Hiring Receipts Of Trust Treated As Commercial Business Income Whereas Incidental Expenditures Allowed As Application

By | June 16, 2026
0 Comment

Hiring Receipts Of Trust Treated As Commercial Business Income Whereas Incidental Expenditures Allowed As Application

Hiring Receipts Of Trust Treated As Commercial Business Income Whereas Incidental Expenditures Allowed As Application

Issue

  1. Whether the receipts earned by a charitable trust from hiring out its conference and auditorium facilities along with other amenities constitute commercial business income under Section 11(4A), rather than passive rental income incidental to its charitable objectives.

  2. Whether expenditures incurred on publication, printing, and administrative/support staff salaries for scientists qualify as valid application of accumulated income towards the specified charitable purposes under Sections 11(2) and 11(3).

Facts

  • The assessee is a charitable society registered under Section 12A, operating in the field of agricultural sciences and related research.

  • Regarding Business Income: During the assessment years 2017-18, 2018-19, and 2020-21, the assessee earned income by letting out its conference and auditorium facilities, providing various active operational services alongside the physical space. The Assessing Officer (AO) and CIT(A) treated these receipts as business income under Section 11(4A), noting that the trust’s objectives did not include the commercial leasing of spaces.

  • Regarding Accumulation of Income: For the assessment years 2017-18 and 2020-21, the assessee claimed accumulation of income under Section 11(2). The AO made additions under Section 11(3) on the grounds of non-utilization for the specified purposes. However, the National Faceless Appeal Centre (NFAC)/CIT(A) reversed this, finding that expenditures on printing, publication, and administrative salaries were directly incidental to the trust’s core scientific objectives.

Decision

  • Held, in favour of Revenue (Business Income): The receipts from hiring out the conference and auditorium facilities were confirmed as business income under Section 11(4A). The assessee was actively exploiting its property in a commercial manner rather than passively earning rent, which was not incidental to its primary charitable purpose.

  • Held, in favour of Assessee (Accumulation of Income): The deletion of additions under Sections 11(2) and 11(3) was upheld. The expenditures on publication, printing, and support staff salaries for scientists were held to be inherently incidental to the specified scientific purpose, qualifying as a valid application of accumulated income.

Key Takeaways

  • Active vs. Passive Exploitation: To maintain tax exemption on property income, a charitable trust must passively receive rent. Active commercial exploitation by providing bundled business facilities shifts the character of the revenue to business income under Section 11(4A).

  • Alignment with Objectives: Any commercial or business activity undertaken by a registered trust must be explicitly incidental to the attainment of its primary charitable objectives to claim exemption.

  • Liberal Interpretation of “Application”: Expenses that directly support the infrastructure of a charitable goal—such as administrative staff salaries for researchers or publication expenses for a scientific society—are treated as valid applications of accumulated funds toward the specified purpose.

