THE DIT ( EXEMPTION), KOCHI vs. M/S.INDIAN MEDICAL ASSOCIATION COCHIN BRANCH, COCHIN

Per CHANDRA POOJARI, AM:

These appeals filed by the Revenue are directed against the different orders of

the CIT(A)-II, Kochi and pertain to the assessment year 2010-11. The Revenue’s

appeal in ITA No. 327/Coch/2019 is emanating from the assessment order passed

u/s. 143(3) of the I.T. Act and the Revenue’s appeal in ITA No. 507/Coch/2019 is

emanating from the assessment order passed u/s. 143(3) r.w.s. 147 of the I.T. Act.

I.T.A. Nos. 327&507/Coch/2019 ITA No.327/Coch/2019 Revenue’s Appeal: AY 2010-11

charitable purposes under the Travancore-Cochin Literary, Scientific and Charitable

Societies Registration Act, 1955 and duly registered u/s. 12AA of the Income Tax

Act, 1961. For the assessment year 2010-11, the assessee filed its return of income

and claimed exemption u/s. 11 of the I.T. Act. The Assessing Officer while

completing the assessment u/s. 143(3) of the I.T. Act had noticed that the

assessee’s income consisted of the following components:

i) Annual Subscription Rs.2,23,470.00 ii) Donation – Directory Rs. 84,394.00 iii) Donation-Executive Committee Meeting Rs. 1,55,000.00 iv) Donation-Mailing List Rs. 6,250.00 v) Donation-President’s Seal Rs. 13,600.00 v) Life Membership Fee Rs.12,22,125.00 vi) Medicine Premium Collection Rs. 1,51,734.00 vii) SB Interest Rs. 4,489.00 viii) Directory Advertisement Rs. 10,000.00 ix) Income from mandap keeper (renting of halls and food) Rs. 78,55,580.00 Total Rs.1,01,97,432.00

2.1 Thus, the Assessing Officer observed that since the assessee was letting out a

hall to public for conducting various programmes and collecting hall charges which

is amounting to Rs.78,55,580/-, the activities of the assessee are not charitable in 2

I.T.A. Nos. 327&507/Coch/2019 nature and the second proviso to section 2(15) is applicable and denied exemption

u/s. 11 of the I.T. Act.

Bench in the case of ITO vs. Kalinga Cultural Trust in ITA No.332/Hyd/2017 dated

10/11/2017 wherein it was held as under:

“6. Considered the rival submissions and perused the material facts on record. We find that similar issue came up for consideration before the Tribunal in assessee’s own cases for earlier years. In AY 2011-12, the Tribunal vide ITA No. 913/Hyd/2015, order dated 04/11/2015 has held as under:

“5. Having heard both the parties and having considered the rival contentions in the light of the material on record, we find that the claim of the assessee for exemption under S.11 of the Act has been denied on the ground that the activity of the assessee in running the function hall and deriving rental income is of a commercial nature in terms of proviso to S.2(15) of the Act, and also that constructing and maintaining a temple is not amongst the aims and objects of the society and is not a charitable activity. As can be seen from the facts of the case narrated above, impugned order of the learned CIT(A) in Kalinga Cultural Trust, Hyderabad accepting the claim of the assessee for exemption is based on the consistent view taken by the learned CIT(A) in assessee's own case for earlier years. It has been brought to our notice that the issue relating to assessee's claim for exemption under S.11, is also covered in favour of the assessee, by the decisions of the Tribunal dated 6.6.2014 in ITA Nos.894,895/Hyd/2013 and 1067/Hyd/2012 for assessment years 2006-07 to 2008-09; and dated 3.7.2015 in ITA Nos.33 and 339/Hyd/2015 for assessment years 2009-10 and 2010-11 respectively. A copy each of both these orders have been furnished before us by the learned counsel for the assessee alongwith the written submissions filed by him.

