust was the imparting of education which

falls u/s. 2(15) of the Act. The newspaper business was incidental to

the attainment of the object of the trust, namely that of imparting

education and the profits of the newspaper business are utilized by

the trust for achieving the object of imparting education. In this case,

there is no such nexus between the activities carried on and the

objects of the assessee that can constitute an activity incidental to the

attainment of the objects, namely, to promote cause of charity,

ITA No.2852/Mds/2016 14

mission activities, welfare, employment, diffusion of useful

knowledge, upliftment and education and to create an awareness of

self-reliance among the members of the public etc. I am, therefore, of

the opinion that the observations of the Supreme Court must be

understood and appreciated in the background of the fact in that case

and should not be extended indiscriminately to all cases. Being so, I

am inclined to hold that the assessee is not entitled for any

exemption u/s. 11 of the I.T. Act.

opening balance of written down value of the assets in the asst. year

under consideration, which were purchased in earlier years and the

cost of those assets have already considered as application of

income in earlier asst. year while granting exemption u/s.11 of the

Act. In our opinion, this issue is squarely covered by the decision of

the Tribunal in the case of M/s. Kongunadu Arts & Science College

Coubncil in ITA No.2097/Mds/2014 dated 26.6.2015, wherein it was

held as under:

“5. We have considered the rival submissions on either side and also perused the material available on record. We have also gone through the provisions of section 32 of the Act which provides for depreciation. Depreciation has to be allowed on the cost of the asset. In this case,

ITA No.2852/Mds/2016 15

the cost of the asset was allowed u/s 11 of the Act as application income since the assessee is a charitable institution entitled for exemption u/s 11. Therefore, the cost of the asset becomes NIL. When the cost of the asset becomes NIL, there is no question of allowing any depreciation. If the depreciation is allowed then it would amount to double deduction. The income of the charitable institution has to be computed on commercial principle in case the assessee is not claiming exemption u/s 11 of the Act. The assessee can also claim depreciation in case the exemption u/s 11 was denied by the Assessing Officer. Whatever may be the reasons, since the cost of the asset is NIL as the cost was already allowed as application of income, this Tribunal is of the considered opinion that the assessee is not entitled for depreciation. Section 32 of the Act falls in Chapter IV under computation of business income, however, section 11 falls in Chapter III which provides for incomes which do not form part of the total income. Therefore, this Tribunal is of the considered pinion that provisions of section 11 of the Act will override section 32. In other words, if the assessee claims exemption u/s 11 under Chapter III of the Act, it cannot claim depreciation u/s 32 of the Act. Therefore, we are unable to uphold the order of the CIT(A). Accordingly, the order of the CIT(A) is set aside and that of the Assessing Officer is restored.”

assessee itself agreed for disallowance before the Learned

Assessing Officer, now it cannot have any grievance for such

disallowance. The jurisdictional High Court in the case of Ramanlal

Kamdar Vs. Learned Commissioner of Income Tax reported in [1977]

108 ITR 73 (Mad) wherein held that:-

“We have already referred to the fact that one of the partners of the assessee, viz., Shri Chandulal Kamdar, appeared before the Income-tax Officer on October 27, 1967, and stated that the assessee had no objection to the proposed revision. Once the assessee had stated that it had no objection to the proposed revision and the Income-tax Officer had also revised the original assessment as proposed by him, the assessee could not be said to have been aggrieved by the order of the Income-tax Officer.

ITA No.2852/Mds/2016 16

Only if the assessee was aggrieved by the order of the Income-tax Officer, he had the right to file an appeal before the Appellate Assistant Commissioner and once the assessee could not have had any grievance in view of the statement made by the partner, the appeal to the Appellate Assistant Commissioner was incompetent and equally the appeal to the Tribunal was incompetent. If so, the reference to this court of the two questions said to arise out of the order of the Tribunal is also incompetent.”

Accordingly, this ground raised by the assessee in its appeal is

also dismissed.

Sd/- (चं� पूजार�) (CHANDRA POOJARI) लेखा सद�य /ACCOUNTANT MEMBER

Chennai, Dated the 05th July, 2017.

K s sundaram. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF