Activity of Letting Out of Marriage Hall by Trust would not constitute ‘Commercial Activity’: ITAT Allows Exemption [Read Order]

The Hyderabad bench of Income Tax Appellate Tribunal (ITAT), while allowing tax exemption under section 11 of the Income Tax Act to Kalinga Cultural Trust, held that the activity of letting out of marriage hall by the assessee-trust would not constitute commercial activity for the purpose of denying tax relief to them.

The assessee in the instant case is a trust engaged in charitable activities registered under section 12A of the Income Tax Act with certain amendments regarding the aims and objectives. During the assessment year the assessee filed its return of income declared as nil after claiming the exemption u/s 11 of the Act.

AO observed that by this amendment the original character of the trust under gone a distinct change, therefor it is required a fresh registration u/s 12AA. But the assessee did not apply for a fresh registration, hence in the view of the AO the assessee does not entitled for the benefit of section 11 of the act.

The AO further noted that the assessee was maintaining a function hall which was let out on rent for various activities such as marriage functions, cultural functions etc. and earned income from the property. According to him, the activities of the assessee is termed as business or commerce in nature as per section 2(15) of the act and if the assessee has received more than Rs 10 lakhs then the activities of the assessee cannot be considered as charitable activities. Hence the assessee does not entitle any benefit of section 11 of the act. He also found that the assessee had failed to make TDS on total security charges of Rs. 20,29,067/- and he disallowed the same for violation of section40(a)(ia) of the Act.

The bench consist of Vice President D.Manmohan and Accountant Member S.Rifaur Rahman has observed that section 2(15) will not be apply to every trust or institution irrespective of the fact whether the object of the trust is charitable purpose or earning profit. In this case the assessee was registered as a charitable trust and there is no changes were made in the objects or aims throughout the years hence the provisions of section 2(15) cannot be applied to assessee to deny exemption u/s 11 of the act. Trusts and institutions whose main object is charity but in process of achieving the main object they undertake some income generating activity which is ancillary and incidental to the main object and the income generated from such activity is utilized for achieving the main charitable object. Hence, the bench said that the same cannot be treated as a commercial or business activity.