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Facts
The assessee, a trust running a school, claimed exemption under section 11 for AY 2012-13. The Assessing Officer denied this exemption, treating rental income from halls as business income due to a proviso to section 2(15) of the Income-tax Act, 1961, as it was considered an activity in the nature of trade, commerce, or business. This decision was upheld by the CIT(A).
Held
The Tribunal held that the proviso to section 2(15) is not applicable to trusts whose objects fall under the first three limbs, including education. Income derived from letting out halls, when incidental and ancillary to the main object of imparting education and applied for such objects, cannot be treated as taxable business income. The denial of exemption and subsequent additions were deemed unsustainable.
Key Issues
Whether rental income from letting out halls, classrooms, and grounds by an educational trust is to be considered business income, disentitling it to exemption under Section 11, in light of the proviso to Section 2(15) of the Income-tax Act, 1961?
Sections Cited
143(3), 147, 148, 11, 2(15), 13(8), 250
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI PRABHASH SHANKAR
Holy Family School vs Income Tax Officer (Exemption) Chakala, Andheri (East), Ward 1(3), 6th Floor MTNL TE Building, Pedder Mumbai-400093 PAN : AAATH0076M road, Mumbai-400026 APPELLANT RESPONDENT Assessee by : Ms. Vasanti B. Patel a/w Shri M.A. Goel Respondent by : Shri Ritesh Misra (CIT DR) Date of hearing : 07/01/2026 Date of pronouncement : 14/01/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee was filed against the order of the NFAC Delhi [for brevity, ‘Ld.CIT(A)’] order passed under section 250 of the Income-tax Act, 1961 (for brevity, ‘the Act) for the Assessment Year 2012-13, date of order 28/07/2025. The impugned order was emanated from the order of the Learned Income Tax Officer (E) Ward 1(3), Mumbai (for brevity, ‘the Ld.AO’), order passed u/s143(3) r.w.s. 147of the Act, date of order 23/12/2019.
Holy Family School 2. The brief facts of the case are that the assessee is a Public Trust registered in the year 1955 with the Charity Commissioner, Mumbai Region, under the Maharashtra Public Trusts Act, 1950. The assessee-trust is also registered under section 12A(a) of the Act and enjoys approval under section 80G of the Act. The assessee is assessed in the status of an Association of Persons (AOP–Trust) from year to year. The assessee has been established exclusively for the purpose of education and exists solely for the promotion of education. In furtherance of its charitable objects, the assessee has been claiming exemption under section 11 of the Act. The assessee is running “Holy Family High School” at Chakala, Andheri (East), Mumbai, and has obtained the requisite registration and recognition from the Education Department, Government of Maharashtra. The statutory audit of the accounts of the assessee was completed on 21.04.2014, which was beyond the time limit prescribed under sections 139(1) and 139(4A) of the Act for filing the return of income, even as a belated return. Consequently, the assessee could not file its return of income for the relevant assessment year within the prescribed time. Subsequently, the assessee filed its return of income for AY 2012–13 on 30.04.2019 in response to a notice issued under section 148 of the Act, declaring total income at Nil. The Ld. AO completed the assessment under section 143 read with section 147 of the Act, determining the total income at Rs. 68,29,660/-. The said addition comprised disallowance of capital expenditure amounting to Rs.32,95,282/- claimed as application of income under section 11(1) of the Act and denial of accumulation of income amounting to Rs. 35,34,377/- claimed at 15% under section 11(1)(a) of the Act. The assessment was completed by denying the benefit of exemption under section 11 of the Act on the ground that the activity of earning income from the Holy Family School use of hall, classrooms, and ground belonging to the assessee amounted to “advancement of any other object of general public utility.” The Ld. AO held that the assessee was engaged in providing services in relation to trade, commerce, or business for a consideration by way of renting of the hall, and was therefore hit by the proviso to section 2(15) of the Act inserted with effect from 01.04.2009. Accordingly, it was held that the assessee was not entitled to exemption under section 11 of the Act in view of the provisions of section 13(8) of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the impugned assessment order. Being aggrieved assessee filed an appeal before us.
