2015 (6) TMI 571 - AT - Income Tax

Claim of exemption under section 11 denied - the income earned by the assessee-trust cannot be treated as income from educational activity and hence it has to be treated as business income - assessee let out its premises partly to Jet Airways and others and the income earned therefrom is assessable to tax as business income - Held that - As long as the trust is imparting education as per the object of the trust, income earned by such trust should be allowed the benefit of exemption under section 11 of the Act. Having regard to the assessee has let out the property for efficient utilisation of its assets with a larger purpose of imparting technical training in the said campus, assessee can be said to be carrying on a charitable activity and income therefrom is exempt from tax. See Dy. DIT(E) -I(2), Mumbai Versus M/s. Samudra Institute of Maritime Studies Trust 2014 (6) TMI 350 - ITAT MUMBAI Don Bosco Institute without charging any interest for a short period - as per revenue assessee advanced some amount to Don Bosco Institute out of accumulated income set apart for application, in terms of section 11(2) which is in violation of the provisions of section 11(5) - Held that - The claim of the assessee is not disputed by the learned D.R. Having regard to the circumstances of the case and in the light of the decision in the case of Acme Educational Society 2010 (7) TMI 159 - DELHI HIGH COURT , observed that interest free loan given by the assessee society to another society with identical object cannot be treated as investment or deposit in which event there is no violation of section 13(1)(d) r.w.s. 11(5) of the Act, we are of the view that the amount advanced by the assessee to Don Bosco Institute is not covered by section 11(5) of the Act and even on that count the claim of exemption could not have been denied to the assessee. Under these circumstances we are of the view that the plea taken before us by the assessee merits acceptance and we direct the AO to grant exemption under section 11 of the Act on the income earned by the assessee, including lease rent, etc. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the activities of the assessee trust qualify as charitable activities under section 11 of the Income Tax Act.
2. Whether the interest-free loan given to Don Bosco Institute violates the provisions of section 11(5) and section 13(1)(d) of the Income Tax Act.
3. Whether the rental income and income from technical training services should be treated as business income or as income from charitable activities.

Issue-wise Detailed Analysis:

1. Qualification of Activities as Charitable:
The assessee trust, registered under section 12A, claimed exemption under section 11 for its income, asserting that its activities were charitable, specifically in promoting education. The Assessing Officer (AO) contested this, arguing that providing technical training to employees of private companies and renting out space constituted commercial activities, not charitable ones. The AO cited the lack of recognition from any competent authority for the courses offered, referencing the Bihar Institute of Mining & Mine Surveying case to support his stance. The CIT(A) upheld the AO's view, applying judgments from the Patna High Court and the Supreme Court, concluding that the activities amounted to business income rather than educational activities.

However, the appellate tribunal noted that the assessee's main object was imparting vocational training, a recognized institution by NCVT. The tribunal emphasized that the income from renting out space and providing technical training was utilized for the trust's charitable purposes, aligning with the broader definition of education. It referenced the CBDT circular and various case laws, including the Hon'ble Calcutta High Court's decision in DIT vs. Sahu Jain Trust, to assert that incidental commercial activity does not negate the charitable nature of the trust's primary purpose.

2. Interest-free Loan to Don Bosco Institute:
The AO and CIT(A) argued that the interest-free loan to Don Bosco Institute violated section 11(5) and section 13(1)(d), as it was not an approved mode of investment or deposit. The assessee countered, citing the Hon'ble Delhi High Court's decision in DIT vs. Alarippu, asserting that the loan did not constitute an investment or deposit and was returned in the subsequent year. The tribunal agreed with the assessee, referencing the Delhi High Court's ruling in Acme Educational Society, which held that interest-free loans to entities with similar charitable objectives do not violate section 11(5). Consequently, the tribunal concluded that the loan did not disqualify the assessee from claiming exemption under section 11.

3. Treatment of Rental and Training Income:
The AO treated the rental income and income from technical training services as business income, not qualifying for exemption under section 11. The CIT(A) supported this, applying the Uttarakhand High Court's decision in CIT vs. National Institute of Aeronautical Engineering and Educational Society. The assessee argued that the rental and training income were part of its educational activities, necessary for efficient asset utilization and furthering its charitable objectives.

The tribunal found merit in the assessee's argument, noting that the rental income and fees from training services were used to advance the trust's educational objectives. It referenced the Hon'ble Bombay High Court's decision in DIT vs. National Safety Council and the ITAT Mumbai's ruling in Samudra Institute of Maritime vs. DDIT, which supported the view that incidental commercial activities do not disqualify a trust from claiming exemption if the primary purpose remains charitable.

Conclusion:
The tribunal concluded that the assessee's activities, including renting out space and providing technical training, were in furtherance of its charitable objectives. The interest-free loan to Don Bosco Institute did not violate section 11(5) or section 13(1)(d). Therefore, the income earned by the assessee, including rental income and fees for training services, qualified for exemption under section 11. The appeal filed by the assessee was allowed, and the AO was directed to grant the exemption.