Trust’s Conference Hall Rental Income Taxable as Business Income: ITAT Delhi

National Academy of Agricultural Sciences Vs ITO (ITAT Delhi)

ITAT Dismisses Assessee’s Appeals Because Auditorium Hiring Was Treated as Business Activity; Revenue Appeals Rejected Because Publication and Staff Expenses Were Incidental to Research Activities; ITAT Confirms Section 11 Relief Because Research Publications and Staff Costs Served Charitable Purpose.

The Delhi ITAT disposed of a batch of five interconnected appeals filed by both the assessee and the Revenue relating to Assessment Years (AYs) 2017-18, 2018-19, and 2020-21. The assessee, a charitable society registered under the Societies Registration Act, 1860 and registered under Section 12A of the Income Tax Act, is engaged in promoting agricultural sciences, including crop husbandry, animal husbandry, fisheries, forestry, natural resources, mechanization, agro-industries, agricultural education, environment, health, and allied sciences. Its income is derived from grants, investment interest, subscriptions, and other receipts.

For AY 2017-18, the assessee filed its return declaring nil income. During scrutiny assessment, the Assessing Officer made three additions: (i) ₹14,45,953 received from hiring conference facilities under Section 11(4A), treating it as business income; (ii) ₹72,81,214 under Section 11(3) for non-utilization of accumulated funds; and (iii) ₹2,29,28,414 by disallowing the claim of accumulation under Section 11(2). A demand of ₹1,11,71,925 was raised. On appeal, the National Faceless Appeal Centre (NFAC) deleted the additions under Sections 11(2) and 11(3) but upheld the addition under Section 11(4A) relating to receipts from hiring conference facilities. Similar issues arose in AYs 2018-19 and 2020-21, where additions of ₹19,35,253 and ₹22,25,520, respectively, were sustained under Section 11(4A).

The assessee contended before the Tribunal that receipts from conference facilities and auditorium hiring were incidental to its principal charitable objectives and therefore should not be treated as business income. The Revenue relied on the orders of the lower authorities.

The Tribunal examined the findings of the CIT(A), who had noted that the assessee had issued guidelines governing the hiring of conference and auditorium facilities. These guidelines permitted international organisations, NGOs, and private organisations to hire the facilities by paying prescribed charges and also required organisers to use only the approved catering facilities. The CIT(A) found that the assessee was not merely earning passive rental income but was actively exploiting the property by providing various facilities along with the premises. Further, none of the stated objects of the society included carrying on the commercial activity of letting out conference space and related facilities. During the hearing, the Tribunal noted that the assessee did not present any submissions contradicting these findings. Accordingly, finding no infirmity in the order of the CIT(A), the Tribunal upheld the additions made under Section 11(4A) for AYs 2017-18, 2018-19, and 2020-21 and dismissed all the assessee’s appeals.

The Revenue’s appeals for AYs 2017-18 and 2020-21 challenged the relief granted by the CIT(A) on issues relating to accumulation and application of income under Sections 11(2) and 11(3). The Revenue argued that the assessee had disclosed the same amount as accumulation in Forms 9A and 10, had used identical descriptions for the purpose of accumulation and reasons for shortfall, had accumulated funds without specifying proper purposes, and had inconsistently claimed exemptions under Section 11(2) and the Explanation to Section 11(1). It also challenged the allowance of deemed application and the deletion of additions relating to non-utilisation of accumulated funds.

The Tribunal reviewed the findings of the CIT(A), who had observed that publication expenditure was an inevitable component of the activities of a research institution because scientific research and studies undertaken by scientists had to be published and preserved. The CIT(A) further held that salaries paid to administrative and support staff were incidental to the institution’s specific research objectives. The Tribunal also considered the submissions made by the assessee and noted that the facts for AY 2017-18 were similar to those in AY 2016-17. Following the decision for the earlier year, the Tribunal accepted the assessee’s contention, confirmed the orders of the CIT(A), and dismissed both Revenue appeals.

As a result, the Tribunal dismissed all three appeals filed by the assessee challenging the treatment of conference facility receipts as business income under Section 11(4A). It also dismissed both appeals filed by the Revenue, thereby sustaining the relief granted by the CIT(A) regarding accumulation and application of income under Sections 11(2) and 11(3).

FULL TEXT OF THE ORDER OF ITAT DELHI

This bunch of five appeals are by the Assessee (ITA Nos.-3759/Del/2024, 3760/Del/2024 and 3761/Del/2024) and Revenue (ITA Nos.- 3796/Del/2024 & 3799/Del/2024) . Since the issues involved in these appeals are interconnected, they are being disposed of by this consolidated order for the sake of convenience and brevity. The assessee and Revenue have raised the following grounds of appeal:

ITA No.- 3761/Del/2024 (By the Assessee – A.Y.- 2017-18)

“ 1) The National Faceless Appeal Centre (NFAC) erred in law as well as on facts in upholding the addition made by the AO by considering receipts from conference facility and hiring of Auditorium of Rs 14,45,953/- to be income from business and Profession and not considering it to be incidental to the main objects of the society.

2) The learned Assessing Officer has erred both in facts and in law by levying interest under section 234B and 234D of the Act.

3) The learned Assessing Officer has erred both on facts and in law in initiating penalty proceedings under section 270A of the Act.

4) That the appellant craves, leave to add, alter, amend or vary and or withdraw any or all of the aforesaid grounds of Appeal or at time of hearing of the above appeal

ITA No.- 3799/Del/2024 (By the Revenue – A.Y. 2017-18)

“ A) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that assessee has put same amount as accumulation in Form 94 & 10 and used the same description for purpose in Form 10 & reasons for shortfall in Form 9A. Thus, assessee has accumulated funds without reasons or specific purpose in mind.

2 B) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has claimed exemption u/s 11(2) in return of income, whereas as per audit report in Form 108 has claimed under clause (2) of explanation to subsection (1) of section (11) of the Act. Therefore, assessee is not clear of its purpose or reason before accumulating funds.

3C) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that for AY 2016-17, the claim of accumulation was disallowed primarily on the ground of late filing of Form 10 whereas in the AY 2017-18, the exemption was denied primarily on the ground of vagueness of the purpose of accumulation.

4D) Under the fact and circumstances and law the Ld. CIT(A) has also failed to appreciate that the expenses with respect to printing (Rs. 16,51,791/-) and salary (Rs.56,26,423/-) cannot be held as the expenses incurred as per the specific purpose mentioned in Form 10 i.e. to promote and support research scientist.

5 E) The appellant craves leave to add, to alter or amend any grounds of appeal raise above at the time of hearing.

ITA No.- 3760/Del/2024 (Assessee – A.Y.- 2018-19)

“ 1) The National Faceless Appeal Centre (NFAC) erred in law as well as on facts in upholding the addition made by the AO by considering receipts from conference facility and hiring of Auditorium of Rs 19,35,253/- to be income from business and Profession and not considering it to be incidental to the main objects of the society.

2) The learned Assessing Officer has erred both in facts and in law by levying interest under section 234B of the Act.

3) The learned Assessing Officer has erred both on facts and in law in initiating penalty proceedings under section 270A of the Act.

4) That the appellant craves, leave to add, alter, amend or vary and or withdraw any or all of the aforesaid grounds of Appeal or at time of hearing of the above appeal.”

ITA No.- 3759/Del/2024 (Assessee – A.Y.- 2020-21)

1) The National Faceless Appeal Centre (NFAC) erred in law as well as on facts in upholding the addition made by the AO by considering receipts from conference facility and hiring of Auditorium of Rs 22,25,520/- to be income from business and Profession and not considering it to be incidental to the main objects of the society.

2) The learned Assessing Officer has erred both in facts and in law by levying interest under section 234A and 234B of the Act.

3) The learned Assessing Officer has erred both on facts and in law in initiating penalty proceedings under section 270A of the Act.

4) That the appellant craves, leave to add, alter, amend or vary and or withdraw any or all of the aforesaid grounds of Appeal or at time of hearing of the above appeal.”

ITA No.- 3796/Del/2024 (Revenue – A.Y.- 2020-21)

“ 1. Ground) Under the fact and circumstances and law the Lid. CIT(A) has failed to appreciate that, assessee has not utilized the fund (Rs.4,87,57,514/-) in A.Y. 2020-21, which deemed to be applied during the A.Y. 2019-20 as per explanation (2) to sub-section 1 of 11 in A.Y. 2020-21, which was mandatorily required to be utilized.

2. b) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that assessee has put same amount as accumulation in Form 9A & 10 and used the same description for purpose in Form 10 & reasons for shortfall in Form 9A. Thus, assessee has accumulated funds without reasons or specific purpose in mind.

c) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has claimed exemption u/s 11(2) in of income, whereas as per audit report in Form 10B has claimed under clause (2) of explanation to subsection (1) of section (11) of the Act. Therefore, assessee is not clear of its purpose or reason before accumulating funds.

d) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has claimed deemed application of Rs.2,49,81,302/- during the year, despite the fact that such funds were not even available with it and accordingly the FAO rightly rejected such claim and rejected form 9A and 10.

e) Under the fact and circumstances and law the Ld. CIT(A) has failed to appreciate that, the assessee has failed to apply Rs. 44,95,628/- for the purpose of society and was rightly brought to the tax by the FAO.

f) The appellant craves leave to add, to alter or amend any grounds of appeal raise above at the time of hearing.”

2. The facts of the case in brief, are that the appellant is a charitable trust registered under societies Registration Act 1860 and also registered u/s 12A of Income Tax Act. The assessee focuses on various fields of agricultural sciences in a comprehensive sense, including crop husbandry, animal husbandry, fisheries, forestry, natural resources, mechanization, agro industries, agricultural education, environment, health and allied sciences. The sources of income of appellant are grant-in-aid from D.A.R.E. and I.C.A.R., Interest on Investments and Contribution from subscriptions and other receipts.

3. Since the issue involved and the facts in all the appeals are common, we deal with the assessee’s appeal in ITA No. 3761/Del/2024 for AY 2017-18 first and the decision thereof would apply mutatis mutandis to all the appeals of the assessee. In this case, the return of Income declaring nil income was filed on 07.10.2017 electronically. The case was selected for complete scrutiny under CASS and accordingly notice u/s 143(2) of the Act was issued digitally on 14.08.2018. Subsequently notice u/s 142(1) of the Act was issued on 03.07.2019, 30.08.2019 and 18.10.2019. Further, show cause was also issued on 24.12.2019. The assessing officer passed assessment order on 30.12.2019 making additions as follows:

2.1 Notice of Demand u/s 156 of the Income Tax Act 1961 of Rs. 1,11,71,925/- was issued. The assessee filed appeal is against the order dated 30.12.2019 with the CIT(Appeals) on 24.01.2020. The National Faceless Appeal Centre (NFAC) passed the order u/s 250 partly allowing the appeal of the assessee. The NFAC allowed the grounds relating to additions made u/s 11 (2) and 11 (3) of the Act, but, confirmed the additions made u/s 11 (4A). In other words, the CIT (Appeals) allowed an amount of Rs. 72,81,214/- u/s 11(3) and Rs 2,29,28,414/- u/s 11(2), but, confirmed addition of Rs.14,45,953/- u/s 11(4A) of the Act. Addition confirmed of Rs.14,45,953/- u/s 11 (4A) is in relation to income from hiring conference facility as the same was considered not to be incidental to the principal activity of the trust.

3. Heard the rival submissions and we have carefully scanned the material on record. The ld. AR submitted that the National Faceless Appeal Centre (NFAC) erroneously upheld the addition made by the ld. AO by considering receipts from conference facility and hiring of auditorium of Rs.14,45,953/- (AY 2017-18) [Rs.19,35,253/- (AY 2018-19) and Rs.22,25,520/- (AY 2020-21)] to be income from business and profession not considering it to be incidental to the main objective of the Society.

4. The ld. DR placed reliance on the orders passed by the lower authorities.

5. Vide the impugned order, the ld.CIT(A) observed that the assessee trust declared receipts from hiring of conference and auditorium facility of a sum of Rs. 14,45,953/- (AY 2017-18) [Rs.19,35,253/- (AY 2018-19) and Rs.22,25,520/- (AY 2020-21)] and also furnished the copy of guidelines for hiring the premises of the Society for conferences and, in this regard, the assessee contended that the conference hall was not given to any person and for every purpose. The ld.CIT(A) observed that this contention of the assessee is quite contradictory to the guidelines issued by the assessee because, as per the guidelines, in the rate list it is specifically mentioned that the conference facility can be availed by international organizations/NGOs/private organizations by paying the hire charges as fixed by the assessee and the organizers cannot vail catering facility from other parties than those mentioned in the guidelines. Ono the contrary, the assessee was found to be engaged in active exploitation of the property in the manner in which a business is carried out and it was not only passively earning rental income, but also has been earning by providing various facilities along with the space to the lessees. The objectives of the assessee trust were perused and it is observed that none of its objectives was to indulge in business of letting out of the conference space and facilities on commercial sites. During the course of hearing, the ld. AR nowhere submitted any contrary view to that of the ld.CIT(A) which would clear the ground for not interfering with the order of the ld. CIT(A). Therefore, finding no infirmity in the order of the ld.CIT(A), we uphold the order of the ld.CIT(A) and dismiss the grounds taken by the Assessee in all its appeals.

Department’s appeals ( AY 2017-18 & 2020-21)

6. So far as the appeals preferred by the Revenue is concerned, the ld. DR submitted that the ld.CIT(A) erroneously passed the impugned orders and has erred in appreciating that the assessee has put same amount as accumulation in Form 9A and 10 and used the same description for the purpose in Form 10 and reasons for shortfall in Form 9A. So, the assessee has accumulated funds without reasons or specific purpose and claimed exemption u/s 11(2) in the return of income, whereas, as per audit report in Form 10B has claimed under clause (2) of Explanation to sub-section (1) of section 11 of the Act and also erred in appreciating that the claim of accumulation was disallowed primarily on the ground of late filing of Form 10.

7. We have carefully perused the impugned orders in which the ld.CIT(A) observed specifically that it is an admitted fact that when the scientists make any research or noting of any studies, the institution has to publish it and maintain the archives of such scientific studies. So the publication expenditure is an inevitable part of any research institution and there has to be some administrative and support staff to the scientists and, hence, the salary of such staff is incidental to the specific purpose. We have also considered the submissions of the ld. counsel of the assessee and perused the orders of the CIT(A) passed in the case of the assessee for the year 2016-17. The facts of the case for the AY 2016-17 are similar to those for the AY 2017-18. Therefore, following the decision, the contention of the assessee is accepted. Therefore we confirm the orders of the CIT(A) for both the years. Both the appeals are, hence, dismissed.

Order pronounced in the Open Court on 27.02.2025