Tuesday, July 26, 2016

Trust letting out its auditorium for marriage functions wasn't entitled to sec. 11 relief

Facts:
a) The assessee-trust was formed with the main objective of alleviating human suffering, eradication of illiteracy, poverty and imparting of sound education with opportunities for research. It was running an Auditorium in the name of community hall which was given on rent for different commercial activities like marriage functions, exhibition, etc.
b) The assessee claimed that the income earned from auditorium was not a business income and should be exempted under section 11 because the same income was used for the charitable purpose of the trust.
c) The AO denied such claim of exemption under section 11. The CIT(Appeals) confirmed the additions made by the AO. Aggrieved-assessee filed the instant appeal. 
The ITAT held as under:


1) 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 it to exemption under section 11(4) unless the business is incidental to the attainment of the objects of the trust.
2) There was no connection between the activities relating to running of the auditorium hall and the attainment of the objects of the trust. The mere fact that whole or some part of the income from running of auditorium hall is used for charitable purposes would not render the business itself being considered as incidental to the attainment of the objects.

3) 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.
4) In the instant case, there was no nexus between the activities carried on and the objects of the assessee that could constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, 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. Therefore, the assessee would not be entitled to any exemption under section 11. - SUGUNA CHARITABLE TRUST V. ITO [2016] 71 taxmann.com 238 (Chennai - Trib.)
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