Commissioner of Income TaxVirudhunagar v. Sri Rao Baghadur APD. DharmarajaEducational Charity Trust,Rajapalayam

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 29.1.2007CORAMTHE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN T.C.(A) No.119 of 2003 Commissioner of Income TaxVirudhunagar .. Appellant Vs.Sri Rao Baghadur APD. DharmarajaEducational Charity Trust, Rajapalayam. ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras 'C' Benchdated 16.4.2003 in ITA No.769(Mds)/2000 for the assessment years1995-96. against the order of the Commissioner of Income Tax(Appeals) IX, Chennai 600 034 dated 27.1.2000 and made in AppealNo.148/98-99. against the order of the Income Tax Officer Ward 1(2)Virudunagar, Dated 30.3.98 and made in PAN/GIR.No.AX-0517 for the Assessment year 1995-96.For Appellant: Mr.J.Nareshkumar, For Respondent: Mr.P.J.Rishikesh -----J U D G M E N T(Delivered by P.D.DINAKARAN, J.)The Revenue has preferred the above tax case appeal againstthe order of the Income-tax Appellate Tribunal dated 16.4.2003 inITA No.769/Mds/2000 for the assessment year 1995-96 raising thefollowing substantial question of law for consideration: https://hcservices.ecourts.gov.in/hcservices/ "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the activity ofletting out of property is not a business activity, andthat the exemption under section 11 should not be deniedto the assessee?

2. The brief facts, necessary for the disposal of the appealare, the assessee, a trust, claimed exemption of income fromproperties and lease rentals under sections 10(22) and 11 of the Income-tax Act, 1961 which was disallowed by the Assessing Officer. On appeal, the Commissioner of Income-tax (Appeals) held that theincome from properties let out is not a business income, andallowed the exemption. The Appellate Tribunal, on appeal, heldthat the activities of the assessee cannot be treated as itsbusiness activities and confirmed the order of the Commissioner of Income-tax (Appeals). Hence, the appeal by the Revenue, raisingthe substantial question of law referred to above.3. Before considering the question of exemption of income ofthe educational trust, the points to be decided are, (i) what isthe object of the assessee trust; and (ii) whether the activity ofthe assessee in letting out its properties is a business activityor not.

4. It is well settled that if a trust exists solely foreducational purposes and it runs an educational institution, itsincome will be the income of the educational institution andtherefore, exempted under section 10(22), which says that anyincome of a university or other educational institution, existingsolely for educational purposes and not for purposes of profit isnot includible in the computation of income. 5. This Court in C.I.T. v. K.Girls Schools Managing Board (245ITR 170) held that the question of eligibility to exemption undersection 10(22) of the Act has to be decided with reference to theobjects of the society and if the trust, in order to attain itsmain objects, conducts some business for raising the funds, theclaim for exemption under section 10(22) of the Act would still beavailable to the trust.6. Reiterating the above view, this Court in C.I.T v.Samyuktha Gowda Saraswatha Sabha (245 ITR 242) held that as theobjects of the assessee were education and other objects ofgeneral utility, the letting out of the Kalyana Mandapam was notone of the objects of the assessee, but an activity carried on tofulfil the objects of the trust, and hence, the income derived fromthe Sabha was not its business income, but its property income andthe assessee was entitled to exemption under section 11 of the Act. https://hcservices.ecourts.gov.in/hcservices/

It is not in dispute that the main object of the assesseetrust is education. On the facts of the case, the AppellateTribunal found that the assessee trust is running variouseducational institutions and it is solely existing for educationalpurposes within the meaning of section 10(22) of the Act. TheAppellate Tribunal also found that the assessee trust has let outproperties and received lease rentals and hence, such activitiescannot be treated as business activities since the assessee issolely existing for educational purpose.

We hold that the object of the assessee trust is educationand the activities of the assessee in letting out properties andreceiving lease rentals is an activity carried on only to fulfilthe object of the trust. Hence, the income derived by letting outthe properties cannot be treated as business income of theassessee. We are therefore of the view that the Appellate Tribunalwas right in holding that exemption under section 11 of the Actshould not be denied to the assessee.

Accordingly, answering the question of law referred in theaffirmative and against the Revenue, we dismiss the appeal. Nocosts. sra/naSd/Asst. Registrar/true copy/Sub Asst. RegistrarTo1.The Assistant Registrar, Income Tax Appellate Tribunal, IIInd Floor Rajaji Bhavan, Besant NagarMadras. 2. The Commissioner of Income-Tax (Appeals-IX), Madras. 3. The Income-tax Officer, Ward-I(2),Virudhunagar. 4. The Commissioner of Income Tax, Virudhungar, https://hcservices.ecourts.gov.in/hcservices/

The Income Tax Appellant Tribunal, Madras "C" Bench, Madras.+ 1 cc to Mr. P. J. Rishikesh, Advocate, SR No.5139+ 1 cc to Pushya Sitaraman Senior Standing Concel for Income Tax, SR No.5618T.C.(A) No.119 of 2003PV(CO)SR/12.3.2007