Trust not Entitled to Exemption since it had not Maintained Books of Accounts in respect of its Incidental Business: Bombay HC [Read Judgment]

The Bombay High Court has recently ruled that trust would not be entitled to get the exemption since it had not maintained books of accounts in respect of its incidental business.

The assessee in the present case is a company registered under Section 12A of the Income Tax Act 1961 as a charitable Trust and it also registered under Section 25 of the Companies Act 1956.

During the assessment period, the Assessing Officer (AO) noticed that the Assessee has received Rs.4,76,80,230 in tune of a trade fair exhibition organized by the Assessee named as IMTEX­92 and the AO also noticed that the Assessee earned a profit of more than Rs.1.72 crores by holding the said Trade Fair Exhibition. Therefore he holds that the activity of the Assessee appeared to be a business activity which is not incidental to the attainment of the objects of the Assessee and the same was escaped from Assessee’s returns and its tax liability also.

In response, the Assessee submitted that association conducts the exhibition almost every alternate year and earned some income as part of such activities but the predominant object of the Association is to carry out a charitable purpose. Further, the Assessee contended that the activity of holding an exhibition cannot be held to be a business activity and also highlighted its registration certificate under section 12A of the Act as a charitable Trust. Therefore the said income cannot be considered as business income and the same is not taxable in the hands of the Association and also claimed the benefit under section 11 of the Act.

However the AO refused to accept the contention of the Assessee and accordingly he added the said income to the returns of the Assessee and the same was brought into tax by holding that the main activity of the assessee during the year has been to hold trade fair and by doing so, and the Assessee has earned handsome profit also.

The division bench comprising of Justice Riyaz I Chagla and Justice M.S.Sanklecha observed that assessee in the present case it has found that the business of holding exhibition¬IMTEX¬92 is incidental to the objective of the Trust to share knowledge amongst its members and the Assessee has not maintained any proper books of accounts regarding the incidental business.

While dismissing the appeal filed by the Assessee the Court further held that benefit of Section 11 of the Act is not available to the Assessee as it had not maintained separate books of accounts in respect of its incidental business as mandated by section 11(4A) of the Act. While concluding the issue the High Court declared that a Trust would not entitle to get the exemption since it had not maintained Books of Accounts in respect of its incidental business.