The Income Tax Appellate Tribunal (ITAT), Chennai Bench held that wealth tax is not applicable on lands held by a trust for charitable purposes.
The bunch of 33 appeals filed by different assessees are directed against the imposition of wealth tax on the lands held by a trust for charitable purposes.
The provisions of section 5(i) of the Wealth Tax Act provides exemptions for certain assets including property held by an assessee under a trust or other legal obligation for any public purpose of a charitable or religious nature in India.
Although the properties were legally owned by the assessee but actually the lands were held under a trust for a charitable purpose, which is evident from the fact that all lands were given on lease for 15 to 99 years and the trust has constructed buildings on the impugned lands with the approval of appropriate authority and further various charitable activities including imparting education was provided on the impugned lands.
It was urged that once lands are held under a trust for the public purpose of charitable or religious nature in India, then such lands are outside the purview of Wealth Tax, as per section 5(i) of the Wealth Tax Act.
In the present case, there is no doubt whatsoever with regard to the fact that the impugned lands are held by trusts for charitable purposes. Although the AO has assigned a reason to deny the exemption that the trust has voluntarily withdrawn exemption claimed under section 11 of the Income Tax Act, fact remains that even if the exemption is denied under section 11 for various reasons including violation of section 13(1)(c) of the Income Tax Act, but tax can be levied only on the portion of income that violates provisions of section 13(1)(c) of the Income Tax Act, but not on whole income.
The ITAT noted that exemption provided under section 5(i) of the Wealth Tax Act, cannot be denied merely for the reason that lands were legally not transferred to the trust. For an assessee to claim an exemption under section 5(i), the only condition that needs to be satisfied is that the said property is used for public charitable or religious purpose in India.
The coram consisting of V. Durga Rao and G. Manjunatha held that the assessee is also entitled to exemption under section 5(i) of the Wealth Tax Act because the lands are held by him under a trust for charitable purpose because said lands were given on lease to a trust and the trust has used the lands for running various educational institutions, which comes under the definition of charitable purpose.
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