INCOME TAX OFFICER(EXMP)-2(4), MUMBAI, MUMBAI vs. YASHWANTRAO CHAVAN CENTRE MUMBAI, MUMBAI

The Revenue, in substance, has challenged the findings of the learned CIT(A) on the ground that the assessee was carrying on systematic commercial activity by frequently letting out the hall and auditorium facilities and earning substantial receipts therefrom, which according to the Assessing Officer constituted more than 65% of the total receipts of the trust. According to the Assessing Officer, the activity was organized in nature, various facilities and services were provided, the activity had effectively been outsourced, and separate books of account allegedly were not maintained and therefore the provisions of section 11(4A) stood attracted. The Revenue has further alleged that the assessee falls within the ambit of “advancement of any other object of general public utility” and since the receipts from hall letting were in the nature of trade, commerce or business, exemption under section 11 was not allowable.

Brief facts borne out from the assessment records are that the assessee is a long-standing charitable trust duly registered under section 12A and also enjoying approval

The Assessing Officer further observed that the hall was let out on approximately 290 occasions during the year and facilities such as furniture, cleaning, maintenance and allied infrastructure were provided. According to him, the activity was systematic and organized in nature and therefore constituted business activity. He also observed that separate books of account allegedly were not maintained in relation to such activity. Proceeding on this reasoning, the Assessing Officer held that the provisions of section 11(4A) and proviso to section 2(15) were attracted and accordingly treated the receipts as business income. Proportionate establishment and

Before the learned CIT(A), the assessee filed elaborate written submissions explaining not only the nature of receipts but more importantly the true character, objects and activities of the trust. Since the core controversy revolved around the charitable character of the institution, the assessee specifically demonstrated before the learned CIT(A) that the Assessing Officer had selectively referred to certain receipts while completely overlooking the dominant objects and actual charitable activities of the trust. It was submitted that the assessee is a charitable trust owning “Yashwantrao Chavan Pratishthan” comprising the “Chavan Centre” building and auditorium and that the trustees are persons of national repute including State Government nominees on the Board. It was specifically submitted that no surplus is distributed to any person and the entire income of the trust is applied towards charitable objects, a fact not disputed by the Assessing Officer.

The assessee further explained that the Assessing Officer had selectively reproduced the objects while ignoring the fact that the predominant objects of the trust squarely fall within “education” and “relief to the poor”. The assessee

The assessee also elaborately brought on record the actual educational and welfare activities undertaken by the trust. It was explained that the trust operates an Authorized Training Centre of C-DAC (Centre for Development of Advanced Computing), a premier Government of India organization, conducting recognized post graduate and diploma programmes such as PG-DAC, DACA and MSCIT in advanced information technology. The trust also conducts educational seminars, research programmes, group discussions and training programmes in socio-economic and politico-cultural fields for public awareness and academic development. The trust further maintains a National Library and Research Centre focusing on socio-political thought, rural development,

The assessee further demonstrated before the learned CIT(A) that it carries out agricultural education programmes for farmers under “Krishi Sahkar Vyas Peeth”, cooperative law awareness programmes educating citizens regarding cooperative laws and functioning of cooperative societies, State and National Awards recognizing contributions in education and rural development, women empowerment programmes under “Maharashtra Mahila Vyaspeeth”, youth leadership development programmes under “Nav Maharashtra Yuva Abhiyan”, road safety education campaigns, welfare programmes for disabled persons under “Apang Hakka Vikas Manch”, environmental education programmes and art and personality development initiatives for school children. It was also submitted that the trust provides free legal advice to poor persons and carries out various social welfare and educational activities in accordance with the ideals of Late Shri Yashwantrao Chavan for upliftment of weaker and disadvantaged sections of society.

Based on these objects and activities, the assessee specifically contended before the learned CIT(A) that the trust clearly falls within the charitable limbs of “education” and “relief to the poor” and not under the residuary category of

The assessee further contended that the Assessing Officer had fundamentally misconceived the issue by conflating the objects of the trust with the sources of income. It was submitted that the hall was let out only when not required for the trust’s own charitable activities and the receipts generated therefrom were fully utilized for carrying out educational and welfare activities of the trust. It was specifically pointed out that the proportion of hall receipts could not be the determinative factor for denying exemption under section 11(4A), particularly when the educational activities themselves were conducted at highly subsidized or nominal fees and several welfare activities were undertaken completely free of charge. It was submitted that comparing subsidized educational receipts with commercial hall rent receipts to infer predominant business activity was wholly misleading.

