Rent Receipts if Incidental and Ancillary to Main Object of Trust, has to be allowed: ITAT

Mumbai ITAT ruled that rental income from surplus properties remains tax-exempt for charitable trusts when ancillary to their main objectives. The case involved a medical trust earning ₹18 lakh annually (12% of total receipts) from pathologists using hospital premises. The bench rejected the department's commerciality argument, holding the proviso to Section 2(15) applies only to predominant activities. The tribunal established a three-fold test: (1) the rental space must be integral to charitable operations (here, diagnostic services supported patient care), (2) rentals shouldn't exceed fair market value, and (3) income must be applied to charitable purposes. This clarifies that trusts can generate reasonable ancillary income without losing Section 11 exemptions. The ruling impacts thousands of educational and religious institutions renting out auditoriums or hostels. However, ITAT cautioned that dedicated rental properties or aggressive commercialization would violate charitable character. Trusts should document how ancillary activities further their objectives through governing body resolutions and utilization accounts.