No Tax Addition Where Charitable Trust Incurred Loss, Even If Some Receipts Treated As Business Income: ITAT Mumbai

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has recently held that no tax addition can be made where a Mumbai charitable trust has incurred an overall loss, even if the Assessing Officer treats some of its receipts as business income.

The tribunal made it clear that tax can be levied only on real and net income, and where expenditure exceeds receipts, nothing survives to be taxed.

The coram comprising President Justice (Retd.) C V Bhadang and Accountant Member Vikram Singh Yadav, was deciding an appeal filed by The Mysore Association Bombay for the 2014–15 assessment year.

Allowing the appeal in part, the tribunal deleted the additions made by the tax department.

The trust is registered under Section 12A of the Income-tax Act and is engaged in cultural, educational, and social activities.

During the assessment process, the assessing officer denied it exemption under Section 11 as a charitable association, holding that the trust was carrying on commercial activity by renting out its auditorium and conference hall.

On that basis, hall rent, interest income, membership fees, and other receipts were treated as business income, while expenditure of over Rs 32 lakh incurred on charitable and educational activities was disallowed. This was done despite the audited accounts showing total receipts of about Rs 40.55 lakh and expenditures of around Rs 52.05 lakh, resulting in a loss of roughly Rs 11.5 lakh for the year.

Before the tribunal, the trust said the hall was rented out only to support its charitable objects and not with any profit motive. It also pointed out that there was no adverse finding on the nature of its activities and that, on its own account, it had not earned any surplus. Even otherwise, it argued, when there is a loss, no income can be brought to tax.

The tribunal agreed. It observed, “It is a settled legal proposition that it is only the net income which can be brought to tax.”

Noting that the expenses of Rs 32,12,006 had admittedly been incurred on charitable activities and were never disputed, the bench said,

“In view of the admitted and undisputed position that the assessee trust has reported a loss and not a surplus/profit for the year under consideration as evident from its audited financial statements, no amount can be brought to tax for the year under consideration and the addition so made is hereby directed to be deleted.”

The bench added that, given the loss position, the entire debate on whether renting out the hall was a commercial activity under the proviso to Section 2(15) and whether exemption under Section 11 could be denied was purely academic for that year and was therefore left open.

Case Title: The Mysore Association Bombay Vs Income Tax Officer Exemption Ward 2(4), Mumbai

Citation: 2026 LLBiz ITAT(MUM) 11

Case Number: ITA No. 5860/Mum/2025

 For Assessee: Advocate Satyaprakash Singh

 For Revenue:  Advocate Kavan N. Limbasiya, Sr.DR