We had earlier discuss in detail about the concepts of Taxation of Trust along with various case laws earlier in part –I. In case you want to refer, the part –I, please click on the link below:
Over a period of time, there are number of judgements comes from various levels of courts from different locations of India and hence it is very important to know the same for the correct tax treatment for trust.
· Amount spent in Germany could not be considered as application of income of the Trust in India for charitable purposes. Annual subscription fee paid to keep the membership alive cannot be assessable as business income. Refer, DIT v. National Association of Software and Services Companies, 345 ITR 362.
· The assessee is a charitable trust and claimed depreciation on assets. The assessee had also claimed expenses incurred on assets as ‘application of income’ for charitable purposes. The revenue claimed that no depreciation was allowable since the same would amount to granting ‘double deduction’. The Court up held the claim of assessee for allowance of depreciation and held that there was no double deduction ; under normal commercial accounting principles, there is authority to the proposition that depreciation is a necessary charge in computing the net income and ratio of supreme court in Escorts Ltd vs UOI (1993 )199 ITR 43 (SC) is not applicable for the claim of depreciation. Appeal of revenue was dismissed.( ITA no 140 of 2012 dated 29-3-2012. Refer, DIT v. Vishwa Jagriti Mission, Income Tax Review –Sept – P. 83 (Delhi) (High Court).
· Finding that assessee not running hotel itself but only collecting a fixed sum as compensation and hence, Income not to be taxed as business income. Refer, Deputy Director of Income-tax v. Habib Ismail Hospital and Medical Trust (Mumbai), Vol 19 Pg 233.
· Amendment of section 2(15) barring exemption where receipts exceed Rs. 10 lakhs, will not to affect on grant of registration under section 12AA. Refer, Rajasthan Housing Board v. CIT, Vol 19 Pg 524.
· Investment in asset treated as application of income to objects of trust and hence Depreciation on assets allowable. Refer, Assistant CIT v. Shri Adichunchanagiri Shikshana Trust, Vol 19 Pg 828.
· Assessee was a charitable trust and its principal objects included promotion of vegetarianism and distribution of Prasad. The AO finding that assessee was in business of running an eating house/restaurant, took a view that entire character and focus of assessee had become totally commercial. Since the promotion of vegetarianism is undoubtedly a charitable activity, business of preparing vegetarian food items and selling same was very much incidental to object of assessee trust and such business could be conducted by a charitable trust as per provisions of section 11(4). Thus, assessee’s claim for exemption was to be allowed. Refer, ADIT(Exemption) v. Sri Sri Radha Damodar Charitable Trust, 52 SOT 622.
· When Tribunal satisfied about charitable purpose of goshala run by trust in earlier appeal, Commissioner cannot deny registration in remand proceedings. Sri Gomandir Seva Trust v. CIT, Vol 20 Pg 608.
· If the object of the trust is charitable and activities are genuine, registration cannot be denied. Refer, CIT v. Lucknow Educational and Social, 340 ITR 86.
· The object of the business of the assessee was to planning and development of the city including preparation of master plan and zonal development plan which are in the nature of public utility. It was held that assessee would be entitled to registration under Section 12AA of the Act, even if the assessee sells certain property as the said activity is incidental to the object of the assessee. Refer, Jodhpur Development Authority v. CIT, 145 TTJ 221.
· Assessee engaged in educational activities. One of the objects permitted assessee to export computed and other similar activities. The said object was never acted upon by the assessee. The Commissioner rejected the registration. On appeal to Tribunal the Tribunal held that the CIT was not justified in rejecting registration application of the trust only on the ground that the Trust had the object of export of computer, which was not acted upon. The Tribunal referred the Circular No 11/2008 dated 19-12-2008. Refer, Baba Amarnath Educational Society v. CIT, ACE Educational & Charitable society v. CIT, (2012) 69 DTR 307.
· Merely a surplus in one year over gross receipts not ground for rejecting registration. Refer, Make the Future of Country Education Society v. Dy. CIT, 51 SOT 98 (Delhi) (Trib.).
· Once the registration is granted under section 12A by the Commissioner, the AO as subordinate authority cannot cancel the registration. The commissioner can cancel the registration on satisfaction of conditions laid down in Section 12AA(3). Thus, cancellation of registration under section 12A and completion of assessment under AOP by the AO is without jurisdiction. Refer, Dy. DIT v. Kuttukaran Foundation, 51 SOT 175 (Cochin)(Trib.).
· When object of trust was charitable ,no income of the trust was applied for benefit of lineal descendant as both the conditions are satisfied the trust is eligible for registration. [S. 2(15)]. Refer, Manockjee Cowasjee Petit Charities v. DIT, 136 ITD 355(TM ) (Mum) ( Trib.).
· Trust or institution Registration Charitable purposes Education rendered on commercial lines, charity must subserve the essential requirements of the needy and the destitute hence cancellation of registration held to be justified (S. 2(15),11, 80G). Refer, Professional Education & Research Foundation. 51 SOT 351 (Chennai) (Trib).
· There is significant or material change in object clause of MOA by voluntary act of the assessee . The changes to be vetted by revenue authorities before granting the benefit u/s 11 and 13 of the Act. Refer, Board of Control Cricket in India v. ITO, 136 ITD 301 (Mum) (Trib).
· Denial of registration is not valid on the ground that assessee is engaged in the religious activities. Refer, Radhika Seva Sansthan v. CIT, Vol 20 Pg 31.
· Assessee society registered u/s 12AA was functioning from land belonging to wife of secretary of assessee society. It had incurred expenditure on construction of building on said land. It was apparent from records that land was taken on lease for period of 30 years with renewable option and, thus, no benefit was passed to secretary’s wife. Moreover, there was an option that in case assessee did not want extension of lease, it could remove superstructure erected on leased land. Thus, it was held that impugned order passed by Assessing Officer denying exemption was not sustainable. Refer, Addl. CIT v. N.L. Education Society, 52 SOT 603.
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