IN THE ITAT DELHI BENCH ‘E’
National Academy of Agricultural Sciences
v.
Income-tax Officer
SUDHIR PAREEK, Judicial Member
and Pradip Kumar Kedia, Accountant Member
IT Appeal Nos. 3759, 3760, 3761, 3796 and 3799 (Del) OF 2024
[Assessment years 2017-18, 2018-19 and 2020-21]
FEBRUARY  27, 2025
A.K. Gupta, AR for the Appellant. Amit Katoch, Sr. DR for the Respondent.
ORDER
Sudhir Pareek, Judicial Member. – This bunch of five appeals are by the Assessee (ITA Nos.-3759/Del/2024, 3760/Del/2024 and 3761/Del/2024) and Revenue (ITA Nos.- 3796/Del/2024 & 3799/Del/2024) . Since the issues involved in these appeals are interconnected, they are being disposed of by this consolidated order for the sake of convenience and brevity. The assessee and Revenue have raised the following grounds of appeal:
ITA No.- 3761/Del/2024 (By the Assessee – A.Y.- 2017-18)
“1) The National Faceless Appeal Centre (NFAC) erred in law as well as on facts in upholding the addition made by the AO by considering receipts from conference facility and hiring of Auditorium of Rs 14,45,953/- to be income from business and Profession and not considering it to be incidental to the main objects of the society.
2) The learned Assessing Officer has erred both in facts and in law by levying interest under section 234B and 234D of the Act.
3) The learned Assessing Officer has erred both on facts and in law in initiating penalty proceedings under section 270A of the Act.
4) That the appellant craves, leave to add, alter, amend or vary and or withdraw any or all of the aforesaid grounds of Appeal or at time of hearing of the above appeal
ITA No.- 3799/Del/2024 (By the Revenue – A.Y. 2017-18)
“A) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that assessee has put same amount as accumulation in Form 94 & 10 and used the same description for purpose in Form 10 & reasons for shortfall in Form 9A. Thus, assessee has accumulated funds without reasons or specific purpose in mind.
2B) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has claimed exemption u/s 11(2) in return of income, whereas as per audit report in Form 108 has claimed under clause (2) of explanation to subsection (1) of section (11) of the Act. Therefore, assessee is not clear of its purpose or reason before accumulating funds.
3C) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that for AY 2016-17, the claim of accumulation was disallowed primarily on the ground of late filing of Form 10 whereas in the AY 2017-18, the exemption was denied primarily on the ground of vagueness of the purpose of accumulation.
4D) Under the fact and circumstances and law the Ld. CIT(A) has also failed to appreciate that the expenses with respect to printing (Rs. 16,51,791/-) and salary (Rs.56,26,423/-) cannot be held as the expenses incurred as per the specific purpose mentioned in Form 10 i.e. to promote and support research scientist.
5E) The appellant craves leave to add, to alter or amend any grounds of appeal raise above at the time of hearing.
ITA No.- 3760/Del/2024 (Assessee – A.Y.- 2018-19)
“1) The National Faceless Appeal Centre (NFAC) erred in law as well as on facts in upholding the addition made by the AO by considering receipts from conference facility and hiring of Auditorium of Rs 19,35,253/- to be income from business and Profession and not considering it to be incidental to the main objects of the society.
2) The learned Assessing Officer has erred both in facts and in law by levying interest under section 234B of the Act.
3) The learned Assessing Officer has erred both on facts and in law in initiating penalty proceedings under section 270A of the Act.
4) That the appellant craves, leave to add, alter, amend or vary and or withdraw any or all of the aforesaid grounds of Appeal or at time of hearing of the above appeal.”
ITA No.- 3759/Del/2024 (Assessee – A.Y.- 2020-21)
1) The National Faceless Appeal Centre (NFAC) erred in law as well as on facts in upholding the addition made by the AO by considering receipts from conference facility and hiring of Auditorium of Rs 22,25,520/- to be income from business and Profession and not considering it to be incidental to the main objects of the society.
2) The learned Assessing Officer has erred both in facts and in law by levying interest under section 234A and 234B of the Act.
3) The learned Assessing Officer has erred both on facts and in law in initiating penalty proceedings under section 270A of the Act.
4) That the appellant craves, leave to add, alter, amend or vary and or withdraw any or all of the aforesaid grounds of Appeal or at time of hearing of the above appeal.”
ITA No.- 3796/Del/2024 (Revenue – A.Y.- 2020-21)
“1. Ground) Under the fact and circumstances and law the Lid. CIT(A) has failed to appreciate that, assessee has not utilized the fund (Rs.4,87,57,514/-) in A.Y. 2020-21, which deemed to be applied during the A.Y. 2019-20 as per explanation (2) to sub-section 1 of 11 in A.Y. 2020-21, which was mandatorily required to be utilized.
2.b) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that assessee has put same amount as accumulation in Form 9A & 10 and used the same description for purpose in Form 10 & reasons for shortfall in Form 9A. Thus, assessee has accumulated funds without reasons or specific purpose in mind.
3.c) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has claimed exemption u/s 11(2) in return of income, whereas as per audit report in Form 10B has claimed under clause (2) of explanation to subsection (1) of section (11) of the Act. Therefore, assessee is not clear of its purpose or reason before accumulating funds.
4.d) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has claimed deemed application of Rs.2,49,81,302/- during the year, despite the fact that such funds were not even available with it and accordingly the FAO rightly rejected such claim and rejected form 9A and 10.
5.e) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has failed to apply Rs. 44,95,628/- for the purpose of society and was rightly brought to the tax by the FAO.
6.f) The appellant craves leave to add, to alter or amend any grounds of appeal raise above at the time of hearing.”
2. The facts of the case in brief, are that the appellant is a charitable trust registered under societies Registration Act 1860 and also registered u/s 12A of Income Tax Act. The assessee focuses on various fields of agricultural sciences in a comprehensive sense, including crop husbandry, animal husbandry, fisheries, forestry, natural resources, mechanization, agro industries, agricultural education, environment, health and allied sciences. The sources of income of appellant are grant-in-aid from D.A.R.E. and I.C.A.R., Interest on Investments and Contribution from subscriptions and other receipts.
3. Since the issue involved and the facts in all the appeals are common, we deal with the assessee’s appeal in ITA No. 3761/Del/2024 for AY 2017-18 first and the decision thereof would apply mutatis mutandis to all the appeals of the assessee. In this case, the return of Income declaring nil income was filed on 07.10.2017 electronically. The case was selected for complete scrutiny under CASS and accordingly notice u/s 143(2) of the Act was issued digitally on 14.08.2018. Subsequently notice u/s 142(1) of the Act was issued on 03.07.2019, 30.08.2019 and 18.10.2019. Further, show cause was also issued on 24.12.2019. The assessing officer passed assessment order on 30.12.2019 making additions as follows:
SI. No. Particulars Additions
(i) Income u/s 11 (4A) received from hiring conference facility Rs. 14,45,953/-
(ii) Income u/s 11(3) on account of non-utilization of Accumulation as per specified purpose Rs.72,81,214/-
(iii) Disallowance of claim of accumulation u/s 11 (2) of the Act Rs.2,29,28,414/-

