Income Tax Appellate Tribunal - Chennai
Bharani Swathi Educational Trust ... vs Ito, Exemption Ward-4,, Chennai on 1 April, 2026
आयकर अपील य अ धकरण, 'ए ' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
ी मनु कुमार ग र, या यक सद य एवं ी एस. आर. रघुनाथा, लेखा सद य के सम#
BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND
SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No.: 1574/Chny/2025
नधा$रण वष$/Assessment Year: 2016-17
Bharani Swathi Educational The Income Tax Officer,
Trust, vs. Exemption Ward -4,
16/2, 9th Cross Street, Chennai.
Indira Nagar,
Adyar, Chennai - 600 020.
[PAN: AAATB-3217-C]
(अपीलाथ&/Appellant) ('(यथ&/Respondent)
अपीलाथ& क) ओर से/Appellant by : Shri. P.M. Kathir, Advocate
'(यथ& क) ओर से/Respondent by : Shri. R. Raghupathy, Addl. CIT
सुनवाई क) तार ख/Date of Hearing : 16.03.2026
घोषणा क) तार ख/Date of Pronouncement : 01.04.2026
आदे श /O R D E R
PER S. R. RAGHUNATHA, AM:
The present appeal is filed by the assessee against the order dated 09.05.2025 passed by the learned Commissioner of Income Tax (Appeals), Bhuvaneshwar (hereinafter referred to as "ld.CIT(A)"), dismissing the appeal filed by the assessee against the assessment order dated 19.12.2018 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), by the Income Tax Officer, Exemption Ward 4, Chennai (in short "AO") pertaining to Assessment Year (A.Y.) 2016-17.
:-2-: ITA. No: 1574/Chny/2025
2. The brief facts of the case emanating from the records are that the assessee is a Trust registered u/s.12AA of the Act since 1993. The assessee runs two schools and also derives income from letting out "J S Grand Palace", which is an auditorium attached to one of its two schools. For this year, the assessee filed its Return of Income on 06.09.2016 declaring NIL income after claiming exemption u/s.11 of the Act. The case was selected for scrutiny assessment. During the assessment proceedings, the Assessing Officer (AO) has called for details regarding the assessee's activities and observed that the main activity of the trust is education and that the two schools run by it are in consonance with its objects.
3. In regards to the auditorium (referred to as "community hall" by the AO), he observed that the same was let out for marriage and other purposes which resulted in the trust earning gross receipts of Rs.65,91,792/-. He then observed that this act of letting out the auditorium and earning income therefrom is not in line with the charitable object of education and thus proceeded to conclude that the activity of letting out the auditorium for rent is advancement of any other general public utility (GPU). To arrive at this conclusion, the AO rejected the contention of the assessee that the community hall was in fact an auditorium, for the following reasons;
a. The community hall was air-conditioned and was exclusively given on rent for marriages and other social purposes and that the assessee charged service tax while letting out the hall, b. The community hall is located at a different address than that of the 2 schools and thus the hall is not an auditorium for the schools and he placed reliance on a decision of this tribunal in M/s.SNR Sons and Charitable Trust vs. ITO in ITA Nos.2630 & 2713/Mds/2014, c. The community hall is a distinct asset, specifically designed to conduct commercial activity and is being run in a commercial manner.
4. The AO then states that the activity of running a community hall is a commercial activity, constituting advancement of GPU and the proviso to section 2(15) of the Act is applicable to the assessee's case. Since the receipts :-3-: ITA. No: 1574/Chny/2025 from running the community hall (Rs.65,91,792/-) constituted more than 20% of the assessee's gross receipts (Rs.1,93,98,220/-), the AO concluded that the assessee does not fit the exceptions laid down in the proviso to section 2(15) of the Act and thus the income from running the community hall would have to be computed in a commercial manner and brought to tax by denying the exemption u/s.11 of the Act. The AO then allows the expenses incurred during the year for running the community hall. However, the depreciation claimed of Rs.44,39,051/- is disallowed for the reason that the cost price of the assets in respect of whom depreciation was claimed, was already claimed as application of income during the preceding previous years. He thus allowed depreciation only on the assets added during this year (i.e.) Rs.16,650/- and computed the taxable income from the community hall at Rs.18,80,161/-.
