Application of Income from Surplus Funds for maintenance of Commercial Property for Charitable Purpose, liable to Exemption u/s 11: ITAT

surplus funds - commercial property - ITAT - taxscan

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

The assessee is a public charitable trust registered u/s. 12A of the Income Tax Act. The assessee derives income from Bank deposits and rents income. The assessee filed a return of income declaring a total income of Rs. Nil. Under scrutiny, the AO issued notices u/s. 143(2) and 142(1) of the Act. 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 the AO denied exemption u/s. 11 and determined the total income of the assessee at Rs.13,57,70,750/- by recording reasons from paras 8 to 12 on page 12 of its order passed u/s. 143(3) of the Act. The CIT(A) following its own order for A.Y. 2011-12 allowed the exemption u/s. 11 of the Act. Aggrieved the revenue is in appeal before the Tribunal.

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

A Coram consisting of Inturi Rama Rao, Accountant Member, and S SViswanethra Ravi, Judicial Member took into consideration the decision of the Kerala High Court in St. George Forana Church reported in 170 ITR 62 wherein it was held that where surplus funds were utilized for additions to a building, which was let out and the income thereof applied for charitable or religious purposes, the utilization of such surplus was held to amount to the application 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 the assessee is entitled to claim exemption u/s. 11 of the Act. Thus, we agree with the reasons recorded by the CIT(A) and it is justified” the Tribunal added.

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Shri Mukund Bhavan Trust vs Dy. Commissioner of Income Tax

Counsel for Appellant:   Shri V.L. Jain

Counsel for Respondent:   Shri Sardar Singh Meena


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