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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & MS KAVITHA RAJAGOPAL, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 23.09.2021 for the A.Y.2018-19.
(A.Y: 2018-19) Nava Samaj Mandal 2. Brief facts of the case are, assessee filed its revised return of income for the A.Y. 2018-19 on 04.10.2018 declaring total income of ₹.NIL. The return was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”) on 02.10.2019. The case was selected for complete scrutiny under CASS with reason of “large receipts from other income”. Accordingly, notice u/s. 143(2) of the Act was issued and served on the assessee.
3. During the assessment proceedings, Assessing Officer observed that assessee has declared Hall Hiring Charges amounting to ₹.11,81,000/- and Royalty amounting to ₹.9,41,000/- under the head 'Any other income'. The assessee was asked to submit the details regarding the above incomes. In response assessee submitted its reply on 18.02.2021 on ITBA Portal as under: - "Details of property for which royalty received: The school has a Hall which is given on hire basis to other parties in idle hours for Prarthana Sabha, Wedding Ceremony, Engagement Ceremony Etc. The royalty charges received are amount received from Caterers & Decorators. Details of Royalty & Hall Charges: This income has been received for an activity which is incidental to attainment of objective of the Trust. The school has a Hall which is used for Prayer meeting. Physical Training, Cultural Programme of School Students etc. The hall is given on hire basis to other parties in Idle Hours for Prarthana Sabha, Wedding Ceremoney, Engagement Ceremoney etc. The royalty charges received are amount given by Caterer & Decorator of the function. The amount received for attainment of Educational Object which is the main objects."
(A.Y: 2018-19) Nava Samaj Mandal 4. After considering the submissions of the assessee, Assessing Officer applying provisions of section 11(4A) of the Act observed that the exemption u/s. 11 of the Act is not available in respect of such income of a Trust or an Institution which is earned from such business, which is not incidental to the attainment of the objectives of the trust and for which no separate books of accounts are maintained by the assessee.
Further, Assessing Officer observed from the Memorandum of Association of the assessee that the objects of the assessee is educational and he rejected the submissions of the assessee that income from Hall Hiring Charges is from such business which is not incidental to attainment of objectives of the Trust. He observed that giving school hall for hiring to other parties for Prarthana Sabha, Wedding Ceremony, Engagement Ceremony etc., cannot be called incidental to attainment of objects, which is 'Educational.
Further, Assessing Officer observed that application of any income towards attainment of objective of trust does not make it fall in the category of incidental income. In order to get eligible for exemption u/s.11 of the Act, is such business itself should be incidental to the attainment of objective of the Trust. However, he observed that for (A.Y: 2018-19) Nava Samaj Mandal allowing exemption u/s. 11 of the Act, it is necessary to maintain separate Books of Accounts for such business and even though assessee was asked to produce/furnish separate Books of Accounts in respect of the above activities, assessee failed to submit the same, accordingly, he treated the above income as business income and accordingly, he denied the exemption u/s. 11(1) of the Act.
Aggrieved assessee preferred an appeal before the National Faceless Appeal Centre, Delhi, in the submissions submitted by the assessee on 07.09.2021, assessee has submitted that the dominant activity of the trust was educational and not business. Therefore, if any incidental or ancillary activity would not fall within the definition of business. The assessee also submitted that the school hall was given during the idle hours i.e., after close of college/school hours only. After considering the submissions of the assessee and Assessment Order the Ld.CIT(A) rejected the submissions of the assessee and sustained the views of the Assessing Officer.
Aggrieved, assessee is in appeal before us raising following grounds in its appeal: - (A.Y: 2018-19) Nava Samaj Mandal “1. The learned Commissioner of Income Tax (Appeals) erred in confirming action of the Assessing Officer in treating hall hiring charges of Rs. 11,81,000/- and royalty of Rs. 9,41,000/ as business income and denying exemption u/s 11 in respect of the said income.
The learned Commissioner of Income Tax (Appeals) failed to appreciate that hall hiring charges of Rs. 11,81,000/- and royalty of Rs. 9,41,000/- constituted mere 3.7% of total receipts of the assessee educational trust and was incidental to its activities.
The learned Commissioner of Income Tax (Appeals) failed to appreciate that the assessing officer had not given a reasonable and sufficient opportunity of being heard to the assessee.
Without prejudice to above, the learned Commissioner of Income Tax (Appeals) failed to appreciate that even if hall hiring charges of Rs. 11,81,000/- and royalty of Rs. 9,41,000/ were to be treated as business income, non-maintenance of separate books of accounts as required by section 11(4A) is merely a procedural default and the Assessing Officer ought to have granted opportunity to the assessee trust to make good such default.
5. The assessee craves leave to add, alter, amend or delete any of the above grounds of appeal
6. The assessee prays that: i) exemption may be granted u/s 11 to receipts by way of hall hiring charges of Rs. 11,81,000/ and royalty of Rs. 9,41,000/-; ii) recovery of demand in dispute may be directed to be kept in abeyance till hearing and final disposal of the appeal; iii) any other relief your honours may deem fit.”
