Expenditure incurred towards objectives ancillary to main objective of society shall be considered as exempt u/s 11 of the Income Tax Act, 1961

Facts of the case:

  • The assessee is a society registered u/s12A of the Income Tax Act, 1961 and carries on charitable activities as provided in their Memorandum of Association (MOA).
  • The main aim of the society as per MOA is to undertake overall development of Kurukshetra including renovation of historical places and providing facilities to pilgrims and tourists etc.
  • During the year under consideration the assessee has earned income mainly from Grants given by Government and used such expenditure for providing facilities to pilgrims coming to Kurukshetra. The Assessing officer (AO) disallowed such expenditure on the basis that such activities are not done for any charitable purposes.

Contentions of the Revenue department:

  • According to the AO the activities being carried by the assessee cannot be percolate to any activity having in basic limbs of Section 2(15) of I.T. Act e. Education Medical Relief and Relief to the poor as the activities being carried by the assessee is similar to the real estate business as done by HUDA and PUDA. Therefore, cannot be considered as charitable in nature.
  • Further, the expenses incurred by the assessee like light and sound show security service charges, upgradation of Sh. Krishna Museum, expenditure on celebration of Geeta Jyanti, land compensation etc. are not charitable in nature.
  • Therefore, according to ld. Dept representative the activities of the assessee are not covered u/s 2(15) of the Income Tax Act, 1961 hence addition shall be made in respect of such expenses.

Contention of the Assessee:

  • The assessee contended that there was no profit motive in the activities done by the society such as organizing of light show for the pilgrims the activities are of charitable nature as defined u/s 2(15) of the IT Act, and eligible for exemption u/s 11 of the Act.
  • The Income received by way of grant and any other source has been applied for the purpose of fulfilment of objects as laid down in the object’s clause of Memorandum and/or objects incidental to the main objects of the assessee as per the conditions laid down u/s 11 of the Act
  • Further, the amount of income accumulated or set apart for application to charitable/religious purposes, to the extent it does not exceeds 15% of the Income has been properly invested by the assessee as per guidelines laid down u/s 11(5) of the Act.

Conclusion:

  • According to Hon’ble ITAT, Chandigarh the AO has failed to establish the facts that could prove that the assessee is engaged in the business of real estate not in charity.
  • In reference to expense of light and sound show, it was held that the expenditure was incurred to provide utmost facilities to pilgrims/ tourists coming to Kurukshetra and assessee has not received any income from such show as the main source of income for the assessee is from the grants provided by state and central govt and local authority.
  • The assessee society is exhibiting the philosophy of Gita given by Lord Krishna through a Light & Sound show at the Birth place of Gita at “Jyotisar”. Therefore, such expenses are in the nature of charitable expenditure shall be disallowed u/s 11 of the IT Act.

Source: M/s Kurukshetra Development Board Brahamsarover v. The JCIT (OSD) (Exemptions)

ITA No. 362/CHD/2019 (In favor of assessee)