SHRI SHYAM PANCHAYTI VISHRAM BHAWAN,SIKAR V. CIT(EXEMPTION), JAIPUR

ITA 679/JPR/2024

AI Insights

The case involves Shri Shyam Panchayti Vishram Bhawan, a trust running a Dharamshala, which appealed against the decision of the CIT(Exemption), Jaipur, denying them registration under Section 12AB of the Income Tax Act, 1961. The CIT(Exemption) had rejected the application on grounds that the trust's activities were commercial in nature and it did not maintain separate books of account as required under Section 11(4A) of the Act. The Tribunal considered the long-standing charitable activities of the trust since 1962 and the nominal fees charged for accommodation, which are used for the maintenance of the Dharamshala, arguing that these do not amount to commercial activities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 469939 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Other Referred Cases: Assistant Commissioner of Income Tax (Appellant) vs. M/s. Shri Panchyati Dharamshala (Respondent), Raghunath Das v CIT, CIT v Paramnand Ashram Trust, CIT v Ganesbram Laxminarayan Goel, Addl. CIT v. Surat Art Silk Cloth Mfrs. Asson.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P.P. MEENA; TH. VH
• Assessee Lawyers: PHRU BHANSAL
• Keywords: Business income; Principle of natural justice; Charitable institution
• Section: 11; 73; 12; 2

Judgement Text

"vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan, Khatu Shyam, Tehsil Data Ram Gardh, Khatu Shyam Ji Sikar. cuke Vs. The CIT(Exemption), Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAOTS3924K vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assesseeby : Shri Phru Bhansal, Adv. jktLo dh vksj ls@Revenue by: Shri P.P. Meena, CIT (Th. VH) lquokbZ dh rkjh[k@Date of Hearing :03/02/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 24/03/2025 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. The present appeal is filed by the assessee challenge the order passed by the Learned Commissioner of Income Tax (Exemption), Jaipur [herein after referred to as “CIT(E)”] dated 19.03.2024 thereby rejecting the registration under section 12AB of the Income Tax Act, 1961(in short “Act”). 2. The assesseehas raised the following grounds of appeal:- “1. In the facts and circumstances of the case and in law, ld. CIT(E) has erred in not granting registration to the assessee trust under Section 12AB 2 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan of Income Tax Act, 1961. The action of the ld. CIT(E) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by directing Id. CIT(E) to grant registration, to the assessee trust, under Section 12AB of Income Tax Act, 1961. 2. In the facts and circumstances of the case and in law, Id. CIT(E) has erred in passing the order rejecting the application filed by the assessee trust for registration under Section 12AB, by not appropriately considering the submissions filed by the assessee trust, during the course of proceedings before the Id. CIT(E). The action of the Id. CIT(E) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by directing Id. CIT(E) to grant registration, to the assessee trust, under Section 12AB of Income Tax Act, 1961. 3. The assessee trust craves its rights to add, amend or alter any of the grounds on or before the hearing.” 3. Brief facts of the case are that the assesseefiled online application in Form No. 10AB seeking registration u/s 12AB of the Income Tax Act, 1961 was filed on 30.09.2023. A letter/notice dated 29.01.2024 was issued at the e-mail/address provided in the application requiring the assesseeto submit certain documents/explanations by 09.02.2024, in response assesseefiled adjournment request for 15 days. Further next date was fix for 16.02.2024 vide dated 10.02.2024. In response assesseefiled part reply on 21.02.2024. Reply along with its annexure examined and found some discrepancies. The assesseewas given show cause vide dated 03.03.2024 fixing the case for 11.03.2024. But assesseenot filed any reply in response 3 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan to the show cause letter. Since it is a time barring matter therefore case is being decided on material available on record. While dealing with the application for registration the ld. CIT(E) has passed the order by observing as under:-  Commercial activities.  Non maintenance of separate books of account. 