2023 (8) TMI 1107 - AT - Income Tax

Exemption u/s 11 - letting of Dharmashala for commercial activities by the assessee - HELD THAT - Assessee had garnered a substantial amount by commercially exploiting the Dharmashala for multi-facet purposes by giving diversified nomenclature to the receipts, i.e., booking/cancellation charges, repairing and maintenance expenses, cleaning charges, receipts towards fines imposed, electricity charges, etc., which as claimed by the AR was on a cost basis or nominally above cost because after being set off against the actual expenditure/notional expenditure in the profit and loss account, the assessee trust was left with a minuscule surplus We cannot find favor with the said claim. Nothing is discernible, much less evidenced based on supporting material which would reveal that the booking/ancillary receipts collected by the assessee from the aforesaid commercial activities were nominally above cost. On the contrary, if the notional expenditure of depreciation is ignored, then the fact that the assessee was carrying out purely commercial activities is proved to the hilt. Also, drawing support from the judgment of Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT letting of Dharmashala for commercial activities by the assessee as observe that as the letting of Dharmashala for commercial activities by the assessee, as claimed by the AR was its lifeblood for sustaining its activities of running the Dharmashala, but the same being in the nature of business or services in relation to a business, for cess or fee/charges; therefore, the receipts garnered from such activities would be hit by Section 2(15) of the Act. Thus lower authorities who had rightly declined the assessee s claim for exemption u/s. 11 - Decided against assessee.

Issues Involved:

1. Validity of service of notice under Section 143(2).
2. Jurisdiction of the AO due to alleged invalid service of notice.
3. Nature of activities carried out by the trust (charitable or commercial).
4. Non-disclosure of reasons for case selection for scrutiny.
5. Determination of total income by AO.
6. General grounds challenging the arbitrariness and legality of the CIT(A) order.

Summary:

1. Validity of Service of Notice under Section 143(2):
The assessee contended that the notice under Section 143(2) was served after the statutory deadline of 30.09.2011, rendering the assessment order null and void. However, the Tribunal upheld the validity of the notice and the subsequent assessment order.

2. Jurisdiction of the AO:
The assessee argued that the AO assumed jurisdiction due to invalid service of notice, thus lacking authority to assess the total income. The Tribunal dismissed this argument, affirming the AO's jurisdiction.

3. Nature of Activities (Charitable or Commercial):
The core issue was whether the assessee trust's activities, specifically running a Dharamshala, were charitable or commercial. The AO observed that the trust received substantial business receipts from renting the Dharamshala, exceeding the threshold of Rs. 10 lakhs, thus falling under the "advancement of any other object of general public utility" and not qualifying for exemption under Section 11. The CIT(A) upheld this view, noting the lack of evidence to substantiate the claim that the Dharamshala was provided to needy persons free of charge. The Tribunal agreed, emphasizing that the trust's activities were conducted on commercial lines.

4. Non-disclosure of Reasons for Case Selection for Scrutiny:
The assessee contended that the reasons for selecting the case for scrutiny were not conveyed, which was dismissed by the Tribunal as not affecting the validity of the assessment.

5. Determination of Total Income:
The AO determined the total income at Rs. 2,20,250/-, which was upheld by the CIT(A) and subsequently by the Tribunal. The Tribunal noted that the trust's receipts from commercial activities justified the AO's assessment.

6. General Grounds:
The assessee's general grounds challenging the arbitrariness and legality of the CIT(A) order were dismissed as not pressed.

Conclusion:
The Tribunal dismissed the appeal, upholding the AO's assessment and the CIT(A)'s order, concluding that the assessee trust's activities were commercial and not eligible for exemption under Section 11. The appeal was pronounced dismissed on 21st August 2023.

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