NARADA GANA SABHA TRUST,CHENNAI vs. ITO EXEMPTIONS WARD-1,, CHENNAI

आदेश / O R D E R

PER MANJUNATHA. G, AM: This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Exemptions), Chennai, dated 31.03.2023

passed u/s 263 of the Income Tax Act, 1961 and pertains to assessment

year 2018-19.

ITA No.463/Chny/2023 NaradaGana Sabha Trust

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assessment proceedings which were considered and accepted in passing the return of income filed for the assessment year under consideration. 13. The CIT(E) failed to appreciate that the distinction between lack of enquiry and inadequate enquiry was also overlooked before passing the revision order and ought to have appreciated that there could not be any presumption of lack of enquiry on the part of the Assessing Officer much less inadequate enquiry on the facts and in the circumstances of the case thereby vitiating the revision order.

registered charitable Trust u/s.12AA of the Income Tax Act, 1961 (in

short “the Act") from AY 1976-77 onwards. The main objects of the Trust

as per its Trust Deed dated 11.10.1973 is to promote science, literature,

fine arts and useful knowledge and organize competitions, debates, and

examinations, etc. The assessee has filed its return of income for AY

2018-19 on 01.10.2018 admitting ‘nil’ total income by claiming exemption

u/s.11 of the Act. The assessee had also filed Form No.10 on 29.09.2018

and had accumulated amount of Rs.7,62,339/- for subsequent years to be

applied for charitable purpose as per the objects of the Trust. The case

has been subjected to scrutiny assessment and the assessment has been

completed u/s.143(3) r.w.s.143(3A)& 143(3B) of the Act, on 16.03.2021

and assessed the total income at Rs.NIL.

by Ld.CIT(Exemptions), Chennai, and accordingly, show cause notice

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u/s.263 of the Act, dated 06.03.2023 was issued and called upon the

assessee to explain ‘as to why’ the assessment order passed by the AO

u/s.143(3) dated 16.03.2021, shall not be revised. In the said show cause

notice, the Ld.CIT(Exemptions) noticed that gross receipts of the

assessee’s Trust consist mainly from hall hiring charges, rent,

advertisement receipts and license fee by letting out property which are in

the nature of the advancement of any other objects of General Public

Utility (in short “GPU") as defined u/s.2(15) of the Act. Although, the

assessee’s objects and activities are in the nature of GPU Trust, but the

AO while completing assessment u/s.143(3) of the Act, has allowed

exemption u/s.11 of the Act as claimed by the assessee without invoking

provisions of Sec.2(15) of the Act, which rendered the assessment order

passed by the AO is erroneous in so far as it is prejudicial to the interest

of the Revenue. The Ld.CIT(Exemptions) further observed that the ratio

laid down by the Hon’ble Supreme Court in the recent decision of

ACIT(Exemptions) v. Ahmedabad Urban Development Authority reported

in [2022] 143 taxmann.com 278 (SC) also squarely applies to the

assessee’s case. Since, the AO has failed to examine the issue in right

perspective of law in light of objects and activities of the assessee’s Trust,

there is no loss of Revenue to the extent of Rs.7,03,500/- which rendered

the assessment order passed by the AO to be erroneous in so far as it is

prejudicial to the interest of the Revenue.

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established in the year 1973 with an object of imparting education in the

field of science, culture and music. The assessee conducts music and

other cultural events, and in that process generates income from letting

out of premise, interest, rent, etc. The assessee’s Trust has applied

income for the objects of the Trust which are charitable in nature and

squarely falls under the definition of education as defined u/s.2(15) of the

Act. Further, the case has been selected for scrutiny to verify the

expenditure incurred for charitable or religious purpose and the AO during

the course of assessment proceedings, issued notice u/s.142(1) of the

Act, on various dates and called for necessary details, including objects of

the Trust and its activities and also application of income for charitable

purpose. The assessee has filed various details. The AO after considering

relevant facts has rightly accepted exemption u/s.11 of the Act.

