Renting of auditorium by educational institution for conducting guest lectures: ITAT allows exemption u/s 11
Tribunal in matter of M/s. M.Ct.M. Chidambaram Chettiar Foundation vs DDIT said that letting out of the auditorium is incidental to fulfillment of the object of the trust i.e., education. It was not a auditorium was a commercial activity and hence assessee was allowed claiming exemption u/s.11 of the Act.
ITAT noted that the assessee trust exist for the purpose of education and the auditorium which is within the school complex for the purpose of conducting guest lectures or topics to address the students in connection with the curriculum and this is incidental and to earn rental from conducting conferences, music, dance and letting out to general public for conference meetings etc., is incidental to education and even from the facts it is clear that it is let out only for 134 days in assessment year 2010-11, for 144 days in assessment year 11-12, for 140 days in assessment year 2012-13 and 141 days in assessment year 2013-14. Even the rental earned from renting out of auditorium in relevant AY 2010-11 is Rs.40,84,433/- minus expenditure of Rs.15,77,851/- and the net income receipts is declared at Rs.25,06,582/- as against gross total income from educational activity at Rs.2,03,13,541/-, which is only to the extent of 12.5% of total receipts. Once the assessee falls under the category of education in term of section 2(15) of the Act, assessee is eligible for exemption u/s.11 of the Act because letting out of auditorium is incidental to fulfilment of the object of the trust i.e., education. Hence appeal of assessee were allowed.
Brief facts are that the assessee’s trust is registered u/s.12AA of the Act as a society vide DIT(E) proceedings in DIT(E) No.2(500)/95-96 dated 18.11.1998. The assessee trust in its grounds of appeal claimed that it is running an educational institution for the past several years and the auditorium is in the school campus for conducting conferences, lectures, meetings, etc., for its institutions. The auditorium is also used for letting out to institutions for which the assessee received rent for use of the auditorium. The assessee filed its return of income for the assessment year 2010-11 on 21.03.2011 declaring gross income at Rs.2,03,13,514/- and claimed excess application of Rs.2,68,856/- after claiming exemption under section 11 of the Act. During the course of scrutiny assessment proceedings, the AO required the assessee to give the details of miscellaneous receipt declared by assessee’s trust in its books of accounts. The assessee responded that the major portion of miscellaneous receipts pertain to income generated from let out of auditorium hall and for that purpose he submitted the details to whom the auditorium was let out and for what purpose it was let out. The AO has reproduced the details of receipts earned by assessee by letting out the auditorium. The AO noted that the auditorium has been let out to general public for a total of 227 days during the relevant financial year 2009-10 relevant to assessment year 2010-11. The AO noted that the income generated by the assessee by letting out the auditorium was to the tune of Rs.40,84,433/-. The AO noted in his assessment that auditorium has been let out to general public for conduct of dance programme, music programme, corporate meetings, corporate conference, corporate get together and family functions. According to him, the auditorium has been allowed for general public utility for their private functions and this letting out has been done with a profit motive and accordingly, net income was declared at Rs.25,06,582/- and claimed the same as exempt u/s.11 of the Act. The AO noted that the receipts from auditorium let out is in the nature of trade, business or services and therefore, hit by the proviso to section 2(15) of the Act. Therefore, he show caused the assessee as to why the claim of exempt be not denied, since the activities are in the nature of trade, business or commerce as evidenced from the above receipts. The assessee filed written submissions dated 25.03.2013 stating that the auditorium is located inside the premises of school and predominantly utilized by school for promotion of cultural and extracurricular activities. The assessee contended that the main purpose of auditorium is to provide facilities for the school in exhibiting the student’s artistic talents. The auditorium was let out to outside parties only when the same was not needed by school and the proceeds received from letting out of auditorium hall was utilized in promotion of education and hence, it would not lose character of charitable purpose merely because some profit arises from the activity. The assessee objected to the proposal of AO and argued that the trust has not carried out any business / trade / commerce as provided in the proviso to section 2(15) of the Act. It was claimed that the income from this activity is only incidental and not business in nature and thus, letting out of auditorium hall for rent is not carrying on business and the income of the trust so received by way of rent would continue to enjoy exemption u/s.11 of the Act. The AO examined the submissions of the assessee and relying on the proviso to section 2(15) of the Act as introduced w.e.f. 01.04.2009 held that the activities of letting out of auditorium and receiving income from the same is nothing but commercial activity to generate income. He noted that the activity will come under the activity of advancement of object of general public utility and therefore hit by the proviso to section 2(15) of the Act. He noted that the objects of the trust are of general public utility in nature and the assessee trust is receiving commercial receipts to provide service to general public and in this assessment year, the threshold limit as prescribed in the Act is Rs.10 lakhs and hence, the assessee is not eligible for claim of any exemption u/s.11 of the Act in regard to receipt of rent of auditorium. Therefore, the AO assessed the net receipt of Rs.25,06,582/- as taxable and denied exemption u/s.11 of the Act. However, the AO allowed exemption u/s 11 of the Act on the receipts of school holding the same from educational activity. Aggrieved, assessee preferred appeal before the Tribunal.
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