SAE INDIA,CHENNAI vs. ITO (EXEMPTIONS) WARD 4, CHENNAI

आदेश / O R D E R

PER MANJUNATHA. G, AM: These two cross-appeals filed by the assessee, as well as the Revenue

are directed against the order of the Commissioner of Income Tax

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(Appeals)-17, Chennai, dated 18.09.2018, and pertains to assessment year

2013-14. Since, the facts are identical and issues are common, for the sake

of convenience, these appeals were heard together and are being disposed

off, by this consolidated order.

2.1 The Id.CIT(A) ought to have appreciated that the Finance Act 2008 w.e.f.01.04.2009 has made a very fundamental and radical change by excluding a group of Trusts from engaging into trade and business related activities. Therefore,

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these trusts which are pursuing the residuary category objects under 'charitable purpose' are debarred from having any trade or business related activity.

2.2 The Id. CIT (A) ought to have considered the amendment made to the Income Tax Act as specified in sec 13(8) w.e.f. 1/4/2009.

2.3 The Id.CIT(A) ought to have followed the decision of Hon'ble ITAT, Panaji Bench in the case of Entertainment Society of Goa Vs. Commissioner of Income-tax (2013)34 Taxmann. Com 210.

registered u/s.12AA of the Income Tax Act, 1961 (in short “the Act") from

AY 2004-05 onwards. The assessee has filed its return of income on

30.09.2013 admitting a ‘nil’ income. The case was selected for scrutiny

and the during the course of assessment proceedings, the AO noticed that

the Society was formed with the following main objects:

i) to serve as a forum where Engineers Scientists, Technologists and Innovators in mobility engineering field can exchange ideas and learn from each other experience. ii) to hold, organize technical meetings, workshop, seminars educational programs and specialty conferences to report on the frontline development before they impact the industry. iii) to organize tours, social events and exhibition of latest events related to mobility engineering field, iv) to encourage the creation, maintenance and adherence of code of conduct for the profession of mobility engineering, etc.

carried during the impugned assessment year, came to the conclusion that

the objects of the assessee falls under last limb of the definition of

‘charitable purpose’ as defined u/s.2(15) of the Act, i.e. any other objects

of General Public Utility (in short “GPU"). Therefore, called upon the

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assessee to explain ‘as to why’ exemption u/s.11 of the Act, shall not be

denied. In response, the assessee submitted that the Society was formed

with the object of imparting education in the field of Mobility Engineering.

The assessee organizes technical meetings, workshops, seminars and other

educational programs which are for the benefit of members of the society

and in the nature of the education as defined u/s.2(15) of the Act.

Therefore, the assessee cannot be considered as GPU Trust for the purpose

of determining exemption u/s.11 of the Act.

also taken note of objects of the assessee’s Trust and its activities carried

out during the impugned assessment year, came to the conclusion that the

activities of the assessee clearly falls within the ambit of amended

provisions of Sec.2(15) of the Act, as the assessee’s main object is GPU

and the activities of the assessee are in the nature of trade, commerce or

business. Since, the gross-receipts from the GPU activity is in excess of

prescribed limit as per provisions of Sec.2(15) of the Act, the assessee does

not entitle for exemption u/s.11 of the Act. Accordingly, rejected

arguments of the assessee and denied the benefit of exemption u/s.11 of

the Act. The AO had also taxed ‘corpus donations’ received towards

Magazine Fund of Rs.12.55 lakhs on the ground that once the assessee

loses the benefit of exemption u/s.11 of the Act, any income including

‘corpus donations’ received forming part of corpus of Trust, is includable in

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the total income of the assessee, and thus, rejected Form No.10 filed by

the assessee and taxed ‘corpus donations’ received towards Magazine Fund

amounting to Rs.12.55 lakhs. The AO had also disallowed excess

depreciation claimed on fixed assets on the ground that once the income of

the assessee is computed under normal commercial accounting principles,

then, depreciation on fixed assets, the cost of which has already been

allowed as application, cannot be allowed as deduction. Therefore, re-

computed depreciation by considering the fixed assets acquired during the

impugned assessment year and disallowed excess depreciation and added

back to the total income of the assessee.

appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee submitted

that main objects of the assessee’s Trust and activities carried out during

the impugned assessment year are in the nature of imparting education

and falls under the definition of ‘charitable purpose’ as defined u/s.2(15) of

the Act. The Ld.CIT(A) after considering relevant submissions of the

assessee and also by following his predecessor order in the assessee’s own

case for earlier AYs 2009-10 to 2012-13 held that amended provisions of

Sec.2(15) of the Act, is not applicable to the assessee, and thus, allowed

exemption u/s.11 of the Act. As regards additions towards ‘corpus

donations’ of Rs.12.55 lakhs, the Ld.CIT(A) confirmed additions made by

the AO by holding that although, the assessee has filed Form No.10 during

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the course of assessment proceedings, but on perusal of purpose for which

accumulation was sought to be made by the assessee is too general in

nature and suffers from vagueness. Therefore, upheld the additions made

by the AO towards taxation of ‘corpus donations’ of Rs.12.55 lakhs.

