The division bench of Bombay High Court has ruled that Income earned from letting out a premise owned by a charitable trust is exempted from Taxation under section 2(15) of the Income Tax Act, 1961.
The brief facts of the case are as follows;
The assessee is a trust founded under a Trust Deed dated 10th April 1959 with an object of “advancement of education” which fell within charitable purpose as defined under section 2 (15) of the Act. In 1973, the assessee achieved the status of a charitable trust and thereby got registration under section 12A (a) of the Income Tax Act. Thereafter, the trust deed was amended, however the main object of the trust deed did not change. The amended objects were to promote, support, establish and conduct college or colleges, schools, institutions, etc for the advancement of education and give scholarships or other assistance to students prosecuting studies. One of the objects was also to pay some part of income to any of the institutions which are carrying out the said objects. Thus, it was submitted that the main object of the trust was always the promotion of education.
The assessee owns a plot of land at Haji Ali, Mumbai with an approximate area of 1,00,000 sq.ft, having a building consisting of an auditorium on the ground floor and classrooms from 2nd to 7th floors. This building was let out to one Lala Lajpatrai Institute which conducts Junior College, Senior College, Law College, etc and the 6th and 7th floors are let out to run a Management Institute. The letting out was in consonance with the objects of the trust which intended to promote and/or establish colleges and schools. The income which was received by the assessee from letting out the premises to Lala Lajpatrai Institute was claimed as exempted from taxation.
The appellants contended that this is a case wherein clearly the first proviso to section 2 (15) of the Act had become applicable in as much letting out the premises by the assessee amounted to an activity in the nature of trade, commerce or business and not the object of ‘advancement of education’ as contended by the assessee. It is submitted that the educational institutes are not being conducted by the assessee¬trust but by separate management. It is contended that the tribunal has failed to appreciate the provisions of section 11 (4A) of the Act that the assessee had not maintained separate books of account as required under the said provision in respect of the amounts received from letting out of the auditorium as also running of the Institution of Management on 6th and 7th floors.
The respondent contended that this is a case wherein clearly the first proviso to section 2 (15) of the Act had become applicable in as much letting out the premises by the assessee amounted to an activity in the nature of trade, commerce or business and not the object of ‘advancement of education’ as contended by the assessee. It is submitted that the educational institutes are not being conducted by the assessee -trust but by separate management. It is contended that the tribunal has failed to appreciate the provisions of section 11 (4A) of the Act that the assessee had not maintained separate books of account as required under the said provision in respect of the amounts received from letting out of the auditorium as also running of the Institution of Management on 6th and 7th floors. On behalf of the revenue, it is urged that if the case of the assessee was that these activities are incidental to the ‘advancement of education’ then as per the requirement of section 11(4A) separate accounts ought to have been maintained. The substantial question of law raised before the Court to decide was whether such income deserves exemption under the Income Tax Act.
The Court observed that “the assessee had received service charges of Rs.12.00 lacs and letting out of the premises for running the Institution of Management and also an amount of Rs.15,02,182/¬was received for letting out of the auditorium. On this basis, the DIT (E) by an order dated 22nd May 2013 concluded that case of the assessee would fall within the proviso to section 2 (15) of the Act as made applicable with effect from Assessment year 2009¬10, in as much as case of the assessee could no more be categorized as ‘advancement of education’ and would fall under the first proviso to section 2 (15) of the Act so as to be “any other object of general public utility”, which stands excluded to be a charitable purpose as it involved an activity in the nature of trade, commerce or business in exchange for a consideration and the use or application or retention of the income from such activity. The Tribunal, however, negatived these findings of the DIT (E)”.
The Court further pointed out that, “the premises of the assessee were let out to LalaLajpatrai Institute to conduct junior college, senior college, Law College and a management Institution which is indisputably an educational purpose. This is also in consonance with the objects of the assessee-trust which is to conduct colleges and schools and achieve ‘advancement of education.’ It is further an admitted position that these premises were let out on a nominal rent. The objection of the DIT (E) that the 6th and 7th floors rendered an income of Rs.12.00 lacs from the Institution of Management by way of service charges which according to the DIT (E) indicated that the assessee was involved in carrying out activities in the nature of trade, commerce or business, amounting to the assessee deviating from its object of ‘advancement of education’. In our opinion, considering the facts, this conclusion of the DIT (E) is not well-founded. The DIT (E) has overlooked that the principal purpose for which the premises were let out was for conducting an educational activity namely the Management Institution. There is no material before the DIT (E) to show that the 6th and 7th floors were used for purposes other than the Management Institution or for any other purpose which is not an educational purpose. First Proviso to section 2 (15) of the Act would also not be attracted to this situation. As regards the auditorium the same was also part of the building housing these colleges conducted by LalaLajpatrai Institute which was used by the colleges for 209 days and it was vacant for 76 days and was let out only for 80 days only when it was not needed by the colleges. In the course of this letting out the assessee had incurred expenses for electricity and AirConditioners. Letting out of the auditorium was not the dominant object of the trust and admittedly the auditorium was incidentally let out to outsiders for commercial purposes. It thus cannot be said that such letting out would fall within the first proviso to section 2 (15) of the Act”.
While dismissing the appeal filed by Director of Income Tax(Exemptions) the division bench comprising of Justice S.C Dharmadhikari and Justice G.S Kulkarni also emphasized that, “separate books of accounts cannot be insisted upon as the said activity becomes part and parcel of the educational activities carried out by the assessee-trust. In such a case, the benefit of exemption under section 11 (4A) cannot be denied. An interpretation as urged on behalf of the revenue would render nugatory the very spirit, rationale and the object of the exemption provisions making the same unworkable”.
Read the full text of the Judgment below.
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