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Income Tax Appellate Tribunal, B / SMC BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN
आदेश /O R D E R
Both appeals of the assessee are directed against the common order passed by the Commissioner of Income Tax (Appeals) – VII, Chennai, dated 16.06.2014 and pertain to assessment years 2009-10 and 2010-11. Since common issue arises for consideration in both these appeals, I heard these appeals together and disposing of the same by this common order.
Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee-society is registered under Section 12AA of the Income-tax Act, 1961 (in short 'the Act') as charitable institution.
The assessee claimed deduction under Section 11 of the Act in respect of its income generated out of the property held under Trust.
According to the Ld. counsel, the assessee has received rental income to the extent of `33,14,700/- from auditorium. According to the Ld. counsel, the assessee-society is using the auditorium for the object of the society and it was not let out for any commercial purpose. However, the Assessing Officer found that letting out the auditorium is in the nature of trade, commerce, business, etc. and found that the assessee-society is not eligible for exemption under Section 11 of the Act. The Ld.counsel further submitted that even though the Assessing Officer initiated proceeding for cancellation of registration granted under Section 12AA of the Act, the registration granted under Section 12AA was not cancelled and it continues to be pending.
Referring to the order of the CIT(Appeals), more particularly page 5, the Ld.counsel submitted that the CIT(Appeals) has reproduced the objects of the assessee-society at para 3.4. After examining these objects, the Director of Income Tax (Exemptions) granted registration under Section 12AA of the Act. The Ld.counsel further submitted that merely because the auditorium was let out for coaching medical students for Post Graduate entrance examination that cannot be a reason to say that it was not in connection with the objects of the society. One of the objects of the assessee –society is to encourage and advance the study and practice of the science and art of surgery. Therefore, the assessee has to necessarily train the students, who completed under graduate medicine so that they can compete the competitive examination in Post Graduate medical courses. This cannot be considered to be a commercial activity merely because the assessee-society charges fees. According to the Ld. counsel, it is not the case of the Revenue that the funds of the assessee-society was directed to the activities other than the objects of the society. In the absence of any such allegations, according to the Ld. counsel, the CIT(Appeals) is not justified in confirming the orders of the Assessing Officer.
4. On the contrary, Shri M. Murugaboopathy, the Ld. Departmental Representative, submitted that the assessee’s letting out auditorium and receiving rental income cannot be considered to be charitable activity. Referring to the coaching classes conducted by the assessee, the Ld. D.R. submitted that the assessee was charging heavy fees from medical students for conducting coaching classes, therefore, it is obvious that the assessee was letting out the auditorium on commercial line and there was no traces of objects of the assessee in conducting the coaching classes. Encouraging and advancing the students of art and surgery is one of the objects of the society. However, the assessee-society is actually running an auditorium which is let out and put to commercial use for earning income. Therefore, the activities of the society are in the nature of trade or commerce. Hence, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the orders of the Assessing Officer.
I have considered the rival submissions on either side and perused the relevant material available on record. The assessee- society is admittedly registered under Section 12AA of the Act by the Director of Income Tax (Exemptions). For the years under consideration, the Assessing Officer denied exemption under Section 11 of the Act on the ground that the activity of the society running the auditorium is in the nature of trade, commerce or providing services in relation to trade. As rightly submitted by the Ld.counsel for the assessee, the Director of Income Tax (Exemptions) after examining the objects of the assessee-society, which were reproduced by the CIT(Appeals) at para 3.4 of the impugned order, granted registration under Section 12AA of the Act.
The assessee has multiple objects and one of the objects was to encourage and advance the study and practice of the science and art of surgery. The assessee is also owning an auditorium which was let out and earning rental income. The question arises for consideration is when the assessee was owning an auditorium and letting out the same, whether that would amount to carrying on trade or commerce? As seen from the objects of the society, maintaining the auditorium is not the object of the society. The main objects of the society are reproduced by the CIT(Appeals) at para 3.4 of the impugned order. Under Section 11 of the Act, the income of the Trust / society derived from property held under trust is exempted from taxation on application. Therefore, for the purpose of exemption, the income has to be necessarily generated from the property held under the trust. It is not in dispute that the auditorium can also be held as property under trust. When the auditorium was held under trust, the income generated out of that auditorium is exempted under Section 11 of the Act on application to the objects of the society for which it was formed. After going through the provisions of Section 11(4) and 11(4A) of the Act, this Tribunal is of the considered opinion that trade or commerce is not totally prohibited. A trade or commerce or any property can be held under Trust for the purpose of carrying on the objects of the trust. In other words, for funding charity or carrying out the objects of the trust, the assessee-trust has to be necessarily generate funds. The funds can be generated in several ways. One of the ways of generating fund is by maintaining the auditorium under trust. In this case, the auditorium was held under trust of the society for the purpose of generating funds. The income generated out of the auditorium was
The CIT(Appeals), after referring to the coaching classes for which the auditorium was let out, found that the assessee was charging heavy fees from medical students. However, he has not referred any quantum of fees charged by the assessee-society.
Charging fee by itself cannot be a reason to disallow the claim of the assessee. A charitable institution is not expected to do charity at free of cost. A charitable institution is entitled to collect a reasonable fee for meeting the expenditure. Even a charitable society needs money for the purpose of carrying out its charitable objects. Therefore, this Tribunal is of the considered opinion that letting out the auditorium for conducting coaching classes for Post graduate entrance exams cannot be considered to be outside the objects of the assessee-society. This Tribunal is of the considered opinion that letting out the auditorium for the purpose of conducting coaching classes for Post Graduate entrance exams is in furtherance of its objects. Therefore, the income generated out of letting out the auditorium has to be necessarily considered as income generated from the property held under the trust.
In view of the above, this Tribunal is unable to uphold the orders of the authorities below. The orders of the authorities below are set aside and the Assessing Officer is directed to allow exemption under Section 11 of the Act.
In the result, both the appeals of the assessee are allowed.
Order pronounced on 1st July, 2016 at Chennai.