Therefore, it cannot be said that the assessment order passed by the AO

is erroneous in so far as it is prejudicial to the interest of the Revenue.

the assessee and also taken note of certain judicial precedents, including

the decision of the Hon’ble Supreme Court in the case of

ACIT(Exemptions) v. Ahmedabad Urban Development Authority (supra)

observed that assessment order passed by the AO is erroneous in so far

as it is prejudicial to the interest of the Revenue, because, the AO has

failed to carry out required enquiries, he ought to have been carried out

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in light of objects and activities of the Trust and has simply allowed

exemption claimed u/s.11 of the Act. The Ld.CIT(Exemptions) has

discussed the issue at length in light of decision of the Hon’ble Supreme

Court in the case of ACIT(Exemptions) v. Ahmedabad Urban Development

Authority (supra) and held that the assessment order passed by the AO is

erroneous in so far as it is prejudicial to the interest of the Revenue, and

thus, set aside the assessment order dated 16.03.2021 passed u/s.143(3)

of the Act, and direct the AO to make in-depth enquiries with reference to

application of provisions of Sec.2(15) of the Act, vis-à-vis nature of

activities of the assessee’s Trust in light of the recent decision of the

Hon’ble Supreme Court in the case of ACIT(Exemptions) v. Ahmedabad

Urban Development Authority in Civil Appeal No.21762 of 2017 dated

19.10.2022. Aggrieved by the order of the Ld.CIT(Exemptions), the

assessee is in appeal before us.

submitted that the Ld.CIT(Exemptions) erred in assuming jurisdiction

u/s.263 of the Act, and consequently, erred in passing the revision order

in setting aside the assessment order dated 16.03.2021 without

appreciating the fact that twin conditions prescribed for assuming

jurisdiction u/s.263 of the Act, were not satisfied. The Ld.Counsel for the

assessee further submitted that the sole basis for the AO to take up for

scrutiny assessment is expenditure incurred for charitable or religious

purpose. The AO during the course of assessment proceedings, issued

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various notices u/s.142(1) of the Act, and called for specific details with

regard to nature of objects and activities of the Trust. The AO had also

called for break up details of income and expenditure and receipts and

payments with reference to each stream of income and application of said

income for charitable purpose. The assessee, in response, to notice

u/s.142(1) of the Act, has filed detailed submissions and explained that

the objects and activities of the Trust are charitable in nature, and

further, it has carried out activities in accordance with its objects. The AO

after considering relevant submissions of the assessee has rightly claimed

exemption u/s.11 of the Act. Therefore, the Ld.CIT(Exemptions) is erred

in assuming jurisdiction u/s.263 of the Act.

the Trust submitted that the Trust was in existence for more than 50

years and has carried out various charitable activities, including

conducting musical classes for students. The objects of the Trust are

squarely falls under the definition of education as defined u/s.2(15) of the

Act. Therefore, the Ld.CIT(Exemptions) is clearly erred in directing the

AO to invoke provisions of Sec.2(15) of the Act and consider the objects

of the Trust as GPU in nature in light of subsequent decision of the

Hon’ble Supreme Court in the case of ACIT(Exemptions) v. Ahmedabad

Urban Development Authority (supra) without appreciating the fact that

the Hon’ble Supreme Court, subsequently, has clarified that said

judgement is applicable subsequent to the assessment year, in which,

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said judgment has been passed. In the present case, the sole basis for

the Ld.CIT(Exemptions) to set aside the assessment order is decision of

the Hon’ble Supreme Court in the case of ACIT(Exemptions) v.

Ahmedabad Urban Development Authority (supra), but the

Ld.CIT(Exemptions) failed to make out a case ‘as to how’ the objects of

the Trust do come under the objects of any other object of the GPU.

Therefore, he submitted that the order of the Ld.CIT(Exemptions) should

be set aside.

order of the Ld.CIT(Exemptions) submitted that the sole basis for the

Ld.CIT(Exemptions) to revise the assessment order passed by the AO,

u/s.263 of the Act is the objects of the Trust and activities but not the

decision of the Hon’ble Supreme Court in the case of ACIT(Exemptions) v.

Ahmedabad Urban Development Authority (supra) as claimed by the

Ld.Counsel for the assessee. The Ld.CIT(Exemptions) has discussed the

issue at length in light of the objects of the Trust and its activities and

explained ‘as to how’ the assessee falls under the last limb of definition of

charitable purpose of any other object of GPU. The Ld.CIT(Exemptions)

had also discussed the issue in light of gross receipts of the Trust and

made out a case that the assessee has earned income from letting out

hall, advertisement and other receipts which are in nature of business and

commerce but not charity as claimed by the assessee. Further, the AO

has denied exemption u/s.11 of the Act, right from AY 2010-11 onwards

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and the proceedings are pending at various stages. Although, exemption

