ITO, Coimbatore V. SNR Sons Charitable Trust, Coimbatore

ITA 2713/CHNY/2014

• Counselvise Citation: 271321714 RSA 2014
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 13-04-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 31-10-2014
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Assessee Lawyers: P RADHAKRISHNANJCIT
• Keywords: Business income; Depreciation; Charitable institution; Earning of tax free income; Capital expenditure
• Section: 12A; 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2630 /MDS./2014 ( ! '! / ASSESSMENT YEAR :2010-11) M/S.SNR SONS CHARITABLE TRUST , 395,SAROJINI NAIDU ROAD, SIHDAPUDUR, COIMBATORE 641 044. VS. THE INCOME TAX OFFICER, COMPANY WARD-I, COIMBTORE. PAN AABTS 1080 P ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NO.2713 /MDS./2014 ( ! '! / ASSESSMENT YEAR :2010-11) THE INCOME TAX OFFICER, COMPANY WARD-I, COIMBTORE. VS. M /S.SNR SONS CHARITABLE TRUST , 395,SAROJINI NAIDU ROAD, SIHDAPUDUR, COIMBATORE 641 044. PAN AABTS 1080 P ( / APPELLANT ) ( / RESPONDENT ) ITA NO.2630 & 2713 /MDS/2014 2 #$ % & / APPELLANT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE '(#$ % & / RESPONDENT BY : MR.P.RADHAKRISHNAN,JCIT, D.R ) * % +, / DATE OF HEARING : 13.04.2015 -' % +, /DATE OF PRONOUNCEMENT : 12.06.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: BOTH THE ASSESSEE AS WELL AS THE REVENUE HAVE FIL ED APPEALS AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX(A)-I, COIMBATORE DATED 20.08.2014 IN ITA NO.152/13-14 FOR THE ASSESSMENT YEAR 2010-11 PASSED UNDER SEC.143(3) RE AD WITH SECTION SEC. 250 OF THE ACT. GROUNDS RAISED IN ASSESSEES APPEAL 2.1 THE ASSESSEE HAS RAISED FOUR ELABORATE GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. CIT (A), WHO HAD ERRED IN HOLD ING THAT THE RENTAL INCOME RECEIVED FROM LETTING OUT OF COMMUNITY HALL IS IN THE NATURE OF BUSINESS INCOME AND THEREFORE SUCH ACTIVITY CANNOT SAID TO BE FOR CHARITABLE PURPOSE AS PER THE PROVISO TO SECTION 2( 15) OF THE ACT. ITA NO.2630 & 2713 /MDS/2014 3 ACCORDINGLY, THE ASSESSEE IS NOT ENTITLED TO THE BE NEFIT OF SECTION-11 OF THE ACT AND THE RENTAL INCOME FROM THE COMMUNITY HALL IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS AM OUNTING TO ` 1,18,09,107/-. GROUNDS RAISED IN REVENUES APPEAL 2.2 THE REVENUE HAS RAISED SIX ELABORATE GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE REVENUE I S AGGRIEVED BY THE ORDER OF THE LD. CIT (A) WHO HAD ERRED IN ALLOWING THE CLAIM OF DEPRECIATION AS DEDUCTION BECAUSE THE COST OF THE A SSET WAS EARLIER ALLOWED AS APPLICATION OF INCOME FOR THE PURPOSE OF SECTION-11 OF THE ACT AND THEREFORE, ONCE AGAIN ALLOWING THE CLAIM OF DEPRECIATION WOULD AMOUNT TO DOUBLE DEDUCTION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A CHARITABLE TRUST REGISTERED U/S 12A OF THE ACT, FILED ITS RETU RN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 28.09.2010 DECLARING TAX ABLE INCOME AS NIL. THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSM ENT WAS COMPLETED U/S.143(3) OF THE ACT ON 15.03.2013 WHERE IN THE LD. ITA NO.2630 & 2713 /MDS/2014 4 ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIAT ION AMOUNTING TO `10,16,21,019/- BECAUSE THE COST OF ASSET WAS ALREADY ALLOWED AS APPLICATION OF INCOME AND THE CLAIM OF DEPRECIATION WOULD AMOUNT TO DOUBLE DEDUCTION. ON APPEAL, IT APPEARS THAT THE L D. CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE AGGRIEVED BY WHICH THE RE VENUE IS IN APPEAL BEFORE. THE LD. ASSESSING OFFICER HAD ALSO HELD THAT THE INCOME RECEIVED FROM THE COMMUNITY HALL OWNED BY TH E ASSESSEE TO BE INCOME TAXABLE UNDER THE HEAD INCOME FROM BUSIN ESS AND DENIED THE BENEFIT OF SECTION 11, BECAUSE THIS ACTI VITY OF THE ASSESSEE DID NOT AMOUNT TO BE FOR CHARITABLE PURPOSE. ON APP EAL, THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICE R AGAINST WHICH THE ASSESSEE IS ON APPEAL BEFORE US. ASSESSEES APPEAL 5.1 GROUND DENYING THE BENEFIT OF SECTION-11 OF T HE ACT FOR THE INCOME DERIVE FROM COMMUNITY HALL OWNED BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE TRUST WAS RENTI NG OUT ITS COMMUNITY HALL FOR MARRIAGE PURPOSES AND THEREBY DE RIVED INCOME. ITA NO.2630 & 2713 /MDS/2014 5 THE GROSS RECEIPTS FROM RENTING OUT THE COMMUNITY H ALL AMOUNTED TO ` 1,66,94,567/- AND AFTER DEDUCTING THE EXPENDITURE A ND DEPRECIATION OF ` 1,16,979/-, THE NET INCOME WORKED OUT TO ` 1,18,09,107/-. THE LD. ASSESSING OFFICER OPINED THAT RUNNING OF KALYANA MA NDAPAM IN THE NAME OF COMMUNITY HALL WAS NOT INCIDENTAL TO THE MA IN OBJECTS OF THE ASSESSEE TRUST, WHICH ARE EDUCATION, MEDICAL RELIEF AND RELIEF TO THE POOR. HE FURTHER OPINED THAT THE ACTIVITY OF THE A SSESSEE TRUST WITH RESPECT TO RENTING OUT ITS COMMUNITY HALL MAY AT TH E MOST FALL WITHIN THE AMBIT OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY AS DEFINED U/S.2 (15) OF THE ACT. IN SUCH CASES, P ROVISO TO SECTION- 2(15) OF THE ACT PROVIDED THAT IF THE ACTIVITY IS C OMMERCIAL IN NATURE AND THE REVENUE GENERATED IS ABOVE THE PRESCRIBED L IMIT UNDER THE ACT, THEN SUCH INCOME WILL NOT BE ENTITLED FOR THE BENEFIT OF SECTION-11 OF THE ACT AND THE SAME WILL BE TAXABLE INCOME UNDE R THE NORMAL PROVISIONS OF THE ACT. FURTHER SUMMING UP AS FOLLOW S AND AFTER GIVING THE BENEFIT OF DEPRECIATION TO THE ASSESSEE, THE LD . ASSESSING OFFICER BROUGHT TO TAX AN AMOUNT OF ` 1,18,09,2017/- :- (A) THE ASSESSEES RUNNING OF COMMUNITY HALL CANNO T BE TERMED AS EDUCATIONAL, MEDICAL OR RELIEF OF POOR; ITA NO.2630 & 2713 /MDS/2014 6 (B) IT INVARIABLY COMES UNDER THE ADVANCEMENT OF A NY OTHER GENERAL PUBLIC UTILITY. (C) IT DOES NOT CONSTITUTE ANY INCIDENTAL BUSINE SS TO SUB-SERVE ITS MAIN OBJECTS; (D) THE ACT OF RUNNING COMMUNITY HALL IS ALSO HIT B Y S.11 (4A) OF THE ACT. (E) THE AGGREGATE RECEIPTS EXCEED ` 10 LAKHS FOR THE YEAR UNDER CONSIDERATION THEREBY ATTRACTING THE PROVISO TO S-2 (15) OF THE ACT. 5.2. ON APPEAL, THE LD. CIT (A) UPHELD THE ORDER O F THE LD. ASSESSING OFFICER BY OBSERVING AS UNDER:- 11. I HAVE GONE THE SUBMISSIONS MADE BY THE APPELL ANT AND ALSO THE ORDER OF THE A.O. THE ASSESSEES PRINCIPAL ACTIVIT Y IS PROVIDING EDUCATION THROUGH THEIR VARIOUS EDUCATIONAL INSTITUTIONS