INCOME TAX ACT, 1961

Section 80G read with Section 11

Charitable trust - Denial of approval under section 80G - Allegation that receipt by way of 'medical associate share' and 'education associate share' amount to commercial activities -

Assessee-trust was created vide trust deed, and was registered under M.P. Public Trust Act, 1951. It was also registered as a charitable institution under section 12AA. It was running three separate divisions, as hospital division, school division, and agro division, yielding agricultural income. It was granted approval under section 80G(5)(vi) for stipulated period (1-4-2005 to 31-3-2008). When after expiry of said period, it sought approval again, it was denied on allegation that assessee was generating huge surpluses, thus, there was no need for seeking approval under section 80G. It was further alleged that agricultural income was not on account of any agricultural activity per se, but by renting its' land and, thus, was held to be in nature of commercial activity. Held: Question of carrying any activity in nature of trade, commerce or business, is applicable only to the residuary class, i.e., 'advancement of any other object of general public utility', and not to the other categories of charitable purpose, as defined under section 2(15), viz. education, medical relief, etc. 98% of the agricultural receipt as income was on account of absence of agricultural activity; the receipt being by way of rent, admitting of very low expenditure. Where, then, was scope for the activity being regarded as commercial on that score? The income component at 27% to 33% for other divisions could be relevant only where it can be said to exceed, rather by far, of the normative level, not defined or delineated. The objection of surplus or commercial activity by CIT(E) was thus not valid. In relation to receipt by way of 'medical associate share' and 'education associate share', section 13(2)(a) read with section 13(1) shall operate to exclude sections 11 and 12, resulting in contravention of the condition of section 80G(5)(i). Yes, entity/s using facility may not be covered under section 13(3), for section 13 to apply, but there was neither any explanation by the assessee nor any finding by CIT(E) qua that. Further, there was also the angle of genuineness. A more than adequate compensation could, on the other hand, imply routing of perhaps taxable income into the coffers of the assessee for being claimed exempt. That is, non-adequacy is impermissible even in the case of an excess or overcharge where the payer entity is generating taxable income, and irrespective of whether it is covered under section 13(3) or not. There being no finding qua this aspect, the matter was set aside to file of CIT(E) for the same.

REFERRED : Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) : 1980 TaxPub(DT) 0848 (SC) Kedarnath Jute Manufacturing Company Ltd. v. CIT (1971) 82 ITR 363 (SC) : 1971 TaxPub(DT) 0366 (SC) CIT v. Walchand and Company (P) Ltd. (1967) 65 ITR 381 (SC) : 1967 TaxPub(DT) 0323 (SC) Hukumchand Mills Ltd. v. CIT (1967) 63 ITR 232 (SC) : 1967 TaxPub(DT) 0194 (SC) CIT v. C. Parakh & Company (India) Ltd. (1956) 29 ITR 661 (SC) : 1956 TaxPub(DT) 0141 (SC) CIT v. Rajmala Educational Society (2012) 65 DTR 307 (P&H) : 2012 TaxPub(DT) 0838 (P&H-HC) Godavari Sugar Mills v. CIT (1993) 199 ITR 351 (Bom) (FB) : 1993 TaxPub(DT) 0430 (Bom-HC) Jer & Co. v. CIT (1966) 60 ITR 335, 340 (All) : 1966 TaxPub(DT) 0158 (All-HC) Sri DJ. Shah Foundation v. DIT (2010) 46 DTR 81 (Kol) : 2010 TaxPub(DT) 2220 (Kol-Trib) DR. Ranka Charitable Trust v. DIT (2010) 3 ITR (Trib) 151 (Bang) : 2010 TaxPub(DT) 1550 (Bang-Trib) Montreal Street Railway Company v. Normandin AIR 1917 PC 142

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