claimed u/s.11 of the Act, has been denied to the assessee’s Trust for

earlier years, but the AO while passing the order u/s.143(3) of the Act,

for the impugned assessment year failed to take note of said facts and

allowed exemption as claimed by the assessee which rendered the

assessment order passed by the AO is erroneous in so far as it is

prejudicial to the interest of the Revenue. The Ld.CIT(Exemptions) after

considering relevant facts has rightly invoked jurisdiction and revised the

order and their orders should be upheld

record and gone through orders of the authorities below. The provisions

of Sec.263 of the Act deals with revision powers of the Commissioner. As

per said provisions, if the Ld.CIT(Exemptions) satisfies that the

assessment order passed by the AO is erroneous in so far as it is

prejudicial to the interest of the Revenue, then, the Ld.CIT(Exemptions)

can set aside the assessment order passed by the AO with a direction to

re-do the assessment afresh. In order to assume jurisdiction u/s.263 of

the Act, the Ld.CIT(Exemptions) must satisfy that twin conditions

prescribed therein are satisfied. Unless, the condition prescribed are not

satisfied, the Ld.CIT(Exemptions) cannot assume their jurisdiction and set

aside the assessment order passed by the AO. In the present case, the

Ld.CIT(Exemptions) assumed jurisdiction u/s.263 of the Act, on the

ground that assessment order passed by the AO is erroneous in so far as

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it is prejudicial to the interest of the Revenue. According to the

Ld.CIT(Exemptions), the AO failed to carry out required enquiries he

ought to have been carried out in light of objects and activities of the

Trust and gross receipts earned by the Trust for the impugned

assessment year. The Ld.CIT(Exemptions) has discussed the issue at

length in light of gross receipts of the assessee’s Trust and observed that

the assessee’s Trust has derived income from hiring of premises, rent,

advertisement and license fee, etc., and said receipts are in the nature of

trade, commerce and business, but not charity as defined u/s.2(15) of the

Act. The Ld.CIT(Exemptions) further observed that the case of the

assessee is squarely covered by the Hon’ble Supreme Court in the case of

ACIT(Exemptions) v. Ahmedabad Urban Development Authority (supra)

where the Hon’ble Supreme Court has clearly explained charitable Trust

and GPU trust and further, if GPU trust carries out activities which are in

the nature of trade, commerce and business, then, the provisions of

Sec.2(15) of the Act, is applicable and income has to be computed in

normal commercial parlance.

the Ld.CIT(Exemptions) to revise the assessment order passed by the AO

u/s.143(3) of the Act dated 16.03.2021 in light of various arguments

advanced by the Ld.Counsel for the assessee and we find that the

Ld.CIT(Exemptions) has wrongly invoked provisions of Sec.263 of the Act

and set aside the assessment order without pointing out ‘as to how’ the

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assessment order passed by the AO is erroneous in so far as it is

prejudicial to the interest of the Revenue. As we have already stated

that, in order to invoke provisions of Sec.263 of the Act, twin conditions

embedded therein must be satisfied. i.e. (i) the order must be erroneous

and (ii) it should be prejudicial to the interest of the Revenue. An order is

considered erroneous, in case, said order has been passed without

application of relevant law to the facts on record and Revenue required to

be collected has not been collected. In the present case, the assessment

order passed by the AO is neither erroneous nor prejudicial to the interest

of the Revenue, because, the issue of exemption u/s.11 of the Act, has

been considered by the AO while completing assessment u/s.143(3) of

the Act. The AO has issued notice u/s.143(1) of the Act, on various dates

and called for specific details with regard to objects of the Trust and its

activities. The assessee, in response to notice u/s.142(1) dated

19.02.2020 & 08.01.2021, has filed complete details of income derived by

assessee’s Trust and its application for charitable purpose and also

explained how exemption claimed u/s.11 of the Act, is in accordance with

law. The AO after considering relevant submissions of the assessee, has

accepted the claim of the assessee. Further, the sole basis for taking up

the case for scrutiny assessment is to verify expenditure incurred for

charitable or religious purpose. When the main purpose for taking up the

case for scrutiny assessment is to verify the expenditure, then, in our

considered view the Ld.CIT(Exemptions) cannot say that the AO was not

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having the knowledge of income derived by assessee’s Trust and its

application for charitable or other purpose. Since, the AO has verified the

issue and taken one of the plausible view on the issue of exemption

u/s.11 of the Act, in our considered view, the Ld.CIT(Exemptions) cannot

substitute his view and claim that the assessment order passed by the AO

is erroneous in so far as it is prejudicial to the interest of the Revenue.