Aggrieved by the order of the Ld.CIT(A), the assessee as well as the

Revenue are in appeals before us.

in holding that the assessee’s Trust is eligible for exemption u/s.11 of the

Act, and not hit by amended provisions of Sec.2(15) of the Act, without

appreciating the fact that the objects of assessee’s Trust and its activities

falls under the last limb of ‘charitable purpose’ i.e. any other object of GPU

and once the receipts from said activity exceeds the prescribed limit,

assessee will lose benefit of exemption u/s.11 of the Act. The Ld.DR further

referring to the decision of the Hon’ble Supreme Court in the case of ACIT

v. Ahmedabad Urban Development Authority reported in [2022] 449 ITR 1

(SC) submitted that the Hon’ble Supreme Court has explained the concept

of GPU charity and Trust/Society coming under other limb of ‘charitable

purpose’ and the Hon’ble Supreme Court held that trade promotion body,

councils, associations or organizations are clearly GPU charities and subject

to provisions of Sec.2(15) of the Act. If the activities of the GPU charities

are in nature of trade, commerce or business for a fees or cess, then, such

Trust/Societies should be considered as per amended definition of

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‘charitable purpose’ and proviso provided therein. Since, the assessee’s

Trust clearly falls under the definition of GPU category and its receipts are

in excess of prescribed limit, the AO has rightly denied exemption u/s.11

of the Act, but the Ld.CIT(A) without considering relevant facts simply

allowed exemption u/s.11 of the Act.

other hand, referring to the objects of the Trust and its activities submitted

that if you go through the objects of the Trust, it is in the nature of

imparting education in the field of Mobility Engineering. The assessee

carries its activities and holds technical meetings, workshops, seminars and

other educational programs to encourage the profession of mobility

engineering and said activity clearly falls under the definition of ‘education’

as per provisions of Sec.2(15) of the Act. The Ld.Counsel for the assessee

further submitted that assuming for a moment, but not accepting the

assessee is a GPU society/Trust, but the gross-receipts from the activity

does not exceed 20% of the gross-receipts and for this purpose, the

Ld.Counsel for the assessee has filed a computation and argued that net

income from conference is less than 20% of the gross-receipts, and thus,

the assessee is outside the scope of provisions of Sec.2(15) of the Act. The

Ld.Counsel for the assessee further submitted that once assessee is eligible

for exemption u/s.11 of the Act, then, ‘corpus donations’ received with a

specific direction and forming part of corpus of the Trust is not taxable.

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Further, the assessee has filed Form No.10 and accumulated income for

specific purpose. The AO and the Ld.CIT(A) without appreciating the facts

simply taxed ‘corpus donations’ as income of assessee’s Trust. Therefore,

he submitted that the additions made by the AO should be deleted.

record and gone through orders of the authorities below. We have carefully

considered the objects of the assessee’s Trust as per their Memorandum of

Association and as per the objects, the assessee is conducting technical

meetings, workshops, seminars and other educational programs and

specialty conference for development of Mobility Engineering, etc. On

perusal of main objects of the assessee’s Trust and activities carried out for

the impugned assessment year, it is undoubtedly clear that the assessee

falls under the last limb of the definition of ‘charitable purpose’ as defined

u/s.2(15) of the Act i.e. any other object of GPU, and this principle is

supported by the decision of the Hon’ble Supreme Court in the case of ACIT

v. Ahmedabad Urban Development Authority (supra), wherein, it has been

clearly held that Trust/Societies which provides services in relation to trade,

commerce or business for fees or other consideration has to be broadly

covered by trade promotion. Further, when a trade promotion provides

individualized or specialized services such as conducting paid workshops,

training courses, skill development courses, and other services to promote

and advertise their respective businesses, the claim for GPU status needs

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to be scrutinized in light of provisions of Sec.2(15) of the Act. In the present

case, the objects of assessee’s Trust and its activities are clearly in the

nature of GPU activity, and thus, in our considered view, the exemption, if

any, needs to be examined in light of provisions of Sec.2(15) of the Act.

