2022 (10) TMI 275 - AT - Income Tax

Exemption u/s. 11 - Denial of exemption treating hall hiring charges and royalty as business income - non maintaining of separate ledger accounts - assessee submitted that the main object of the institution is education and during the year assessee has given the hall to the ceremonies etc., and earned Hall Hiring Charges and royalty from caterers, this income earned by the assessee is wholly applied for the purpose of education - HELD THAT - We observe that the Trust is engaged mainly for imparting the education and the assessee has allowed the hall in the school/college to earn the additional income by way of Hall Hiring Charges and royalty from the caterers and ultimately this income was applied for imparting the education. We also observe that in section 11(1)(a) clearly indicates that income derived from property held under Trust for charitable purpose to the extent to which such income is applied to such purposes in India. It clearly indicates that the purpose of the assessee is for imparting education which is covered in the definition of charitable purpose and assessee has derived the income from the property. Therefore, the earning of income from the property on allowing others to use the hall and earn Hall Hiring Charges and other royalty income is nothing but income derived from the property and ultimately such income was applied for the charitable purpose. We also observe that Assessing Officer rejected the exemption with the observation that assessee has not maintained separate books of accounts, we observe that assessee is maintaining separate ledger for earning this income and also maintaining separate bill book for this purpose. This amounts to maintenance of separate Books of Accounts and the income is applied for the object of the Trust. Therefore, this will satisfy the maintenance of the separate Books of Accounts. As decided in case of Acharya Jiyalal Vasant Sangeet Niketan 2021 (4) TMI 113 - ITAT MUMBAI . it is well understood that teaching of Indian Classical Music is within the field of education . The activities of the studio are carried on in order to achieve the main object of the Trust and cannot be construed as business. As mentioned earlier, since the trust is engaged in education, the proviso to section 2(15) does not apply as clarified by CBDT Circular No. 11 dated 19.12.2008. - Appeal of assessee allowed.

Issues Involved:
1. Treatment of hall hiring charges and royalty as business income.
2. Denial of exemption under Section 11 of the Income-tax Act, 1961.
3. Lack of reasonable opportunity of being heard to the assessee.
4. Non-maintenance of separate books of accounts as required by Section 11(4A).
5. Applicability of Section 11 exemption to incidental income.

Detailed Analysis:

1. Treatment of Hall Hiring Charges and Royalty as Business Income:
The Assessing Officer (AO) observed that the assessee declared Hall Hiring Charges of Rs. 11,81,000/- and Royalty of Rs. 9,41,000/- under 'Any other income'. The AO concluded that these incomes were not incidental to the educational objectives of the trust, thus treating them as business income. The assessee argued that these incomes were incidental to its educational activities and were applied towards educational purposes.

2. Denial of Exemption under Section 11 of the Income-tax Act, 1961:
The AO denied the exemption under Section 11, which is available for income derived from property held under trust for charitable purposes, arguing that the income from hall hiring and royalty did not qualify as incidental to the trust's educational objectives. The AO also noted that the assessee did not maintain separate books of accounts for these incomes, a requirement under Section 11(4A).

3. Lack of Reasonable Opportunity of Being Heard to the Assessee:
The assessee contended that the AO did not provide a reasonable and sufficient opportunity to be heard, which is a procedural unfairness. However, the appellate authority upheld the AO's decision without addressing this contention in detail.

4. Non-maintenance of Separate Books of Accounts as Required by Section 11(4A):
The AO emphasized that for the income to be eligible for exemption under Section 11, separate books of accounts must be maintained for the business activities. The assessee failed to produce such separate books, leading to the denial of exemption. The assessee countered by presenting separate ledgers and bill books for these incomes, arguing that this constituted compliance with the requirement.

5. Applicability of Section 11 Exemption to Incidental Income:
The tribunal observed that the trust's main objective was educational, and the income from hall hiring and royalty was applied towards educational purposes. The tribunal noted that Section 11(1)(a) allows income derived from property held under trust for charitable purposes, provided it is applied for such purposes. The tribunal referred to the case of Acharya Jiyalal Vasant Sangeet Niketan v. ITO, where it was held that income from letting out property, if applied for charitable purposes, qualifies for exemption under Section 11.

Conclusion:
The tribunal concluded that the assessee's activities of hall hiring and earning royalty were incidental to its educational objectives and that the income was applied for educational purposes. The tribunal found that the maintenance of separate ledgers and bill books satisfied the requirement of maintaining separate books of accounts. Thus, the tribunal allowed the appeal, granting the exemption under Section 11.

Order:
The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 29th August 2022.

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