TMI Blog2016 (11) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... ental income only. The impugned income earned by the assessee from providing right to use of a property owned by it cannot be construed to be an income from business activity and rather, it is an activity undertaken to enable it to carry out its charitable activities in an effective manner. Therefore, the action of Assessing Officer is liable to be negated.- Decided in favour of assessee - ITA NOS. 4965 & 4966/MUM/2015 - - - Dated:- 5-10-2016 - SHRI G.S. PANNU, ACCOUNTANT MEMBER For The Assessee : Shri Hiro Rai For The Revenue : Shri Sumit Kumar ORDER The captioned two appeals by the assessee relate to Assessment Years 2010-11 2011-12 and involve a common issue. In both the appeals, the singular grievance of assessee is that the income-tax authorities have erred in denying exemption u/s 11 12 of the Income Tax Act, 1961 (in short the Act ) with respect to the income earned from a contract entered with M/s. Karishma Catering Services Pvt. Ltd. Since the issue and the facts and circumstances in both the assessment years are similar, appeal for Assessment Year 2010-11 is taken up as the lead case in order to appreciate the controversy. ITA NO. 4965/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting of property giving rental income, whereas the Assessing Officer treats it as a Business income not covered by the provisions of Sec. 11(4A) of the Act. 5. Before I proceed to address the controversy in detail, a brief background is appropriate. The appellant is a Trust set-up in 1901 and is registered with the Charity Commissioner, Mumbai as well as with the Director of Income-tax (Exemptions), Mumbai u/s 12A of the Act. At the time of hearing, the learned representative for assessee explained that the appellant-trust is carrying out activities of charitable purpose involving measures for alleviating the members of Pathare Prabhu community. The appellant-trust provides subsidies in the field of education, medical and housing by providing scholarships, accommodations at subsidised rates, etc. to the deserving members of the Pathare Prabhu community. It was also explained that such activities have been carried out since incorporation and that there is no dispute on the same. Notably, the assessee owns three halls in a building known as The Pathare Prabhu Charities Sabhagraha Sankul located at Andheri (W), Mumbai. Assessee-trust gave the above halls to M/s. Karishma Cat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt in the nature of Business income . According to the Assessing Officer, the terms of agreement did not mention that the money is being paid for the space utilized or rent. The Assessing Officer also observed that if it was a rental income, why assessee would have shown it in the Income Expenditure Account as Royalty . Further, the Assessing Officer held that such business activity was neither incidental to the attainment of the objectives of Trust and nor the assessee was maintaining separate books of accounts and, therefore, the exemption could not be allowed on such income in terms of Sec. 11(4A) of the Act also. Accordingly, the Assessing Officer assessed the total income at ₹ 39,00,000/-, being the Royalty income received, as against Rs. NIL returned by the assessee. The said action of the Assessing Officer has further been affirmed by the CIT(A) and accordingly, assessee is in further appeal before the Tribunal. 7. Before me, the learned representative for the assessee has vehemently argued that the activity of deriving income by letting out the property to M/s. Karishma Catering Services Pvt. Ltd. cannot be construed as an activity of business and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stand of lower authorities that income derived from M/s. Karishma Catering Services Pvt. Ltd. was liable to be assessed as Business income . 9. I have carefully considered the rival submissions. In the present case, the factual matrix lies in a narrow compass. The appellant is a charitable trust incorporated in 1901 duly registered with the Charity Commissioner, Mumbai and is also enjoying registration u/s 12A of the Act with the Director of Income-tax (Exemptions), Mumbai. For the Assessment Year under consideration, assessee filed its return of income claiming exemption u/s 11 12 of the Act, as in the past years. The Assessing Officer has not disputed the claim of assessee for exemption u/s 11 12 of the Act in principle, but he has denied the exemption in relation to one stream of income, which has been described as Royalty income of ₹ 39,00,000/- received from M/s. Karishma Catering Services Pvt. Ltd. According to Assessing Officer, said stream of income is not eligible for claim of exemption u/s 11 12 of the Act because the same is in the nature of business income not incidental to the attainment of objectives of the Trust and, therefore, the benefit of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. 1st August 2017 to 31st July 2018 Rs.3,99,300/- The aforesaid Royalty shall be paid by the Caterer every month in advance, on or before the 10th day of each Calendar month. In the event of the default in payment of the Royalty on or before the aforesaid stipulated date for a continuous period of 2 months, the Caterer shall be liable to pay interest @ 12% p.a. on the defaulted amount from the due date of payment, till the payment to and realization thereof by the Charities. 5. The Caterer shall be at liberty, during the subsistence of the Agreement, to take bookings for celebration of marriages, engagement, receptions, birthday parties, conferences and other get-togethers in the complex, between 6.00 A.M to 12.00 mid-night on such terms and conditions as it may deem fit. The Caterer shall ensure that no loud music is played, nor any controversial or objectionable or political programmes are conducted at the Complex. 6. It is expressly agreed and understood by and between the parties hereto that the Royalty mentioned in Clause 3 above shall be payable to the Charities, irrespective of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment dated 25.8.2008, in my view, it would be inappropriate to hold that assessee is engaged in carrying out any business activity jointly with M/s. Karishma Catering Services Pvt. Ltd. Factually, there is no material to suggest that any facilities have been allowed by the assessee to M/s. Karishma Catering Services Pvt. Ltd. other than allowing use of the property, which in simple terms tantamount to rental arrangement. No doubt, M/s. Karishma Catering Services Pvt. Ltd. is engaged in carrying out the business activities, but so far as assessee is concerned, it is receiving a fixed sum as compensation for allowing the use of property owned by it. Therefore, qua the assessee such receipts are in the nature of rental income only. The inference of Assessing Officer to the contrary in the instant year is devoid of any factual support and is a clear departure from the stand of Revenue in the past years. Notably, the Preamble of the agreement itself contains an averment that prior to this, a similar agreement existed between the assessee and M/s. Karishma Catering Services Pvt. Ltd. from March, 1997 to July, 2008. At the time of hearing, the learned representative for the assessee had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it cannot be construed to be an income from business activity and rather, it is an activity undertaken to enable it to carry out its charitable activities in an effective manner. Therefore, the action of Assessing Officer is liable to be negated. 12. Before parting, I may also touch upon the arguments of Assessing Officer that the impugned income has been shown by the assessee itself as Royalty in the Income Expenditure Account. It is quite well understood that mere nomenclature of a receipt is not determinative of its nature. What is required to be seen is the terms and conditions in terms of which a particular receipt has been earned, and for that matter, in the instant case, the terms of agreement clearly establish that the receipt is essentially for allowing right to use of a property owned by the assessee and is thus liable to be treated as a receipt in the nature of rent. In the course of hearing, the learned representative submitted that the nomenclature of Royalty has been used by the assessee perhaps with the intention to avoid any complications associated with a tenancy arrangement, though in essence the income has been earned for letting out of property. In a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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