Trust can’t use remaining income in any manner if it had spent 85% of receipts for charitable purposes: ITAT

Case Details: Indian Golf Union v. ITO (Exemption) - [2022] 141 taxmann.com 187 (Delhi-Trib.)

Judiciary and Counsel Details

• • Shamim Yahya, Accountant Member & Anubhav Sharma, Judicial Member
  • Tufail Tahir, Sr. DR for the Respondent.

Facts of the Case

Assessee was registered under section 12A. It was engaged in organizing golf tournaments in India and abroad for the promotion of the game of golf in India. On perusal of the Income and expenditure account of the assessee, the Assessing Officer (AO) observed that the assessee had invested in Mahindra and Mahindra Finance.

In response to a query in this regard, assessee submitted that section 11(5) comes into effect where 85% of income is not spent for charitable or religious purposes. It was also submitted that since more than 85% of income had been spent for charitable purposes, provisions of section 11(5) were not applicable.

AO rejected the assessee’s contention and in view of the provisions of section 13(l)(d), he denied exemption under section 11. CIT(A) upheld the order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the controversy revolved around the interpretation of the proviso of section 13(1)(d) read with respect to 11(5). The case of the assessee was that it had complied with the mandate of section 11(1) by spending more than 85% of the receipts for charitable purposes. Thus, despite the deposits otherwise, then modes specified under section 11(5) or valid investments, the assessee will continue to get the benefit under section 11.

Giving thoughtful consideration to the provisions, it was held that the belief of the assessee was erroneous that having spent 85% of the receipts for charitable purposes, the remaining could have been used in any manner whatsoever beyond the scope of section 11(5).

Section 11(5) provides for investing or depositing money referred to in clause (b) of sub-section 2 of section 11, in the identified investments falling in clause (i) to (xii) of section 11(5). The money referred to in clause (b) of section 11(2) is one accumulated or set apart. Meaning thereby that even if 85% of the income is applied to charitable or religious purposes then to claim exemption on the whole of the income, the accumulated or set apart income has to be deposited or invested in the investments identified in section 11(5).

List of Cases Reviewed

• • Navajbhai Ratan Tata Trust v. Addl. DIT (Exemption) [2022] 140 taxmann.com 157 (Mum. – Trib.) (para 10) followed.

List of Cases Referred to

• • Navajbhai Ratan Tata Trust v. Addl. DIT (Exemption) [2022] 140 taxmann.com 157 (Mum. – Trib.) (para 10).