The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has recently, in an appeal filed before it, held that Income Tax exemption to trust u/s 11 cannot be denied in respect of income from letting out of school auditorium for public.
The aforesaid observation was made by the Chennai ITAT, when appeals were preferred before it by the assesseeM/s. M.Ct.M. Chidambaram Chettiar Foundation, as against the common order of the Commissioner of Income Tax (Appeals)-, Chennai in ITA Nos.252/13-14, 70&474/14-15 & 191/16-17, dated 07.02.2019, wherein the assessments were framed by the DDIT (Exemptions)-1 / ITO (Exemptions), Ward-1, Chennai for the assessment years 2010-11, 2011-12, 2012-13 & 2013-14 u/s.143(3) of the Income Tax Act,1961vide orders dated 28.03.2013, 24.03.2014, 06.03.2015 & 31.08.2016 respectively.
The common issue in these appeals of assessee being with regard to the order of CIT(A) in confirming the action of the AO in holding the Assessee trust to be falling in the category of Advancement of any other object of General Public Utility ,with regard to the letting out of auditorium as commercial activity, contradicting proviso to section 2(15) of the Income Tax Act ,as against the assessee trust being falling in the category of Education u/s 2(15) of the Income Tax Act, the brief facts of the case were that the assessee’s trust was registered u/s.12AA of the Income Tax Act, as a society vide DIT(E) proceedings in DIT(E) No.2(500)/95-96 dated 18.11.1998.
The assessee trust claimed that it was running an educational institution for the past several years and that its auditoriumwas in the school campus for conducting conferences, lectures, meetings, etc., for its institutions. The auditorium is also used for letting out to institutions for which the assessee received rent for use of the auditorium.
The assessee had filed its return of income for the assessment year 2010-11 on 21.03.2011, declaring gross income at Rs.2,03,13,514/- and had claimed excess application of Rs.2,68,856/- after claiming exemption u/s.11 of the Income Tax Act. Subsequently, during the course of scrutiny assessment proceedings, the AO required the assessee to give the details of the miscellaneous receipt declared by assessee’s trust in its books of accounts, to which the assesseeresponded that the major portion of itsmiscellaneous receipts pertain to income generated from let out of auditorium hall,thus submitting the details regarding asto whom the auditorium was let out and for what purpose it was let out.
It was noted by the AO, that theauditorium had been let out to general public for a total of 227 days during the relevant financial year 2009-10, relevant to the assessment year 2010-11, and that the income generated by the assessee by letting out the auditorium was to the tune of Rs.40,84,433/-
The AO further noted in his assessment that the auditorium had been let out to the general public for conduct of dance programme, music programme, corporate meetings, corporate conference, corporate get together and family functions, and hence the conclusion that the auditorium has been allowed for general public utility for their private functions. According to the AO, this letting out has been done with a profit motive and accordingly, he declared the net income at Rs.25,06,582/- and claimed the same as exempt u/s.11 of the Income Tax Act.
Having noted that the receipts from auditorium let out is in the nature of trade, business or services and therefore, hit by the proviso to section 2(15) of the Income Tax Act, he there fore show caused the assessee as to why the claim of exempt should not be denied, since the activities are in the nature of trade, business or commerce as evidenced from the above receipts. And in response to the same, the assessee filed written submissions dated 25.03.2013 stating the auditorium to be located inside the premises of school and predominantly utilized by school for the promotion of cultural and extracurricular activities.
The assessee contended that the main purpose of the auditorium was to provide facilities for the school inexhibiting the student’s artistic talents, and that the auditorium was let out to outside parties only when the same was not needed by school. It contended that the proceeds received from letting out of auditorium hall was utilized in promotion of education and hence that the same would not lose the character of charitable purpose, merely because some profit arises from the activity.
Thus ,objecting the proposal of AO and arguing that the trust has not carried out any business / trade / commerce as provided in the proviso to section 2(15) of the Income Tax Act, it was claimed by the assesseethat the income from this activity was only incidental and not business in nature and hence that letting out of the auditorium hall for rent , was not carrying on business , and further that the income of the trust so received by way of rent would continue to enjoy exemption u/s.11 of the Income Tax Act.
The AO examined the submissions of the assessee and, relying on the proviso to section 2(15) of the Income Tax Act as introduced w.e.f. 01.04.2009, he held that the activities of letting out of auditorium and receiving income from the same was nothing but commercial activity to generate income, and further that the activity would come under the activity of advancement of object of general public utility, thus being hit by the proviso to section 2(15) of the Income Tax Act.
Having noted that the objects of the trust was of general public utility in nature ,that the assessee trust was receiving commercial receipts to provide service to general public ,and that in the assessment year in question, the thre shold limit as prescribed in the Income Tax Act was Rs.10 lakhs, and hence that the assessee was not eligible for claim of any exemption u/s.11 of the Income Tax Act, in regard to receipt of rent of auditorium, he there fore assessed the net receipt of Rs.25,06,582/- as taxable and denied exemption u/s.11 of the Income Tax Act, though allowed exemption u/s 11 ,on the receipts of school holding the same from educational activity.
Aggrieved by the same, the assessee preferred appeal before the CIT(A), whoby a common order for all the four years, noted the details of gross receipts minus expenditure incurred on auditorium and the total taxable income computed by AO u/s.143(3) of the Income Tax Act. He noted that in the present case, the assesseehad let out the auditorium for 227 days during the financial year 2009-10 andearned substantial amount of Rs.40,84,433/- from such let out during the year, thus concluding that the assesseehad earned substantial receipts from letting out of the auditorium, which is an activity in the nature of trade, commerce or business, as the main activity but not as incidental to the main activity. And therefore, the CIT(A) upheld the action of the AO and dismissed the appeal of assessee for all the four years, leaving the assesseeaggrieved to prefer the instant appeal before the Chennai ITAT.
Hearing the opposing contentions of either sides as presented by Shri G. Sitharaman, CA, for the appellant, and by Shri AR.V. Sreenivasan, Addl.CIT, for the Revenue, as well as perusing the materials available on record, the Bench consisting of Shri Mahavir Singh, the Vice Presidentand Shri G. Manjunatha, the Accountant Member, held:
“Once the assessee falls under the category of education in term of section 2(15) of the Act, assessee is eligible for exemption u/s.11 of the Act because letting out of auditorium is incidental to fulfilment of the object of the trusti.e., education. Hence, we allow the appeal of assessee for AY 2010-11. Consequently, all the four appeals of assessee are allowed.”
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