Use of income from surplus funds for maintenance of commercial properties for charitable purposes, covered by dispensation u/s 11: ITAT

surplus funds - commercial properties - ITAT - tax scan

The Income Tax Appellate Tribunal (ITAT), Pune Bench held that the application of income from surplus funds on additions to building for charitable purposes is covered by an exemption under Section 11 of the Income Tax Act, 1961.

The assessee is a public charitable trust registered u/s. 12A of the Income Tax Act. The assessee has income from bank deposits and rental income. The assessee filed a return of income declaring a total income of Rs. Zero. Under scrutiny, AO issued notices u/s. 2, and 142, subsection 1, in the law. In response to the said notices, the authorized representative on behalf of the assessee appeared before the AO and furnished various details as called.

Considering the same, AO denied dispensation u/s. 11 and fixed the total income of the assessee at Rs.13,57,70,750/- by recording reasons from paras 8 to 12 at page 12 of its order passed u/s. section 143 of the Act, subsection CIT(A) by his own order for AY 2011-12 allowed the exemption u/s. 11 of the Act. The aggrieved income has been appealed to the Court.

The issue raised by the Revenue challenges the action of the CIT(A) in allowing exemption u/s. 11 of the Act without appreciating the expenditure on the purposes of the trust is insignificant compared to the expenditure on the maintenance of the commercial property.

A Coram comprising Inturi Rama Rao, Accountant Member, and S SViswanethra Ravi, Judicial Member took the decision of the Kerala High Court at St. George Forana Church v. reported in 170 ITR 62 in which it was held that where surplus funds were used for additions to a building which was let out and the proceeds thereof were sought for charitable or religious purposes, the utilization of such surplus held to correspond to the use of income for religious or charitable purposes.

“The CIT(A) examined the issue in detail from page no.11 of the impugned order and held that the assessee was entitled to claim exemption u/s. 11 of the Act. Thus, we agree with the grounds recorded by the CIT(A) and it is justified,” the court added.

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Shri Mukund Bhavan Trust vs Dy. Commissioner of Income Tax

Counsel for the Appellant: Shri VL Jain

Counsel for Respondent: Shri Sardar Singh Meena


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