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Income Tax Appellate Tribunal, C/“SMC” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These two appeal are filed by the assessee, aggrieved by the different orders of the Learned Commissioner of Income Tax(A)-2, Coimbatore in dated 30.03.2016 & ITA No.302/14- 15 dated 30.03.2016 pertaining to assessment years 2011-12 & 2012-13 respectively.
There was a delay of 03 days in filing this appeal by the assessee.
Consequent to this, the assessee filed an affidavit dated 17.11.2017 for condoantion of delay stating that the said delay in filing the appeal is neither willful nor deliberate but due to technical problems in e- payment of the appeal fee and in postal transit and also the circumstances beyond the control of Petitioner herein. After considering the same, I am satisfied about the reasons advanced by the ld.A.R for delay of 03 days in filing the appeal. Accordingly, the delay is condoned and the appeal is admitted for adjudication.
The assessee has raised the following common grounds in the above mentioned two appeals for adjudication.
1. The order of the Commissioner of Income Tax (Appeals) is opposed to the facts and circumstances of the case and law.
2. The Commissioner (Appeals) erred in holding that the AO was justified in denying exemption u/s 11 in respect of income from auditorium and bringing it to tax. 3. The assessing officer / Commissioner (Appeals) erred in not appreciating that the appellant Trust, which is registered as a Charitable Trust u/s 1 2A of the Act is running Schools, Polytechnic College and Industrial Training Centre in terms of the objects as per the Declaration of Trust (dt.30.04.1973) and has been enjoying the benefit of exemption in respect of its income.
4. The Authorities below failed to see that the Auditorium, an immovable property belonging to the appellant Trust, is let out on rent for the purpose of augmenting the resources required for carrying out the primary and dominant object of carrying out charitable activities viz., education.
The Authorities below further failed to see that letting out of the immovable properties is not the main activity of the Trust but a sub-ordinate activity and would not prevent the Trust from being a valid charity eligible for exemption u/s 11 of the Act.
6. The appellant submits that it is committed to education, which is its dominant activity besides medicall relief and poor relief in a small measure and “advancement of any other object of general public utility” is not an object as per the Declaration of Trust under which it is constituted and in such circumstances the Proviso to section 2(15) is not attracted to bring the income from the auditorium to tax.
The assessing officer I Commissioner (Appeals) erred in denying allowance of depreciation on assets claimed by the appellant; the reasons stated in the assessment I appellate order are incorrect and unsustainable.
The appellant submits that its claim for depreciation is supported by various judicial decisions cited before the Commissioner (Appeals) which ought to have found acceptance.
3.1 In addition to the above grounds raised in its two appeals, the assessee raised following additional grounds for adjudication.
The appellant submits that its aggregate receipts from the auditorium during the previous year ended 31.03.2011 do not exceed 20 percent of the total receipts of the said previous year and the new proviso to section 2(15) introduced by the Finance Act, 2015 applies; accordingly, the tax exemption ought not to have been denied by the assessing officer / Commissioner (Appeals) in respect of the income from the auditorium.
2. The appellant is advised to submit that Circular No.21 of 2016 dated 27th May, 2016 (Clarification regarding cancellation of registration u/s 1 2AA of the IT Act, 1961 in certain circumstances) is relevant in considering the applicability of the proviso to section 2(15) of the IT Act, 1961.
3. The appellant is further advised that in Director of Income Tax (Exemptions) vs. Khar Gymkhana [(2016) 385 ITR 162 (Born)] the Hon’ble Bombay High Court has, in deciding an appeal by the Revenue for assessment year 2009-10, considered the new proviso introduced by the Finance Act, 2015 (w.e.f April 1, 2016) changing the cut — off bench mark as 20% of the total receipts instead of the fixed limit of Rs.25 Lakhs and the CBDT’s Circular No.21 of 2016 dated 27th May, 2016 and held that the new proviso would apply in that case (for assessment year 2009- 10), when there is no change in the nature of the activities of the assessee during the assessment year in question.
4. The appellant respectfully submits that in the light of the CBDT’s Circular and the judgment of the Hon’ble Bombay High Court the appellant’s income from the auditorium is eligible for exemption u/s 11 of the Act.
The assessee filed petitions for admitting the additional grounds raised in these two appeals stating as follows:-
The Petitioner / appellant, a Public Charitable Trust, has filed the above appeal against the Appellate order passed by the Commissioner of Income Tax (Appeals) — 2, Coimbatore in l.T.A.No.194/14-15 dated 30.03.2016 holding that the AO was justified in denying exemption u/s 11 in respect of income (of Rs.1 1,29,946/-) from Auditorium and bringing the amount to tax. The said appeal was filed on 15.07.2016 and is pending.
