2016 (7) TMI 521 - AT - Income Tax

Cancellation of registration granted under Section 12AA - whether income generated out of the auditorium was used to the objects of the trust? - Held that - 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 used to the objects of the trust. Whether the assessee was charging heavy fees from medical students? - Held that - The CIT(Appeals)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.. The orders of the authorities below are set aside and the Assessing Officer is directed to allow exemption under Section 11 of the Act. - Decided in favour of assessee

Summary

Issues:
1. Whether letting out an auditorium and receiving rental income by a society registered under Section 12AA of the Income-tax Act, 1961 qualifies as a charitable activity for exemption under Section 11 of the Act.
2. Whether charging fees for coaching classes conducted in the auditorium affects the eligibility of the society for exemption under Section 11 of the Act.

Analysis:
1. The Appellate Tribunal considered the case where the assessee-society, registered as a charitable institution under Section 12AA, claimed deduction under Section 11 for rental income from an auditorium. The Assessing Officer contended that letting out the auditorium constituted trade or commerce, making the society ineligible for exemption. The Tribunal analyzed the society's objects, emphasizing the encouragement of surgery study. It concluded that generating income from the auditorium, held under trust, aligned with the society's objectives. The Tribunal highlighted that trade or commerce is permissible for trust funds generation, leading to exemption approval under Section 11.

2. The Tribunal addressed the argument that charging fees for coaching classes implied commercial activity, challenging the society's eligibility for exemption. It noted that collecting fees was reasonable for charitable institutions to cover expenses and further their objectives. The Tribunal deemed the coaching classes as aligned with the society's purpose, thus income from the auditorium rental for such activities qualified as trust property income. Consequently, the Tribunal overturned the lower authorities' decisions, directing the Assessing Officer to grant exemption under Section 11 to the society.

In conclusion, the Appellate Tribunal ruled in favor of the assessee, allowing both appeals and instructing the Assessing Officer to provide exemption under Section 11 of the Income-tax Act.