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

5. The CIT(E)failed to appreciate that conclusion reached in reckoning the appellant trust as not a educational trust was wrong, erroneous, incorrect Ig invalid, unjustified and not sustainable both on facts and in law.

6. The CIT(E)failed to appreciate that decision rendered in reckoning the appellant as a GPU trust was wrong, erroneous, incorrect, invalid, unjustified and-not sustainable both on facts and in law.

7. The CIT(E)failed to appreciate that having not recorded independent findings with regard to the determination of the status of the appellant trust, related findings from para 7 of the impugned order were wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

9. The CIT(E)failed to appreciate that proviso below Section 2(15) of the Act was completely misread and ought to have appreciated that said proviso on the contrary had supported the case of the appellant trust for the grant of tax*exemption under Section 11 of the Act.

10. The CIT(E) failed to appreciate that the activities considered to be trade, commence or business were not correct and ought to have appreciated that the activities pursued by the appellant trust had no profit motive, thereby vitiating the related findings thereto.

11. The CIT(E)failed to appreciate that the findings from para 7 of the impugned order were wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law and ought to have appreciated that the distinction between the concept of review and the concept of revision under the Act was completely overlooked and brushed aside inasmuch as in this regard, ought to have appreciated that the review of the assessment order completed on scrutiny would be prohibited within the scope of the powers of revision u/s.1263 of the Act.

12. The CIT(E)failed to appreciate that the detailed reply dated 11.03.2022 extracted from para 7 of the impugned order filed in response to the show cause notice issued for revising the assessment was not considered in proper perspective and ought to have appreciated that the entire gamut of facts discussed from para 7 of the impugned order was part of the NaradaGana Sabha Trust :: 3 ::

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.

14. The CIT(E) failed to appreciate that there was complete scrutiny of facts relating to the activities referred to in the revision order while passing the assessment order passed by the NaFAC as per the decision of the Supreme Court refereed to therein and hence ought to have appreciated that the decision to direct the NaFAC to revisit the issue should be reckoned as bad in law, especially in view of the decision referred to by the SC being supportive to the stand taken by the appellant trust herein.

15. The Appellant craves leave to file additional grounds/arguments at the time of hearing.

4. The case has been, subsequently taken up for revision proceedings by Ld.CIT(Exemptions), Chennai, and accordingly, show cause notice

NaradaGana Sabha Trust :: 4 :: 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.

NaradaGana Sabha Trust :: 5 ::

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.

NaradaGana Sabha Trust :: 6 :: 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.

7. The Ld.Counsel for the assessee Shri S.Sridhar, Advocate, 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

NaradaGana Sabha Trust :: 7 :: 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.

8. The Ld.Counsel for the assessee further referring to the objects of 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,

NaradaGana Sabha Trust :: 8 :: 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.

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

NaradaGana Sabha Trust :: 9 :: 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

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

NaradaGana Sabha Trust :: 10 :: 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.

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 NaradaGana Sabha Trust :: 12 :: 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.

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 NaradaGana Sabha Trust :: 13 :: 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,

NaradaGana Sabha Trust :: 14 :: 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.

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

NaradaGana Sabha Trust :: 15 :: 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.

NaradaGana Sabha Trust :: 16 :: 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 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:

NaradaGana Sabha Trust :: 17 ::

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.

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