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2016 Supreme(Bom) 447
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.C.DHARMADHIKARI & G.S.KULKARNI, JJ
Director of Income Tax (Exemptions) – Appellant
Vs.
M/s Lala Lajpatrai Memorial Trust – Respondents
INCOME TAX APPEAL NO.2307 OF 2013
Decided On : 13-04-2016
Advocate Appeared:
Mr. A.R. Malhotra for Appellant
Mr. Phiroz Andhyarujina Sr.Counsel a/w
Mr. A.P. Singh, Mr.Asim Sarode for Respondents
The dominant object of an activity should be to carry out a charitable purpose and not to earn profit, to maintain its charitable character.
Headnote:
Income Tax Act - Registration Withdrawal - Section 12A - Section 2(15)
Fact of the Case:
The revenue appealed against the withdrawal of registration of the assessee under section 12A of the Income Tax Act, 1961. The assessee, a trust, claimed its main object as the advancement of education and received income from letting out premises to educational institutions.
Finding of the Court:
The court found that the letting out of premises to educational institutions was in line with the trust's main object of promoting educational activities. The court held that the income received from letting out the premises for educational purposes did not cease to be 'advancement of education' and did not fall under the first proviso to section 2(15) of the Act.
Issues: The main issue was whether the income received from letting out premises for educational purposes qualified as 'advancement of education' under section 2(15) of the Act.
Ratio Decidendi: The court emphasized that the dominant object of the activity should be to carry out a charitable purpose and not to earn profit. It held that the income from letting out premises for educational purposes did not lose its charitable character.
Final Decision: The court affirmed the view taken by the tribunal and dismissed the appeal.
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 section 12A of the Act stands allowed.
2. The assessment year in question is 2009-10. The revenue has proposed the following question of law for our consideration:
6.1 “Whether on the facts and in circumstances of the case, the Hon'ble ITAT was justified in allowing the appeal of the assessee brushing aside the provisions of Section 11 (4A) of the Income Tax Act, 1961?”
3. The facts lie in a narrow compass. The assessee is a trust founded under a Trust Deed dated 10th April, 1959. The assessee claimed 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 object of the trust deed did not change. The objects were to promote, support, establish and conduct college or colleges, schools, institutions etc for advancement of education and give scholarship or other assistance to students prosecuting studies. One of the objects was also to pay some part of income to any of the institutions which are carrying out the said objects. Thus, it was submitted that the main object of the trust was always promotion of education.
4. The assessee owns a plot of land at 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 which was received by the assessee from letting out the premises to Lala Lajpatrai Institute was claimed as exempted from taxation. This was the position right from 1976 till the Assessment year in question (A.Y.2009-10).
5. The Income Tax officer (Exemption) for A.Y. 2009-10 forwarded a proposal to the DIT (E) that on verification of the record of the assessee, it was prima facie found that the first proviso to section 2 (15) of the Act as inserted by an amendment to the Act with effect from A.Y. 2009-10 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. Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying out of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or any other consideration, irrespective of the nature of use or application or 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 to therein is te
