The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that where the purpose of the trust is relief to poor, education, or medical relief, the other activities carried on by the Trust in furtherance of its common objective shall not be deemed as a commercial activity for the purpose of granting tax benefits to such entities under the Income Tax Act, 1961.
The Appeal was filed by Acharya Jiyalal Vasant Sangeet Niketan against the order of CIT(A) confirming the action of the Assessing officer of denying the claim of exemption under section 11 made by the appellant, by treating the income from recording studio as business income under section 11(4A) of the Income Tax Act and disallowing expenditure of Rs.5,00,151/- incurred by the appellant towards the “Ajivasan Sounds” from the allowable expenditure on the object of the Trust.
As per facts, the Appellant is a charitable Trust engaged in imparting education in the field of classical music and light music based on the Gurukul Philosophy. “Ajivasan Sounds”, the Studio owned by the Trust is used for the purpose of training students in professional singing, and also the same is made available to various artists for the purpose of recording. The exemption under Sec.11 of the IT Act was denied by the Assessing Officer on the basis of his observation on the continuity, magnitude, quantum, and frequency of letting out the said studio to artists for recording.
Referring to Sec.2(15) of the Income Tax Act, which defines “Charitable Purpose” to include relief to poor, education, medical relief, and advancement of any other object of general public utility, and Circular No. 11 of 2008 dated 19.12.2008 issued by Central Board of Direct Taxes, the Tribunal held that “where the purpose of a trust or institution is the relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.”
The bench further observed that the maintenance of the studio is intrinsic and in pursuance of the objects of the assessee which is education. “It is well understood that teaching of Indian Classical Music is within the field of “education”. The activities of the studio are carried on in order to achieve the main object of the Trust and cannot be construed as a business. As mentioned earlier, since the trust is engaged in education, the proviso to section 2(15) does not apply as clarified by CBDT Circular No. 11 dated 19.12.2008,” the Tribunal observed.
Moreover, the Tribunal observed that the facts of the case are similar to that in the case of Shri Thyaga Brahma Sangeet Sabha wherein the Madras High Court held that a trust deed has to be considered in full to infer the object of the Trust.
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