ITAT Upholds Charitable Trust Exemptions for Education and Medical Relief Trusts

The assessee, Vyakti Vikas Kendra India, a Charitable Trust’s case was selected for scrutiny and during the proceedings, the AO disallowed some exemptions and deductions, holding that the Trust’s activity was commercial.

The first ground was regarding the disallowance of a capital expense of Rs 18,00,38,753. The AO held that the assessee was not eligible to claim the exemption under section 11 and section 12 of the Income Tax Act, saying that the Trust falls under the category of providing education and medical relief and was hit by the second proviso of section 2(15) of the Income Tax Act. The CIT(A) had deleted this addition, holding that the assessee was eligible to claim the deduction under sections 11 and 12 of the Income Tax Act.

The Tribunal referred to the decision of the bench in the assessee’s own case, where it was held that the predominant objective of the company was to give practical and theoretical training in Yoga, which would give medical relief to society. The Tribunal had earlier held that the Trust’s activity qualifies as ‘imparting of education‘ under section 2(15) of the Income Tax Act, and the proviso to section 2(15) was not applicable. Therefore, the ITAT based its earlier decision, upheld the CIT(A)’s order of deleting the addition on account of the disallowance of capital expenditure. The first ground of revenue was rejected.

Ground 2 was related to an addition of Rs 2,11,98,372 against the disallowance of donation expenses. The Tribunal relied on an earlier coordinate bench ruling for previous assessment years, which held that “if the donations have been made from the income of the previous year and not out of the accumulation under section 11(2) then the same be eligible to be considered as application of income as long as the recipients are charitable organizations“. Based on this, the Tribunal confirmed the CIT(A)’s order and dismissed the Revenue’s appeal. It directed the AO to verify the status of recipient trusts receiving donations for eligibility under the Act.

Ground 3 was related to an addition of Rs 24,90,54,752. The AO had held that the assessee was not entitled to a deduction of the corpus fund donation under section 11 of the Act. The Tribunal, based on its earlier ruling, held that the assessee was eligible to claim the deduction under section 11(1)(d). This appeal of Revenue was also rejected by the ITAT.

Ground numbers 4 and 5 were related to an addition of Rs 8,00,00,000 against the accumulation under section 11(2) of the Act and an addition of Rs 18,04,73,193 on the accumulation at 15% under section 11(1)(a) of the Act. Since the Trust’s eligibility for deductions had been confirmed, the tribunal rejected the Revenue’s appeal.

The last ground was related to the exemption under section 10(23)(iiiad) in respect to the receipts of schools run in tribal areas. The assessee had claimed deductions under section 35AC of the Act. The CIT(A) had directed the AO to verify whether the assessee satisfies the condition under section 35AC of the Act and allow the deduction based on this factual verification. The ITAT also upheld this decision of CIT(A) and deleted the revenue’s appeal.