The Ld.CIT(A) without considering relevant facts simply held that the

assessee is not hit by the amended provisions of Sec.2(15) of the Act, and

thus, we set aside the order of the Ld.CIT(A) on this issue.

Sec.2(15) of the Act. As per proviso to Sec.2(15) of the Act, the

advancement of any other object of GPU shall not be a ‘charitable purpose’,

if it involves carrying on any activity in the nature of trade, commerce or

business or any activity of rendering any service in relation to any trade,

commerce or business for a fees or cess and further, the aggregate receipt

from such activity during the previous year, exceeds 20% of the total

receipt of the Trust or Institution. In the present case, undoubtedly, the

objects and activities of the Trust are in the nature of trade, commerce or

business and hit by proviso to Sec.2(15) of the Act. Therefore, the assessee

entitlement for exemption needs to be examined in light of gross-receipts

and receipts from the activity of trade, commerce or business. The gross

income of the assessee from conducting conference is more than 20% of

the gross-receipts of the assessee for the impugned assessment year. We

have gone through the computation filed by the assessee’s Society and we

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find that the Ld.Counsel for the assessee has considered net income after

expenses from conducting conference and then, compared with gross-

receipts of the assessee to work out the limit prescribed under provisions

of Sec.2(15) of the Act. In our considered view, the working furnished by

the Ld.Counsel for the assessee is not in accordance with law, because, as

per provisions of Sec.2(15) of the Act, if gross receipts from the GPU

activity, i.e. from trade, commerce or business exceeds 20% of gross

receipts, then, the assessee is not entitled for exemption u/s.11 of the Act.

If you consider the gross-receipts from conducting conference, then

undisputedly, said receipts exceeds 20% of the gross receipts of assessee’s

Trust for the impugned assessment year. But, fact needs to be verified with

reference to financial statement of the assessee for relevant AY.

argument in light of ‘principles of mutuality’ for total tax exemption to

receipts of assessee’s Trust on the ground that the society is exclusively

working for the benefit of members and out of contribution received from

the members. If the assessee is mutual society and the benefits of the

assessee’s Trust is only for the members and out of contributions received

from members, then, the applicability of ‘principles of mutuality’ needs to

be examined. But, in the present case, as per facts brought on record by

the lower authorities, there is no clarity whether the income of the assessee

is only from members or from non-members. Further, even the assessee

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could not file any evidences to prove its arguments that it is a mutual

benefit society. This fact also needs to be verified. If, the arguments of the

assessee is right, then, the applicability of ‘principles of mutuality’ needs to

be examined with reference to income received by the assessee and

expenditure incurred for the impugned assessment year and also any other

income received by the assessee like interest income, etc. This fact also

needs to be verified by the AO afresh.

activities, it is undisputed fact that the assessee falls under the last limb of

the definition ‘charitable purpose’ i.e. any other object of GPU. Therefore,

the income of the assessee needs to be computed in light of amended

provisions of Sec.2(15) of the Act. and proviso provided therein in light of

the latest decision of the Hon’ble Supreme Court in the case of ACIT v.

Ahmedabad Urban Development Authority (supra). Thus, we set aside the

order of the Ld.CIT(A) and restore the issue back to the file of the AO and

direct the AO to reconsider the issue de novo in light of our discussion

given hereinabove and also by following the decision of the Hon’ble

Supreme Court in the case of ACIT v. Ahmedabad Urban Development

Authority (supra). The AO is also directed to look into the arguments of

the assessee for applicability of ‘principles of mutuality’ in light of any

evidence that may be filed by the assessee. Further, all other issues

including computation of taxable income, if any, and taxability of ‘corpus

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donations’ receipts towards Magazine Fund and also depreciation issue

needs to be reconsidered afresh after considering the assessee’s case in

light of amended provisions of Sec.2(15) of the Act, and also in light of

decision of the Hon’ble Supreme Court in the case of ACIT v. Ahmedabad

Urban Development Authority (supra).

are allowed for statistical purposes.

Order pronounced on the 20th day of October, 2023, in Chennai.

Sd/- Sd/- (मनोमोहन दास) (मंजूनाथा.जी) (MANJUNATHA.G) (MANOMOHAN DAS) लेखा सद�/ACCOUNTANT MEMBER �ाियक सद�/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 20th October, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�/CIT 5. गाड� फाईल/GF 2. ��यथ�/Respondent 4.िवभागीय �ितिनिध/DR