Saturday, May 21, 2016

No denial of exemption u/s 11 to an educational trust if it lets out its auditorium for educational activities

Facts
a)    Assessee-trust, established for educational purposes, had let out its auditorium to a management institute on a nominal rent.
b)    Assessing Officer (AO) found that the first proviso to section 2(15) was attracted in view of the income earned by the assessee from letting out of the said premises. Accordingly, exemption under section 11 was denied to assessee.
c)    The Tribunal, after examining the facts, had come to a conclusion that the main object of the assessee-trust was to promote educational activities. It was in the course of this activity that the premise was let out. Hence, proviso to section 2(15) wouldn’t be attracted in case of assessee.
d)    Aggrieved by the order of the Tribunal. The revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-


1)    The principal purpose for which premise was let out was for conducting an educational activity, namely, Management Institution and there was no material to show that building was used for a purposes other than Management Institution.
2)    It is well-settled principle of law that the test to determine as to what would be a charitable purpose within the meaning of section 2(15), is to ascertain what is the dominant object of the activity; whether it is to carry out a charitable purpose or to earn profit? If the pre-dominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because the some profit arises from the activity.
3)    Letting out of the auditorium was not the dominant object of the trust and, admittedly, the auditorium was incidentally let out to outsiders for educational activities. Thus, it couldn’t be said that such letting out would fall within the first proviso to section 2(15)- [2016] 69 taxmann.com 158 (Bombay)

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