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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI KULDIP SINGH
Per : Kuldip Singh, Judicial Member:
The appellant, M/s. Pioneer Education Trust (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 28.11.2022 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] qua the assessment year 2015-16 on the grounds inter-alia that :- “1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that income from letting out of hall amounting to Rs.58,03,078/- was business income. 2 M/s. Pioneer Education Trust
2. The reliance of the learned CIT(A) on the Apex Court Judgment in case of Ahmedabad Urban Development Authority is totally misplaced.
3. The learned CIT(A) relying on the above judgment held that the word "incidental" as appearing in section 11(4A) can be interpreted in light of proviso to section 2(15) so as to mean that the activity should be conducted actually in the course of achieving the GPU object, without realising that the activity. referred to is a business activity and the appellant is not engaged in any business activity. 4. The passive letting out the trust property (as against exploitation by way of complex commercial activities) to earn income is not a business activity and hence section 11(4A) cannot be pressed into service at the threshold; the appellant is therefore entitled to exemption u/s 11(1) in respect of income from the property held under trust. 5. The learned Commissioner of Income Tax (Appeals) erred in not appreciating that the appellant is engaged in educational activities and proviso to section 2(15) which is applicable only where the object is "General Public Utility" cannot be invoked The appellant craves leave to add, alter or amend any of the grounds of the appeal, at any time before or at the time of hearing.”
Briefly stated facts necessary for consideration and adjudication of the issues at hand are : assessee trust being registered with Directorate of Income Tax (Exemption) [DIT(E)] under section 12A and registered with Charity Commissioner, filed its return of income which was subjected to scrutiny. The Assessing Officer (AO) noticed that the assessee trust had received income of Rs.58,03,078/- from renting out its premises, classroom hiring, hall hiring, extra passage hiring, canteen rent and school rent during the year under consideration. The AO after declining the contentions raised by the assessee that income earned from renting out its premises was used by the trust on its educational activities by relying upon the decision rendered by Tribunal in case of Vile Parle Kelvani Mandal invoked amended provisions contained under section 11(4A) of the Income Tax Act, 1961 (for the short ‘the Act’) and treated the same as incidental activity to attainment of the object of the trust for which the assessee was required to maintain separate books of accounts 3 M/s. Pioneer Education Trust and thereby treated the rental income as business income under section 11(4A) of the Act and taxed the same accordingly.
The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the addition by dismissing the appeal. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
From the facts of the case, grounds raised and argument addressed by the authorized representatives of the parties to the appeal the sole question arises for determination in this case is: “as to whether the Ld. CIT(A) has erred in interpreting the word ‘incidental’ as appearing in section 11(4A) of the Act in the light of the proviso to section 2(15) of the Act so as to consider that the activity should be conducted actually in the course of achieving the benefit of General Public Utility (GPU) object Act without realizing that the activity referred to is a business activity and the assessee is not engaged in any such business activity”?
We have perused the impugned order passed by the Ld. CIT(A) who has decided the issue raised by the assessee that as to whether the activities carried out by the assessee trust in renting out its premises are in the nature of business, trade, commerce or service for which separate books of accounts were required to be maintained by the assessee under section 11(4A) of the Act, the Ld. CIT(A) returned the following findings: 4 M/s. Pioneer Education Trust
“6.2 The following emerges from the order of the Hon'ble supreme Court that the principal of the "predominant test as had been the law prior to this judgment in Surat Art Silk case is overruled. Further it is held that in case business is incidental to the attainment of objectives (Section 11(4A) the "income being profits and gains of business" with a further reference to its being incidental to the objects of the trust cannot and does not mean proceeds of activities incidental to the main object, incidental objects, or income derived from incidental activities. The proper way of reading the reference to the term "incidental" in Section 11(4A) is to interpret it in the light of the sub-clause (1) of the proviso to Section 2(15), Le, that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically incidental and there is no conflict between the definition of charitable purpose and the machinery part of Section 11(4A). Further, the obligation under Section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) of Section 2(15) can be computed and ascertained in an objective manner. Further where institutions provide their premises or infrastructure to other entities, trusts, societies, etc., for the purposes of conducting workshops, seminars or any other social purposes and outsiders are permitted to enjoy such facilities then the income derived from such activity cannot be characterized as part of education or 'incidental' to the imparting of education, Such income can properly fall under the other heads of income.”
Bare perusal of the aforesaid findings returned by the Ld. CIT(A) goes to prove that the Ld. CIT(A) has decided the issue without thrashing the facts in the light of the decision rendered by the Hon’ble Supreme Court in case of ACIT(Exemption) vs. Ahmedabad Urban Development Authority (2022) Livelaw (SC) 865, rather proceeded to decide the issue with reference to the term ‘incidental’ in section 11(4A) of the Act to be interpreted in the light of sub clause (i) of proviso to section 2(15) of the Act; that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object and the assessee was required to maintain separate books of accounts as required under section 11(4A) of the Act. The Ld. CIT(A) was required to thrash the facts in the light of the decision rendered by the Hon’ble Supreme Court in case of ACIT(Exemption) vs. Ahmedabad Urban Development 5 M/s. Pioneer Education Trust Authority (supra). Both the Ld. Authorized Representatives of the parties to the appeal agreed with the proposition that this issue is required to be remanded back to the Ld. CIT(A) to decide afresh by thrashing the facts strictly in view of the decision rendered by the Hon’ble Supreme Court in case of ACIT(Exemption) vs. Ahmedabad Urban Development Authority (supra). So in view of the matter impugned order passed by the Ld. CIT(A) is set aside and the Ld. CIT(A) is directed to decide the same afresh after providing opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is hereby allowed for statistical purposes. Order pronounced in the open court on 20.06.2023.