SOUTHERN GUJARAT CHAMBER TRADE & INDUSTRY DEVELOPMENT CENTRE,,SURAT vs. INCOME TAX OFFICER,, SURAT

We have heard the submission of learned authorised representative (AR) of the assessee and Commissioner of Income Tax-Departmental Representative (CIT-DR) of the Revenue and with their active assistance gone through the orders of lower authorities. The learned AR of the assessee submits that assessee is a Charitable Trust registered with the Charity Commissioner. The main object of trust is to promote and develop the trade and business in South Gujarat. To attain the objectives of the trust the assessee has to organize exhibition and other similar activities for promotion of trade and commerce in southern Gujarat. The assessee has established a convention center for fulfillment of the objectives of trust organizing exhibition seminars symposia etc. The assessee is also running the training classes in the field of trade and industry as per its object. To achieve the objection in promotion of trade and industry the Central Government and the State Government have launched various beneficiary schemes. As per scheme of Central Government known as Industrial Infrastructure Upgradation Assessment Year.2011-12 Southern Gujarat Chamber Trade & Industry Development Centre Scheme (IIUS) Central Governments to assistance of 75% of cost; 25% is to be contributed by the industry cluster. 25% of the State co-ordinate gives supports up to 10%. To support the scheme the Statement Government allotted 12 hectors of land at a concessional price.

The learned AR for the assessee submits that the assessee entered into an agreement with Sar Infracon Private Limited, a Special Purpose Vehicle (SPV) was formed at the behest of the Central Government. Sar Infracon Private Limited is also a Company registered under section 25 of Companies Act, 1956 having charitable objects. The assessee entered into agreement with the Sar Infracon Pvt. Ltd. for development of land allotted to assessee-trust. Sar Infracon Pvt. Ltd. developed / constructed a Convention Centre for organizing exhibitions to fulfill the objects of assessee for promotion of trade and industry. As per the agreement Sar Infracon Private Limited lets out the Convention Centre on rent and earned rental income. Out of the rent received, 50% share is shared to the assessee-trust. During the year under consideration, the assessee received Rs.68,96,676/- on account of rent on sharing basis from Sar Infracon Private Limited. The assessing Assessment Year.2011-12 Southern Gujarat Chamber Trade & Industry Development Centre officer treated the said receipt as income of the assessee. The assessing officer has not invoked the proviso of section 2(15) of the Act. However, the assessing officer held that the assessee is not charitable trust within the meaning of section 2(15) as the assessee- trust earned profit after meeting the normal expenditure. The Ld. CIT(A) applied the Proviso of section 2(15) of the Act, by taking view that the assessee-trust has received rent on sharing basis and not on fixed basis.

The learned AR for the assessee submits that receipt of rent does not involve carrying on any activity in the nature of trade, commerce or business. The charging of fee are the incidental to the activity to the main object of the assessee- trust. The organization of seminars and letting out of seminar hall are incidental to the object of the assessee- trust. Facts remains the same that predominant object of the trust is to promote and development of the trade and commerce in the south Gujarat. Mere earning of surplus should not be construed as profit. The assessee-trust has not distributed any profit outside the organization, which is utilized for the activities of assessee-trust.

On the other hand, the Ld. CIT-DR of the Revenue supported the order of lower authorities. The Ld. CIT-DR of the Revenue also filed his written submission in the form of short written note. In the short written note, the Ld. DR of the revenue submits that the case of law relied by Ld. AR of the assessee are not relevant and applicable and the facts of the present case. All cases are on different facts and there is not a single case wherein revenue sharing was income from letting out of the property of the trust was allowed by legal forums. Thus the fact of the case of unique and not identical to those case laws. The Ld. CIT-DR for the revenue further submits that newly inserted proviso to section 2(15) will apply to entity whose purpose is of advancement or any other object of general public utility i.e 4th limb of the definition of charitable purpose prescribed in section 2(15) of the Act whether the trust is carrying out the activities in the nature of trade, commerce , business in question of fact which will be decided based on the nature, scope and extent and frequency of the Assessment Year.2011-12 Southern Gujarat Chamber Trade & Industry Development Centre activities enshrined Central Board of Direct Taxes (CBDT) Circular No. 11/2018 dated 19/12/2008. As per MOU both the entities are sharing income from letting out of the convention centre. The Ld. CIT-DR for the revenue submits that income from letting out of convention centre is not income of rent simplicitor, the assessee is partner of 50% in the convention center and are getting 50% of revenue. The land is the capital contribution by assessee. The profit is given to the Sar Infracon Private Limited, and therefore creation of maintenance of the convention centre services are in relation to trade, commerce and business.

We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also deliberated on the various case laws relied by the lower authorities and the learned AR for the assessee. The assessing officer, during the year under consideration, noted that the assessee received Rs.68,96,676/- on account of rent on sharing basis from Sar Infracon Private Limited. The assessing officer treated the said receipt as income of the assessee. The assessee is recovering huge fee on account of rent from the persons who takes the convention center for Assessment Year.2011-12 Southern Gujarat Chamber Trade & Industry Development Centre exhibition. We find that the assessing officer has not invoked the proviso of section 2(15) of the Act. Though, the assessing officer held that the assessee- trust earned profit after meeting the normal expenditure. The Ld. CIT(A) affirmed the order of assessing officer. We find the while affirming the order of assessing officer has not disputed that the objects of the assessee falls under the advancement of general public utility and the activities conducted in the convention centre built by Sar Infracon Private limited as per MOU with assessee, are rendering services and assistance to trade, commerce and business in South Gujarat. However, the Ld. CIT(A) held that income of the assessee from renting out of exhibition centre, the proviso of section 2(15) is applicable.

The Hon’ble Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1, held that when the object of a trust was carrying on of an object of general public utility, it is that object of general public utility which must not involve the carrying on of an activity for profit. It was pointed out that it was immaterial how the money for achieving or implementing such purpose was found. Whether, that money was obtained by the running of an activity for Assessment Year.2011-12 Southern Gujarat Chamber Trade & Industry Development Centre profit or not, did not make the charity not charitable(emphasis added by us).

The Hon'ble Gujarat High Court in DIT Vs Gujarat Cricket Association (supra) held where driving force of assessee-State cricket association was not desire to earn profit but object was to promote game of cricket and nurture best of talent, merely because it put up tickets of international cricket matches for sale and earned some profit out of same and said profit was used in activities of promotion of game, it would not lose its character of having been established for a charitable purpose.

Further, the Hon'ble High Court in DIT Vs Sabarmati Ashram Gaushala Trust (supra) while considering the scope of the proviso to section 2(15) held that the said proviso provides for exclusion from the main object of the definition of the term 'Charitable purposes' and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue to proviso, would be excluded from the definition of ' charitable trust'. However, for the application of the proviso, what is necessary is that the entity Assessment Year.2011-12 Southern Gujarat Chamber Trade & Industry Development Centre should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, for a cess or fee or any other consideration.

The Hon'ble Delhi High Court in Indian Trade promotion Organization Vs DGIT (supra) also held that the expression 'charitable purpose', as defined in section 2(15) cannot be construed literally and in absolute terms and it has to take colour and be considered in context of section 10(23C)(iv), thus, if dominant and prime objective of institution, was not desire to earn profits but, object of promoting trade and commerce not for itself, but for nation, it was clearly a charitable purpose.