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Judgment
Chitra Venkataraman, J.—The assessee is on appeal as against the common order passed by the Income Tax Appellate Tribunal relating to the assessment years 2008-09 and 2009-10. There were six appeals before the Income Tax Appellate Tribunal, out of which five were by the Revenue and one by the assessee.
Following are the questions of law raised by the assessee in Tax Case (Appeal) No. 35 of 2014.
Whether the Tribunal was right in not adjudicating the specific issue raised by the Revenue questioning the decision of the Commissioner of Income Tax (Appeals) that the income from letting out the property should be treated as business income or income from property for the purpose of invoking Section 11 of the Income Tax Act, 1961?
Whether the Tribunal was right in holding that the matter should be remanded to the files of the Assessing Officer to examine the nature of activity and its income derived as incidental to the objects of the assessee or as a separate business for the purpose of Section 11 and more specifically for Section 11(4A)?
Whether the income earned from letting out of the property is taxed as business income for the purpose of invoking Section 11 of the Income Tax Act, 1961?
The assessee herein is a Charitable Institution granted registration u/s 12AA of the Income Tax Act, 1961. The Society was formed to provide education, medical relief to the poor and objects of general public utility. It is stated that it is running lodging accommodations at two places and has a large Auditorium for conducting functions at Vepery and one such small Auditorium is at Esplanade and a large ground at Royapettah, which has a commercial value to be let out for public functions, exhibitions, etc. The Society maintains swimming pool, recreation centers and gymnasium. Two schools and a home were formed and maintained for the deprived children. Relief activities in times of flood and other natural calamities are also being carried out by the Society. The Auditorium and the hall are let out to members and non-members. Rooms are also let out to members and non-members, which included providing of food. The Assessing Officer held that the assessee was carrying on business activities. As regards the letting out of the Auditorium at Vepery, the Hall at Esplanade, the ground at Royapettah, letting of rooms at Royapettah and Vepery the Society was charging rent and as well as for providing food and beverages to the persons, who were occupying such rooms. When the assessee was questioned about the nature of receipts, the assessee took the contention that the income from these activities was not business income but income from the property. The assessee placed reliance on the decision of this Court reported in Commissioner of Income Tax Vs. Sri Rao Baghadur ADK Dharmaraja Educational Charity Trust, as well as Commissioner of Income Tax Vs. Krishna Tent House, , apart from Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, on the aspect of utilization of the income for charitable purpose and hence exempted from Section 11 of the Income Tax Act, 1961. The contention of the assessee was however rejected holding the view that letting out of the hall and the open space and hiring out rooms amounted to business and hence the income there from were assessable as business income. Referring to Section 11(4A) of the Income Tax Act, 1961 the Assessing Officer viewed that any business activity conducted by the assessee would result in losing of the benefit u/s 11(1), (2), (3) and (3A) of the Act unless separate books of accounts were maintained. Going by the requirement of Section 11(4A) of the Income Tax Act, 1961, the Assessing Officer viewed that the assessee would be ineligible for exemption under Sections 11 and 12 of the Income Tax Act, 1961.
Aggrieved by this assessment, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who agreed with the assessee that the receipts from letting off of the rooms and the Auditorium constitute income from a house property. Referring to the objects of the Trust and Section 11(4A) of the Act, the Commissioner of Income Tax (Appeals) held that there was no violation of the provisions of the Act to deny the exemption u/s 11 of the Act. Considering the objects of the Society, viz., maintaining centers, hostels, boarding houses, tourist homes etc owning of the property and receiving rental incomes by letting out the same constituted income of the assessee from the house property. The Commissioner of Income Tax (Appeals) further viewed that letting out of the property to the members and non-members could not be treated as a business activity. The guests are permitted to avail the facilities of the organisation and therefore, the so-called members, who availed the services of the Society through the introduction of members as the guests of the members, who are treated as temporary members and the same could not constitute business activity. Thus, aggrieved by the order of the Commissioner of Income Tax (Appeals), directing the Assessing Officer to grant the benefit u/s 11 of the Income Tax Act, 1961, the Revenue went on appeal before the Income Tax Appellate Tribunal.
