2024 (11) TMI 1193 - AT - Income Tax

Denial of Exemption u/s 11 - Applicability of Section 2(15) - assessee is systematically exploiting its property in commercial way by rendering its services in relation to business of parties to whom it is allowing its space to be utilized commercially like exhibitions of commercial entities, professional artists, corporate meetings, functions etc. - as AO held that the assessee has been using its space for other parties for various purposes which was not related to the objects of the trust and therefore not incidental to the attainment of the objects of the trust - also the assessee has not maintained separate books of accounts and separate balance sheet for these income receipts as required under proviso Section 11(4)A HELD THAT - As clear from case law Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT observation that while actually carrying out the objectives of the general public utility, if some profits are generated, it cannot be granted exemption provided the quantitative limit of 20% under 2nd proviso to Section 2(15) of the Act for the receipts from such profits is not exceeded? The prohibition against carrying on business or service relating to business is not attracted - if the quantum of such profits does not exceed 20% of its overall receipts. These facts and aspect of the case has not been adjudicated upon either by the Ld. AO or by the Ld. CIT(A). Hence, these facts need to be examined by the Ld. AO, therefore we agree with the arguments advanced on behalf of the revenue by the Ld. DR that matter needs to be restored to the Ld. AO. For the above discussions and the submissions made on behalf of parties, the impugned order is accordingly set aside and matter is restored to the file of the Ld. AO for deciding afresh keeping in mind the ratio of the judgment Ahmedabad Urban Development Authority (supra) as discussed. Appeal filed by the revenue is partly allowed for statistical purposes.

Summary

Issues Involved:

1. Applicability of Section 2(15) of the Income Tax Act regarding the classification of the trust's activities as charitable.
2. Determination of whether the income from letting out properties is business income or income from house property.
3. Examination of whether the activities of the trust qualify as 'educational' under the law.

Issue-Wise Detailed Analysis:

1. Applicability of Section 2(15):
The primary issue revolves around whether the activities of the trust fall under the category of "advancement of any other object of general public utility" as per Section 2(15) of the Income Tax Act, which would invoke the proviso that denies exemption if the activities are in the nature of trade, commerce, or business. The revenue contends that the majority of the trust's income is derived from commercial activities such as letting out property for exhibitions and corporate functions, which are considered business activities. The Tribunal noted the Supreme Court's interpretation in the case of Assistant Commissioner of Income Tax (Exemptions) Vs. Ahmedabad Urban Development Authority, which clarified that a trust advancing general public utility can engage in trade or business only if it is incidental to its objectives and the receipts do not exceed a specified limit. The Tribunal decided to remit the matter back to the Assessing Officer (AO) to reassess the applicability of Section 2(15) in light of this judgment.

2. Income Classification - Business Income vs. Income from House Property:
The revenue challenged the classification of income from letting out properties as 'income from house property' rather than 'business income.' The CIT(A) upheld the earlier ITAT decision, which classified such income as 'income from house property.' The Tribunal, however, did not provide a conclusive determination on this issue but instead focused on the necessity for the AO to re-evaluate the case considering the Supreme Court's guidance on the nature of business activities connected to general public utility objectives.

3. Qualification as 'Educational' Activities:
The revenue argued that the activities of the trust do not qualify as 'educational' under the definition provided by the Supreme Court in New Noble Educational Society vs. Chief Commissioner of Income Tax, which restricts 'education' to formal and scholastic education. The Tribunal acknowledged this argument but did not make a definitive ruling. Instead, it emphasized the need for the AO to re-examine whether the trust's activities align with the definition of 'education' or if they fall under the broader category of general public utility, which would affect the exemption status under Section 11.

Conclusion:
The Tribunal set aside the orders of the CIT(A) and remanded the cases back to the AO for fresh consideration, directing the AO to apply the Supreme Court's interpretation of Section 2(15) and related provisions. The AO is tasked with determining whether the trust's activities are incidental to its objectives and whether they comply with the quantitative limits for exemption. This decision applies to the assessment years 2011-12, 2012-13, and 2018-19, with the appeals being partly allowed for statistical purposes.