Exemption under s 11

The generation of surplus out of the fees collected would not indicate a profit motive and the activity of the assessee cannot be said to be tainted with an element of commerciality to disentitle the trust from claiming the exemption under s 11, as held by CuttackTrib in ITO v Human Resource Development and Management Trust (ASBM Trust) — In favour of: The assessee.

Once it is held that the trust exists for the purpose for which it received registration under s 12AA, and there is no violation under s 13, the capital expenditure has to be allowed as an application of the funds under s 11(1) to work out the surplus or deficit.

The AO is not entitled to disturb the book result in the case of a trust during the currency of registration under s 12AA to derive his own conclusion.

The CIT(A) was justified in holding that the training of development and eloquence is incidental to the AICTE recommended course of management where the students are admitted on the basis of CAT/MAT scores.

Fees collected by the assessee during the year could not be considered as excessive to ascribe the same as “capitation fee” disentitling the institution from the benefits of s 11(iv).

The activity of the trust in running a “finishing school” cannot be treated as a distinct business activity, as distinguished from charitable activity, but a part of the activity of imparting education by the trust. The provisions contained in s 11(4A) do not apply.

The provisions contained in s 13(1)(c) do not bar payment of a reasonable salary for services rendered by an interested person. It is only when such payment is found unreasonable or excessive that stipulation of cl (c) of s 13(2) would be attracted.

Decided on: 29 July 2011.