M/S. MODI CHARITABLE FUND SOCIETY,GHAZIABAD vs. ADDL.CIT, GHAZIABAD

The only issue involved in this appeal is, whether assessee is entitled for the exemption claimed u/s 11 and whether the assessee had carried out charitable purpose during the year u/s 2(15) of the Income-tax Act.

Brief facts of the case are that the assessee society has duly been registered u/s 12A of the I.T. Act vide registration no. R. No. 24(MT)/73-74 dated 21-01- 1975. During the impugned assessment year the AO noted that the assessee had income from rent and interest income i.e. income from other sources and the assessee had not pursued the main object to provide education and even no expenditure had been incurred towards the objects of the society. The AO took the view that the assessee had not carried out the charitable purpose. He, therefore, did not allow the benefit u/s 11 of the IU.T. Act.

When the matter went before the CIT(A), the CIT(A) confirmed the order of the AO.

I have heard rival submissions and carefully considered the same along with the order of the tax authorities. I noted that in the impugned assessment year the assessee has derived rental income as well as the interest income. The rental income, no doubt has been derived from Girls College shops, Girls College -Staff Quarters, Inter College-shops, Inter College-Staff Quarters, Shopping Complex as well as other rent receipts. Now the question arises is whether the said rent income, derived by the assessee can be regarded to be the charitable purpose. Section 2(15) defined ‘charitable purpose, as was in existence during the impugned assessment year as under:

In the case of the assessee I noted that the assessee is not carrying out the education but had got part of the rental income from the education institution which are imparting education. Imparting of education by third party, cannot be regarded as imparting of education by the assessee. In the case of the assessee, the assessee has received the rent. Holding the property for earning rent, in my opinion, cannot be regarded to be the charitable purpose. Therefore, I reject the plea of the ld. AR that the assessee has carried out charitable purpose by getting the income by way of rent. Since the assessee only derived the rental income, it cannot be said that the primary or dominant purpose of the assessee is charitable.

Deduction u/s 11 is available to an assessee in case the property is held, under trust, wholly for charitable or religious purpose. In the case of the assessee it cannot be said that the property is held for charitable purpose, when the assessee is earning rental income and that is the main source of its income. It is not the case of the assessee that he is getting the income from the charitable activity as defined u/s 2(15). In my opinion, while making the assessment, the AO can always look into whether the assessee has carried out a charitable activity or not. He can verify, whether assessee can get deduction u/s 11 of the I.T. Act or not. The power of verification at the time of assessment cannot be snatched away merely on the basis that the assessee has duly been registered u/s 12A of the Income-tax Act.

I have also gone through the decision of the Hon’ble Supreme Court in the case of Director of Income-tax Vs. Bharat Diamond Bourse 259 ITR 280 (SC). This decision, in my opinion, will not be of any help to the assessee if the primary or dominant purpose of the assessee is not charitable within the definition given u/s 2(15). The AO, in my opinion, is correct in law in denying the exemption to the assessee u/s 11 of the Income-tax Act.

In view of these facts, in my opinion, no interference is called for in the order of ld. CIT(A). I, accordingly, confirm the order of ld. CIT(A) and dismiss the appeal filed by the assessee.

In the result, the appeal filed by the assessee is dismissed. Order pronounced in open court on 30/11/2015.