In a significant ruling, the Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that rental income derived by a charitable trust, if incidental and ancillary to its main objectives, must be allowed as part of its exempt income under Section 11 of the Income Tax Act. The case involved Porwal Yuvak Sangh, a registered trust based in Kota, Rajasthan, engaged in charitable activities. The Revenue had denied exemption under Section 11 to the assessee for the assessment year 2016–17, primarily on the ground that the trust earned rental income from leasing parts of its premises, which it claimed was not utilized for charitable purposes.

The Assessing Officer (AO) concluded that the assessee’s activities were commercial in nature, particularly citing income from marriage hall rent and hostel room rent. Consequently, the AO disallowed the exemption and taxed the income as business receipts. Know How to Prepare Estimation and Viability for Project Reports? Know more Click here However, the trust contended that it was duly registered under Section 12AA of the Income Tax Act, and its primary objectives included the promotion of education, cultural development, and the welfare of the Jain community. It argued that the marriage hall and hostel were part of its charitable infrastructure, and the income from them was merely incidental, used to fund its core charitable objectives.

After examining the trust’s activities, the tribunal bench of Dr. S. Seethalakshmi, Judicial Member And Gagan Goyal, Accountant Member observed that all receipts, including marriage hall and hostel rents, were directly applied to the furtherance of the trust’s objects. Importantly, there was no evidence of diversion of income for personal or non-charitable use. The Tribunal emphasized that incidental income would not disentitle the trust from exemption, provided the funds are utilized for charitable purposes. Ultimately, the ITAT directed the AO to allow the exemption under Section 11 of the Income Tax Act. This ruling reiterates that income generated through incidental means does not automatically negate the charitable status of a trust, especially when such income is ploughed back into furthering its registered objectives. Complete Ready to Use PDFs of 200+ Agreements Click here To Read the full text of the Order CLICK HERE