No tax on Trust with overall deficit even if activity alleged to be commercial

Assessee trust is registered under section 12A of the Act and filed its return of income declaring total income at Nil claiming exemption under section 11 of the Act. During the course of assessment proceedings, the Assessing officer observed that the assessee owns an auditorium and conference hall which is given on rent with the motive of earning profit and, therefore, the assessee is involved in advancement of general public utility with a profit motive and the Assessing officer thereafter denied claim of exemption under section 11 of the Act. The assessee thereafter carried out the matter in appeal before the Ld. CIT(A) who has sustained the findings of the Assessing officer and against the said order, the assessee is in appeal before us.

During the course of hearing, the Ld. AR submitted that the main object of the assessee trust is to foster a spirit of union, friendship and self-help among Kannadigas and to pursue cultural, social, educational and economic advancement of Kannadigas in Mumbai and it owns a hall which is given on rent for the purposes of hosting performances and events in the field of dance, music, folk art and education activities. It was submitted that renting out of hall cannot be treated as commercial activity as the whole purpose of renting out the hall is not to earn profit but to generate funds which can be used to meet the costs towards attaining its objects. It was submitted that no adverse finding has been recorded by the AO as far as the charitable activities carried out by the assessee is concerned and, therefore, the exemption so claimed u/s 11 has been wrongly denied to the assessee which may be restored. It was also submitted that as per audited financial statements, the assessee has reported gross receipts of Rs. 40,55,404/- and expenses of Rs. 52,05,831/- and there is thus no surplus or profit rather there is loss of Rs. 11,50,427 which has been reported for the year under consideration. It was further submitted that without prejudice to claim of exemption under section 11, it is only the real income which can be brought to tax and given that the assessee has incurred a loss, no amount can be brought to tax for the year under consideration. It was further submitted that except for the year under consideration, in none of the other years, the exemption under section 11 has been denied by the Assessing Officer.

Held: ITAT holds that Assessee’s (a Trust) income from commercial activity cannot be brought to tax if the loss is incurred in the corresponding Assessment year; Tribunal notes that Assessing Officer had brought the entire gross receipts to tax while simultaneously ignoring admitted expenditure of Rs. 32.12 Lac incurred on charitable and educational activities, despite there being no adverse finding against such expenditure; ITAT reiterates the settled legal principle that only real and net income can be subjected to tax and holds that where the Assessee had admittedly incurred a loss during relevant Assessment year, no amount could be assessed to tax; Assessee, trust registered under Section 12A filed return of income declaring Nil income after claiming exemption under Section 11; Assessing Officer disallowed exemption under Section 11 on the premise that Assessee owns an auditorium and conference hall which is given on rent with the motive of earning profit and, therefore, involved in advancement of general public utility with a profit motive; CIT(A) dismissed Assessee’s appeal; Thus, Tribunal holds that since the Assessee registered under Section 12A incurs an overall deficit in relevant Assessment year, no taxable income can be brought to tax, thereby, rendering the issue of commercial activity under proviso to section 2(15) academic; Accordingly, ITAT allows Assessee’s appeal

[In favour of assessee]
(Related Assessment year : 2014-15) – [The Mysore Association Bombay v. ITO [TS-1713-ITAT-2025(Mum)] – Date of Judgement : 17.12.2025 (ITAT Mumbai)]