ITAT grants Tax Exemption to Charitable Trust engaged in providing Mid-Day Meal to School Students [Read Order]

The Income Tax Appellate Tribunal (ITAT), Jodhpur has recently allowed income tax exemption to a charitable Trust engaging in the activity of providing mid-day meals to school children and held that the assessee trust has spent more than 85% and no amount has been set apart for future years. The surplus generated by the assessee is ploughed back for charitable purposes and to make their kitchen hygienic and automation. The beneficiary of the surplus is not for an individual person but for the trust only.

The Appellant, Manna Trust is a Public Charitable mainly engaged in providing nutritional status and reducing the drop out of students from school by implementing a mid-day meal scheme. The assessee Trust is providing Mid-Day Meal in Government Schools in the State of Andhra Pradesh, Telangana, Odisha, and Madhya Pradesh.

For the year under consideration, the assessee filed its return of income which was selected for complete scrutiny through CASS and assessment under Section 143(3) of the Income Tax Act by accepting the income returned by the assessee after allowing the claim of exemption under Section 11.

Thereafter, show cause notice was issued under Section 263 on the issues identified therein. After giving opportunities the CIT(E) held that the applicability of provisions of section 2(15) along with Its proviso has not been examined during the assessment, rendering the order erroneous insofar as it is prejudicial to the interest of the revenue.

The order is passed by allowing relief due to nonapplication of the said proviso, without inquiring into the veracity of the claim of exemption and is, therefore, erroneous and prejudicial to the interest of revenue in accordance with Explanation 2(b) to Section 263. The assessment order was therefore set aside with a direction to assess the income afresh.

The only grievance of assessee revolves around treating the Mid Day Meal supply to the poor students of the schools as per the program of State Government as a commercial activity.

The tribunal consists of Judicial Member Sandeep Gosain and the Technical Member R.C. Sharma found that the above activity is in the nature of the charitable activity and held that the assessee trust has spent more than 85% and no amount has been set apart for future years. The surplus generated by the assessee is ploughed back for charitable purposes and to make their kitchen hygienic and automation. The beneficiary of the surplus is not for an individual person but for the trust only.

“The surplus in the instant case is less than 15%. Even as per Act, charitable trusts are to apply 85% of the gross receipts in order to enjoy an exemption for the remaining 15%. However, in the instant case, the assessee trust has spent more than 85%. Even in case, the trust is not able to spend 85% of the receipts, then the Act provides an opportunity to set-apart to be spent in subsequent years,” the bench observed.