"8. We have considered the submissions of the parties and perused the material on record as well as the orders of revenue authorities. As could be seen from the assessment order, AO has denied exemption u/s 11 to assessee

I.T.A. Nos. 327&507/Coch/2019 primarily on two reasons, firstly, because assessee is constructing Jagannadha Temple, which, according to AO, is neither in accordance with the aims and objects nor a charitable activity. The second reason is, after introduction of proviso to section 2(15) of the Act, assessee looses its character of trust having been established for charitable purpose as it has earned income by engaging in commercial activities. As far as allegation of AO that construction of temple by assessee is neither in accordance with aims and objects of assessee nor charitable activity is concerned, it has to be rejected at the threshold in view of the decision of the coordinate bench in assessee's own case in AYs 2006-07, 2007-08 and 2008-09 in ITA Nos. 894 & 895/Hyd/13 and 1067/Hyd/12, dated 06/06/14 wherein the coordinate bench agreed with the ld. CIT(A) that construction of Jagannadha Temple is not only in furtherance of the aims and objects of assessee society but, is also a charitable activity. In view of the aforesaid, we do not find any merit in the submissions of the ld. DR that construction of Jagannadha Temple is not a charitable activity. As far as the secondreason for denying exemption u/s 11 is concerned, it is the allegation of AO that as assessee was involved in commercial activity by generating income by letting out function hall, selling souvenir, etc, it is not eligible for exemption in view of the proviso to section 2(15) of the Act, we are of the view that the same requires deeper analysis. However, before deciding the issue, it is necessary to observe that there cannot be any dispute to the fact that assessee's objects are charitable in nature, as ld. DIT(E) has granted registration to assessee u/s 12A of the Act since the year 1995 and which is continue till date.

8.1. Further, there is nothing on record to suggest that in the intervening period there is any substantial change in the aims and objects of assessee. Therefore, keeping in view the aforesaid facts, it has to be decided whether the introduction of first proviso to section 2(15) by the Finance Act, 2008 w.e.f. 01/04/09 would automatically disentitle the assessee from being considered as having been established for charitable purpose and thereby depriving it from claiming exemption u/s 11 of the Act. A plain reading of section 2(15) of the Act, also makes it clear that the proviso applies only to the last limb of 'charitable purpose' i.e. advancement of any other object of general public utility'. The intention of the legislature in introducing the proviso to section 2(15) as could be gathered from the speech of the Hon'ble Finance Minister on the floor of Parliament, explanatory notes, departmental circulars, is to deny exemption to trusts or institutions who in the garb of charity are purely engaged in commercial or business activities and whose main intention is to earn profit. The proviso is never meant to deprive genuine trusts and institutions whose main object is charity but in process of achieving the main object they undertake some income generating activity which is ancillary and incidental to the main object. Further, income generated from such activity is also utilized for achieving the main charitable object. The true import and effect of proviso to section 2(15) of the Act came up for scrutiny before a number of High Courts. The unanimous view of judiciary in this regard is, proviso to section 2(15) has to be applied keeping in mind the dominant object/purpose of the trusts or institutions. Therefore, it has to be seen whether the dominant object of the trust is of charitable nature in carrying out