AND MEDICAL RELIEF THROUGH THEIR HOSPITALS. AS PER THE SUBMISSIONS MADE BY TH E AUTHORIZED REPRESENTATIVE, THE COMMUNITY HALL WAS TO PROVIDE P UBLIC AMENITY FOR THE GENERAL PUBLIC AND PROMOTE INDIAN CUSTOM, CULTURE, HERITAGE, TRADITIONS WITHOUT INTENTIONS OF EARNING PROFITS AS PER THE OB JECTS OF THE TRUST. THE A.R DENIED THAT THERE IS ANY COMMERCIAL ACTIVITY CARRIE D ON CONTINUOUSLY AND ITA NO.2630 & 2713 /MDS/2014 7 SYSTEMATICALLY IN USING THE COMMUNITY HALL BY A PER SON BY APPLICATION OF MATERIAL, LABOUR OR SKILL WITH A VIEW TO EARN PROFI TS TO FALL WITHIN THE MEANING OF BUSINESS. THE CHARACTER OF THE RENTAL RECEIPT S ARE ONLY TO BE CONSIDERED UNDER INCOME FROM HOUSE PROPERTY. 12. AS SEEN FROM THE INCOME AND EXPENDITURE STATEM ENT FOR THE YEAR ENDED 31.03.2010, THE INCOME IS REPRESENTED AS BY VOLUNTARY DONATION RECEIPT. IN THE CASE OF THE COMMUNITY HAL, IT IS A KALYANA MANDAPAM, FULLY AIR-CONDITIONED AND IS GIVEN ON HIRE/RENT FOR MARRI AGES ETC. THE CLAIM OF COMMUNITY HALL BY THE APPELLANT IS NOT ACCEPTABLE F OR THE FOLLOWING REASONS: (A) THE COMMUNITY HALL IS NOT GIVEN FOR CHARITY OR FOR ANY SOCIAL CAUSE FOR THE GENERAL PUBLIC. (B) THE KALYANA MANDAPAM IS EXCLUSIVELY GIVEN FOR M ARRIAGES AND ALSO FOR HIGH LEVEL CONSUMER EXHIBITION. THE ASSESSEE COLLE CTS A PRE-DETERMINED FEE FOR HIRING THE HALL AND ALSO COLLECTS EXTRA AMO UNTS FOR GIVING ON RENT THE FURNITURE, UTENSILS (KITCHEN) AND ALSO COLLECTS FEE FOR ELECTRICITY CHARGES DEPENDING ON THE LIGHTING AND AIR CONDITIONING ETC. THIS IS A CLEAR CASE OF COMMERCIAL ACTIVITY WHEREIN THE RENTAL INCOME HAS T O BE TREATED AS INCOME FROM BUSINESS AND THE LD. ASSESSING OFFICER HAS RI GHTLY TREATED IT AS INCOME FROM OTHER SOURCES. THE APPELLANT FAILED TO PROVE THAT THE COMMUNITY HALL WAS GIVEN FOR ANY SOCIAL CAUSE OR TO PROMOTE INDIAN CUSTOM, CULTURE ETC. WITHOUT THE INTENTION OF EARNING PROFIT. AS CAN BE SEEN FROM THE DETAILS, IT IS WITH THE INTENTION OF EARNING INCOME, THE COMMUNITY HALL, FURNITURE, ITA NO.2630 & 2713 /MDS/2014 8 UTENSILS(KITCHEN) AND OTHERS ETC. WERE RENTED OUT/H IRED. THE A.O HAS ELABORATELY DISCUSSED ABOUT THE PROVISIONS OF SECTI ON 2(15) AND THE CLARIFICATORY CIRCULAR NO.11/2008 DATED 19.12.2008 ISSUED BY THE CBDT AND BROUGHT TO TAX THE NET INCOME FROM RENTING THE COMM UNITY HALL. THESE GROUNDS OF APPEAL ARE DISMISSED. 5.3. LD. A.R. ARGUED BEFORE US STATING THAT THE AS SESSEE-TRUSTS MAIN OBJECTS WAS PROVIDING RELIEF TO THE POOR, EDUCATION AND MEDICAL RELIEF. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE DURING I TS COURSE OF ITS ACTIVITY EXPLOITED ITS ASSET IN ORDER TO EARN REVEN UE TO MEET OUT THE MAIN OBJECTS OF THE ASSESSEE TRUST. IT WAS THEREFO RE SUBMITTED THAT THE ACTIVITY OF THE RENTING ITS COMMUNITY HALL WILL AMOUNT TO AN ACTIVITY WHICH IS INCIDENTAL TO THE MAIN OBJECTS OF THE ASSE SSEE TRUST AND SINCE THE MAIN OBJECTS OF THE ASSESSEE TRUST WAS PROVIDIN G RELIEF TO THE POOR, MEDICAL RELIEF AND EDUCATION, THE PROVISO TO SECTION-2(15) OF THE ACT EXEMPTS SUCH INCOME TO BE TAXED. FURTHER, THE LD.A.R RELIED IN THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. SAMYUKTHA GOWDA SARASWATHA SABHA REPORTED IN 24 5 ITR 242(MAD.) WHEREIN IT WAS HELD THAT AS THE OBJECTS O F THE ASSESSEE WERE EDUCATION AND OTHER OBJECTS OF GENERAL UTILITY , THE LETTING OUT OF ITA NO.2630 & 2713 /MDS/2014 9 THE KALAYANA MANDAPAM WAS NOT ONE OF THE OBJECTS OF THE ASSESSEE, BUT AN ACTIVITY CARRIED ON TO FULFILL THE OBJECTS O F THE TRUST. THE INCOME DERIVED FROM THE SABHA WAS NOT ITS BUSINESS INCOME, BUT ITS PROPERTY INCOME. HENCE, THE PROVISIONS OF SECTION 13(1)(BB) OF THE INCOME-TAX ACT,1961, WERE NOT APPLICABLE TO THE FACTS OF THE A SSESSEE. THE ASSESSEE WAS ENTITLED TO EXEMPTION U/S.11 OF THE AC T. LD. D.R ARGUED IN SUPPORT OF THE ORDER OF THE REVENUE. 5.4. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF T HE CASE IT IS APPARENT THAT THE ASSESSEE TRUSTS MULTIPLE ACTIVIT IES ARE TO PROVIDE RELIEF TO THE POOR, MEDICAL RELIEF, PROVIDING EDUCA TION AND FOR ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY. SECTION 2(15) OF THE ACT HAS UNDERGONE DRASTIC CHANGE BY TH E FINANCE ACT 2008 WITH EFFECT FROM 1/4/2009. PRIOR TO THAT SECTI ON 2(15) OF THE ACT STOOD AS FOLLOWS. SECTION-2(15): CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY ITA NO.2630 & 2713 /MDS/2014 10 THE AMENDED PROVISIONS OF SECTION 2(15) BY THE FINA NCE ACT, 2008 W.E.F 1.4.2009 READS AS FOLLOWS:- SECTION-2(15): CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF [PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILD LIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST] AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PU RPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NAT URE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF REND ERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERAT ION IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, O R RETENTION, OF THE INCOME FROM SUCH ACTIVITY. PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED ITA NO.2630 & 2713 /MDS/2014 11 TO THEREIN IS [TEN LAKH RUPEES] OR LESS IN THE PREV IOUS YEAR;] SUBSEQUENT TO THE AMENDMENT OF SECTION-2(15) A ND INSERTION OF THE PROVISOS, THE ENTIRE OUTLOOK WITH RESPECT TO C HARITABLE PURPOSE HAVE CHANGED. THE PROVISO TO SECTION-2(15) MAKES IT CLEAR THAT IF THE ACTIVITY OF THE TRUST IS IN THE NATURE OF ADVANCEME NT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND IF IT INVOLVES IN CAR RYING ON ANY COMMERCIAL ACTIVITY OR RENDERING ANY SERVICES IN RELATION TO C OMMERCIAL ACTIVITIES BY COLLECTION OF REVENUE, IRRESPECTIVE OF THE APPLI CATION OF SUCH INCOME, THE ACTIVITY SHALL NOT BE TREATED FOR CHAR ITABLE PURPOSES. IT HAS THEREFORE BECOME ESSENTIAL TO DISSECT THE ACTIV ITIES OF THE ASSESSEE AND IF IT FALLS IN THE NATURE OF ADVANCEME NT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, THEN PROVISO TO S ECTION 2(15) WILL BE ATTRACTED. IT IS ALSO PERTINENT TO MENTION THAT SIN CE SECTION-2(15) BEING AN INCLUSIVE DEFINITION ALL THE BASIC ACTIVITIES OF THE CHARITABLE ORGANIZATION SHOULD HAVE AN ELEMENT OF CHARITY. I F AN ORGANIZATION IS ENGAGED IN BUSINESS ACTIVITY OR