Rent received by Trust from Shops Purchased out of Surplus Fund is Taxable: ITAT [Read Order]

The rental income received by a Trust from the properties purchased out of the surplus fund is not exempted under the Income Tax Act, 1961, said the Delhi bench of the Income Tax Appellate Tribunal (ITAT).

The assessee, Sanatan Dharam Shiksha Samiti, Narwana is a society having object of directing, supervising and looking after Sanatan Dharam High School, to construct the building of the school, to purchase movable and immovable property for the Samiti and sale it time to time, to collect money for the proper conduct of Samiti and to impart and sustain Indian Cultural values amongst students.

During the relevant year, the CIT(Exemptions) observed that the society purchased the property out of surplus funds and earned rental income from the shops which have been constructed out of these funds. The CIT(Exemptions) also observed that the society has no investment clause, amendment clause, irrevocability clause, utilization clause, or beneficiary clause in the by-laws of the society.

The Tribunal noted that from the perusal of the by-laws of the society, all the clauses are general clauses which do not point out any charitable activity. In fact, from the objectives, the society will purchase and sell the immovable property as per society’s needs.

While upholding the decision of the CIT(E) rejecting registration under section 12A of the act to the assessee, the Tribunal held that “The CIT(Exemptions) rightly observed that the society purchased the property out of surplus funds and earned rental income from the shops which have been constructed out of these funds. Thus, from these observations, it can be seen that the society is having commercial activities.

The CIT(Exemptions) observed that society has no investment clause, amendment clause, irrevocability clause, utilization clause, or beneficiary clause in the by-laws of the society. The Ld. AR could not point out that the society is dealing exclusively in imparting education which is a charitable purpose from the bye-laws. In fact, the main object of the society is to direct, supervise and look after Sanatan Dharam High School, as well as to construct the building of the school, along with purchase movable and immovable property for the Samiti and sale it from time to time.

One of the objects is to collect money for the proper conduct of Samiti and to impart and sustain Indian Cultural values amongst students. All these are not coming under the purview of imparting education among society. The applicant society did not file the audit report prescribed in the balance sheet as per the requirement for filling application u/s 12AA registration. Thus, the Applicant society also failed to submit the proper documents before the CIT(Exemptions). Thus, the CIT (Exemptions) rightly rejected the application of the applicant society u/s 12A of the Income Tax Act, 1961.”