The assessee also heavily relied upon the dominant purpose test and the principle of consistency. It was pointed out that identical issue had arisen in assessee’s own case in earlier years and appellate authorities had consistently held that the assessee continued to remain engaged in charitable activities falling under “education” and “relief to the poor” and that the activity of letting out the hall was merely incidental to attainment of charitable objects. The assessee relied upon several judicial precedents including Queen’s Educational

The assessee also relied upon CBDT Circular No.11/2008 dated 19.12.2008 and submitted that the said circular itself clarifies that the proviso to section 2(15) applies only to institutions falling under the residuary category of “advancement of any other object of general public utility” and does not apply to trusts engaged in education, relief to the poor or medical relief. It was thus submitted that even assuming there existed incidental commercial receipts, the same would not alter the charitable character of the institution.

The learned CIT(A), after considering the detailed submissions and examining the nature of activities of the assessee-trust, recorded categorical findings that the assessee

The learned CIT(A) further observed that the hall was let out only when not required for trust activities and the income so generated helped sustain and fund the charitable operations of the trust. It was also observed that the ratio of rental income to total receipts cannot by itself become the sole determining factor and that the Assessing Officer had failed to examine the issue from the perspective of application of income. The learned CIT(A), relying upon various judicial precedents including Bombay High Court decisions in Fellowship of Physically Handicapped and Lajpatrai Memorial Trust, Madras High Court rulings in Shri Rao Bahadur ADK

The learned CIT(A) also referred to the appellate order passed in assessee’s own case for A.Y. 2010-11 wherein identical issue had arisen. In the said order, the learned CIT(A) had categorically held that the assessee is a registered charitable trust under section 12A, the dominant object of the trust is imparting education, the activity of letting out the hall is merely incidental to attainment of charitable objects and the income generated from hall rental was utilized for charitable programmes, awards, seminars and welfare activities. The learned CIT(A) in earlier years had specifically held that the provisions of section 11(4A) were not attracted and that the rental income cannot be treated as business income. Similar findings had also been rendered in subsequent assessment years.

Before us, the learned Departmental Representative strongly relied upon the order of the Assessing Officer and submitted that the assessee was systematically carrying on commercial activity through repeated letting out of the hall and auditorium and therefore the receipts constituted business income hit by section 11(4A). It was submitted that the hall receipts constituted around 65.74% of total receipts and therefore the activity could not be treated as merely incidental. It was further submitted that the assessee effectively falls within “advancement of any other object of general public utility” and therefore proviso to section 2(15) squarely applied.

Per contra, the learned counsel for the assessee reiterated the submissions advanced before the authorities below and

We have carefully considered the rival submissions, perused the findings recorded by the Assessing Officer and the learned CIT(A) and also examined the material placed before us. In our considered opinion, the entire controversy in the present appeal has to be examined not merely from the angle of one stream of receipt but from the true and dominant character of the institution, its foundational objects, actual activities carried on during the year and the manner in which the income derived by the trust has been applied. Unless these foundational aspects are appreciated holistically, the issue cannot be adjudicated merely by isolating one source of income and branding it as commercial activity.

In fact, the activities demonstrated by the assessee clearly establish that the dominant and substantive character of the trust falls within the first limbs of section 2(15), namely “education” and “relief to the poor”. The trust conducts

At this stage, one must also bear in mind the very foundational principle underlying section 11 of the Act. The scheme of section 11 fundamentally proceeds on the premise that where there exists a property held under trust wholly for charitable purposes and income is derived from such property, then such income, to the extent applied for charitable purposes, is entitled to exemption. Thus, the three essential ingredients embedded in section 11 are: firstly, existence of a property; secondly, such property being held under trust; and thirdly, income derived from such property being applied towards charitable purposes. In the present case, “Chavan Centre”, including the auditorium and allied infrastructure, admittedly constitutes property held under trust by the assessee. The assessee continues to hold valid registration under section 12A and there is absolutely no allegation that the trust has deviated from its charitable