CIT(Exemptions) with regard to objects and activities of the Trust and

further, classifying the Trust as GPU which falls under the mischief of

proviso to sec.2(15) of the Act. The sole basis for the CIT(Exemptions) to

arrive at above conclusion is the nature of income/receipt generated by

the assessee for the impugned assessment year. The CIT(Exemptions)

further observed that major portion of the gross receipts of the assesees’s

Trust is from hire charges, rent, advertisement and interest, etc., and

thus, said activity is only a trade, commerce and business but not charity.

We do not agree with the findings of the CIT(Exemptions) for the simple

reason that the income/receipts of any Trust, will not determine whether

the activities carried out by the said Trust, is chartable in nature or trade,

commerce and business. Further, the nature of the Trust has to be seen

in light of objects and its activities. Admittedly, the assessee’s Trust is

carrying out activities in the field of music and conducts music classes for

students who want to learn music and pursue their career in that field.

Although, the assessee claims that said activity is education as per the

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definition of sec.2(15) of the act, but in our considered view, conducting

music classes without awarding any formal degree or any Certificate

awarding degree, it cannot be said that the assessee is imparting

education and this fact is clarified by the Hon’ble Supreme Court in the

case of Sole Trustee, Loka Shikshana Trust v. CIT reported in [1975] 101

ITR 234 (SC). Therefore, we cannot agree with the arguments of the

ld.Counsel of the asseessee the objects and activities of the Trust falls

under the definition of sec.2(15) of the Act. Further, it is an admitted fact

that the assessee is a famous Gana Sabha Trust and organizes music

competitions, concerts and also provide platform for various young

Musicians to show cause their talent in the field of music. The assessee

also conduct music classes and teach music to interested students. To

organize and conduct music programs, the assessee needs a place and for

this purpose, the Trust has conducted an Auditorium. The Auditorium is

used for the purpose of achieving its objects of conducting music classes

and programs, etc. In that process, the assessee has earned income like

rent of hall, hire charges and advertisement receipts, etc. Therefore, from

the above, it is clear that the activities of the Trust comes under the last

limb of definition of charitable purpose i.e. any other object of General

Public Utility. GPU activities are also a charitable activities, if said

activities does not involve carrying on of any trade, commerce or

business. Generally, the charging of any amount towards consideration

for such an activity (GPU) which is on cost basis or normally above cost,

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cannot be considered to be trade, commerce or business or any services

in relation thereto. It is only when the charges are markedly or

significantly above the cost incurred by an assessee in question, that they

would fall within the mischief of cess, fess or any other consideration

towards trade, commerce or business. In the present case, there is no

iota of discussion by the CIT(Exemptions) with regard to carrying out the

activities on commercial lines by charging rent on hall used for conducting

music programs on par with rent charged by any other persons. The

CIT(Exemptions), simply on the basis of gross receipts of the assessee’s

Trust came to the conclusion that the activities are in the nature of trade,

commerce or business. Therefore, we are of the considered view that

the observations of the CIT(Exemptions) that the assessee’s Trust is

carrying out activities which are in the nature of trade, commerce or

business or without any basis and devoid of merits, and thus, rejected.

the Hon’ble Supreme Court in the case of ACIT(Exemptions) v.

Ahmedabad Urban Development Authority (supra). In our considered

view, the basis for the CIT(E) to issue show cause notice u/s.263 of the

Act dated 06.03.2023 is the decision of the Hon’ble Supreme Court in the

case of ACIT(Exemptions) v. Ahmedabad Urban Development Authority

(supra). The Hon’ble Supreme Court has held that if GPU Trust carrying

out activities which are in nature of trade and commerce, then, provisions

of Sec.2(15) of the Act, is applicable and gross receipts from said activity

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exceeds prescribed limit, then, such Trust cannot claim exemption u/s.11

of the Act. Further, the Hon’ble Supreme Court has rendered its decision

in the year 2022. Subsequently, the Hon’ble Supreme Court in their order

dated 03.11.2022 has clarified that said judgment will be applicable

prospectively from assessment year, in which, such judgement has been

passed. Therefore, based on the decision of the Hon’ble Supreme Court,

any proceedings including proceedings u/s.263 of the Act, cannot be

taken up. Since, the Ld.CIT(Exemptions) based his observation in light of

the Hon’ble Supreme Court in the case of ACIT(Exemptions) v.