RUNNING OF A COMMER CIAL ESTABLISHMENT LIKE FACTORY, TRADING UNIT ETC., ON C OMMERCIAL SCALE, THOSE ACTIVITIES CANNOT BE SAID TO BE FOR CHARITABL E PURPOSE EVEN IF THE ITA NO.2630 & 2713 /MDS/2014 12 ENTIRE INCOME OF THE ORGANIZATION IS UTILIZED FOR C HARITY. ON THE PERUSAL OF ACCOUNTS OF THE ASSESSEE FOR THE YEAR EN DED 31.03.2010 RELEVANT TO THE ASSESSMENT YEAR 2010-11, WE FIND TH AT THE ASSESSEE HAS RECEIPTS FROM THE FOLLOWING ACTIVITIES:- SL. NO. NAME OF THE UNIT ACTIVITY GROSS RECEIPTS ( `) 1 SRI RAMAKRISHNA HOSPITAL-MEDICAL SERVICES MEDICAL SERVICE 481,538,825.44 2 COMMUNITY HALL TRUST A/C BUSINESS 53,297,183.43 3 SRI RAMAKRISHNA CHILDRENS SCHOOL,CBE EDUCATION 1 3,625,956.68 4 SRI RAMAKRISHNA CHILDRENS SCHOOL,V.M.PALAYAM EDUCATION 8,233,061.00 5 SRI RAMAKRISHNA ENGINEERING COLLEGE EDUCATION 181 ,057,247.84 6 SRI RAMAKRISHNA ARTS & SCIENCE COLLEGE FOR WOMEN EDUCATION 36,543,017.36 7 S.N.R.SONS COLLEGE EDUCATION 70,485,488.68 8 SRI RAMAKRISHNA INSTITUTE OF PARAMEDICAL SCIENCE MEDICAL SERVICE 62,896,870.80 9 SRI RAMAKRISHNA DENTAL COLLEGE AND HOSPITAL MEDICAL SERVICE 67,729,113.94 10 SRI RAMAKRISHNA POLYTECHNIC EDUCATION 43,711,158 .49 11 SRI RAMAKRISHNA INSTITUTE TECHNOLOGY EDUCATION 1 10,273,682.00 12 SRI RAMAKRISHNA PHARMACY MEDICAL SERVICE 192,177 ,279.89 13 SRI RAMAKRISHNA ADVANCED TRAINING INSTITUTE ---- 905,561.00 1,322,523,946.55 THE LD. ASSESSING OFFICER HAS CATEGORIZED THE RECEI PT FROM COMMUNITY HALL AS BUSINESS ACTIVITY OR AT THE MOST RELATED TO GENERAL PUBLIC UTILITY AND NOT RELATED TO MEDICAL/EDUCATION OR RELIEF TO THE POOR. THE LD. CIT (A) HAS ALSO GIVEN A FINDING THAT:- ITA NO.2630 & 2713 /MDS/2014 13 I) THE COMMUNITY HALL IS NOT GIVEN FOR CHARITY OR ANY SOCIAL CAUSE FOR THE GENERAL PUBLIC. II) THE COMMUNITY HALL IS BEING USED AS KALAYAN MA NDAPAM EXCLUSIVELY FOR MARRIAGES AND ALSO FOR HIGH LEVEL C ONSUMER EXHIBITION. III) THE ASSESSEE COLLECTS PRE-DETERMINED FEE FOR HIRING THE HALL AND AN EXTRA FEE FOR PROVIDING OTHER AMENITIES SUCH AS FURNITURE, KITCHEN UTENSILS. IV) ELECTRICITY CHARGES ARE ALSO COLLECTED DEPENDI NG UPON THE USAGE OF LIGHTING FACILITIES AND AIR CONDITIONING PROVIDE D. FROM THE ABOVE IT IS APPARENT THAT RUNNING OF THE COMMUNITY HALL BY THE ASSESSEE IS NOT AN ACTIVITY RELATABLE TO EDU CATION, MEDICAL RELIEF, AND RELIEF TO POOR AS PROVIDED UNDER THE AC T. AT THE MOST, IT CAN BE STRETCHED TO BE AN ACTIVITY FOR ADVANCEMENT OF A NY OTHER OBJECTS OF GENERAL PUBLIC UTILITY. HOWEVER, THE MATERIALS ON RECORD SHOW THAT THIS ACTIVITY OF THE ASSESSEE OF HIRING OUT THE COMMUNIT Y HALL EXCLUSIVELY FOR MARRIAGES AND HIGH LEVEL CONSUMER EXHIBITION AT A PRE-DETERMINED FEE IS A COMMERCIAL IN NATURE. IT CANNOT BE CONSID ERED AS AN ACTIVITY RELATED TO OR INCIDENTAL TO EDUCATION, MEDICAL RELI EF, RELIEF TO POOR ETC. MOREOVER IT IS APPARENT THAT THE COMMUNITY HALL IS NOT ATTACHED OR ITA NO.2630 & 2713 /MDS/2014 14 FORMING PART OF THE EDUCATIONAL INSTITUTIONS OR HOS PITALS OWNED BY THE ASSESSEE WHEREBY IT CAN BE SAID THAT DURING THE SPA RE TIME WHEN THE ASSET IS NOT USED FOR EDUCATION/MEDICAL