At the time of hearing, Ld. AR of the assessee submitted that the main object of the institution is education and during the year assessee has given the hall to the ceremonies etc., and earned Hall Hiring Charges and royalty from caterers, this income earned by the assessee is wholly
(A.Y: 2018-19) Nava Samaj Mandal applied for the purpose of education and he brought to our notice the income and expenditure account of the assessee.
He submitted that Assessing Officer treated the above income as business income and denied the exemption u/s. 11 of the Act. In this regard he brought to our notice Trust deed and relevant clause of the deed to explain that the assessee is engaged mainly for the purpose of imparting education. In this regard he brought to our notice that Assessing Officer also denied the exemption with the observation that assessee has not maintained separate books of accounts, in this regard he brought to our notice separate ledger maintained by the assessee on these incomes and its application. Ld. AR relied on the following case law: -
(i). Acharya Jiyalal Vasant Sangeet Niketan v. ITO (Exemption) [2021] 127 taxmann.com 582 (Mumbai-Trib). (ii). DCIT v. JMJ Education Society [2021] 128 taxmann.com 315 (Bangalore –Trib.)
On the other hand, Ld.DR brought to our notice Page No. 2 of the Assessment Order and supported the findings of the Assessing Officer and also brought to our notice Page No. 3 of the Ld.CIT(A) order. He vehemently supported the findings of the Ld.CIT(A).
(A.Y: 2018-19) Nava Samaj Mandal 12. Considered the rival submissions and material placed on record, we observe that assessee is a Trust mainly engaged to imparting the education and this fact is not disputed by the Assessing Officer. The Assessing Officer has raised the issue that assessee has earned income from Hall Hiring Charges and royalty income which was earned by the assessee by letting out the portion of the school/college owned by the Trust. The Assessing Officer observed that this additional income earned by the assessee are not incidental to the education activities but it is for the purpose of making profit i.e., business and also according to him assessee has not maintained separate books of accounts for these transactions. For the above reasons Assessing Officer denied the exemption u/s. 11 of the Act.
We observe that the Trust is engaged mainly for imparting the education and the assessee has allowed the hall in the school/college to earn the additional income by way of Hall Hiring Charges and royalty from the caterers and ultimately this income was applied for imparting the education. We also observe that in section 11(1)(a) clearly indicates that income derived from property held under Trust for charitable purpose to the extent to which such income is applied to such purposes in India. It clearly indicates that the purpose of the assessee is for imparting
(A.Y: 2018-19) Nava Samaj Mandal education which is covered in the definition of charitable purpose and assessee has derived the income from the property. Therefore, the earning of income from the property on allowing others to use the hall and earn Hall Hiring Charges and other royalty income is nothing but income derived from the property and ultimately such income was applied for the charitable purpose. We also observe that Assessing Officer rejected the exemption with the observation that assessee has not maintained separate books of accounts, we observe that assessee is maintaining separate ledger for earning this income and also maintaining separate bill book for this purpose. This amounts to maintenance of separate Books of Accounts and the income is applied for the object of the Trust. Therefore, this will satisfy the maintenance of the separate Books of Accounts.
In this regard, we observe that similar issue come up before Coordinate Bench in the case of Acharya Jiyalal Vasant Sangeet Niketan v. ITO (Exemption) (supra) and held as under: - “7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In Sri Thyaga Brahma Gana Sabha (supra), the assessee is a registered Trust and is the owner of the hall called “Vani Mahal”. For the AY 1973-74, the AO, after referring to the objects of the assessee, adverted to different types of membership and, thereafter,
(A.Y: 2018-19) Nava Samaj Mandal proceeded to compute the total income of the assessee. The AO denied the exemption claimed by the assessee u/s 2(15) of the Act. The assessee appealed to the first appellate authority (AAC) and claimed exemption u/s 11 r.w. section 2(15) of the Act. The AAC held that barring the activity of letting out the hall on rent, the rest of the income of the assessee would be exempt u/s 11 of the Act, provided the other conditions were satisfied. In the matter of letting out the hall, he held that there was clearly an activity which resulted in a profit and, therefore, the income attributable to such activity would not be exempt u/s 11 of the Act. Accordingly, he directed the AO to apportion from the income and expenditure account of the assessee, the proportionate income attributable to the activity of letting out the hall and then subject it to tax after satisfying himself that, in respect of other items, the prescribed conditions as visualized u/s 11 of the Act were satisfied. Against this order, the assessee filed an appeal before the Tribunal. It is seen that the Tribunal held that looking to the object of the assessee, the hall was utilized only for the purpose of education within the meaning of section 2(15). It further held that even if all the objects of the assessee were not for the purpose of education, they were clearly ones for general public utility. It further held that the activity of letting out the hall is not for profit, and hence the object of the assessee was only for charitable purposes within the meaning of section 2(15) and, therefore, the rental income from the hall is