Income tax - Whether once a charitable institution gets registered u/s 12AA, it ipse dixit entitles the assessee to get benefits under Ss 11 or 12 - NO: AP High Court
By TIOL News Service
HYDERABAD, FEB 14, 2014: THE issue before the Bench is - Whether once the charitable institution gets registered u/s 12AA, it ipse dixit entitles the assessee to get the benefit under Section 11 or 12. And the answer is NO.
Facts of the case
The assessee, a charitable institution registered u/s 12AA had invested in immovable property which was found to be not in consonance with the objects of the trust and therefore, the benefits of section 11 and 12 was not granted. The assessee went in appeal before the CIT(A) and then before the Tribunal which remanded the matter to the AO. On remand, the assessee submitted that as per the resolution passed, it had decided that at the end of each year, 75% of its income would be accumulated for the purpose of construction of building and accordingly 75% of the net income was transferred to Building Fund Reserve Account. It was further stated that most of the donations have been collected for the specific purpose of construction of building and the donors have instructed the management to use the funds only for the said purpose. It was also stated that though the funds were accounted for under the head "Donation", legally those came under "Corpus fund" to be used only for building construction. As such the assessee claimed before the AO that donation of Rs. 40,09,000/- should be treated as Corpus fund, not forming part of the income of the trust. However, the AO refused to grant the relief. The AO, on fact, noted that as per the statement of computation of total income, the total income was of Rs. 82,02,415/-, whereas the application was of Rs. 66,32,281/-. Out of the said application, Rs. 3,60,388/- had been applied in building the committee hall, while Rs. 41,61,881/- were applied in building the commercial complex. So it was found by the AO that the application of the aforesaid fund in construction of the building was not at all covered by any of its objects.
The CIT(A) confirmed the order which was further upheld by the Tribunal. The Tribunal also observed that major portion of the income of the assessee has been spent towards construction of a commercial complex which was not in consonance with the object clause of the assessee. It was also observed that even the commercial complex was not used for any of the objects for which the trust was created but had been used to let out to commercial organizations to earn rent. Regarding the donations, the Tribunal observed that from the letter of the donors there was no clear mentioning of any desire for making the said donation towards corpus fund.
Aggrieved, the assessee has filed this appeal before the High Court.
The Counsel of the assessee contended that this building itself was being utilized as a source of income to augment the fund of the trust so much so to fulfill the charitable activities in a broader sense. It was also argued that once exemption is granted, obviously the benefit u/s 11 of the Act has to be applied.
Having heard the parties, the High Court held that,
+ we find that in order to get the benefit under Sections 11 and 12 of the Act, the conditions as mentioned in Section 12(A) of the Act have to be fulfilled, meaning thereby, the trust has to get a registration as required. Section 12AA provides for procedure for registration. We are of the view that granting registration does not ipse dixit entitle the assessee to get the benefit under Section 11 or 12. According to us, registration initially recognizes the charitable activities of the trust. However, in order to get the benefit under Sections 11 and 12, factually it has to be established that income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes. If this factual aspect is not established, the registration does not help otherwise. All the authorities below have found that the application of the fund is not made for charitable activity but for construction of the building, which again does not directly reflect the charitable activities. Even on the record, it does not appear that the assessee had intended to apply the future income, which might be derived from the building so constructed;
+ we think that on the clear fact finding the Tribunal has passed just and correct order and we do not find any reason to interfere with the same, as we do not notice any question of law, which is required to be decided.
(See 2014-TIOL-190-HC-AP-IT)
