2020 (1) TMI 720 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - withdrawal/cancellation of registration granted under section 12A - assessee an Association of Persons (AOP), claims to be a Charitable Institution as it is engaged in the promotion of equestrian sports viz. providing instructional course, lecture and demonstration, training, schooling and care, maintenance of horses horsemanship and offered kind of equestrian sports and knowledge of horse and to give all facilities for practice thereof - CIT-A held that since assessee s registration granted under section 12A of the Act has been withdrawn, it will not be eligible to claim exemption under section 11 - HELD THAT - Reasoning on the basis of which DIT (Exemp.) withdrew/cancelled assessee s registration under section 12A were adopted by the AO while rejecting assessee s claim of exemption u/s 11 in the impugned assessment year. However, the Tribunal while deciding the issue has categorically held that nothing has been brought on record to show or to prove that the activities carried out by the assessee are in violation of its objects. Be that as it may, as observed earlier, the only reasoning on the basis of which learned Commissioner (Appeals) has upheld the disallowance of assessee s claim of exemption under section 11 of the Act is due to withdrawal/cancellation of assessee s registration under section 12A of the Act. However, after restoration of the registration granted under section 12A of the Act by virtue of the order passed by the Tribunal, as referred to above, the reasoning of learned Commissioner (Appeals) in rejecting assessee s claim of exemption under section 11 of the Act cannot be upheld. It is relevant to observe, in case of another assessee, viz. Cotton Textile Promotion Council, learned Commissioner (Appeals) had upheld rejection of claim of exemption under section 11 of the Act on identical reasoning for the very same assessment year. However, while deciding the appeal of the assessee in 2015 (1) TMI 1437 - ITAT MUMBAI the Tribunal having taken note of the fact that the registration granted under section 12A of the Act has been restored by the Tribunal, allowed assessee s claim of exemption under section 11 of the Act by setting aside the order of learned Commissioner (Appeals). Against the order of the Tribunal, though, the Revenue went in appeal before the Hon'ble Jurisdictional High Court in1767919, the Hon'ble Jurisdictional High Court upheld the decision of the Tribunal. Facts in the present case are identical as the only reasoning on the basis of which learned Commissioner (Appeals) has upheld the rejection of exemption under section 11 of the Act is due to cancellation of assessee s registration under section 12A of the Act. Once the cancellation of registration has been set aside and registration granted under section 12A of the Act has been restored by the Tribunal, learned Commissioner (Appeals) s decision for disallowance of exemption under section 11 of the Act becomes redundant, hence, has to be set aside. Accordingly, we set aside the impugned order of learned Commissioner (Appeals) and allow assessee s claim of exemption under section 11 Characterization of rental income - Income From House Property or Income From Business - HELD THAT - Rental income has to be treated as income from house property as the assessee has rented out his premises without carrying on any business activity itself.

Summary

Issues Involved:
1. Denial of exemption claimed under section 11 of the Income Tax Act, 1961.
2. Proper head under which rental income received from Olive Bar and Kitchen Pvt. Ltd. should be assessed.

Issue-wise Detailed Analysis:

1. Denial of Exemption Claimed Under Section 11:

The primary grievance of the assessee, an Association of Persons (AOP) claiming to be a 'Charitable Institution,' was the denial of exemption under section 11 of the Income Tax Act, 1961. The assessee argued that its activities, including the promotion of equestrian sports and related educational activities, qualified it as a charitable institution under section 2(15) of the Act. The assessee had been granted registration under section 12A of the Act and had consistently claimed exemption under section 11 in previous assessment years.

The Assessing Officer (AO) denied the exemption, arguing that the assessee's income from various activities, such as horse hire charges for marriage ceremonies and rental income from Olive Bar and Kitchen Pvt. Ltd., constituted business income. The AO contended that these activities were commercial in nature and thus did not qualify for exemption under section 11.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, but on different grounds, stating that the assessee's registration under section 12A had been withdrawn, making it ineligible for exemption under section 11.

However, the Tribunal noted that the assessee's registration under section 12A had been restored by a previous Tribunal order. Consequently, the reasoning of the CIT(A) for denying the exemption was invalid. The Tribunal concluded that the assessee's claim of exemption under section 11 should be allowed, as the withdrawal of registration under section 12A was the sole basis for the CIT(A)'s decision, which no longer held.

2. Proper Head for Assessing Rental Income:

The second issue pertained to the proper head under which the rental income received from Olive Bar and Kitchen Pvt. Ltd. should be assessed. The assessee claimed that this income should be assessed under the head "Income from House Property," while the AO treated it as "Income from Business."

The CIT(A) sided with the assessee, agreeing that the rental income should be assessed under "Income from House Property." The Tribunal concurred, noting that since the assessee had rented out its premises without engaging in any business activity itself, the income should indeed be classified as "Income from House Property."

Conclusion:

In summary, the Tribunal allowed the assessee's appeals, granting the exemption under section 11 of the Act and agreeing that the rental income should be assessed under "Income from House Property." Consequently, the Revenue's appeal was dismissed. The Tribunal's decision hinged on the restoration of the assessee's registration under section 12A, which invalidated the CIT(A)'s reasoning for denying the exemption.