4. Feeling dissatisfied from the order of the ld. CIT(E), the assessee has preferred an appeal before us. To support the grounds so raised the ld. AR of the assessee has placed reliance on the written submission which is extracted herein below:- “1.1. Assessee is a trust engaged in the charitable activity of running a Dharamshala. The Dharamshala was established in 1962 by the Assessee to provide shelter to all the pilgrims visiting Khatu Shyam ji Mandir in Khatu, Sikar, Rajasthan. The Dharamshala has 275 rooms and the Assessee charges a nominal fee (\"Fee\") of Rs.500/- only per room to the pilgrims. Further, the Asseessee allows four individuals per room on payment of Fee, which means that the effective charge for a room per person is a meagre Rs 125/- only. It is pertinent to note that the Fee charged by the Assessee includes provision of all necessary amenities to the guests le., pilgrims. These charges are ultimately utilized for maintenance of Dharamshala premises and thus, essentially accounts for reimbursement of expense/cost incurred by the Assessse for provision of services at the Dharamshala. In this regard, please find enclosed the balance sheets for Financial Year (\"FY\") 2020-21, FY 2021-22, and FY 2022-23 is attached as Annexure-1. 1.2. In order to avail the exemption extended to charitable trust under Section 11 and Section 12 of the Income Tax Act, 1961 (\"the Act'), the Assessee filed Form No 10AB to gain registration under Section 12AB of the Act on 30 September 2023 However, a rejection order (\"Impugned Order\") dated 19 March 2024 was passed by the Learned 4 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan CIT (Exemption) [\" the Ld. CIT(E)\") denying the Assessee registration under Section 12AB of the Act. GROUNDS OF APPEAL GROUND NO. 1: The Ld. CIT(E) erred in concluding that the activities undertaken by the Asseessee qualify as commercial activities for the purposes of the Act. 2. CIT(E) The Ld. CIT(E) sought recourse to proviso to Section 2(15) of the Act to deny Assessee registration under Section 12AB of the Act. The Ld. CIT(E) based his opinion on the Income and Expenditure accounts (\"I&E Accounts\") submitted by the Assessee during the registration proceedings. In this regard, it is stated that the Ld. CIT(E) construed that rent charged by the Assessee for staying at Dharamshala is not nominal and hence., the rental receipts reflected in the I&E Accounts are in the nature of business receipts/trade receipts. The Ld. CIT(E) concluded that the activities performed by the Assessee fall within the scope of the phrase \"nature of trade, commerce or business\" mentioned under proviso to Section 2(15) of the Act. After establishing that the rental receipts are drawn from activities in the \"nature of trade, commerce or business,\" the Ld. CIT(E) ruled that the Assessee also contravenes the conditions mentioned under sub-section (a) and (b) of the proviso of Section 2(15) of the Act. This is so because the activities undertaken by the Assessee are not incidental to a charitable purpose, but constitutes as the sole activity of the Assessee, and the receipts from such activities exceed the 20% threshold prescribed in proviso to Section 2(15) of the Act. 3. SUBMISSION Charitable purpose under Section 2(15) of the Act 3.1. The Act specifically provides exemption to the income of charitable trusts or institutions under Section 11 and Section 12 of the Act, if such income is applied for charitable purpose, and if such institution is registered under Section 12AB of the Act. In regard to this, it is stated that the phrase \"charitable purpose\" is defined in Section 2(15) of the Act, and is reproduced below for your perusal: \"charitable purpose\" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- 5 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility, and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.\" 3.2. From the aforementioned section, it is observed that the definition of the term \"charitable purpose\" encompasses wide variety of altruistic activities ranging from relief of the poor to general public utility. It can be inferred that the section does not prescribe an exhaustive list of activities that are covered within the purview of the section. This intent is discerned from the usage of the term \"advancement of any other object of general public utility.\" The interpretation of the term is a question of fact, which requires the court to undertake a case-to-case analysis of the activities involved in the concerned case. 3.3. In regard to this it is imperative to highlight that there is a proviso inserted in Section 2(15) in related to \"advancement of any other object of general public utility.\" The proviso to Section 2(15) of the Act only operationalizes upon the fulfilment of the condition that the nature of the activity performed by a concerned trust or institution has to be in the \"nature of trade, commerce or business.