The Ld. AR advanced arguments and filed a paper book comprising pages 1 to 92, which has been placed on record. Ld. AR stated that the assessment was duly completed by considering entire hall receipt amount to Rs.7140478/- as business income in that sequence denying the sum of Rs.32,95,282/- being capital expenditure claimed as application of income and disallowance of deduction U/s 11(1)(a) of the Act amount to Rs. 35,34,377/-. Further the Ld. AR contended that the assessee has collected the instant rental charges from hall booking which is duly utilized for this educational purpose. The Ld. AR submitted the nature of transactions related the hall booking which is reproduced as below:
Mrs. Patel, Ld. AR, further contended that the assessee is running school and the object of promotion of education. In earlier years the assessee has collected the sum as the rental income. The earlier years are taken in scrutiny proceeding & said rental income was accepted by the revenue for AY 2010-11 to AY 2014-15. The assessee is continuously claiming this rental income and the revenue has accepted the same. Only this impugned assessment year the benefit of section 11 is duly denied.
It is further argued that the same factual aspect was duly considered by the Hon'ble Bombay High Court in case of DIT (E) vs. Shri Vile Parle Kelavani Mandal reported in (2015) 378 ITR 593 (Bom) wherein the relevant observations contained in paragraphs 5 to 7 are reproduced below:– “5. The Tribunal has held that the "management and development program and consultancy charges" is part and parcel of "Narsee Monjee Institute of Management Studies" which has been set up by the respondent-assessee. The respondent-assessee is a trust and has set up 30 schools and colleges. The Commissioner as also the Tribunal has found that the element of Holy Family School business is missing in conducting management courses. There may be some surplus generated which itself is applied towards the attainment of the object of the educational institute. The separate books of account cannot be insisted upon because once this programme is part and parcel of the activities undertaken and carried out by the Narsee Moonjee Institute of Management Studies, then the condition precedent set out in sub-section (4A) of section 11 of the Income-tax Act, 1961, is completely satisfied. Such finding of fact cannot be termed as perverse and it is in consonance with the factual aspect regarding the activities of the trust and the object that it is seeking to achieve. Similarly, in regard to income from the hiring of the premises and advertisement rights, the said question is also not substantial question of law. Letting out of halls for marriages, sale and advertisement rights has not been found to be a regular activity undertaken as a part of business. The educational institutions require funds. The income is gen-erated from giving various halls and properties of the institution on rentals only on Saturdays and Sundays and on public holidays when they are not required for educational activities, then this cannot be said to be a business which is not incidental to attain the objects of the trust. This being merely an incidental activity and the income derived from it is used for the edu-cational institute and not for any particular person, separate books of account are also maintained, then this income cannot be brought to tax. This conclusion is also not perverse and given the facts and circumstances which are undisputed.
As far as question No. 4 is concerned, this court has repeatedly held that 6 there is nothing like double deduction. When the assessee has acquired an asset from the income of the trust and thereafter the amount that is claimed is the depreciation on the use of the assets, such depreciation claim does not mean double deduction. The deduction earlier claimed is towards application of funds of the trust for acquiring assets. The latter is depreciation and it is permissible deduction considering the use of the assets. This has been clarified repeatedly by this court. If any reference is required then the case of CIT v. Institute of Banking reported in [2003] 264 ITR 110 (Bom) is enough.
Going by the law laid down by this court, we are of the opinion that even question No. 4 in the paper-book cannot be termed as substantial question of law. The appeal thus has no merits and is dismissed. No order as to costs.”
The Ld. AR submitted a written note in relation to her argument. The relevant part of the said written note is extracted as below:- “II. DENIAL OF BENEFITS OF SECTION 11 AND 12 OF THE ACT: 5.1.) Implications of the amendment, as explained in the CBDT Circular:
The Ld. AO has miserably failed to appreciate the implications and applicability of the Proviso to Section 2(15) of the Act. The implications of the said Proviso have been clearly explained by the CBDT itself in the Circular No. 11 of 2008 dated 19th December, 2008 which has been erroneously relied upon by the learned AO in the Assessment Order. The relevant part of the said Circular reads as under:
Definition of 'Charitable purpose' under section 2(15) of the Income-tax Act, 1961 “2. The following implications arise from this amendment – 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), ie., 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.
2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business.
Similarly, entities whose object is 'education' or 'medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.
The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or Holy Family School business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity." The plain reading of the above Circular and in particular, the Para (3) makes it clear that the newly inserted Proviso to Section 2(15) will apply to only those entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Thus, it will not get attracted in case of entities whose objects are covered under First three limbs. The Appellant is a trust running and managing a High School as part of its object of promotion of education. As admitted by the learned Assessing Officer in the assessment order, the appellant has earned income of Rs.5,81,75,583/- (including rental income of Rs. 71,40,478/-) during the year and has applied the same to the extent of Rs.5,13,45,924/- to the activities of promotion of educational objects.Thus, promotion of education is the main object of the Appellant trust and the rental income is simply ancillary to the attainment of the said main object. Hence, as explained in the above referred CBDT Circular, the Proviso cannot be attracted and applied to the case of the appellant.”
