Top Stories Income Earned from letting out of Auditorium is Eligible for Exemption u/s 11 of Income Tax Act, When Income is applied to Objects of Trust: ITAT [Read Order] Income Earned from letting out of Auditorium was eligible for Exemption under Section 11 of Income Tax Act, When Income was applied to Objects of Trust, rules, ITAT By Aiswarya Krishnadas – On February 22, 2024 10:30 am – 3 mins read In a recent decision the Income Tax Appellate Tribunal, ( ITAT ) in Mumbai, observed that income earned from letting out of auditorium was eligible for exemption under Section 11 of the Income Tax Act, 1961, when income was applied to objects of Trust The assessee was a public charitable trust registered under Section 12A of the Income Tax Act. The assessee was also an approved research organization under Section 35(1)(ii) of the Income Tax Act. The assessee filed the return of income on 25.09.2013 declaring income at Rs. Nil after claiming exemption under section 11 of the Income Tax Act. The assessee’s assessment was re-opened by issue of notice under Section 148 of the Income Tax Act dated 28.03.2018. The reason for reopening was that the benefit under section 11 of the Income Tax Act, was denied to the assessee by invoking the proviso to Section 2(15) of the Income Tax Act, in assessee’s case for AY 2009-10 and 2015-16.

The AO re-opened the assessment stating that the assessee by claiming exemption under section 11 has understated the income for AY 2013-14 and that the income has escaped assessment within the meaning of Section 147 of the Income Tax Act. Girish Dave & Tanzil R. Padvekar, representing the assessee submitted that the AO though has passed the order under section 144 r.w.s. 263 of the Income Tax Act, has stated that he has considered the return of income and data available on records and finalised the assessment assessing the income at Nil. Moreover, counsels submitted that the assessee was entitled for exemption under Section 10(21) of the Income Tax Act, and that the AO has taken one possible view and has allowed the exemption to the assessee. Relied on the decision of the Chennai Bench of the Tribunal in the case of Association of wherein it was held that the income earned from letting out of Auditorium was eligible for exemption under Section 11 of the Income Tax Act, when the income was applied to the objects of the Trust.

Kishor Dhule, representing the revenue submitted that for the purpose of claiming exemption the theory of source and application cannot be used to claim that the income has been used for the objects of the Trust.  During the course of hearing the tribunal held that the counsel for the assessee relied on the decision of the Chennai Bench of the Tribunal in the case of Association of Surgeons of India ( supra ) wherein it was held that the income earned from letting out of Auditorium was eligible for exemption under Section 11 of the Income Tax Act, when the income was applied to the objects of the Trust. Therefore the two member bench of the tribunal comprising Kavitha Rajagopal ( Judicial member ) and there was merit in the contention that whether the impugned income was incidental to the objects of the assessee trust was a debatable issue and that the AO while allowing the exemption in the order passed under Section 144 r.w.s.263 of the Income Tax Act has taken a possible view upon verifying the details available on record. In view of above discussions and applying the ratio laid down by the Apex court in the case of Malabar Industrial Co. Ltd ( supra )  The ITAT held that the conclusion of the second CIT ( Exemptions ) that the order passed by the AO was erroneous was not tenable and liable to be quashed.