2012 (6) TMI 499 - HC - Wealth-tax

Court rules kalyana mandapam income as property, not business. Assessee eligible for Wealth-tax Act exemption.

Director of Income-tax (Exemptions) Versus Samyuktha Gowda Saraswatha Sabha

Director of Income-tax (Exemptions) Versus Samyuktha Gowda Saraswatha Sabha - [2011] 339 ITR 456 Issues Involved:1. Eligibility for exemption under section 5(1)(i) of the Wealth-tax Act for assets consisting of land and buildings owned by the assessee-society.2. Classification of income from kalyana mandapam as either business income or income from property.3. Applicability of the decision in CIT v. Samyuktha Gowda Saraswatha Sabha [2000] 245 ITR 242 (Mad) to the current case.4. Relevance of the provisions under section 11(4A) of the Income-tax Act to the Wealth-tax Act.5. Consideration of remanding the matter back to the Assessing Officer for further examination.Issue-wise Detailed Analysis:1. Eligibility for Exemption under Section 5(1)(i) of the Wealth-tax Act:The primary issue is whether the assessee-society qualifies for exemption under section 5(1)(i) of the Wealth-tax Act for its assets, which include land and buildings used as a kalyana mandapam. The court examined the objects of the assessee-trust, which include education, relief of the poor, and other charitable activities. The court noted that the assessee's income from the kalyana mandapam was used to further these charitable objectives, thus qualifying the property for exemption under section 5(1)(i) of the Wealth-tax Act.2. Classification of Income from Kalyana Mandapam:The court addressed whether the income from the kalyana mandapam should be classified as business income or income from property. The Wealth-tax Officer had treated it as business income, thereby disqualifying it from exemption. However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal held that the income was from property, not business, and thus eligible for exemption. The court upheld this view, noting that the income was consistently treated as property income in previous assessments.3. Applicability of the Decision in CIT v. Samyuktha Gowda Saraswatha Sabha:The court considered the relevance of the decision in CIT v. Samyuktha Gowda Saraswatha Sabha, which had previously held that the income from the kalyana mandapam was property income and not business income. The Revenue argued that this decision should not be binding, but the court found no grounds to deviate from this precedent. The court noted that the Revenue had not challenged this decision in earlier years, making it binding for the current case as well.4. Relevance of Section 11(4A) of the Income-tax Act:The court examined the argument that the provisions under section 11(4A) of the Income-tax Act, which require separate books of account for business income, should apply to the Wealth-tax Act. The court found that the consistent treatment of the income from the kalyana mandapam as property income under the Income-tax Act should also apply under the Wealth-tax Act. The court noted that the property was used for charitable purposes, and thus, the income should be treated as property income, qualifying for exemption.5. Consideration of Remanding the Matter:The Revenue suggested remanding the matter back to the Assessing Officer to examine the character of the income and the eligibility for exemption. The court rejected this suggestion, noting that the income had consistently been treated as property income in previous assessments and that there was no new material to warrant a different treatment. The court also found no conflict with the decision in Director of Income-tax (Exemptions) v. Willington Charitable Trust, which dealt with different facts and circumstances.Conclusion:The court dismissed the Revenue's appeals, affirming that the income from the kalyana mandapam is property income and not business income. The court upheld the assessee's eligibility for exemption under section 5(1)(i) of the Wealth-tax Act, consistent with previous decisions and the consistent treatment of the income in past assessments. The court found no grounds to refer the matter to a Full Bench or to remand it back to the Assessing Officer.