The Ld. DR argued and stands in favor of the orders of revenue authorities. The Ld. DR invited our attention in appellate order paragraph 3 which is reproduced as below: “3. The ground no.2 objects to assessing the total income at Rs.68,29,660/-after reducing the amount applied in India as expenditure on educational trust amounting to Rs. 5,13,45,925/-. 3.1 As per the income and expenditure account the assessee has shown hall receipts of Rs. 71,40,478/-. The receipts as shown by the assessee in the Income & Expenditure a/c makes it amply clear that the assessee is doing regular activities which are in the nature of business by way of letting out its hall for marriages and other various functions. The object of the assessee falls under the category of "advancement of my other object of general public utility, assessee accepts fees for the services provided by the assessee and the total receipts of the assessee are more than Rs. 25 lakhs. The assessee has also collected service tax on hall booking from customers and also paid service during the year. As per service tax and rules, service tax is not applicable on educational services. By collecting and paying service tax, the assessee itself declared that it has rendered services in relation to trade commerce or business for a cess or fee or any other consideration. Therefore, the case of the assessee being hit by the amendment to section 2(15) w.e.f. 01.04.2009, the assessee loses its charitable character within the meaning of Holy Family School section 2(15) for the assessment year in question and is therefore not entitled to exemption u/s.11 in view of the provision of section 13(8) of the I.T. Act. 3.2 Further, the letting out for business purpose is not incidental to the main object of the trust. The assessee failed to discharge its onus to establish that letting of hall is merely incidental to the attainment of the prime objective of the trust i,e. education and separate books of account were maintained by theassessee. Hence the assessment of Rs. 68,29,660/- as taxable total income is confirmed.”
We have carefully considered the rival submissions, perused the material available on record, and examined the judicial precedents relied upon by both parties. It is an undisputed fact that the assessee is a charitable trust established exclusively for the purpose of education and has been running an educational institution with due recognition from the competent authorities. The dominant and primary object of the assessee is the promotion of education, which squarely falls within the first limb of “charitable purpose” as defined under section 2(15) of the Act. We find force in the contention of the Ld. AR that the income derived from letting out the hall, classrooms, and ground is merely incidental and ancillary to the main object of imparting education. The record clearly shows that such receipts have been consistently earned in earlier years and were duly accepted by the revenue in scrutiny assessments for Assessment Years 2010–11 to 2014–15, wherein the benefit of exemption under section 11 of the Act was allowed. There is no material change in facts or activities during the impugned assessment year to justify a departure from the settled position. The reliance placed by the Ld. AR on the judgment of the Hon’ble Bombay High Court in Shri Vile Parle Kelavani Mandal (supra) is well founded. The Hon’ble High Court has clearly held that letting out of halls and premises by an educational
Holy Family School institution, when such activity is not in the nature of a regular business and the income so generated is applied towards the educational objects of the trust, cannot be treated as a commercial activity so as to deny exemption under section 11 of the Act. The facts of the present case are squarely covered by the ratio laid down therein. We also find merit in the submission that the proviso to section 2(15) of the Act does not apply to trusts whose objects fall under the first three limbs, namely, relief of the poor, education, or medical relief. The CBDT Circular No. 11 of 2008 dated 19.12.2008 categorically clarifies that the said proviso applies only to entities engaged in the “advancement of any other object of general public utility” and not to educational institutions, even if they incidentally carry on ancillary commercial activities. In the present case, the rental income is only incidental to the attainment of the main educational objects and has been substantially applied towards such objects. The mere collection and payment of service tax on hall receipts, by itself, cannot be determinative of the nature of the assessee’s activities as being commercial, particularly when the dominant purpose remains charitable and educational. The revenue has failed to demonstrate that the assessee was carrying on an independent business activity divorced from its charitable objects or that the letting out of the hall constituted the primary activity of the trust. In view of the above facts and respectfully following the binding judicial precedents, we hold that the Ld. AO and the Ld. CIT(A) were not justified in denying the exemption under section 11 of the Act by invoking the proviso to section 2(15) read with section 13(8) of the Act. Consequently, the disallowance of capital expenditure claimed as application of income and the denial of accumulation under section 11(1)(a) of the Act are unsustainable.