RELIEF ETC. , IT IS COMMERCIALLY EXPLOITED. IF THE ASSET IS USED FOR EDUCATION/MEDI CAL RELIEF ETC., AND DURING THE SPARE TIME THE ASSET IS COMMERCIALLY EXP LOITED, IN SUCH EVENT, PROBABLY IT COULD BE SAID THAT SUCH ACTIVITY TO BE INCIDENTAL TO THE OBJECTS OF EDUCATION/MEDICAL RELIEF ETC., OF TH E ASSESSEE TRUST. IN THE GIVEN CASE BEFORE US THE KALYANA MANDAPAM IS A DISTINCT AND SEPARATE ASSET SPECIALLY DESIGNED TO CONDUCT SUCH C OMMERCIAL ACTIVITY. LOOKING AT THE NATURE OF THIS ACTIVITY CO NDUCTED BY THE ASSESSEE TRUST, IT CAN BE CONSIDERED ONLY AS A COMM ERCIAL ACTIVITY OF THE ASSESSEE TRUST. FURTHER THE CASE LAWS RELIED BY THE ASSESSEE WOULD NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE , BECAUSE SECTION-2(15) OF THE ACT WAS SUBSEQUENTLY AMENDED. FURTHER, SECTION-11(4) OF THE ACT PROVIDES AS FOLLOWS WHICH HAS BEEN POINTED OUT BY THE LD. ASSESSING OFFICER IN HIS ORDER:- SECTION.11(4) FOR THE PURPOSES OF THIS SECTION PROPERTY HELD UNDER TRUST INCLUDES A BUSINESS UNDERTAKING SO HEL D, AND WHERE A CLAIM IS MADE THAT THE INCOME OF ANY SUCH UNDERTA KING SHALL ITA NO.2630 & 2713 /MDS/2014 15 NOT BE INCLUDED IN THE TOTAL INCOME OF THE PERSONS IN RECEIPT THEREOF, THE [ASSESSING] OFFICER SHALL HAVE POWER T O DETERMINE THE INCOME OF SUCH UNDERTAKING IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT RELATING TO ASSESSMENT; AND W HERE ANY INCOME SO DETERMINED IS IN EXCESS OF THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDERTAKING, SUCH EXCESS SHALL BE D EEMED TO BE APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGI OUS PURPOSES. IN THE CASE GUJARAT INDUSTRIAL CORPORATION VS. ACIT IN 129 ITD 73 (2010) AHMADABAD IT HAS HELD THAT THE WORD INCLUDES OCCURRING AT SECTION 11(4) MEANS THAT THERE IS A REFERENCE OF PR OPERTY OR BUSINESS OF A TRUST WHICH IS A BUSINESS UNDERTAKING IN ADDIT ION TO THE OTHER PROPERTIES OF THE TRUST. IN THIS GIVEN CASE BEFORE US, THE COMMUNITY HALL OR MARRIAGE HALL WHATEVER MAY BE CALLED IS THE ASSET OF THE SEPARATE BUSINESS OF THE ASSESSEE WHICH FALLS APART FROM THE OTHER CHARITABLE ACTIVITIES CONDUCTED BY THE ASSESSEE. TH EREFORE CONSIDERING THE FACTS AND CIRCUMSTANCE OF THE CASE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE REVENU E. REVENUES APPEAL ITA NO.2630 & 2713 /MDS/2014 16 6.1 GROUND ALLOWING THE BENEFIT OF DEPRECIATION AGAIN ST THE ASSET THE COST OF WHICH IS ALREADY ALLOWED AS APPLICATION OF INCOME. ON THIS ISSUE, WE HAVE ALREADY CATEGORICALLY HE LD THAT DEPRECIATION WILL NOT BE ALLOWABLE WHILE CLAIMING E XEMPTION U/S.11 OF THE ACT IN THE CASE THE ANJUMAN-E-HIMAYATH-E-ISLAM IN ITA NO.2271/MDS./2014 VIDE ORDER DATED 02.06.2015. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE:- THE ASSESSEE TRUST HAD CLAIMED DEPRECIATION ON THE ASSETS AS APPLICATION OF INCOME IN THE RETURN OF INCOME. THE LD. ASSESSING OFFICER OPINED THAT THE CLAIM OF DEPRECIATION BY TH E ASSESSEE WOULD AMOUNT TO DOUBLE DEDUCTION BECAUSE THE ENTIRE COST OF ASSET HAS ALREADY BEEN CLAIMED AS APPLICATION OF INCOME IN TH E YEAR IN WHICH THE ASSETS WERE PURCHASED. THEREAFTER, THE LD. ASSE SSING OFFICER CITING CERTAIN DECISIONS HELD THAT THE CLAIM OF DEP RECIATION CANNOT BE CONSIDERED AS APPLICATION OF INCOME. ON APPEAL, TH E LD. CIT (A) WAS ALSO OF THE VIEW OF THE LD. ASSESSING OFFICER AND T HEREFORE CONFIRMED LD. ASSESSING OFFICERS ORDER. 