w w w . L a w y e r S e r v i c e s . i n


Director of Income Tax (Exemptions) Chennai Vesus AVM Charities Chennai

    Tax Case (Appeal) 875 of 2004
    Decided On, 02 February 2010
    At, High Court of Judicature at Madras
    By, THE HONOURABLE MR. JUSTICE D. MURUGESAN & THE HONOURABLE MR. JUSTICE P.P.S. JANARTHANA RAJA
    For the Appellant: J. Narayanaswamy, Jr. Standing Counsel. For the Respondent: J. Balachandren, S. Sridhar, Advocates.


Judgment Text
(Prayer: Tax Case Appeal filed under section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal 'A' Bench dated 18.09.2002 in ITA.No.2692/Mds/1991 relating to the assessment year 1987-88.)


D. Murugesan, J.


The above tax case appeal is filed against the order of the Income Tax Appellate Tribunal 'A' Bench dated 18.09.2002 made in I.T.A.No.2692/Mds/91 relating to the assessment year 1987-88.


2. The question of law that arises for consideration which has been framed at the time of admission is whether the income derived by the Charities from out of letting out of Kalyana Mandapam on license could be considered as a property income or business income.


3. The Assessing Officer found that the income derived by the Charities by letting out the Kalyana Mandapam is a business income and accordingly made the assessment order. On appeal, that order of the Assessing Officer was upset by the Commissioner of Income Tax (Appeals) following the Judgment of this Court made in the case of Commissioner of Income Tax vs Samyuktha Gowda Saraswatha Sabha reported in (2000) 245 ITR 242 holding that the income from letting out of the Kalyana Mandapam by the Trust did not constitute income from business. On further appeal, The Tribunal confirmed the order of the Commissioner of Income Tax (Appeals) apparently following the above Judgment of this Court.


4. We have heard Mr.Patty B.Jegannathan, learned counsel for the appellant/revenue and Mr.J.Balachander for Mr.Sridhar for the respondent/assessee.


5. For the purpose of consideration, we may refer to the Judgment of this Court in the case of Commissioner of Income Tax vs Samyuktha Gowda Saraswatha Sabha reported in (2000) 245 ITR 242. That was a case where this Court was considering the question as to whether the letting out of property as marriage hall by a charitable trust for earning income is a business income or property income and whether such trust is entitled to the benefit of exemption under Section 11 of the Act in respect of such income. Of course, the Division Bench held that the Sabha lets out its hall to various persons and merely by letting out its hall the assessee has not lost his claim to exemption. Infact, this Judgment has been followed by this Court in various appeals. To quote a few, we may refer to T.C.No.235 of 1997 dated 12.11.2001 (The Director of Wealth Tax (Exemptions), Madras vs.M/s A.V.M.Charities, Madras, T.C.No.303 of 1997 dated 18.09.2002 (The Commissioner of Income Tax, Tamil Nadu III, Madras vs.M/s A.V.M.Charities, Madras).


6. In this context, we may also refer to yet another Judgment of this Court in the case of Commissioner of Income Tax vs. Halai Nemon Association reported in 243 ITR 439. In that case, this Court was considering the provision of Section 22 and Section 56 of the Income Tax Act with reference to the income by letting out building for marriages. Having noticed that the building was let out by the assessee to others for functions such as marriages and other functions and making available the premises for limited periods, and chairs, mikes etc. were also made available to others for which a charge was levied and the letting out is only for a limited purpose and for a limited period and by way of license vis-a-vis the lease granted in respect of the property on monthly or yearly basis. Having regard to the above circumstances, this Court had said that the income derived from letting out of halls for marriage purposes would be a business income as defined under Section 22 of the Act. Nevertheless insofar as this appeal is concerned, the law stood and applicable to the assessment year reads as under:-



"Section 4A : Sub Section (1) or sub section (2) or sub section (3) or sub section (3A) shall not apply in relation to any income, being profits and gains of business, unless


(a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Governemnt inthis behalf in the official gazette; or


(b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the businesses mainly carried on by the beneficiaries of the institution and separate books of account are maintained by the trust or institution in respect of such business.



7. The consideration for entitlement of exemption under Section 11 (4A), the provision that stood prior to the insertion of the new provision of Section 11 4A to Section 11 with effect from 1.4.92 shows for the entitlement of exemption income being profits and gains of business and the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the official gazette or the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution.


8. From the reading of both the orders of the Commissioner of Income Tax (Appeals) as well as the Tribunal, we are unable to find as to whether the trust in question would be entitled to exemption in terms of the above provision with regard to the profits and gains of business.


9. It is pertinent to point out that the above provision of sub section 4 A was replaced by insertion of a new provision with effect from 01.04.1992 and that section reads as follows:-

"Section 4-A: Sub Section (1) or sub section (2) or sub section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business".


10. For entitlement of the said new provision, the income being the profits and gains of business and the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. The consideration for entitlement of the provision is entirely different with reference to newly inserted provision.


11. There is absolutely no discussion about the application of the provision to the trust in question by the Commissioner of Income Tax (Appeals) as well as the Tribunal. In our opinion, the entire issue should be reconsidered by the Commissioner of Income Tax (Appeals) as to whether the Trust in question is entitled to the exemption in respect of the assessment year by applying the relevant provisions. In that case, if the Commissioner of Income Tax (Appeals) comes to the conclusion that the income is a property income, then he has to find out the actual quantum of tax component with reference to the actual profit and the amounts spent towards the object of the trust. In the absence of any of the discussion, we are of the view that we have to only remand the matter after setting aside both the orders of the Commissioner of Income Tax (Appeals) and the Tribunal for fresh consideration.


12. Accordingly, the orders of the Commissioner of Income Tax (Appeals) and the Tribunal are set aside and the matter is remanded to the Commissioner of Income Tax (Appeals) for fresh consideration. We may make it clear that the Commissioner of In

Please Login To View The Full Judgment!
come Tax (Appeals) should consider the matter afresh by considering both the Judgments of this Court reported in Commissioner of Income Tax vs. Halai Nemon Association reported in 243 ITR 439 and Commissioner of Income Tax vs Samyuktha Gowda Saraswatha Sabha reported in (2000) 245 ITR 242 with reference to the provision. We may also point out that all the provisions relating to exemption prior to 1989 and thereafter prior to 1992 and after 01.04.1992 have been considered by the Supreme Court in the case of Assistant Commissioner of Income Tax vs. Thanthi Trust reported in 247 ITR 785 and that Judgment also be taken note of by the Commissioner of Income Tax (Appeals). We also make it clear that both the revenue as well as the assessee are entitled to place whatever Judgments which they intend to rely before the Commissioner of Income (Appeals) for his consideration.
O R