5. Aggrieved by the above order, the assessee preferred an appeal before the ld.CIT(A) wherein it challenged the action of treating the auditorium as a standalone community hall, treating the running of the auditorium as a GPU and taxing the income therefrom by denying exemption u/s.11 of the Act. It also challenged the disallowance of depreciation by stating that the cost of assets was not claimed as application of income. The assessee has filed detailed written submissions along with paperbook containing certain additional evidence.
6. These evidence have been forwarded to the AO for his remand report. In the same, the AO, though admits that the auditorium is situated in the same campus as the school, then states that the same does not have a bearing in the claim that the receipts from the same are not commercial in nature. He then refers to vouchers submitted by the assessee for letting out the auditorium and states that the same has not been let out at discounted rates for schools and economically weaker sections. However, the AO does observe that the auditorium has been used for school functions of the assessee. In its rejoinder, the assessee submitted that one of the reasons for the AO's conclusion that the auditorium was a community hall was that the same was located at a different :-4-: ITA. No: 1574/Chny/2025 place than the schools and thus the AO is not right in submitting now that the location of the auditorium within the school campus is irrelevant to the facts of the case. It further submitted that its main object and activity undisputedly being education, the proviso to section 2(15) of the Act does not apply at all.
7. The ld.CIT(A) confirmed the order of the AO by holding that the intent of the law is to not exempt the income from business activity and since the income from "J S Marriage Hall" had exceeded 20% of its total receipts, the AO had rightly brought the income from the same to tax. He also dismissed the assessee's claim for depreciation for the reason that the assessee had failed to furnish proof that the assets were not claimed as application in year of acquisition.
8. Aggrieved by the order of the ld.CIT(A) the assessee is in appeal before us.
9. The Ld. AR for the assessee argued that the decisions of the authorities below are untenable for the reason that both the authorities have accepted the fact that the assessee's main object and activity remains education. Further, both the authorities have failed to consider the fact that the community hall is in fact an auditorium, attached to its school, wherein the assessee conducts various school functions and activities. The ld.AR took us through the paperbook wherein the evidence of the school functions carried out in the said auditorium, such as graduation ceremony, annual day, independence day celebrations etc., were placed. He further drew out attention to the topo sketch of the school, from which it is evident that the auditorium is in fact within the same campus as that of the school. The difference in address has arisen due to the fact that the assessee has gifted the portion of the land connecting the school and the auditorium was gifted to the local panchayat for construction of a public road.
10. The ld.AR also referred the paper book filed in respect of invitations for events conducted by other schools in the assessee's auditorium such as annual :-5-: ITA. No: 1574/Chny/2025 day celebration of Alpha International School and graduation celebration of RBGS Kindergarten. The ld.AR submitted that the auditorium is a part of the school and is not treated as a separate / individual undertaking of its own. The auditorium has been put to use regularly for school functions and activities as evidenced by the invitations and photographs and on the days that the auditorium is not utilized by the school, the same is let out to other schools for rent and also to outsiders for carrying out the social activities such as marriages etc. He thus submits that the auditorium is actively put to use for the purpose of education, which remains the main object and activity of the assessee, and on the days it is not utilized for the purpose of education, it is let out to others to generate funds for application towards its charitable activity (i.e.) education. He emphasized that both the AO and the ld.CIT(A) had incorrectly isolated the renting out of the auditorium and failed to consider the fact that the same was only the secondary use of the auditorium whereas the primary and predominant use remained education.
