[Opinion] Trusts Can Buy Ornaments for Idols, As It Is Not ‘Invalid” Investment

Meenakshi Subramaniam – [2023] 157 taxmann.com 308 (Article)

Once, a king ordered an honest artisan to make gold ornaments for the temple idols. The crafty minister, however, kept the gold and turned away the artisan, every day. The king asked artisan whether gold had been collected. The artisan replied:

“O king, your minister is very pious and has said that in an open court under the king’s supervision, he would give his own gold too, alongwith the gold for idols.”

The minister collapsed.

In the same way, charitable trusts doing religious service should not be harassed for simple act of buying gold and making ornaments for temple deities. Thankfully, in a scintillating decision, the Ahmedabad Tribunal has ruled that gold ornaments made by a charitable religious trust for idols are not invalid investment under income tax law.
[2023] 156 taxmann.com 342 (Ahmedabad Tribunal)

ACIT (Exemptions)
v
Mahudi Madhupuri Jain Shwetamber Murtipujak Trust

The brief facts of the case are that the assessee is a Trust which has been granted approval under section 12A of the Act since 14.02.1975. For the year under consideration, the assessee filed it’s return of income on declaring total income at Rs. Nil, which was arrived at after offering gross total income of Rs.27,29,67,560/- and applying the income of Rs. 11,54,77,014/- for the purposes specified under Section 11, setting apart the income of Rs. 3,28,65,435/- (12.04% of gross total income) and an amount of Rs. 12,50,00,000/- being the amount accumulated or set apart for the specified purpose as per section 11(2) of the Act.

During the course of assessment, the Assessing Officer observed that from balance sheet that the assessee has made an investment of Rs. 1,04,05,558/-in gold which is not an investment in the modes prescribed in Section 11(5) of the Act. The assessee submitted that the trust has made all its investments as per provisions of Section 11(5) of Act and sum is pertaining to the purchase of gold and silver only for the purpose of making ornaments. The amount is not an investment and the entire investments of the trust are in nationalized banks as per provisions of Section 11(5) of Act. However, the Assessing

Officer dismissed the contentions of the assessee :

” With respect to the investment in gold, as per the reply of the Assessee the gold purchased during the year was for making ornaments. However, it can be seen that if the ornaments are made out of the gold and silver in hand , in the financial year 2015-16 as on 31/3/2015 it should have been received , but the same is not done. As per the Balance Sheet for AY 2015-16, the investments in gold and silver is shown at Rs. 15,02,86,117/- as on 31/3/2015. If the total purchases during the financial year 2015-16 relevant to AY 2016-17 for Rs. 1,04,05,558/- is added to the previous financial year 2014-15 balance of Rs. 15,02,86,117/-, the total comes to Rs, 16,06,91,675/- as on 31/3/2016. Thus, it clearly shows that no gold and silver investments are being utilized for making ornaments out of the gold and silver in hand as reflected in balance sheet and the gold and silver purchases during the year are being added to the earlier balances of gold and silver. The Gold has been in possession of the trust for the whole year, which clearly highlights that the nature of purchase of gold was for investment. Our contention is duly supported by the Judgment of Chennai Tribunal in the case of Dy CIT (Exemptions) v. Vekkaliamman Educational and Charitable Trust [2014] 52-taxmann.com 139. In the judgment Hon’ble Court has clearly held that “purchasing of gold by the trust on plea of distribution of Gold Medals to be given to Meritorious students was an investment in Gold bullion in violation of section 11(5) of the Income Tax Act, 1961”.

Thus, in light of the above mentioned decision Assessee’s contention is rejected. The Assessee has clearly violated provisions of Section 11(5) of the Income tax Act and thus loses the right to claim exemption u/s 11 of the Act in view of Section 13(1)(d) of the 1961 . The exemption claimed by the Assessee u/s. 11 is hereby disallowed u/s 13(1)(d) of Income tax Act.” Therefore, the Trust is treated as AOP and its whole exemption is hereby disallowed/denied.

The assessee is involved in the charitable activities as well as religious activities.

Thus, the amount of Rs. 3,28,65,435/- claimed as accumulated or set apart u/s. 11 is added to the income of assessee and also the amount of Rs. 12,50,00,000/- claimed as amount accumulated or set apart for specified purposes as per Section 11(2) is disallowed.

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