Ahmedabad Urban Development Authority (supra), in our considered

view, the reasons given by the Ld.CIT(Exemptions) to set aside the

assessment order is incorrect and devoid of merits.

that although, the AO denied exemption u/s.11 of the Act, to the

assessee’s Trust for earlier assessment years, but the AO while

completing the assessment for the impugned assessment year, has failed

to take note of relevant facts, but has simply allowed exemption without

proper application of mind which rendered the assessment order to be

erroneous in so far as it is prejudicial to the interest of the Revenue. We

find that when the AO has taken up the case for verification of

expenditure incurred for charitable and religious purpose and further,

during the course of assessment proceedings, he has called for various

details about objects and activities of the Trust, financial statement, break

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up of income and expenditure, then, in our considered view, the

Ld.CIT(Exemptions) cannot presume that, said information was not in the

knowledge of the AO. This is because, the AO might have taken

independent view de hors decision taken by the AO for earlier

assessment years based on appraisal of relevant facts in light of objects

and activities of the Trust. Further, res judicata is not applicable to the

Income Tax proceedings. In other words, there is no rule that different

view cannot be taken for subsequent years when a view has been taken

for earlier assessment years. In our considered view, it is always possible

to take a different view, in case, the facts brought on record is apprised in

right perspective of law. Therefore, the arguments of the Ld.DR that the

AO has failed to take note of earlier assessment orders while completing

assessment is incorrect and not acceptable.

the case of Madras Motors Sports Club (AOP) in ITA No.510/Chny/2023.

The Tribunal has considered an identical issue and after considering the

decision of the Hon’ble Supreme Court in the case of ACIT(Exemptions) v.

Ahmedabad Urban Development Authority (supra), has held as under:

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03.11.2020, it is clearly clarified that interpreting ‘charity’ under section 2(15) by holding that law declared in its judgment had to be understood in context that they were applicable for assessment years in question, however, future applications had to be understood in context for assessment years which were not called upon and accordingly law declared in said judgment would be applicable, as per facts of each such assessment year. Hence simply on the judgment of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, supra, the revision is not possible. We also noted from the revision order apart from that the CIT(Exemption) has not at all deliberated how the assessee has violated the proviso to the provision of section 2(15) of the Act and how the AO has not examined the issue. We have gone through para 4 & 8.5 referred by CIT-DR but we could not find anything which proves that there is violation of the proviso to provision of section 2(15) of the Act. Hence, we quash the revision order and allow the appeal of assessee. 16. In this view of the matter and considering the facts and

circumstances of the case, we are of the considered view that assessment

order passed by the AO is neither erroneous nor prejudicial to the interest

of the Revenue. First of all, the AO has considered the issue of exemption

u/s.11 of the Act, while completing assessment u/s.143(3) of the Act,

which is evident from the assessment proceedings, where, the AO has

called for various details, and in reply, the assessee has submitted

relevant details. Further, the sole basis for the Ld.CIT(Exemptions) to

invoke provisions of Sec.263 of the Act, is the decision of the Hon’ble

Supreme Court in the case of ACIT(Exemptions) v. Ahmedabad Urban

Development Authority (supra), and in our considered view, said

judgment cannot be applied retrospectively for earlier assessment year as

clarified by the Hon’ble Supreme Court in their subsequent judgement

dated 02.11.2022. Therefore, we are of the considered view that the

Ld.CIT(Exemptions) is erred in invoking their jurisdiction and set aside the

assessment order passed by the Assessing Officer u/s.263 of the Act and

ITA No.463/Chny/2023 NaradaGana Sabha Trust :: 18 :: thus, we quash the order passed by the Ld.CIT(Exemptions) u/s.263 of the Act.

Order pronounced on the 10th day of November, 2023, in Chennai.

Sd/- Sd/- (मनो मोहन दास) (मंजूनाथा.जी) (MANJUNATHA.G) (MANOMOHAN DAS) लेखा सद�/ACCOUNTANT MEMBER �ाियक सद�/JUDICIAL MEMBER

चे�ई/Chennai, �दनांक/Dated: 10th November, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 3. आयकरआयु�/CIT 5. गाड�फाईल/GF 2. ��यथ�/Respondent 4.िवभागीय�ितिनिध/DR