11. The ld.AR then placed reliance on the following decisions to assert that the renting of auditorium to outsiders, which is primarily used for the purposes of education, would not disentitle the claim of exemption u/s.11 of the Act;
a. DIT(E) vs. Shri Vile Parle Kelavani Mandal - [2015] 378 ITR 593 (Bombay):
Similarly, in regard to income from the hiring of the premises and advertisement rights, the said question is also not substantial question of law. Letting out of halls for marriages, sale and advertisement rights has not been found to be a regular activity undertaken as a part of business. The educational institutions require funds. The income is generated from giving various halls and properties of the institution on rentals only on Saturdays and Sundays and on public holidays when they are not required for educational activities, then, this cannot be said to be a business which is not incidental to attain the objects of the trust.
b. DIT(E) vs. Lala Lajpatrai Memorial Trust - [2016] 383 ITR 345 (Bombay):
As regards the auditorium the same was also part of the building housing these colleges conducted by Lala Lajpatrai Institute which was used by the colleges for 209 days and it was vacant for 76 days and was let out only for 80 days only when it was not needed by the colleges. In the course of this letting out the assessee had incurred expenses for electricity and Air-Conditioners. Letting out of the auditorium was not the dominant object :-6-: ITA. No: 1574/Chny/2025 of the trust and admittedly the auditorium was incidentally let out to outsiders for commercial purpose. It thus cannot be said that such letting out would fall within the first proviso to section 2 (15) of the Act.
c. M/s. M.Ct.M. Chidambaram Chettiar Foundation vs. The DDIT - ITA Nos.: 976, 977, 978 & 979/CHNY/2019:
7.1 From the facts of the case and above stated provisions, it is clear that the assessee is a trust running a school and existed for the purpose of education and falling under the category of education as provided u/s.2(15) of the Act. From the facts it is clear that the school campus includes an auditorium for conducting conferences, lecture meeting etc., for its students. The auditorium is also used for letting out to institutions for promotion of fine arts, educational purposes etc., for which the assessee received rent. The assessee also maintains separate books of accounts for letting out of auditorium and recording of earning of rental receipts, the assessee maintains separate books of accounts. The assessee, as contended by ld.counsel, that, letting out of auditorium and earning of rental receipts was not a commercial activity falling within the category of GPU u/s. 2(15) of the Act because the same is part of educational programme, as the assessee had to conduct lecture meetings by inviting various guest lectures to address the students on various topics in connection with curriculum. These meetings or lectures are over by 5 PM sometime it goes on. On holidays, on saturdays & sundays, to increase the revenue and to reduce the overheads, the assessee had to let out the auditorium for conducting meetings, conferences, for music, dance, etc. We have noted from the above para, that if the assessee's activity or category for charity is education, the restriction imposed by parliament against charities as prescribed under the proviso to section 2(15) of the Act prohibiting them from carrying on activities of profit do not apply to the first six categories including education.
12. The ld.AR thus prayed that the auditorium being part of the school run by the assessee, whose main object remains education, the proviso to section 2(15) of the Act cannot be applied and thus exemption u/s.11 of the Act is to be allowed even for the income from the auditorium. In regard to disallowance of depreciation, he submitted that the assessee had not claimed the cost of asset as application during acquisition and thus the same deserves to be allowed.
13. On the other hand, the Ld. DR submitted that the authorities below have rightly concluded that the auditorium has been used as a community hall in a commercial manner and thus the income from the same cannot be allowed exemption u/s.11 of the Act. He also submitted that the depreciation has been rightly allowed because the AO has verified the financials of the assessee for the preceding previous years and concluded that the assessee had in fact :-7-: ITA. No: 1574/Chny/2025 claimed application on the acquisition of capital assets and thus allowing depreciation on the same would amount to double deduction.
