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2025 Supreme(Online)(ITAT) 6360
INCOME TAX APPELLATE TRIBUNAL (CHANDIGARH BENCH)
Raj Pal Yadav, VP, Krinwant Sahay, AM
K C Social Welfare Trust – Appellant
Versus
Assistant Commissioner – Respondent
Income Tax Appeal/ITA No.1/CHD/2024 | Income Tax Appeal/ITA No.7/CHD/2024
For the Appellants/Petitioners: Shri Rajinder Chopra, C.A
For the Respondents: Shri Rohit Sharma, CIT DR, Shri Vivek Vardhan, JCIT Sr.DR
Surplus funds of a charitable institution cannot be used for non-charitable purposes; minor violations do not negate exemption under the Income Tax Act.
Headnote:(A) Income Tax Act, 1961 - Sections 11, 12, 13(1)
(C), 13(1)(d), and 13(3) - Charitable trust - The issue addressed is whether surplus funds of a charitable institution can be used for non-charitable purposes. The court ruled that if minor violations occur, exemption under Sections 11 and 12 should not be denied. (Paras 9, 10)
(B) Taxation - Surplus funds - The court found that surplus funds must be utilized toward the objectives of the trust; any unauthorized advance to related parties that benefits individuals listed under Section 13(3) must be critically examined. (Paras 8, 9)
Facts of the case:
The appellant is a charitable institution providing education and has historically received exemptions under the Income Tax Act. This assessment year faced scrutiny revealing advance loans and surplus income, leading to contestation on tax. (Para 3)
Findings of Court:
The court concluded that minor violations do not negate the overall charitable status of the institution and identified errors in the lower courts' assessments that did not address the intent behind fund allocation. (Paras 9, 10)
Issues: Whether surplus funds can be used for purposes outside charitable objectives and the validity of notional interest tax assessments due to alleged violations. (Paras 7, 9)
Ratio Decidendi: The court stated that funds held by charitable institutions cannot be treated like business surplus and emphasized adherence to the objectives of the trust while permitting some usage of surplus to enhance charitable goals. (Para 9)
Result: Both appeals are allowed for statistical purposes.
| Table of Content |
|---|
| 1. background of the trust's charitable activities and income reporting. (Para 3 , 4) |
| 2. judicial interpretation on fund utilization in charitable institutions. (Para 6 , 9) |
| 3. essence of the appeals concerning tax treatment of surplus funds. (Para 8) |
ORDER
PER RAJ PAL YADAV, VP
The assessee and Revenue are in cross appeals against the order of the Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 06.11.2023 passed for assessment year 2014-15. The appeal of the Revenue is a major appeal. The grounds of appeal taken by the Revenue read as under :
“1. That the Ld. C1T(A) has erred in law while not considering section 13(1)(C) and 13{l)(d) of the Income Tax Act, 1961 according to which any income of the trust directly or indirectly applied for the benefit of any person referred to in section 13(3) of the Act shall not be excluded from the total income and provision of Section 11 shall not apply to the same.
2. That the Ld.ClT(A) has erred in law in not considering the fact that the assessee is being assessed in the status of AOP for the relevant A.Y. and notional interest was calculated as the assessee trust was in violation of provision of Section 13 (l)(d) r.w.s 11(5).
2. Similarly, if we peruse the grounds of appeal taken by the assessee, it will reveal that the assessee has taken three grounds of appeal but its grievance revolves around a single issue namely; CIT(A) has erred in denying exemption under Section 11 and assessing the assessee in the status of AOP instead of granting benefit of Section 11 and 12. More so, the AO has erred in taxing the surplus of Rs.12,79,427/- which otherwise falls within the ambit of 15% of gross receipts because assessee has applied more than 95% of its gross receipts for charitable objectives.
3. The brief facts of the case are that assessee is a charitable institution imparting educations in the faculties of Engineering, Management and computer applications. It is running K.C. Public School, K.C. College of Engineering & IT, K.C. College of Hotel Management, K.C. Polytechnic College, K.C. School of Education, K.C. School of Management and Computer Application. It has been granted registration under Section 12 A and 10(23) by the CIT(E) on 31.01.2001 as well as 17.03.2010. Thus, assessee is a Trust running educational institutions. It has filed its return of income on 29.11.2014 declaring ‘Nil’ income. In the past, it has been always granted benefit of Section 11 and 12 by the Department. However, this year, the case of the assessee was selected for scrutiny and due notices under Section 143(2) and 142(1) were issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that assessee has shown a sum of Rs.49,97,15,731/- as recoverable from 17 parties. Ld. AO has formed an opinion that this advancement of interest free loan is hit by Section 13 (1)(c), 13(1)(d) read with Section 13 (3). Therefore, he conducted a deeper scrutiny of the accounts. In response to the different queries of the AO in one of the submission letter dated 30.12.2016, it was submitted by the assessee that K.C. Group is based at Nawan Shahr , Punjab and has three business verticals , i.e. (a) Hospitality (Hotels), (b) Education (Schools and colleges) and (c) Real Estate (Residential and commercial Projects).
4. It is a closely held group. The entire Group is owned and managed by members of one family namely, Shri Prem Pal Gandhi, Shri Hitesh Gandhi (son of Shri Prem Pal Gandhi) and Smt. Kamal Gandhi, wife of Shri Prem Pal Gandhi. Whatever funds have been raised, both are either through capital contribution or by way of funding from financial institution. There is no mis-management of funds of the Trust. The Trust has been allowed benefit of Section 11 , 12 and 10(23)(c). It is registered under Section 12 A also. In the past, its objects have been accepted by the Revenue. However, ld. AO did not accept the complete contentions of the assessee. He ultimately worked out