In the Grounds of Appeal before the Hon’ble Tribunal the appellant trust has contended that its main object is education and it is running schools, polytechnic, college and industrial training centre, enjoying the benefit of exemption in respect of its income and that the Auditorium is let out on rent for the purpose of augmenting the resource required for carrying out the primary and dominant object viz., education and on such facts the proviso to section 2(15) of the Act is not attracted to bring the income from auditorium to tax.
The Petitioner / appellant submits that its total receipts for the year ended 31.03.2011 is Rs.7,00,24,415/- and the auditorium receipts, as per separate accounts maintained, is Rs.36,34,599/- i.e., less than 20 percent of the total receipts and that the cut — off benchmark stipulated in the new proviso to section 2(15) introduced by the Finance Act, 2015 will be applicable.
5. I have gone through the petition for admission of additional grounds. In my opinion, there exists a good and sufficient reason for not raising this additional ground on earlier occasion. Since the judgement of Bombay High Court in the case of DIT(Exemption) Vs. Khar Gymkhana in (2016) 385 ITR 162(Bombay) were delivered on 06.07.2016. The CBDT circular No.21 of 2016 was issued on 27.05.2016. In this case, the order of Ld.CIT(A) for assessment year 2011-12 and 2012-13 were passed on 30.06.2016. Being so, the assessee could not raise these grounds before the Ld.CIT(A).
5.1 Since the additional grounds raised by the assessee go to the root of the matter, I admit the additional grounds. Further, in my opinion, these grounds are raised first time before me and Ld.CIT(A) have no occasion to examine the same, it is an appropriate to remit the issue to the file of Ld.CIT(A) to pass the same in the light of the judgment of Bombay High Court in the case of DIT(Exemption) Vs. Khar Gymkhana(supra) wherein held that:-
“10. We find that the Circular No. 21 of 2016 when read as a whole, specifically lists out in paragraphs 4 and 5 reproduced herein above that the registration granted under section 12AA could not be cancelled, only when the receipts on account of business exceeded the cut off, specified in the proviso to section 2(15) of the Act. The jurisdiction to cancel the registration only arises if there is change in the nature of activities of the institution or the activities of the institution, are not genuine. The aforesaid Circular by placing reliance upon section 13(8) of the Act inter alia provides that the registration granted to the trust would continue even when the receipts on account of business is in excess of Rs. 25 lakhs. In such case, the Assessing Officer while framing the assessment for the subject assessment year would be entitled to deny the benefit of exemption to such a trust for that year.
The submission made on behalf of the Revenue that the Circular No. 21 of 2016 would have only prospective effect in respect of assessment made subsequent to the amendment under section 2(15) of the Act, with effect from April 1, 2016 is also not sustainable. The amendment in section 2(15) of the Act brought about by Finance Act, 2016, with effect from April 1, 2016, is essentially that where earlier the receipts in excess of Rs. 25 lakhs on commercial activities would exclude it from the definition of 'charitable purpose' is now substituted by receipts from commercial activities in excess of 20 per cent. of the total receipts of the institution. In the above view, Circular No. 21 of 2016 directs the Officer of the Revenue not to cancel Registration only because the receipts on account of business are in excess of the limits in the proviso to section 2(15) of the Act would also apply in the present case. The impugned order has held that cancellation of a registration under section 12AA(3) of the Act, can only take place in case where the activities of the trust or institution are not genuine and/or not carried on in accordance with its objects. The aforesaid Circular No. 21 of 2016 is in line of the finding of the Tribunal in the impugned order. The submission on behalf of the Revenue that the trust is not genuine because it is hit by proviso to section 2(15) of the Act, is in fact, negatived by Circular No. 21 of 2016. In fact, the above Circular No. 21 of 2016 clearly provides that mere receipts on account of business being in excess of the limits in the proviso would not result in cancellation of registration granted under section 12AA of the Act unless there is a change in nature of activities of the institution. Admittedly, there is no change in nature of activities of the institution during the subject assessment year. The further submission on behalf of the Revenue that looking at the quantum of receipts on account of commercial activities, it is unlikely/ improbable that in the subsequent assessment years, the receipts would fall below Rs. 25 lakhs and therefore, the Commissioner is entitled to cancel the Registration. The aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. We are unable to accept the submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to the Revenue since whenever
the receipts on account of commercial activities is in excess of the limits provided in proviso to section 2(15) of the Act, the Assessing Officer is mandated/ required to deny exemption under section 11 of the Act as provided in Circular No. 21 of 2016, dated May 27, 2016. Accordingly, the issue stands covered in favour of the Revenue by virtue of Circular No. 21 of 2016.” Accordingly, the additional ground in both the appeals are remitted to the file of Ld.CIT(A) for fresh consideration.
5.2 Since the additional grounds are remitted to the file of Ld.CIT(A), at this stage I refrain from going into the other grounds raised by the assessee.
In the result, both the appeals of the assessee are partly allowed for statistical purposes. Order pronounced on 05th December, 2017.