Section 11 of the Income-tax Act, 1961 – Charitable or religious trust

Court :
IN THE ITAT MUMBAI, BENCH ‘I’

Brief :
Section 11 of the Income-tax Act, 1961 – Charitable or religious trust – Exemption of income from property held under – Assessment year 2001- 02 - Assessee-society having several branches in India was registered under sections 12A and 80G – Main object of assessee was promotion of scientific development of marine engineering- Assessee in order to pursue its objects held technical conferences, seminars to educate its members i.e. marine engineers and for this purpose received sponsorship income from companies engaged in marine industries - During previous year assessee held a national conference and an international conference and had shown surplus received as a result of such conferences as its income – Assessee was maintaining separate accounts for said technical meetings which was incidental to objects of trust – For relevant assessment year, assessee claimed exemption under section 11 but same was denied by Assessing Officer – Whether assessee had complied with all conditions of section 11(4A) by maintaining separate books of account in respect of income from technical meetings and seminars which were in furtherance to objectives of assessee trust and, hence, exempt from taxation – Held, yes – Whether since activities carried on by assessee were with a view to serve its members, for which sufficient funds were required and money was collected by way of sponsorship and advertisement in order of promote activities of assessee, assessee was entitled to exemption under section 11 as claimed – Held, yes FACTS The assessee-society, having its head office at Mumbai, was operating through several branches in India and was registered under sections 12A and 80G. It was also registered with the Charity Commissioner and filed regular accounts. The objects of the assessee as per the memorandum and articles of association were as follows: to promote the scientific development of marine engineering in all its branches and in the furtherance of such knowledge, to enable marine engineers to meet and correspond to facilitate the inter change of ideas respecting improvements and improved methods of working machinery and to publish and communicate information on such objects, to uphold the status of members of the institute by prescribing or holding examination for candidates for election or by requiring standards of knowledge and experience which could be approved, and to cooperate with universities, other educational institutions and public educational bodies for the furtherance of education in engineering science. The assessee in order to pursue its objects held technical conferences, seminars to educate its members and for this purpose, received sponsorship income from companies engaged in the marine industries. During the previous year, the assessee held a national conference in Mumbai and an international conference in Chennai and the surplus earned from the two conferences was shown in separate accounts. The assessee also conducted coaching classes, which were in the nature of preparatory course approved by the Director General of Shipping, Ministry of Surface Transport, Government of India. In addition, the assessee also received entrance fees from new members, life membership from new members and also existing members, transfer fee for change from one grade to another grade. Besides entry fees received from the members, the assessee also received voluntary donations from members, various industries and in addition dividend income was received on its investments. For the relevant assessment year, the assessee claimed exemption under section 11. The Assessing Officer held that the assessee could not be allowed the benefit of section 11/12A merely because it provided certain objects, which were of charitable nature. He observed there were certain objects of the assessee which were charitable nature, but the real test to resolve the issue was as to how the assessee was carrying on its activities on day to day basis. The Assessing Officer held that as the assessee was carrying on its activities as that of an ordinary business organization, the assessee was engaged in the business as defined under section 2(13). He also held that the provisions of sub-section (4A) of section 11 were not applicable to the instant case, as the income and expenditure disclosed by the assessee did not have any element of charitable acts, and that the assessee had not functioned in any manner to achieve any charitable objects and the organization of events for raising funds/ surplus could not be treated to be incidental to any charitable objects. The Assessing Officer, therefore, denied the exemption under section 11 to the assessee. On appeal, the Commissioner (Appeals) upheld the impugned order. On second appeal:

Citation :
Institute of Marine Engineers (I) v Assistant Director of Income-tax, Exemption II(1), Mumbai Pramod Kumar, Accountant Member and Sushma Chowla, Judicial Member IT Appeal No. 2522(Mum.) of 2005 [Assessment year 2001-02]