14. We have heard both the parties, perused the materials available on records and gone through the orders of the authorities along with paper book and case laws relied on. The uncontroverted fact before us is that the main object and activity of the assessee is education. This fact has been expressly stated by the AO in his order of assessment. While this is so, the proviso to section 2(15) of the Act is inapplicable as the same applies only when the main object of a trust is GPU. This has been clarified by the Hon'ble Supreme Court in ACIT (Exemptions) vs. Ahmedabad Urban Development Authority, [2022] 449 ITR 1 wherein it was held as under;
126. As observed at the beginning of this judgment, GPU charities have been recognized as distinct from the 'per se categories' of charity (education, medical relief, relief to the poor; and later - preservation of water sheds, monuments, environment, and yoga). The judgment of this court in Dharmadeepti (supra) has clarified that the per se categories - are not subjected to the restrictive condition of eschewing activities of profit. This enunciation of the principle has been endorsed in all later decisions - starting with Surat Art Silk (supra). Therefore, the restriction imposed by Parliament against charities - prohibiting them from carrying on activities of profit do not apply to the first six categories.
15. Now, the ld.AR has took us through the paperbook filed by the assessee to prove that the auditorium has been used primarily for hosting the school functions and activities. It has also been let out to other schools for conducting their functions and activities and then to outsiders for social functions, on which rent is earned. These evidence do in fact prove that the auditorium has been used by the assessee mainly for its school activities (i.e.) educational activities and only when it is not used for the same has been rent out to others. This fact, though omitted to be considered by the AO in his order of assessment, has been admitted in his remand report, wherein he states;
"It is more than evident, that, JS Grand Palace has been used for other social functions apart from their school functions".
:-8-: ITA. No: 1574/Chny/2025
16. Also, one of the reasons for the AO to arrive at his conclusion that the auditorium was used as a community hall and not as an auditorium was that the same was located at a different place. In his remand report, he has accepted that the auditorium is located in the same campus as that of the school. Having accepted this fact, the AO has then stated that this fact would not have a bearing on the nature of receipt of rent being commercial in nature. We do not agree with this reasoning of the AO as he had also placed reliance on a decision of this tribunal, which also involved an auditorium being situated separately from the school, to arrive at his conclusion that the auditorium was used as a community hall only. The location of the auditorium within the same campus as the school assumes much significance as it proves that the auditorium was used for educational purposes (i.e.) hosting activities of the school of the assessee- trust.
17. This being the case, we agree with the contentions of the ld.AR that once the auditorium has been actively used for its main object i.e. education, the passive use of the same by renting it out to outsiders to raise funds for the schools would not constitute advancement of GPU by itself. The income from the auditorium thus cannot be computed separately in a commercial manner and taxed thereafter. This is because the auditorium by itself does not constitute a separate business undertaking, rather, it is a part of the school carrying out educational activities, for which exemption u/s.11 of the Act would duly apply.
18. In the present facts and circumstances of the case, we direct the AO to allow the exemption u/s.11 of the Act on the income from the auditorium "J S Grand Palace" also. However, in respect of claim of depreciation on the assets of J S Grand Palace, we remand this issue alone to the AO for verification and allow depreciation after providing opportunity to the assessee, if the claim is allowable as per section 11(6) of the Act.
:-9-: ITA. No: 1574/Chny/2025
19. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 01st April, 2026 at Chennai.
Sd/- Sd/-
(मनु कुमार िग र) (एस. आर. रघुनाथा)
(MANU KUMAR GIRI) (S. R. RAGHUNATHA)
ाियक सद /Judicial Member लेखासद /Accountant Member
चे ई/Chennai,
दनांक/Dated, the 01st April, 2026
JPV
आदे श की ितिलिप अ ेिषत/Copy to:
1. अ पीलाथ!/Appellant
2. +थ!/Respondent
3.आयकर आयु1/CIT- Chennai/Coimbatore/Madurai/Salem
4. िवभागीय ितिनिध/DR
5. गाडE फाईल/GF PRASANNA Digitally signed by PRASANNA VANI JETTY VANI JETTY Date: 2026.04.02 14:28:19 +05'30'