 

3.1 Notice of Demand u/s 156 of the Income Tax Act 1961 of Rs. 1,11,71,925/- was issued. The assessee filed appeal is against the order dated 30.12.2019 with the CIT(Appeals) on 24.01.2020. The National Faceless Appeal Centre (NFAC) passed the order u/s 250 partly allowing the appeal of the assessee. The NFAC allowed the grounds relating to additions made u/s 11 (2) and 11 (3) of the Act, but, confirmed the additions made u/s 11 (4A). In other words, the CIT (Appeals) allowed an amount of Rs. 72,81,214/- u/s 11(3) and Rs 2,29,28,414/- u/s 11(2), but, confirmed addition of Rs.14,45,953/- u/s 11(4A) of the Act. Addition confirmed of Rs.14,45,953/- u/s 11 (4A) is in relation to income from hiring conference facility as the same was considered not to be incidental to the principal activity of the trust.
4. Heard the rival submissions and we have carefully scanned the material on record. The ld. AR submitted that the National Faceless Appeal Centre (NFAC) erroneously upheld the addition made by the ld. AO by considering receipts from conference facility and hiring of auditorium of Rs.14,45,953/- (AY 2017-18) [Rs.19,35,253/- (AY 2018-19) and Rs.22,25,520/- (AY 2020-21)] to be income from business and profession not considering it to be incidental to the main objective of the Society.
5. The ld. DR placed reliance on the orders passed by the lower authorities.
6. Vide the impugned order, the ld.CIT(A) observed that the assessee trust declared receipts from hiring of conference and auditorium facility of a sum of Rs. 14,45,953/- (AY 2017-18) [Rs.19,35,253/- (AY 2018-19) and Rs.22,25,520/- (AY 2020-21)] and also furnished the copy of guidelines for hiring the premises of the Society for conferences and, in this regard, the assessee contended that the conference hall was not given to any person and for every purpose. The ld.CIT(A) observed that this contention of the assessee is quite contradictory to the guidelines issued by the assessee because, as per the guidelines, in the rate list it is specifically mentioned that the conference facility can be availed by international organizations/NGOs/private organizations by paying the hire charges as fixed by the assessee and the organizers cannot avail catering facility from other parties than those mentioned in the guidelines. Ono the contrary, the assessee was found to be engaged in active exploitation of the property in the manner in which a business is carried out and it was not only passively earning rental income, but also has been earning by providing various facilities along with the space to the lessees. The objectives of the assessee trust were perused and it is observed that none of its objectives was to indulge in business of letting out of the conference space and facilities on commercial sites. During the course of hearing, the ld. AR nowhere submitted any contrary view to that of the ld.CIT(A) which would clear the ground for not interfering with the order of the ld. CIT(A). Therefore, finding no infirmity in the order of the ld.CIT(A), we uphold the order of the ld.CIT(A) and dismiss the grounds taken by the Assessee in all its appeals.
Department’s appeals (AY 2017-18 & 2020-21)
7. So far as the appeals preferred by the Revenue is concerned, the ld. DR submitted that the ld.CIT(A) erroneously passed the impugned orders and has erred in appreciating that the assessee has put same amount as accumulation in Form 9A and 10 and used the same description for the purpose in Form 10 and reasons for shortfall in Form 9A. So, the assessee has accumulated funds without reasons or specific purpose and claimed exemption u/s 11(2) in the return of income, whereas, as per audit report in Form 10B has claimed under clause (2) of Explanation to sub-section (1) of section 11 of the Act and also erred in appreciating that the claim of accumulation was disallowed primarily on the ground of late filing of Form 10.
8. We have carefully perused the impugned orders in which the ld.CIT(A) observed specifically that it is an admitted fact that when the scientists make any research or noting of any studies, the institution has to publish it and maintain the archives of such scientific studies. So the publication expenditure is an inevitable part of any research institution and there has to be some administrative and support staff to the scientists and, hence, the salary of such staff is incidental to the specific purpose. We have also considered the submissions of the ld. counsel of the assessee and perused the orders of the CIT(A) passed in the case of the assessee for the year 2016-17. The facts of the case for the AY 2016-17 are similar to those for the AY 2017-18. Therefore, following the decision, the contention of the assessee is accepted. Therefore we confirm the orders of the CIT(A) for both the years. Both the appeals are, hence, dismissed.