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Director of Income Tax (Exemptions) Versus M/s Lala Lajpatrai Memorial Trust

2016 (4) TMI 641 - BOMBAY HIGH COURT

Registration under section 12A withdrawn - ITAT allowed the claim - whether ITAT was justified in allowing the appeal of the assessee brushing aside the provisions of Section 11 (4A) ? - Held that:- It is well settled principle of law that the test to determine as to what would be a charitable purpose within the meaning of section 2 (15) of the Act, is to ascertain what is the dominant object of the activity; whether it is to carry out a charitable purpose or to earn profit. If the predominant o .....

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rust. Thus, in our opinion, section 11(4A) which require separate account to be maintained would not be attracted in view of our conclusion that the said amounts as received by the assessee for the assessment year have been received from educational activity which is the dominant activity of the assessee-trust. In our opinion, if this be the case, separate books of accounts cannot be insisted upon as the said activity becomes part and parcel of the educational activities carried out by the asses .....

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.A.P. Singh, Mr.Asim Sarode JUDGMENT ( Per G. S. Kulkarni, J ) 1. This appeal of the revenue under section 260A of the Income Tax Act, 1961 (for short 'the Act') challenges the order dated 25th May 2013 passed by the Income Tax Appellate Tribunal (for short ' the tribunal') whereby the appeal filed by the respondent- assessee against an order passed by the Director of Income Tax (Exemption) (for short 'the DIT (E)') withdrawing the registration of the assessee under secti .....

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imed that the object for the establishment of the assessee-trust was advancement of education which fell within charitable purpose as defined under section 2 (15) of the Act. On 29th June 1973, the assessee had made an application seeking registration under section 12A of the Act. The Commissioner of Income Tax, Mumbai City IV approved the assessee-trust as a charitable trust and granted registration under section 12A (a) of the Act. Thereafter, the trust deed was amended, however the main objec .....

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Haji Ali, Mumbai with an approximate area of 1,00,000 sq.ft, having a building consisting of an auditorium on the ground floor and class rooms from 2nd to 7th floors. This building was let out to one Lala Lajpatrai Institute which conducts Junior College, Senior college, Law College etc and the 6th and 7th floors are let out to run a Management Institute. The letting out was in consonance with the objects of the trust which intended to promote and/or establish colleges and schools. The income wh .....

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009-10 was attracted in view of the income earned by the assessee from letting out of the said premises. 6. At this stage, we may note the provision of section 2 (15) of the Act which reads thus: Section 2 (15): Charitable Purpose includes relief of the poor, education, medical relief / preservation of environment (including water sheds, forests and wildlife and preservation of monuments or places or objects of artistic interest and the advancement of any other object of general public utility. .....

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value of the receipts from the activities referred to therein is ten lac rupees or less in the previous year. By virtue of the first proviso advancement of any other object of general public utility, if it involved carrying out of any activity in the nature of trade, commence or business or any activity of service in relation to trade, commerce or business for a cess or any other consideration was excluded to be a charitable purpose. 7. Invoking proviso to section 2 (15) a show cause notice was .....

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institution of Management. Further, the assessee had earned an income of ₹ 15,02,182/for letting out of the auditorium. The assessee's objects were of advancement of education and thus receiving rent would fall in the category of any other object of general public utility attracting the first proviso to section 2 (15) of the Act as applicable from the year 2009-10. 8. The assessee responded to the show cause notice interalia explaining that the trust was being conducted as per the main .....

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e used for running the Management Institute and the said premises were let out for ₹ 12 lacs and this amount is received under the head service charges . The assessee submitted that the auditorium is also part of the building and used mainly by the colleges as and when is not required for use by the colleges, it is let out. The assessee stated that out of the 365 days the auditorium was used by the colleges for 209 days and it was vacant for 76 days whereas it was let out only for 80 days. .....

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th December 2011, withdrawing/cancelling registration of the assessee under section 12A of the Act. The DIT (E) observed that the claim of the assessee that its activity of letting out the premises is educational cannot be accepted as the assessee by itself was not running the educational institutes but, the educational institutes were being conducted by a different entity to whom the assessee had given its buildings for its use. It was observed that the assessee was exploiting its property comm .....