I.T.A. Nos. 327&507/Coch/2019 the object of general public utility or main intention of the assessee is to earn profit. Further, definition of 'charitable purpose' as defined u/s 2(15) of the Act cannot be read in vacuum, but, has to be read along with the exemption provisions. That being the case, a literal interpretation to the proviso to section 2(15) cannot be given if the objects of the exemption provisions are to be given full effect. The Hon'ble Delhi High Court in case of Indian Trade Promotion Organisation Vs. director General of Income-tax (E), 371 ITR 333 while interpreting the effect of proviso to section 2(15) of the Act, after analyzing a number of decisions of the Hon'ble Supreme Court as well as different high courts observed that the only thing which is required to be examined is whether the trust or institution has been established for charitable purposes. The fact that it derives income does not in any way detract from the position that it is not an institution established for charitable purposes. The Hon'ble High Court observed that merely because assessee derives rental income, income out of sale of tickets and sale of publications and income out of leasing out food and beverages outlets in the exhibition grounds does not, in any way, affect the nature of trust as a charitable institution, if, it otherwise qualifies for such a character. It was further observed by the Hon'ble High Court that if a meaning is given to the expression 'charitable purpose' so as to suggest that in case of an institution having an object of advancement of general public utility if derives income it would be falling within the exception carved out in the first proviso to section 2(15) of the Act, then, there would be no institution whatsoever which would qualify for exemption and the exemption provision would be rendered redundant. The Hon'ble Delhi high Court referred to its own decision in case of Institute of Chartered Accountants of India and another Vs. Director General of Income-tax (E), 358 ITR 91 wherein while interpreting expressions 'trade, commerce and business', as find place in the first proviso to section 2(15), the court held that merely because fees or some other consideration is collected or received by nan institution, it would not lose its character of having been established for charitable purpose. The Court observed, in this context, the dominant activity of the institution has to be looked into. If the dominant activity of the institution is not business, trade or commerce, then, any such incidental or ancillary activity would also not fall within the categories of trade or commerce or business. The driving force of the trust or institution should not be a desire to earn profit, but, utilize the same for achieving the charitable objects for which it is established. The Hon'be High Court laying down the principle as to how the proviso to section 2(15) should be construed, held as under:

"58. In conclusion, we may say that the expression “charitable purpose", as defined in section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to section 2(15) of the said Act then the proviso would be at risk of running fowl of the principle of equality enshrined in article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to section 2(15) of the said Act would be that it carves out an 5

I.T.A. Nos. 327&507/Coch/2019 exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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 cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and the prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a "charitable purpose". On the flip side, where an institution is not driven primarily by a desire or motive to earn profits but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes."

8.2 If we apply the aforesaid principles to the facts of the present case, it is to be seen that as held by the coordinate bench in assessee's own case in the preceding AYs, assessee is pursuing charitable activity in accordance with its aims and objects while constructing the Jagannadha Temple. In fact, the AO himself in assessment order has admitted that income/fund of assessee is utilized in construction of the temple. Further, the coordinate bench in the said order held, by letting out function hall assessee is not involved in commercial activity so as to disentitle it from claiming exemption u/s 11. Therefore, considered in the aforesaid perspective, there being no dispute to the fact that dominant object of assessee is charitable in nature, proviso to section 2(15) cannot be applied to deny exemption to assessee u/s 11 of the Act. In our view, AO without examining the issue in proper perspective has abruptly concluded that assessee is not entitled to exemption u/s 11 of the Act only because proviso to section 2(15) was introduced w.e.f. 01/04/09. In our view, proviso to section 2(15) of the Act will not apply automatically to every trust or institution irrespective of the fact, whether the dominant object of the trust or institution is charitable purpose or earning profit. When in the present case assessee is registered as charitable institution and there is no change in the aims and objects of assessee in the impugned AY and the activities of assessee over the years remains the same, the proviso to section 2(15) cannot be applied to assessee to deny exemption u/s 11 of the Act. In view of the aforesaid, we do not find any merit in the submissions of the ld. DR so as to disturb the finding of the ld. CIT(A) on this issue. Accordingly, we uphold the order of ld. CIT(A) by dismissing the grounds raised. "

I.T.A. Nos. 327&507/Coch/2019 impugned order of the CIT(A) on this issue, which is accordingly confirmed.

The issues raised by the AO in his order are materially identical to that of AY 2011-12, respectfully following the decision of Tribunal, we uphold the order of the CIT(A) as the decision of the CIT(A) is in consonance with the decision of the Tribunal and accordingly, dismiss the ground Nos. 2 & 3 raised by the revenue.”

3.1 Thus, the CIT(A) observed that the assessee is a charitable institution and the

dominant object of the assessee is charitable in nature. Therefore, the CIT(A) held

that the second proviso to section 2(15) of the Act cannot be applied and granted

exemption u/s. 11 of the Act.

letting out the hall for rent to the public by the assessee would constitute an activity

in the nature of trade, commerce or business and hence, not charitable in nature.

