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2016 (11) TMI 1028 - ITAT MUMBAI

2016 (11) TMI 1028 - ITAT MUMBAI - TMI - Exemption u/s 11 & 12 denied - whether transaction with the caterer was in substance a mere passive letting of property, which could in no way be regarded as a business? - Held that:- So far as assessee-trust is concerned, it has been paid by M/s. Karishma Catering Services Pvt. Ltd. for providing right to use the premises owned by the assessee. Considering the mechanics of agreement between both it would be inappropriate to hold that assessee is engaged .....

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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 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.- Decide .....

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spect 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/MUM/2015 (Assessment Year : 2010-11) 2. This appeal by the assessee is directed against the order of CIT(A)-1, Mumbai dated 11.08.2015, pertaining to the Assessment Year 2010-11, which in turn ha .....

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letting of property, which could in no way be regarded as a business. 3. The learned Commissioner (Appeals) erred in going by the nomenclature of the income, and did not appreciate that the mere nomenclature of an income did not necessarily determine its true character. 4. The learned Commissioner (Appeals) erred in not perusing the various clauses of the agreement, which clearly demonstrated that nothing was to be done by the appellant other than allowing the use of the space by the caterer. 5. .....

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to the appellant, the income of the appellant was also in the nature of business income. 8. Your appellant pray that the order of the learned Assessing Officer be modified by holding that the income received by your appellants from the caterer was not in the nature of business income, and by allowing exemption u/s 11 and 12 to your appellants. 4. Though the appellant-trust has raised multiple Grounds of appeal, the solitary issue is with regard to the benefit of exemption u/s 11 & 12 of the .....

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l 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 Prab .....

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the Paper Book at pages 1 to 17. In terms of the said agreement, assessee is to receive monthly compensation of ₹ 3,00,000/- and the agreement provides for increase in the monthly compensation after every three years by 10%. For the year under consideration, assessee received a sum of ₹ 39,00,000/- from M/s. Karishma Catering Services Pvt. Ltd. and such amount has been credited in the Income & Expenditure Account as Royalty . It would also be pertinent to note here itself that pr .....

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t covered by the scope of Sec. 11(4A) of the Act. 6. Before the Assessing Officer, the plea of assessee was that the contract with M/s. Karishma Catering Services Pvt. Ltd. was, in substance, in the nature of a rental contract for use of hall and assessee was receiving a fixed monthly income plus applicable service tax irrespective of the number of days for which M/s. Karishma Catering Services Pvt. Ltd. was booking the hall. According to the assessee, the only obligation of assessee was to make .....

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n the nature of rent . The Assessing Officer has not accepted the explanation of assessee. According to the Assessing Officer, the amount received from M/s. Karishma Catering Services Pvt. Ltd. could not be construed as rent , but it was a 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 .....

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gainst 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 therefore provisions of Sec.11(4A) of the Act are not attracted at al .....

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the owner of the property, and thus the receipt has to be understood as income by way of rent. On this aspect, it has also been pointed out that even in the earlier years, similar contract/agreement existed with M/s. Karishma Catering Services Pvt. Ltd. and the income received has been held to be eligible for exemption u/s 11 & 12 of the Act and for that matter, reference has been made to the assessment order dated 19.12.2008 passed u/s 143(3) of the Act for Assessment Year 2006-07, a copy o .....

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table Trust, 136 Taxman 161 (Mad) iii) DIT v. Sahu Jain Trust, 243 CIT 131 (Cal) iv) CIT v. Sri Rao Baghadur ADK Dharmaraja Educational Charity Trust, 300 ITR 365 (Mad) v) DDIT v. Habib Ismail Hospital & Medical Trust, 19 ITR(Trib) 223 (Mum) 8. On this aspect, the ld. DR appearing for the Revenue has primarily reiterated the stand of the Assessing Officer which I have already noted in the earlier paras and is not being repeated for the sake of brevity. The ld. DR also referred to the order o .....

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onsidered 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 dis .....

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Trust and, therefore, the benefit of Sec. 11 & 12 of the Act have been denied. 10. In order to appreciate the stand of Assessing Officer, it is appropriate to refer to the agreement dated 25.8.2008 between the assessee and M/s. Karishma Catering Services Pvt. Ltd. which brings out the terms and conditions in terms of which assessee has earned the income of ₹ 39,00,000/- during the year under consideration. Certain clauses of the said agreement, which are relevant, are being reproduced .....

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with the Charities all the premises at the said Complex of the Charities. (ii) An exclusive right to cater food and hard and soft beverages in the Complex at the functions held at the said Complex, subject to the rights of the Trust reserved hereunder. (iii) Providing, decorating and other required services at the function to be held at the Complex. 3. In consideration of the Charities having granted to the Caterer the Exclusive Catering Contract as aforesaid, the Caterer shall pay to the Chari .....

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ime - Period Royalty per month 1. 1st August 2008 to 31st July 2011 Rs.3,00,000/- 2. 1st August 2011 to 31st July 2014 Rs.3,30,000/- 3. 1st August 2014 to 31st July 2017 Rs.3,63,000/- 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 Ca .....

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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 whether or not the Caterer gets sufficient business through bookings for the use of the said Complex. 13. The Caterer shall employ its own servants, employees and staff and the Caterer shall be solely responsible .....

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become liable to pay by reason of the non observance or non performance of the requirements of this Clause, to be on the part of the Caterer to be observed and performed. 14. The Caterer shall bear the cost of obtaining/renewing the Licence/s required for the purpose of conducting the activities in pursuance of this Agreement and also of its subsequent renewal or alterations in the terms of the aforesaid licence. 32. The Caterer shall accept full responsibility for every function held in any pa .....

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assessee-trust is concerned, it has been paid by M/s. Karishma Catering Services Pvt. Ltd. for providing right to use the premises owned by the assessee. It is also notable that the booking of hall, catering of food and other services to the customers is entirely the prerogative of M/s. Karishma Catering Services Pvt. Ltd. and assessee-trust is no way responsible for the same. It is also noteworthy that assessee is to receive a fixed monthly sum irrespective of whether or not M/s. Karishma Cater .....

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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 cle .....

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sessment finalised u/s 143(3) of the Act for Assessment Year 2006-07, such income has been accepted to be eligible for exemption u/s 11 & 12 of the Act. In my considered opinion, considering the past history, which has not been controverted by the Revenue, wherein assessee got the benefit of exemption in respect of the impugned income, there is no justification for disallowing the benefit of Sec. 11 & 12 of the Act in the instant year. Thus, on this count itself I find no reason to hold .....

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the Assessing Officer, which was not upheld by the Hon'ble High Court. As per the Hon'ble High Court, letting out of property was an activity for fulfilling the objectives of the Trust and could not be considered as an activity of business so as to deny exemption u/s 11 & 12 of the Act. In the case of Sahu Jain Trust (supra), the Hon'ble Calcutta High Court was considering the income derived from sub-letting of tenanted properties. The Assessing Officer held that such income was .....

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e had got the benefit of exemption in respect of such rental incomes. In my considered opinion, the aforesaid judicial pronouncements clearly bring out that 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. 12 .....

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t 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 any case, in my considered opinion, the nomenclature is .....

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