2023 (1) TMI 611 - AT - Income Tax

Exemption u/s 11 - letting-out auditorium was a commercial activity, attracting proviso to Sec.2(15) of the Income-tax Act - as submitted auditorium is used only for educational purposes for the students during school hours and it was let-out, beyond school hours for educational purposes and promotion of fine-arts, etc., in order to augment the income to be used for educational purposes - HELD THAT - The assessee trust exist for the purpose of education and the auditorium which is within the school complex for the purpose of conducting guest lectures or topics to address the students in connection with the curriculum and this is incidental and to earn rental from conducting conferences, music, dance and letting out to general public for conference meetings etc., is incidental to education and even from the facts it is clear that it is let out only for 134 days in assessment year 2010-11, for 144 days in assessment year 11-12, for 140 days in assessment year 2012-13 and 141 days in assessment year 2013-14. Even the rental earned from renting out of auditorium in relevant AY 2010-11 is Rs.40,84,433/- minus expenditure of Rs.15,77,851/- and the net income receipts is declared at Rs.25,06,582/- as against gross total income from educational activity at Rs.2,03,13,541/-, which is only to the extent of 12.5% of total receipts. Once the assessee falls under the category of education in term of section 2(15) of the Act, assessee is eligible for exemption u/s.11 of the Act because letting out of auditorium is incidental to fulfilment of the object of the trust i.e., education. Hence, we allow the appeal of assessee.

Issues Involved:
1. Classification of the Assessee Trust's activities under Section 2(15) of the Income Tax Act, 1961.
2. Determination of whether letting out the auditorium constitutes a commercial activity.
3. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.

Issue-wise
Detailed Analysis:

1. Classification of the Assessee Trust's Activities under Section 2(15) of the Income Tax Act, 1961:

The primary issue in these appeals is whether the activities of the Assessee Trust fall under the category of "Advancement of any other object of General Public Utility" or "Education" as per Section 2(15) of the Income Tax Act, 1961. The Assessee Trust argued that it runs an educational institution and the auditorium is used primarily for educational purposes. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] classified the letting out of the auditorium as a commercial activity, thereby falling under the category of General Public Utility (GPU).

2. Determination of Whether Letting Out the Auditorium Constitutes a Commercial Activity:

The AO noted that the Assessee Trust let out the auditorium to the general public for various events such as dance programs, music programs, corporate meetings, and family functions, generating substantial income. The AO held that this activity was commercial in nature and thus hit by the proviso to Section 2(15) of the Act, which excludes activities involving trade, commerce, or business from being considered as charitable purposes if the receipts exceed the prescribed limit. The CIT(A) upheld this view, noting that the auditorium was let out for 227 days during the financial year 2009-10 and earned significant income, indicating a commercial activity.

3. Eligibility for Exemption under Section 11 of the Income Tax Act, 1961:

The Assessee Trust contended that the income from letting out the auditorium was used for educational purposes and thus should be exempt under Section 11 of the Act. The Trust maintained separate books of accounts for the auditorium and argued that the activity was incidental to its primary educational purpose. The AO and CIT(A) denied the exemption, stating that the income from letting out the auditorium was commercial and exceeded the threshold limit, making it ineligible for exemption under Section 11.

Tribunal's Findings:

The Tribunal examined the trust deed and found that the Assessee Trust's primary objective was education. The Tribunal noted that the auditorium was used for educational purposes and let out to augment income for the Trust's educational activities. The Tribunal observed that the letting out of the auditorium was incidental to the Trust's educational activities and not a commercial activity in itself.

The Tribunal referred to the Supreme Court's judgment in the case of Ahmedabad Urban Development Authority, which clarified that the restriction on carrying out activities for profit does not apply to trusts engaged in education, medical relief, or relief of the poor. The Tribunal concluded that since the Assessee Trust's primary purpose was education, the income from letting out the auditorium was incidental and thus eligible for exemption under Section 11.

Conclusion:

The Tribunal allowed the appeals of the Assessee Trust for all four assessment years, holding that the letting out of the auditorium was incidental to its educational activities and did not constitute a commercial activity. The Trust was thus eligible for exemption under Section 11 of the Income Tax Act, 1961.

Order Pronounced:

The appeals filed by the Assessee Trust in ITA Nos. 976, 977, 978 & 979/CHNY/2019 were allowed, with the order pronounced in the open court on 11th January 2023 at Chennai.

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