5.2 WE FIND THIS ISSUE IS ELABORATELY DISCUSSED IN THE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [2012] 348 ITR 344(KER.) AND HELD THE ISSUE AGAINST THE ASSESSEE. WHILE DOING SO, THE HONBLE KERALA HIGH COURT HAD CONSIDERED THE CIRCULAR NO.5P(LLX-6) DATED 19.06.1968 ITA NO.2630 & 2713 /MDS/2014 17 WHICH HAS NOT BEEN CONSIDERED BY THE OTHER DECISION S. THE CIRCULAR NO. 5P(LLX-6) IS REPRODUCED HEREIN BELOW FOR REFERE NCE:- 1. CIRCULAR NO. 5-P (LXX-6) OF 1968, DATED 19-6-196 8. SUBJECT : SECTION 11CHARITABLE TRUSTSINCOME REQUI RED TO BE APPLIED FOR CHARITABLE PURPOSEINSTRUCTIONS REGARDING. IN BOARD'S CIRCULAR NO. 2-P(LXX-5) OF 1963, DATED T HE 15TH MAY, 1963, IT WAS EXPLAINED THAT A RELIGIOUS OR CHARITABLE TRUST CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE INCOME- TAX ACT, 1961, MUST SP END AT LEAST 75 PER CENT OF ITS TOTAL INCOME, FOR RELIGIOUS OR CHARITABLE PU RPOSES. IN OTHER WORDS, IT WAS NOT PERMITTED TO ACCUMULATE MORE THAN 25 PER CE NT OF ITS TOTAL INCOME. THE QUESTION HAS BEEN RECONSIDERED BY THE BOARD AND THE CORRECT LEGAL POSITION IS EXPLAINED BELOW. 2. SECTION 11(1) PROVIDES THAT SUBJECT TO THE PROVI SIONS OF SECTIONS 60 TO 63 'THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR . . . '. THE REFERENCE IN SUB-SECTION (A) IS INVARIABLY TO 'INCOME' AND NOT TO 'TOTAL INCOME'. THE EXPRESSION 'TOTAL INCOME' HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(45) OF THE A CT AS 'THE TOTAL AMOUNT OF INCOME . . . COMPUTED IN THE MANNER LAID DOWN IN TH IS ACT'. IT WOULD ACCORDINGLY BE INCORRECT TO ASSIGN TO THE WORD 'INC OME' USED IN SECTION 11(1)(A), THE SAME MEANING AS HAS BEEN SPEC IFICALLY ASSIGNED TO THE EXPRESSION 'TOTAL INCOME' VIDE SECTION 2(45) . 3. IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TRUST, ITS 'INCOME' WILL BE THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDER TAKING. UNDER SECTION 11(4), ANY INCOME OF THE BUSINESS UNDERTAKING DETER MINED BY THE INCOME- TAX OFFICER IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT, WHICH IS IN EXCESS OF THE INCOME AS SHOWN IN ITS ACCOUNTS, IS TO BE DE EMED TO HAVE BEEN ITA NO.2630 & 2713 /MDS/2014 18 APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGI OUS, AND HENCE IT WILL BE CHARGED TO TAX UNDER SUB-SECTION (3). AS ONLY THE I NCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTIO N 11(1), THE PERMITTED ACCUMULATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCOME. 4. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPER TY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WO RD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME , AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDE D BACK WILL BECOME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE OF THE TRUS T. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT OF T HE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LESS THAN 75 PER CE NT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION U NDER SECTION 11(1). 5. TO SUM UP, THE BUSINESS INCOME OF THE TRUST AS DISC LOSED BY THE ACCOUNTS PLUS ITS OTHER INCOME COMPUTED ABOVE, WILL BE THE 'INCOME' OF THE TRUST FOR PURPOSES OF SECTION 11(1). FURTHER, THE TRUST MUST SPEND AT LEAST 75 PER CENT OF THIS INCOME AND NOT ACCUMUL ATE MORE THAN 25 PER CENT THEREOF. THE EXCESS ACCUMULATION, IF ANY, WILL BECOME TAXABLE UNDER SECTION 11(1). AFTER CONSIDERING THE CIRCULAR, THE HONBLE KERALA HIGH COURT HELD AS FOLLOWS:- ITA NO.2630 & 2713 /MDS/2014 19 HELD, THAT AFTER WRITING OFF THE FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMED THE SAME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECAME A CASH SURPLUS AVAILABLE WITH THE ASSESSEE, WHICH WAS OUTSIDE THE BOOKS OF A CCOUNT OF THE TRUST UNLESS IT WAS WRITTEN BACK WHICH WAS NOT DONE BY THE ASSESSEE. IT WAS NOT PERMISSIBLE FOR A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE THE BOOKS IN THIS FASHION AND THERE WOULD B E VIOLATION OF SECTION 11(1)(A). IT WAS FOR THE ASSESSEE TO WRITE BACK THE DEPRECIATION AND IF THAT WAS DONE, THE ASSESSING OF FICER WOULD MODIFY THE ASSESSMENT DETERMINING HIGHER INCOME AND ALLOW RECOMPUTED INCOME WITH THE DEPRECIATION WRITTEN BACK BY THE AS SESSEE TO BE CARRIED FORWARD FOR SUBSEQUENT YEARS FOR APPLICATIO N FOR CHARITABLE PURPOSES . FURTHER HONBLE CALCUTTA HIGH COURT HAS HELD IN THE CASE DCIT VS. GIRDHARILAL SHEWNARAIN TANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) THAT THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECT ION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSESSABLE . RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH COURT AND T AKING CUE FROM THE DECISION OF THE HONBLE CALCUTTA HIGH COURT , WE DO NOT FIND ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT(A) A ND ALSO THE VIEWS EXPRESSED BY HIM IN HIS ORDER. ACCORDINGLY THIS APP EAL IS HELD IN FAVOUR OF THE REVENUE. ITA NO.2630 & 2713 /MDS/2014 20 6.2. SINCE WE HELD THE ISSUE IN FAVOUR OF THE REVE NUE ON THE EARLIER OCCASION, WE HEREBY HOLD THAT THE COST OF THE ASSET WHICH WAS ALREADY ALLOWED AS APPLICATION OF INCOME FOR THE PU RPOSE OF SECTION- 11(1)(A) OF THE ACT, THE BENEFIT OF DEPRECIATION ON THE SAME ASSET CANNOT BE CLAIMED WHILE COMPUTING THE EXEMPT INCOME OF THE TRUST U/S.11 OF THE ACT. HOWEVER, WE MAKE IT CLEAR THA T IN THE CASE WHERE THE BENEFIT OF SECTION-11 IS WITHDRAWN, THE ASSESSE E WOULD BE ENTITLED TO CLAIM DEPRECIATION WHILE COMPUTING THE INCOME UN DER THE HEAD INCOME FROM BUSINESS AS PER CHAPTER IV-D OF THE AC T . IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED AND THE APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON 12 TH JUNE, 2015 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S.GANESAN) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 12 TH JUNE, 2015. K S SUNDARAM. % '+./ 0 /'+ /COPY TO: 1. #$ /APPELLANT 2. '(#$ /RESPONDENT 3. ) 1+ () /CIT(A) 4. ) 1+ /CIT 5. /4 '+5 /DR 6. 6! 7* /G