The Assessing Officer, however, proceeded mainly on the basis that the hall receipts constituted approximately 65.74% of total receipts and therefore the assessee was predominantly carrying on commercial activity. In our considered opinion, this entire approach suffers from a basic conceptual error because it confuses the “source of income” with the “objects of the trust”. Merely because substantial receipts arise from one source cannot ipso facto lead to the conclusion that the trust itself exists for business purposes. The decisive test is not the quantum of receipts but the dominant purpose and actual application of income. A charitable institution may legitimately derive income from property held under trust so long as such income is utilized for charitable purposes. The Act itself recognizes such position under sections 11(1), 11(4) and 11(4A). Therefore, the mere proportion of auditorium receipts can never become the sole determinative factor.

We further find from the material placed on record that the educational and welfare activities themselves were conducted either at highly subsidized fees or free of cost. The trust had incurred substantial expenditure towards maintenance and establishment, auditorium expenses, capital expenditure and direct expenditure on education and relief to the poor. The assessee also demonstrated that educational activities themselves were operating at deficit and were sustained through hall rent and other receipts. Thus, the hall receipts were merely a means to sustain and support the educational and welfare activities and not an independent business venture undertaken with profit motive.

The Hon’ble Supreme Court in Queen’s Educational Society vs. CIT reported in 372 ITR 699 (SC) has clearly held that mere generation of surplus does not mean that the institution exists for profit. The Hon’ble Court distinguished between “making surplus” and “carrying on activity for profit” and held that where the predominant object remains educational, incidental surplus would not destroy the charitable character of the institution. Similarly, the Hon’ble Delhi High Court in Hamdard Laboratories India vs. DGIT(E) explained the dominant purpose doctrine and held that where the primary object remains charitable, incidental receipts

The Hon’ble Bombay High Court in CIT vs. Shri Vile Parle Kelavani Mandal reported in 378 ITR 593 (Bom) reiterated that educational institutions carrying on incidental activities do not lose their charitable character merely because certain receipts arise therefrom. Likewise, in CIT vs. Lajpatrai Memorial Trust reported in 383 ITR 45 (Bom), the Hon’ble Jurisdictional High Court held that income from letting out halls by charitable institutions, when utilized towards charitable objects and devoid of independent business motive, would not disentitle the institution from exemption under section 11. Similar principles were reiterated in Director of Income-tax (Exemption) vs. Fellowship of the Physically Handicapped and in the decision of Mumbai Tribunal in Shanmukhananda Fine Arts & Sangeetha Sabha rendered on almost similar facts.

Even otherwise, the very invocation of proviso to section 2(15) by the Revenue appears wholly unsustainable. The Hon’ble Supreme Court in Assistant CIT vs. Ahmedabad Urban Development Authority reported in 143 taxmann.com 278 (SC), after exhaustively analyzing the scheme of section 2(15), categorically held that the restrictive proviso principally applies to entities falling under the residuary category of

The CBDT Circular No.11/2008 dated 19.12.2008 also clarifies that the proviso to section 2(15) was inserted to curb cases where entities carrying on commercial activities under the guise of “general public utility” sought exemption. The Circular specifically states that institutions engaged in education, medical relief or relief to the poor would continue to remain charitable even if they incidentally carry on commercial activities. Thus, even the Board’s own clarification supports the case of the assessee.

Another very significant aspect which cannot be ignored is that in assessee’s own case for earlier assessment years, including A.Ys. 2010-11, 2011-12, 2012-13, 2017-18 and 2018-19, identical issue had arisen and stood consistently decided in favour of the assessee. The appellate authorities

We also find that the Assessing Officer has nowhere disputed the genuineness of the educational and welfare activities carried on by the trust. There is no allegation that the assessee has deviated from its objects; there is no finding that the trust exists for profit motive; and there is equally no material suggesting diversion of income for private benefit. The entire case of the Revenue rests merely upon the proportion of receipts generated from hall letting. In our considered opinion, such isolated numerical comparison cannot override the dominant charitable purpose test consistently recognized by Courts.

Accordingly, having regard to the entirety of facts, the objects and actual activities of the assessee-trust, the manner of application of income, the consistent judicial view taken in

In the result, appeal of the Revenue stands dismissed.