On a consideration of the merits of the case, the Income Tax Appellate Tribunal held that the question as to whether the assessee was earning income as incidental to the activities of the Society or whether the assessee was engaged really in business activity was required to be examined by the Assessing Officer. This is more so, in the context of Section 11(4A) of the Act. In the circumstances, the Income Tax Appellate Tribunal felt that since the lower authorities had not examined the issue as to whether the earning of the income was incidental to the objects or whether it was a separate business carried on by the assessee, it held that the matter deserved to be remitted back to the Assessing Officer to examine afresh in all these aspects.
Aggrieved by such order, the assessee is on appeal before us.
Learned counsel for the assessee submitted that although strictly speaking, the assessee is not against the remand order, his only anxiety is that the Tribunal having not considered the view of the Commissioner of Income Tax (Appeals) that the income earned was an income from house property and the remand order had not referred to this but ordered an open remand, such open remand will prejudice the assessee and hence submitted that the same may be clarified herein by directing the Assessing Officer to consider the question as to whether the income earned has to be assessed as income from house property or of business income, keeping in mind the objects of the trust.
We find from the perusal of the order passed by the Income Tax Appellate Tribunal that the Tribunal itself has pointed out in para. 6 of its order that the question as to whether the assessee was earning this income as incidental to the objects of the Society for the purpose of determining this case and in the event of the Assessing Officer was to hold the view that it is incidental to the object of the assessee, the consequence flowing thereon would be in terms of the order of the Commissioner as the Commissioner of Income Tax (Appeals) himself has felt that this is an income from house property. Thus, having gone through the order, in order to avoid future controversy arising, we agree with learned counsel submission. Hence, while confirming the order of the Income Tax Appellate Tribunal remanding the matter back to the Assessing Officer to examine the issue afresh, we hold that the Assessing Officer shall consider the nature of receipts keeping in mind the objects of the institution to find out as to whether the income earned is incidental to the objects of the association and hence income from the house property or whether the income could only be treated as a separate business carried on by the assessee. As pointed out by the Tribunal if the Assessing Officer has to treat that the income earned as only incidental to the objects of the association, and income from the property, then the consequences to flow would have to be considered in terms of Section 11 of the Act. We do not think that we need to elaborate further on this since the Income Tax Appellate Tribunal has already considered this in para. No. 9 of its order.
Except for the clarification that we have mentioned above, we do not find any further elaboration is required while confirming the order of the Income Tax Appellate Tribunal. Consequently, the Assessing Officer shall consider the case of the assessee in the context of the nature of activity vis-�-vis the objects of the trust/association to decide on the nature of receipt for the purpose of considering the assessee''s claim under the provisions of the Income Tax Act, 1961.
It is seen that the order passed by the Tribunal was an ex-parte order and there was no representation by the assessee. Consequently, the assessee filed miscellaneous application before the Income Tax Appellate Tribunal seeking rectification of the order. The Income Tax Appellate Tribunal rejected the petition holding that there was no mistake apparent on record, which needed rectification. Since the said order was only based on the remand order to consider whether the income is from letting out of the property is incidental to the objects of the Association or altogether a separate activity, nothing further need to be seen thereon. Thus aggrieved by this the assessee has filed TC(A) No. 36 of 2014, raising the following substantial questions of law:
Whether the Tribunal was right in not allowing the miscellaneous petition filed u/s 254(2) of the Income Tax Act, 1961?
Whether the Tribunal was right in not adjudicating the specific issue raised by the Revenue questioning the decision of the Commissioner of Income Tax (Appeals) that the income from letting out the property should be treated as business income or income from property for the purpose of invoking Section 11 of the Income Tax Act, 1961?
Whether the Tribunal was right in holding that the matter should be remanded to the files of the Assessing Officer to examine the nature of activity and its income derived as incidental to the objects of the assessee or as a separate business for the purpose of Section 11 and more specifically for Section 11(4A)?
Whether the income earned from letting out of the property is taxed as business income for the purpose of invoking Section 11 of the Income Tax Act, 1961?
Considering the fact that we have confirmed the order of the Income Tax Appellate Tribunal in the main appeal filed in Tax Case (Appeal) No. 35 of 2014 by making it as a open remand, nothing survives in T.C.(A) No. 36 of 2014 for adjudication.
In the result, Tax Case (Appeal) No. 35 of 2014 is disposed of and T.C.(A) No. 36 of 2014 is dismissed. No costs. Consequently, the connected miscellaneous petition is closed.