\" If the activity performed is not the nature of \"trade, commerce or business\" then the proviso will be inapplicable in the concerned situation. Albeit, if the activity is covered by the scope of \"trade, commerce or business,\" then the following conditions are taken into consideration: a) The business activity undertaken by the charitable purpose is to be incidental to the activity performed for advancement of any other object of general public utility/charitable activity, and b) The receipts from business activity should not exceed 20% of the total receipts of the charitable trust. 3.4. The Finance Act, 2015 amended and inserted the aforementioned sub-sections (a) and (b) in the proviso to extend relief to the taxpayer by not imposing a blanket prohibition on activities which are in the \"nature of trade, commerce or business\". Further, the sub-sections also ensured that organizations will not misuse the provision by undertaking business activity in the garb of charity. In regard these conditions, it is rational to infer that the essential question triggering the applicability of proviso to Section 2(15) concerns to what exactly constitutes as a \"business\" or business activity. A reference can be drawn to the Hon'ble Delhi High Court judgment in 133 ITR 470 wherein the Hon'ble court undertook an exercise to interpret the term \"business.\" In this regard, the Hon'ble High Court stated for any activity to be defined as \"business\", profit motive is an important factor. The profit motive may not be the sole criteria for an activity to be defined as a business, but nevertheless is an important criterion, 6 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan particularly when it is the case of a trust or society and it is with reference to a fiscal statute. 3.5. With respect to this interpretation, it is submitted that in the present situation the activities performed by the Assessee are devoid of profit motive as the excess income over expenditure cannot be distributed amongst the members of Assessee either in the course of the Assessee's activity or in the event of Assessee's dissolution. Further, the trust deed executed for the establishment of the Assessee expressly states that all the savings of income and expenditure account shall be utilized for the developmental work of the trust. In this regard, please refer to the relevant excerpt of the trust deed: चल सɼिȅ- इस ŵी ʴाम पंचायती िवŵाम भवन खाटू ʴाम जी, तहसील दाता रामगढ़ िजला, सीकर, राज̾थान मŐ İ̾थत है िजसका इȽाज पूवŊ मŐ दजŊ इȾाजअनुसार ही है। 10. अचल सɼित वतŊमान मŐ ŮɊासअचल सɼिȅ का इȾाज पूवŊ मŐ दजŊ हैअनुसार ही है। 3.6. Further, it is submitted that reference may also be drawn to multiple judgments across jurisdiction wherein the courts have ruled that the activities performed or rent charged by Dharamshala do not constitute as activities in the \"nature of trade, commerce or business. In this regard, please refer some of the judgments stated below: i. The Ld. Income Tax Appellate Tribunal, Jaipur in Assistant. Commissioner of Income Tax (Appellant) vs. M/s. Shri Panchyati Dharamshala (Respondent) (ITA Nos. 809/JP/2013) stated that the activity of charging rent from customers of Dharamshala do not constitute as business activity under Section 2(15) of the Act. ii. The Hon'ble Rajasthan High Court in Raghunath Das v CIT [1986] 24 Taxman 379 (Rajasthan) wherein the dominant objective of the Assessee was to run a Dharamshala, and the income derived from such activity was to applied to further the assessee's object namely, upkeep, maintenance, etc., of the Dharamshala. It was held by the Hon'ble Rajasthan High Court that the sole purpose of the Assessee to run dharamshala comes within the purview of the object of general public utility, and hence, the Assessee is entitled to exemption u/s Section 11 of the Act read along with Section 2(15) of the Act. iii. A similar view is taken by Hon'ble Rajasthan High Court in CIT v Paramnand Ashram Trust [1994] 73 TAXMAN 143 (RAJ) wherein it was held as under: \"...According to the main objects, the maintenance of the existing Dharamshalas, help to Agarwal and other widows and children, feeding of mendicants and construction of new Dharamshalas and schools, and help to the destitutes cannot be said to be restricted in respect of a particular individual or group of individuals. The use of 7 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan expression 'object of general public utility can be interpreted to cover such trust where the intention is to give the benefit to sizable number of public in contrast to an individual or group of individuals. The expenses