Income Tax: Rajasthan HC grants Section 12AA Exemption to the Charitable Trust

The Rajasthan High Court in the case of  Commissioner Of Income Tax, Exemption, Jaipur v/s Manna Trust, B-6, Pinkcity Apartment, Akar Marg, Jaipur granted Section 12AA Exemption to the Charitable Trust.

The revenue has challenged the decision of the Income-Tax Appellate Tribunal by which the Tribunal has set aside the revisional order passed by the Commissioner of Income-Tax in exercise of powers under Section 263 of the Income-Tax Act, 1961 denying the benefit of exemption in favour of respondent-assessee Trust on its income being charitable Trust. The respondent Trust is a registered charitable trust. The assessing officer for the assessment year 2016-17 accepted the return filed by the trust and granted exemption as applicable under law. The Commissioner, Income-Tax took the said order in revision under Section 263 of the Act and held that the activities of the trust were not charitable in nature but were commercial activities and therefore denied the exemption.

The appeal has been filed by the revenue to challenge the judgment of the Income-Tax Appellate Tribunal. 

The division bench of the Chief Justice Mr. Akil Kureshi and Justice Rekha Borana noted that the commercial activities are not primary activities of the trust and predominant activity of the trust is charitable. The generation of reasonable surplus would not indicate that the trust is not engaged in charitable activities.

The court agreed with the view of the tribunal and said that it is well settled through a series of judgments that power under Section 263 of the Act can be exercised only when twin conditions of the order of assessing officer being erroneous and prejudicial to the interest of revenue are satisfied. 

The court while dismissing the appeal added that the Jurisdiction of the Commissioner under Section 263 of the Act is restricted and cannot be equated with the appellate jurisdiction. The Commissioner does not sit in appeal. The Tribunal also correctly noticed that the registration of the Trust under Section 12 AA of the Act has not been disturbed.

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