The Income Tax Appellate Tribunal (ITAT), Chennai bench held that exemption under Section 11 of the Income tax act, 1961 should not be allowed when receipts from activity of  General Public Utility (GPU) excess of prescribed profit as per section 2(15)of the Income Tax Act.  The assessee Ramsahaimal Sahuwala & Sons Charitable Trust is a  Trust was established in the year 1972 and is registered under Section 12AA of the Income Tax Act, 1961.

The assessee after filing the return of income, survey under Section 133A of the Income Tax  Act, was conducted in the business premise of the assessee During the course of survey, it was noticed that the assessee’s Trust is running Kalyan Mandapam in Chennai & Coimbatore, and charging rent on par with the market rates.It was observed that the major expenses incurred by the assessee pertain to the activity of running of marriage hall only. Consequent to the survey action under Section 133A of the Income Tax Act, assessment had been re-opened under Section 147 of the Act. The AO observed during the assessment process that the assessee’s trust’s goals and the majority of the operations conducted during these assessment years involved the operation of marriage halls.

Furthermore, the Trust is not operating any old age homes or educational institutions in accordance with its goals. Thus, it was concluded by the AO that Running a Kalyan Mandapam and charging fees comparable to those charged by private operators falls under the definition of trade, commerce, or business, which is covered by the last part of the charitable purpose definition (i.e., any other object of General Public Utility, or “GPU”) as defined by under Section 2(15) of the Act. Moreover, as per proviso to Section 2(15) of the Act, the advancement of any other object of GPU shall not be a charitable purpose. Therefore, the AO held that since, the receipts from the activity is in excess of the prescribed limit provided under the proviso, the assessee is not entitled for the benefit of exemption under Section 11 of the Income Tax  Act. Thus, rejected exemption claimed by the assessee and computed the income on commercial principle and taxed excess of income over expenditure. Aggrieved by the order, the assessee filed an appeal  before the CIT(A) dismissed the appeal and upheld the action of AO.

Therefore the assessee filed a second appeal before the tribunal. On behalf of the assessee T. Banusekar, Adv. and  H. Yeshwanth kumar, CA, submitted that as per the  Deed of Trust the object of the Trust is to fund and maintain or aid educational institutions, which comes under the definition of education. Accordingly, the running of Kalyanamandapam is to aid and achieve the main objectives of the Trust like imparting education, relief of the poor and medical relief. The counsel for assessee also submitted that the gross receipt from Kalyan Mandapam is applied for education and medical relief purposes.

Therefore, the objects and activity of the assessee’s Trust comes under the main limb of education and relief of the poor, but not advancement of any other objects of GPU.

P. Sajit Kumar counsel appeared for revenue submitted that assessee  engaged in the activity of a running of Kalyan Mandapam in commercial lines for fees or cess like any other private service provider and thus, the activity of the Trust comes under the last limb of definition of charitable purpose, the advancement of any other object of GPU. Therefore, since, the assessee is a GPU Trust, the proviso to Section 2(15) of the Income Tax Act, comes into operation and as per said proviso, gross receipts from the activity is exceeds the specified sum, the Trust or Institution cannot claim the benefit of exemption under Section 11 of the Income Tax Act.

It was observed by the tribunal that Even though the assessee’s trust has a composite object that might fall under other categories of the charitable purpose definition, the trust has only advanced one other GPU object, as shown by the trust’s activities during these assessment years. Further Except carrying out the object of GPU, the assessee is not carrying out any charitable objects as defined under Section 2(15) of the  Income Tax Act. Therefore  gross-receipts from the activity exceed the prescribed limit, the assessee is not entitled for exemption under Section 11 of the  Income Tax Act. After reviewing the facts and records, the two-member bench of Manjunatha.G, (Accountant member) and  Mahavir Singh (Vice President) held that exemption under Section 11 of the Income tax act, 1961 should not be allowed when receipts from activity of  General Public Utility (GPU) excess of prescribed profit as per section 2(15)of the Income Tax Act.