in constructing the new Dharamshalas were considered to be for advancement of the charitable object of the trust which were held to be exempt under section 11 in the case of Satya Vijay Patel Hindu Dharamshala Trust v. CIT [1972] 86 ITR 683 (Guj.) and this Court in Ragunath Das Parihar Dharmshala v. CIT (1986) 158 ITR 432 has held that the sole purpose of the trust was to run a Dharamshala which is an object of general public utility and so when this was the sole object, the income derived therefrom in the shape of rent of Dharamshala is exempt under section 11, read with section 2(15) of the Act. Similarly, the other objects of help to Agarwals, widows and children, feeding of mendicants and help to destitutes are of general public utility and the Tribunal has rightly come to the conclusion that the assessee is a public charitable and religious trust and its income is entitled to be exempt under section 11.\" iv. The factual matrix of the present case is similar to the decision of Hon'ble Madhya Pradesh High Court in CIT v Ganesbram Laxminarayan Goel [1983] 14 Taxman 1 (MP wherein the Assessee was a charitable trust established for the purpose of erecting Dharamshala for the use and residence of travelling public. Further, the Assessee in this case also let out certain shops of the Dharamshala to achieve the purpose. The rental income derived from both these activities was to be applied towards maintenance of Dharamshala. It was held in this case that the nature and objects of the trust are covered within the scope general public utility and is, therefore, a charitable trust within the meaning of Section 2(15) of the Act. 3.7 In light of this, it is submitted that the aforementioned precedents are squarely applicable to the present situation as the Assessee is charging nominal rent ie., Rs. 125/-only per person from the customers staying at the Dharamshala. It is pertinent to consider that the Ld. CT(E) disregarded the services as well as rent charges, and erroneously applied conditions prescribed under proviso to Section 2(15) of the Act. Thus, the Impugned Order passed by the CIT(E) is unjustifiable, arbitrary and against the provisions of the Act, and the activity performed by the Assessee qualifies for charitable activity under Section 2(15) of the Act. Dominant purpose of the Assessee 3.8. In addition to the above mentioned arguments, the CIT(E) also failed to take into consideration the dominant purpose of Assessee. The Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Asson. [1980] 121 ITR 1) held that in the case of trust or institution focus should be placed upon primary or dominant purpose of the trust. If the dominant purpose is charitable, another object which by itself may not be charitable, would not prevent the trust or institution from being a valid charity. In light of this, it is submitted that the CIT(E) ignored the dominant purpose in the 8 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan present case i.e., providing shelter to all the pilgrims visiting Khatu Shyam ji Mandir, and erroneously rejected the registration application of the Assessee. GROUND NO. 2: The Ld. CIT(E) erred in applying Section 11(4A) of the Act.. 4. CIT(E) The CIT(E) post satisfying the applicability of proviso to Section 2(15) of the Act pressed on violation of mandatory conditions provided under Section 11(4A) of the Act as the Assessee did not maintain a separate books of accounts for Dharamshala. 5. SUBMISSION 5.1. Under the Act. Section 11(4A) is applicable only after fulfilment of conditions mentioned in proviso to Section 2(15) of the Act. In this regard, Section 11(4A) states that a charitable trust or institution, who is generating profits from activities that are incidental to the charitable purpose, are required to maintain separate books of accounts. In the present case, as stated above that since proviso to Section 2(15) is in inapplicable, the question of applicability of Section 11(4A) of the Act becomes redundant. GROUND NO. 3: The actions of the CIT(E) violate the principles of natural justice. 6. CIT(E) The CIT(E) passed an ex-part order win the absence of Assessee. 7.1. It is submitted that the Assesssee has been devoid of an opportunity of presenting their case or opinion which is clear violation of principles of natural justice. In view of the above, it is humbly prayed that the Impugned Order of the Ld.CIT(E) deserves to be rejected and quashed, and Assessee should be allowed registration under Section 12AB of the Act.” 4.1 The ld. AR of the assessee also filed a detailed paper books in support of the contentions so raised. The index of the document submitted by the ld. AR of the assessee reads as under:- S. No. Particulars 1. Written submission 2. Copy of Form 36 3. Copy of provisional registration granted to the assessee dated 27 May, 2021. 