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charitable thereby resulting in the assessee loosing its charitable character no longer being entitled to the benefits of section 11. The Director of Income Tax (Exemption) accordingly held that section 12AA (3) was attracted and cancelled the registration of the assessee granted under section 12A of the Act with effect from Assessment year 2009-10. 10. The assessee preferred an appeal before the Tribunal assailing the above order and findings of the DIT (E). The assessee interalia contended th .....

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Institute. The tribunal has observed that letting out of the premises to the said Institute was for educational purposes. As regards the letting out of the auditorium it was observed that it was not the dominant object of the assessee-trust and that merely because, the auditorium was incidentally let out to outsiders for commercial purpose, the case of the assessee did not cease to be 'advancement of education' and fall in the category of any other object of general public utility so as .....

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#39;advancement of education' as contended by the assessee. It is submitted that the educational institutes are not being conducted by the assessee-trust but by a separate management. It is contended that the tribunal has failed to appreciate the provisions of section 11 (4A) of the Act that the assessee had not maintained separate books of account as required under the said provision in respect of the amounts received from letting out of the auditorium as also running of the Institution of .....

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e would contend that the question of law as framed is misconceived in as much as from the order passed by the DIT (E), this provision is not the subject matter of assertion on the part of the revenue. It is contended that the Tribunal has clearly held that the object of the trust was 'advancement of education' and merely because the auditorium being incidentally let out to outsiders for commercial purpose, would not change the dominant object of the trust which was 'advancement of ed .....

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per book. The admitted position is that the assessee-trust being founded on 10th April 1959 had applied for registration under section 12A of the Act on 29th June 1973 and was granted registration under section 12A of the Act, considering the object of the trust to be charitable. Even after amendment of the Trust Deed the main object of the trust was to promote education and conduct colleges or schools, institutions etc for advancement of education, giving scholarship or assistance to students p .....

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e assessee had received service charges of ₹ 12.00 lacs and letting out of the premises for running the Institution of Management and also an amount of ₹ 15,02,182/was received for letting out of the auditorium. On this basis the DIT (E) by an order dated 22nd May 2013 concluded that case of the assessee would fall within the proviso to section 2 (15) of the Act as made applicable with effect from Assessment year 2009-10, in as much as case of the assessee could no more be categorize .....

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ssessee were let out to Lala Lajpatrai Institute to conduct junior college, senior college, Law College and a management Institution which is indisputedly an educational purpose. This is also in consonance with the objects of the assessee-trust which is to conduct colleges and schools and achieve 'advancement of education.' It is further an admitted position that these premises were let out on a nominal rent. The objection of the DIT (E) that the 6th and 7th floors rendered an income of .....

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for conducting an educational activity namely the Management Institution. There is no material before the DIT (E) to show that the 6th and 7th floors were used for purposes other than the Management Institution or for any other purpose which is not an educational purpose. First Proviso to section 2 (15) of the Act would also not be attracted in this situation. As regards the auditorium the same was also part of the building housing these colleges conducted by Lala Lajpatrai Institute which was .....

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ion 2 (15) of the Act. 16. It is well settled principle of law that the test to determine as to what would be a charitable purpose within the meaning of section 2 (15) of the Act, is to ascertain what is the dominant object of the activity; whether it is to carry out a charitable purpose or to earn profit. If the predominant object is to carry-out a charitable purpose and not to earn profit the purpose would not lose its charitable character merely because the some profit arises from the activit .....

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not be attracted in view of our conclusion that the said amounts as received by the assessee for the assessment year have been received from educational activity which is the dominant activity of the assessee-trust. In our opinion, if this be the case, separate books of accounts cannot be insisted upon as the said activity becomes part and parcel of the educational activities carried out by the assessee-trust. In such a case, the benefit of exemption under section 11 (4A) cannot be denied. An i .....

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ved as under : 5. The Tribunal has held that the Management and Development Program & Consultancy Charges' is part and parcel of 'Narsee Monjee Institute of Management Studies' which has been set up by the respondent-assessee. The respondent-assessee is a trust and has set up 30 schools and colleges. The Commissioner as also the Tribunal has found that the element of business is missing in conducting management courses. There may be some surplus generated which itself is applied .....

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the trust and the object that it is seeking to achieve. Similarly, in regard to income from the hiring of the premises and advertisement rights, the said question is also not substantial question of law. Letting out of halls for marriages, sale and advertisement rights has not been found to be a regular activity undertaken as a part of business. The educational institutions require funds. The income is generated from giving various halls and properties of the institution on rentals only on Satu .....

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