The Income Tax Appellate Tribunal (ITAT) Pune has held that earning rental income does not automatically disqualify a trust from being recognized as a charitable institution under the Income Tax Act, 1961.
The bench of Justice (Retd.) C V Bhadang (President) and R. K. Panda (Vice President) overturned an order by the Commissioner of Income Tax (Exemption), Pune, which had denied registration under Section 12A to a Latur-based public trust, alleging that its substantial rental income amounted to a profit-making activity rather than charitable work.
The department argued that out of the trust’s total income of ₹20.33 lakh in FY 2022–23, rental earnings of ₹6.66 lakh (32.76%) formed a major component, suggesting that the primary activity was commercial in nature. It further claimed that spending on charitable activities was disproportionately low.
The trust, however, countered that the rental income from shop premises was deliberately structured as a sustainable revenue source to fund its educational and community initiatives, including subsidized library access for underprivileged students.
The court emphasized that income from property rentals, when reinvested into charitable objects, cannot be treated as a profit-driven business. The Tribunal cited several landmark judgments — including DIT vs. Shri Vile Parle Kelavani Mandal (Bombay HC), CIT vs. Madras Stock Exchange Ltd.(Madras HC, upheld by Supreme Court), and its own Pune Bench ruling in Oswal Bandhu Samaj vs. ITO — which clarified that incidental rental income used for charity does not attract the restrictive proviso to Section 2(15).
Correcting the Revenue’s claim, the Tribunal also noted that the trust had in fact spent over ₹5.59 lakh — not merely ₹50,000 — on charitable purposes during the year.
The ITAT directed the restoration of the trust’s provisional registration and ordered the grant of registration under Section 12A, observing, “rental income utilized for achieving the objects of a trust cannot be treated as a business activity disentitling it from exemption under the Act.”
Case Details
Case Title: Marwadi Navyuvak Vachanalaya Versus CIT (Exemption)
Case No.: ITA No.561/PUN/2025
Date: 29-09-2025
Counsel For Appellant: Bhuvanesh Kankani
Counsel For Respondent: Amol Khairnar