4. Copy of Form 10AB dated 30 September 2023 filed by the assessee under section 12AB of the Income Tax Act, 1961. 9 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan 5. Copy of order passed by CIT dated 19 March, 2024. 6. Annexure-1: Balance sheet for financial year 2020-12, FY 2021-22, and FY 2022-23. 7. Delhi High Court judgment in 133 ITR 470 8. Assistant Commissioner of Income Tax (Appellant vs. M/s Shri Panchyati Dharmshala (respondent ) (ITA Nos. 809/JP/2013, Income Tax Appellate Tribunal, Jaipur. 9. Raghunath Das v CIT (1986) 24 Taxman 379, Rajasthan High Court. 10. CIT v Paramnand Ashram Trust (1994) 73 Taxman 143, Rajasthan high Court. 11. CIT v Ganesbram Laxminarayan Goel (1983) 14 taxman, 1, Mqadhya Pradesh High Court. 12. Addl. CIT v. Surat Art Silk Cloth Mfrs. Asson. (1980) 121 ITR 1), Supreme Court. 5. During the course of hearing, the ld. AR for the assessee submitted that the assessee is not doing any commercial activities and so there is no requirement to maintain separate set of books of account, the assessee is running Dharmshala having 275 rooms for the benefit of general public without any difference of cast and creed and the assessee is enjoying the benefit of the charitable trust benefit since long. The surplus is not out of any business activities and is not covered as per provisions of section 2(15) of the Act. This fact has not been correctly appreciated and therefore, he prayed to grant one more opportunity to advance their arguments/submissions before the Ld. CIT(E). 6. Per contra, the ld. DR relied on the orders of the ld. CIT(E) and submitted that various opportunities were granted but the assessee has not filed details in time. 10 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan 7. We have heard the rival contentions and perused material available on record. The Bench noted that the application of the assessee was rejected on the pretext non maintaining separate set of books of account and alleging that the assessee is engaged in commercial activities. As per the submissions of the ld. AR of the assessee, their activities are not coming under the provisions of section 2(15) of the Act and therefore, the assessee is not doing any commercial activities. As argued by the ld. AR of the assessee that the assessee-applicant trust running since 1962 and enjoining the benefit of charitable trust. Considering that fact that the assessee runs Dharmshala for the benefit of general public and even, Hon’ble Apex Court in the case of Ahmedabad Urban Development Authority in Civil Appeal No. 21762 of 2017 dated 19.10.2022 has held that even if the margin are not substantially higher then the benefit of trust cannot be denied to the assessee. As is evident from the record that the trust runs Dharmshala since 1962 and that activities cannot be compared as commercial activities. Considering all the aspect of the matter the Bench feels that the assessee should represent the case and contested the written submission placed before the Ld. CIT(E). Considering the fact that running of dharmshala cannot be termed as charitable activities and thereby the assessee cannot be denied registration merely on that count and since the 11 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan assessee has prayed before us that they may given one more chance to contest the issue raised before the Ld. CIT(E) and its merit and therefore, considering that of aspect of the matter, the assessee should be given one more chance to contest the case before the ld. CIT(E) and the assessee is directed to produce all the relevant papers concerning the application so filed before the ld. CIT(E) to settle the dispute raised hereinabove. 8. Before parting, we may make it clear that our decision to restore the matter back to the file of the ld. CIT(E) shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the ld. CIT(E) independently in accordance with law. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 24/03/2025. Sd/- Sd/- ¼jkBkSM+ deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:-24/03/2025 *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Shri Shyam Panchayti Vishram Bhawan, Sikar. 2. izR;FkhZ@ The Respondent- CIT(E), Jaipur. 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr ¼vihy½@The ld CIT(A) 12 ITA No. 679/JPR/2024 Shri Shyam Panchayti Vishram Bhawan 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 679/JPR/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar "