Bhaskar Bhattacharya and Sambuddha Chakrabarti, JJ
Decided on: 31 March 2011
M.P. Agarwal for the appellant
J.P. Khaitan for the aespondent
Bhaskar Bhattacharya, J.-
This appeal under section 260A of the Income-tax Act, 1961 is at the instance of the Revenue and is directed against an order dated August 10, 2000, passed by the Income-tax Appellate Tribunal, “D” Bench, Calcutta, in ITA No.2659 (Cal) of 1994 relating to the Assessment Year 1991-92 thereby dismissing the appeal preferred by the Revenue against an order passed by the Commissioner of Income-tax (Appeals).
2. The facts giving rise to filing of this appeal may be summed up thus:
a) The assessee is a charitable trust and society and was enjoying exemption in the earlier assessment years. While making assessment for the relevant assessment year, the Assessing Officer was of the view that as the assessee was earning rent from the properties which were not owned by it, the said exercise done by the assessee for earning income is not incidental to the attainment of the object of the trust and accordingly, the said rental income received by the assessee was assessed as income from business by applying the provisions of section 11 (4A) of the Income-tax Act, 1961.
b) Being dissatisfied, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the said Appellate Authority held that the provision of section 11 (4A) was not attracted and the income earned by letting out the property was for the charitable object and hence, the exemption under section 11 of the Act was allowed.
c) Being dissatisfied, the Revenue preferred an appeal before the Tribunal below and it was contended that by letting out the tenanted property, the trust was engaged in business activity by earning rental income derived from subletting and hence, the exemption should not be granted to the assessee.
d) The Tribunal below, however, turned down such objection of the Revenue of holding that to enable the trust to carry out its charitable object in effective manner if rental income was received by way of subletting, for that reason, the exemption could not have been denied by the Assessing Officer. It was further pointed out that in the past also, the assessee got the benefit of exemption in respect of the selfsame rental income and, therefore, there was no just reason for disallowing the relief claimed.
3. Being dissatisfied, the Revenue has come up with the present appeal.
4. Although at the time of admission of the appeal, the Division Bench formulated three different questions relating to the applicability of section 11 (4A) of the Act, Mr. Agarwal, the learned Advocate appearing on behalf of the appellant, suggested the following point in a concise form for the purpose of deciding the appeal:
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has erred in holding that the provisions of section 11 (4A) of the Income-tax Act, 1961 were not attracted in the case of the assessee for the assessment year 1991- 92?”
5. Therefore, the only question that arises for determination in this appeal is whether a charitable trust, if acquires tenancy right in respect of some immovable property owned by a different person, and thereafter, sublets the said tenancy right and in the process earns some income, such income should be treated to be an income from business so as to attract the provisions contained in section 11 (4A) of the Act as it stood at the relevant point of time.
6. To appreciate the question the provision contained in section 11 (4A) of the Act as it stood for the relevant assessment year is quoted below:
“(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless-
(a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or
(b) the business is carried on by institution wholly for charitable purpose and the work in connection with the business is mainly carried on by the beneficiaries of the institution and separate books of account are maintained by the trust or institution in respect of such business.”
7. Therefore, the first and foremost condition for applicability of the aforesaid provision is that the income of the trust must arise from business. In the case before us, the Respondent was holding a tenancy right in the property belonging to some other person and by subletting the same, the appellant earned some income.
8. According to section 2(13) of the Act, the word business has been defined as under:
“”Business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;”
9. The question, therefore, which really arises in the present case, is whether subletting of the tenanted accommodation available to the assessee amounts to carrying on any business, i.e., is it carrying on any adventure or concern in the nature of trade, commerce or manufacture? If it was carrying on any adventure or concern in the nature of trade by subletting, then, section 11 (4A) could be attracted.
10. The test whether in a given circumstance, the act of letting out tenements amounts to carrying on business was pointed out by the House of Lords in the case of the Governors of the Rotunda Hospital, Dublin v. Coman, (1919) 7 Tax Case 517. In that case, the Governors of a maternity hospital established for charitable purposes were the owners of a building which comprised rooms adapted for public entertainments, and which was connected with the hospital buildings proper by an internal passage. The hospital derived a substantial income from letting the rooms for public entertainments, concerts, etc., for periods varying from one night to six months and applied the income to the general maintenance of the hospital. The rooms were let upon the terms which included the provision of seating, heating and attendance, but an additional charge was made for gas and electricity consumed. The House of Lords held that the profits derived from the letting of the rooms were assessable to Income Tax under Schedule D, either under Case I, as the profits of a trade or business or under Case VI of that Schedule. In arriving at such conclusion, the following observations were made:
“Profits are undoubtedly received in the present case which are applied to charitable purposes, but they are profits derived not merely from the letting of the tenement but from its being let properly equipped for entertainments, with seats, lighting, heating and attendance. The subject which is hired out is a complex one. The mere tenement as it stands, without furniture etc. would be almost useless for entertainments. The business of the Governors in respect of those entertainments is to have the hall properly fitted and prepared for being hired out for such uses. The profits fall under Schedule D, and to such profits the allowance in question has no application as they cannot be properly described as rents or profits of lands, tenements, hereditaments or heritages. They are the proceeds of a concern in the nature of a trade which is carried on by the Governors, and consists in finding tenants and having the rooms so equipped as to be suitable for letting.”
11. Therefore, the true test is whether it is a simple letting out of the building or something more than letting out by bringing the case within the meaning of “carrying on any adventure or concern in the nature of trade or commerce.” The above test has been approved by the Supreme Court in the case of Commissioner of Income-tax, Bombay City I, Bombay v. National Storage Pvt. Ltd. Bombay, reported in AIR 1968 SC 70.
12. In the above case of National Storage Pvt. Ltd., the assessee- Company was formed with the object of carrying on the business of storing films. It purchased certain lands and constructed safe deposit vaults in conformity with the specifications laid down in the Cinematography Film Rules, 1948, for hiring out. The key to each vault was retained by the vault-holder, but the key to the entrance which permitted access to the vaults was kept in the exclusive possession of the assessee. The assessee also rendered other services to the vault-holders. In such a fact, it was held that the agreements with the vault holders were licenses and not leases and the assessee was in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees and thus, the assessee was carrying on an adventure or concern in the nature of trade. In the case before us, there is, however, no such finding made by the Assessing Officer against the assessee that it is doing something more than mere letting out. The relevant finding of the Assessing Officer is quoted below:
“The only justification for taking the property on lease is to earn more income by giving them on rent. This hiring of a H.P and this are hiring earned income cannot be treated as charitable activity but is purely a commercial venture and therefore comes under the purview of section 11 (4A). Assessee has not come forward with any satisfactory explanation and in view of the same provisions of section 11 (4A) are applied. Since these activities are not incidental to the attainment of the object of the trust and assessee has also not maintained any separate books of accounts the income from this venture is treated as business income and brought to tax accordingly.”
13. We have already pointed out that aforesaid finding has been reversed both by the Commissioner of Income-tax (Appeals) and the Tribunal and the Tribunal pointed out that to enable the trust to carry out its charitable object in effective manner if rental income was received by way of subletting, for that reason, the exemption could not have been denied by the Assessing Officer.
14. We, thus, find that there is no material which is available on record to justify the simple subletting done by the assessee in order to continue its charitable activity to be branded as a “business activity” and the Commissioner of Income-tax (Appeals) and the Tribunal below rightly did not bring the case within the purview of section 11 (4A) of the Act.
15. Apart from the aforesaid fact, Mr. Khaitan, the learned Senior Advocate appearing on behalf of the Respondent, also submitted before us that in the past, the assessee having received the benefit of exemption in respect of the selfsame rental income, there was no just reason for disallowing the relief claimed for the relevant Assessment Year when no fresh materials were brought in this year for coming to a different conclusion.
16. Although Mr. Agarwal, the learned counsel appearing on behalf of the appellant, tried to impress upon us by relying upon the Division Bench decision of this Court in the case of Amal Kumar Chakrabory v. CIT, reported in (1994) 207 ITR 376 (Cal) that the principle of res judicata does not apply to Income-tax proceedings for a different Assessment Year, having regard to our finding indicated above, we hold that apart from the question of giving relief in the past, the materials on record did not bring the mere act of subletting with nothing more within the term “business” so as to attract the then provision of section 11 (4A) of the Act even for the relevant Assessment Year.
17. Regarding the applicability of the doctrine of res judicata, the following observations of a Three-Judge-Bench of the Supreme Court in the case of Joint Family of Udayan Chinubhai, etc. v. Commissioner of Income-tax, Gujarat, reported in AIR 1967 SC 762 lays down the law on the subject:
“It is true that an assessment year under the Income-tax Act is a self-contained assessment period and a decision in the assessment year does not ordinarily operate as res judicata in respect of the matter decided in any subsequent year, for the assessing officer is not a Court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year. It is open to the Income-tax Officer, therefore, to depart from his decision in subsequent years, since the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. A decision reached in one year would be a cogent factor in the determination of a similar question in a following year, but ordinarily there is no bar against the investigation by the Income-tax Officer of the same facts on which a decision in respect of an earlier year was arrived at. But this rule, in our judgment, does not apply in dealing with an order under section 25A(1). Income from property of a Hindu undivided family “hitherto” assessed as undivided may be assessed separately if an order under section 25A(1) had been passed. When such an order is made, the family ceases to be assessed as a Hindu undivided family. Thereafter that family cannot be assessed in the status of a Hindu undivided family unless the order is set aside by a competent authority. Under clause (3) of section 25A if no order has been made notwithstanding the severance of the joint family status, the family continue to he liable. to be assessed in the status of a Hindu undivided family, but once an order has been passed, the recognition of severance is granted by the Income-tax Department, and clause (3) of section 25A will have no application.”
(Emphasis supplied by us).
18. We, therefore, find no merit in this appeal and the same is dismissed by answering the reformulated question in the negative against the Revenue for the reasons assigned by us.
19. In the facts and circumstances, there will be, however, no order as to costs.