Trust’s plea can’t be rejected if charity is predominant aim: HC

CHANDIGARH: The Punjab and Haryana High Court has made it clear that a plea for tax exemption by a Trust cannot be rejected merely because a clause in the Trust deed gives it the right to carry out other business when the predominant purpose and object is charitable in nature

Updated At : 07:35 AM Jul 09, 2015 IST

Tribune News Service

Chandigarh, July 8

The Punjab and Haryana High Court has made it clear that a plea for tax exemption by a Trust cannot be rejected merely because a clause in the Trust deed gives it the right to carry out other business when the predominant purpose and object is charitable in nature.

The ruling by Acting Chief Justice Shiavax Jal Vazifdar and Justice GS Sandhawalia came on a petition by Malerkotla-based Harf Charitable Trust through senior advocate Sanjay Bansal.

It had challenged the rejection of its plea for grant of approval for exemption under Section 10(23C) (vi) of the Income Tax Act by the Chief Commissioner of Income Tax in September 2012.

It was claimed that the petitioner-Trust had an intention to carry out business activity not permissible to charitable organisations.

In the written statement, the respondents took the plea that an educational institution has to exist “solely for educational purposes” for exemption. If it existed for other purposes, exemption could not be granted. “Even if one of the objects enables the institute to undertake commercial activities, entitlement for approval under the provisions of the Act would not be there,” it was added.

Bansal, on the other hand, contended that the public charitable trust was running Sohrab Public School in Malerkotla solely for educational purposes and was being regularly assessed for income tax.

The Bench asserted: “It is not disputed that the school is affiliated with the Central Board of Secondary Education, New Delhi, and has also been granted registration... Merely because one of the clauses of the trust deed provided that the trust would carry on other business as decided by the trustees would not per se disentitle it from being considered for registration under Section 10(23C)(vi) of the Act.

“The reasoning that the Trust had intentions to carry out the business and the said institute was not existing solely for educational purposes would amount to giving a very narrow meaning to the Section and the predominant object test was to be applied...

“It was not that the respondent-Chief Commissioner came to the conclusion that the Trust was doing some other business and the said business was generating substantial amounts which would override the main objects of the trust, which pertain mainly to the cause of education...”