2014 (3) TMI 579 - HC - Income Tax

High Court clarifies income status of Charitable Institution property letting under Income Tax Act

The High Court confirmed the remand order directing the Assessing Officer to assess whether income earned from letting out property by a Charitable ... Nature of Income - Income from letting out – Business income or Income from property u/s 11 of the Act –Held that:- The Tribunal itself has pointed out 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 – the order of the Tribunal is confirmed for remanding the matter back to the AO for fresh adjudication - the AO 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 – Decided against Assessee. Issues:1. Interpretation of income earned from letting out property as business income or income from property under Section 11 of the Income Tax Act, 1961.2. Examination of whether the income earned is incidental to the objects of the Society or constitutes a separate business activity for the purpose of Section 11 and Section 11(4A) of the Act.Analysis:1. The assessee, a Charitable Institution registered under Section 12AA of the Income Tax Act, 1961, appealed against the Income Tax Appellate Tribunal's order for assessment years 2008-09 and 2009-10. The dispute revolved around whether income from letting out property should be treated as business income or income from property under Section 11. The Assessing Officer viewed the activities as business, leading to loss of benefits under Sections 11 and 12 unless separate accounts were maintained. The Commissioner of Income Tax (Appeals) disagreed, considering the income as from house property due to the nature of the Society's objects and activities, maintaining that letting out property did not constitute a business activity.2. The Income Tax Appellate Tribunal remanded the matter to the Assessing Officer to determine if the income was incidental to the Society's objects or a separate business activity, particularly in the context of Section 11(4A). The Tribunal emphasized the need for a fresh examination of this issue. The High Court, while confirming the remand order, directed the Assessing Officer to assess whether the income was incidental to the Society's objects or constituted a separate business activity, aligning with Section 11 implications. The Court clarified that if the income was incidental to the objects, it should be treated as income from the property, ensuring compliance with Section 11.3. An additional issue arose regarding a miscellaneous petition filed by the assessee seeking rectification of the Tribunal's order, which was rejected. The High Court found no need for further elaboration on this matter, as it was based on the remand order's considerations. Consequently, the Court dismissed the appeal related to the miscellaneous petition. As the main appeal was confirmed with an open remand, the Court disposed of the primary case and dismissed the related appeal, noting that no further adjudication was required.This detailed analysis of the judgment highlights the key legal issues, the arguments presented by the parties, and the Court's decision, providing a comprehensive understanding of the case's intricacies and implications.