exempt u/s 11 of the Act, provided the assessee satisfied the other conditions. The Revenue filed an appeal against the above order of the Tribunal before the High Court. It is seen that the following facts are noted by the High Court: “9. The Sabha was established to promote the advancement of music and other fine arts. In pursuance of the above objects, the assessee was holding musical entertainments, dramas, kalakshepams, dance, recitals, bhajans, exhibitions and lectures, etc. The assessee is also making arrangements for the exposition of art by competent artistes and thereby encouraging deserving talented people. One of the objects of the assessee is to conduct a school called "Sri Thyaga Brahma Gana Sabha Music and Dance School" for imparting education in music and dance on traditional lines and thus offering facilities for spreading knowledge in music and dance. The (A.Y: 2018-19) Nava Samaj Mandal assessee is also organizing social gatherings to promote comradeship among members. The assessee started a dramatic wing called "Sri Thyaga Brahma Gana Sabha Amateurs" to stage dramas. Thus, the assessee is also doing all other things which are incidental or conducive to the attainment of the above objects. Therefore, a plain reading of the object clauses contained in the rules and regulations of the Sabha would definitely go to show that the main purpose and object of the assessee is to impart education in several branches of fine arts.” Further observing that according to section 2(15) of the Act, “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit, the Hon’ble High Court concluded that : “25. As already pointed out, in the present case, Vani Mahal was let out to others whenever the assessee was not utilizing it. Even assuming that the net income of the Sabha is from an activity, the question is whether it is for profit. In the objects of the society, nowhere it is stated that earning of profit is its object. Therefore, there is no profit motive in running the Sabha. It would appear that no specific rate was fixed by the Sabha for letting out the hall and, on several occasions, the hall was let out on concessional rates to various parties. The rates charged are more or less ad hoc and in later stages it was shown as "donations". The rate was usually in the routine of Rs. 100 per day. After examining the income and expenditure statement for the past 25 years and the report of the governing body of the sabha, the Tribunal, on facts, came to the conclusion that the Sabha was running at a loss all these years. Therefore, the Tribunal came to the conclusion that even assuming that there was an activity on the part of the assessee in letting out the hall, it was not an activity for profit within the meaning of s. 2(15) of the IT Act, 1961. Thus, considering the facts appearing on this aspect, in the light of the decisions cited supra, we are of the opinion that the Tribunal was correct in holding that the assessee is entitled to the exemption under s. 11 r/w section 2(15) of the Act in respect of the rental income derived from letting out the Vani
(A.Y: 2018-19) Nava Samaj Mandal Mahal. In that view of the matter, we answer the questions referred to us in the affirmative and against the Revenue.” 7.1 It would be relevant to refer to section 2(15) of the Act which defines “charitable purpose” to include inter alia the following: i. relief of the poor ii. Education iii. medical relief, and iv. the advancement of any other object of general public utility. Circular No. 11 of 2008 dated 19.12.2008 issued by Central Board of Direct Taxes (CBDT) clarifies that the newly inserted proviso section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e. relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities. 7.2 In the instant case, as mentioned earlier, the assessee is a charitable trust engaged in imparting education in the field of classical music and light music based on the Gurukul Philosophy, where the student learns by virtually staying with the Guru. The institution was founded in 1932 by Acharya Jialal Vasant and has 84 years of rich heritage. The institution has a repute for providing scientific training in Hindustani Classical Music and Light Music. The trust has a studio namely “Ajivasan Sounds” which is used for the purpose of training students in professional singing and also the same is made available to various artists for the purpose of recording. We find that the gross receipts are only Rs.16.72 lakhs which subsidize the fees for Rs.33.01 lakhs for 785 students which works out to Rs.4206/- per student per year. In the instant case, the maintenance of studio is intrinsic and in pursuance of the objects of the assessee which is education. It is well understood that teaching of Indian Classical Music is within the field of “education”. The activities of the studio are carried on in order to achieve the main object of the Trust and cannot be construed as business. As mentioned earlier, since the trust is engaged in education, the proviso to section 2(15) does not apply as clarified by CBDT Circular No. 11 dated 19.12.2008. As mentioned earlier, in the case of Sri Thyaga Brahma Gana Sabha (supra), the Hon’ble Madras High Court affirmed the order of the Tribunal in holding that letting out of building did not involve profit-earning activity even assuming it to be an activity. The trust deed is to be read as a whole. Similar are the facts in the instant
(A.Y: 2018-19) Nava Samaj Mandal case. Therefore, following the above decision of the Hon’ble Madras High Court, we set aside the order of the Ld. CIT(A). Facts being identical, our decision for the AY 2010-11 applies mutatis mutandis to AY 2012-13. 8. In the result, the appeals are allowed.”
Respectfully following the above said decision, we are inclined to allow the ground raised by the assessee.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 29th August, 2022