2001 (11) TMI 1014 - AT - Income Tax

Income Tax Tribunal: Leases taxed as business income, exemption denied for engaging in commercial activities.

The Tribunal determined that the transactions were leases, with receipts to be taxed as business income. The assessee was denied exemption under section ... - Issues Involved:1. Nature of the transaction between the assessee and the occupants of the space in the buildings.2. Entitlement of the assessee to exemption under section 11 of the Income Tax Act.Issue-wise Detailed Analysis:1. Nature of the Transaction:- The assessee completed construction of Centre-1 and IDBI Centre and allowed possession of built-up spaces to various entities for consideration during the assessment years 1989-90 and 1990-91.- The Assessing Officer (AO) initially taxed the receipts as profits and short-term capital gains from the sale of built-up spaces.- The CIT(A) held that these transactions were not sales but leases, treating the receipts as premium or salami, taxable under the head 'Business'.- The Tribunal initially held that the transactions were sales of lease-hold rights of use of space, but the High Court found merit in the assessee's contention that there is no such concept in law and remanded the matter back to the Tribunal.- Upon reconsideration, the Tribunal concluded that the transactions were indeed leases, not sales, but the income should be assessed under 'Profits and gains of business or profession' as the assessee was carrying out a business activity by leasing out spaces.- The Tribunal upheld the CIT(A)'s view that the lumpsum payments (Primary Basic Rent) were premiums and not advance rents, and these should be taxed in the year of receipt as business income.2. Exemption under Section 11:- The assessee claimed exemption under section 11, arguing that it was a charitable institution engaged in activities of general public utility.- The AO and CIT(A) rejected the claim, stating that the assessee's activities were predominantly commercial, benefiting only a select group of individuals and not serving a general public utility.- The High Court directed the Tribunal to reconsider whether the assessee applied its income for earmarked purposes and was entitled to claim benefits under sections 11 and 12.- The Tribunal found that the assessee failed to apply its income for charitable purposes adequately and was engaged in business activities that did not benefit the public at large.- The Tribunal noted that the assessee's accounts were not maintained in a manner to segregate the expenditure on various activities, making it difficult to verify the application of income for charitable purposes.- The Tribunal also found that the assessee's case was hit by the provisions of section 13 due to the diversion of profits to founding members and section 11(4A) as the business was not carried on by the beneficiaries of the institution.- Consequently, the Tribunal upheld the orders of the authorities below, denying exemption under section 11 for both assessment years 1989-90 and 1990-91.Conclusion:The Tribunal concluded that the transactions were leases and the receipts should be taxed as business income in the year of receipt. The assessee was not entitled to exemption under section 11 due to its predominantly commercial activities, failure to apply income for charitable purposes, and violation of sections 13 and 11(4A).