Application of income from surplus funds for the maintenance of commercial property for charitable purposes, subject to exemption u/s 11: ITAT


The Income Tax Appeal Tribunal (ITAT), Pune Bench, has ruled that the application of income from surplus funds on additions to a building for charitable purposes was exempt under the Section 11 of the Income Tax Act 1961.

The assessee is a public charitable trust registered in the United States. 12A of the Income Tax Act. The assessee derives income from bank deposits and rental income. The assessee has filed a tax return declaring a total income of Rs. Nil. Under control, the AO issued notices u / s. 143(2) and 142(1) of the Act. In response to said notices, the authorized representative on behalf of the assessee appeared before the AO and provided various details as requested.

Considering the same, the AO refused the u/s exemption. 11 and determined the total income of the assessed person at Rs.13,57,70,750/- by recording the reasons in paragraphs 8 to 12 on page 12 of his order passed u/s. 143(3) of the Act. The CIT(A) following its own order for AY 2011-12 authorized the u/s exemption. 11 of the Act. The aggrieved revenue is appealed to the Tribunal.

The question raised by the tax authorities is to challenge the action of CIT(A) by authorizing the u/s exemption. 11 of the Act without appreciating the expenses relating to the objects of the trust are negligible in relation to the expenses incurred in maintaining the commercial property.

A Coram consisting of Accounting Member Inturi Rama Rao and Judicial Member HH Viswanethra Ravi considered the decision of the Kerala High Court at St. George Forana Church reported in 170 ITR 62 in which he was tried that where surplus funds were used for additions to a leased property and the income of which is appropriated for charitable or charitable purposes, the use of such surplus shall be considered equivalent to the allocation of the income for charitable purposes or charitable.

“The CIT(A) considered the matter in detail from page 11 of the contested order and concluded that the assessee was entitled to seek an exemption. 11 of the Act. Thus, we agree with the reasons recorded by the CIT(A) and this is justified”, added the Court.

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Shri Mukund Bhavan Trust vs. Dy. income tax commissioner

Counsel for the Appellant: Shri VL Jain

Counsel for the Respondent: Shri Sardar Singh Meena



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