Consequently, the assessee cannot be granted exemption u/s. 11 of the I.T. Act,

though it was registered u/s. 12AA of the Act. It was further submitted by the Ld.

DR that letting out of the hall by the assessee was not incidental to the pre-

dominant object of the assessee. Mere using the surplus income by the assessee

for achieving the object of the assessee cannot lead to the entitlement of

I.T.A. Nos. 327&507/Coch/2019 exemption u/s. 11 of the I.T. Act. Accordingly, she supported the order of the

Assessing Officer.

conference hall out of which the assessee had used for 149 days for own purposes

and during idle time, the hall was let out for 102 days for public functions.

According to the Ld. AR, the assessee had been conducting various medical camps

and public seminars and programmes as prescribed by the Medical Council of India

for its members who were physicians, cardiologists, orthopedic surgeons,

dermatologists, neurologists, nephrologists, pulmonologists, oncologists, surgeons,

general practitioners, gynecologists etc. The purpose of constructing the hall was

to conduct and host various programmes and it was conducting on regular basis

various medical camps in the premises to derive maximum benefit from the hall

during the idle time. It was letting out the hall during idle period to the public for

conducting various seminars, thereby, the assessee earned Rs.78,55,658/- and

incurred various expenditure while earning this income. The Assessing Officer

considered the entire gross collection as income of the assessee and denied

exemption u/s. 11 of the Act by observing that the assessee was carrying on

activities in the nature of trade, commerce and business and applied second proviso

to section 2(15) of the I.T. Act. The Ld. AR drew our attention to the various

objects of the assessee to support that the assessee’s activities are charitable in

nature for claiming exemption u/s. 11 of the Act.

I.T.A. Nos. 327&507/Coch/2019 5.1 The Ld. AR submitted that the Assessing Officer had erred in giving a wrong

interpretation to the words “trade, commerce or business” used in the proviso to

section 2(15) of the I.T. Act. The dominant activity of the assessee institution was

charitable and just because it had let out its hall during the idle time to augment its

revenue, it cannot be said that the assessee is carrying on any activity in the nature

of trade, commerce or business. The assessee is neither engaged in any trade or

commerce. Letting out the hall during the idle period cannot be treated as business

either. The activities of the assessee are charitable and its activity is not letting out

halls. It was submitted that there was no finding by the Assessing Officer that the

assessee’s activities are not charitable in nature. Only conclusion arrived at by the

Assessing Officer is that the assessee had let out its hall and generated income

which amounts to trade, commerce or business as referred to in the second proviso

to section 2(15) of the Act. The driving force of the institution is not the desire to

earn profits by letting out halls, and as such it cannot be said that the assessee

institution is carrying on any activity in the nature of trade, commerce or business.

5.2 Further, it was submitted by the Ld. AR that the Assessing Officer had declined

depreciation to the assessee stating that it would amount to double deduction. It

was submitted that depreciation is a statutory deduction allowable under the I.T.

Act and restriction on allowing depreciation for charitable trusts have been

introduced in the Income Tax Act by inserting sub-section (6) of section 11 by the

Finance Act, (No.2), 2014 with effect from 01/04/2015, i.e., assessment year 2015-

I.T.A. Nos. 327&507/Coch/2019 16. He relied on the decision of the ITAT, Hyderabad Bench in the case of Kalinga

Cultural Trust cited supra.

assessee institution is registered u/s. 12AA of the Income Tax Act, 1961 vide

application dated 18/09/2007 and this registration was granted w.e.f. 31/05/2007

vide order of the CIT dated 17/03/2008. The dominant objects of the assessee

institution are as follows:

i) To promote and advance medical and allied sciences in all their different branches and to promote the improvement of public health and medical education in India.

ii) To run dispensaries, blood banks, medical research centres, or such other institutions for non-profit making medical relief to the poor people of Cochin, as well as to encourage medical and paramedical education by supporting observant poor students with possible financial aid, awards, scholarships, etc.

iii) To organize seminars and exhibitions, to conduct lectures and classes to publish books and pamphlets, periodicals and audiovisual aids for educating the public as well as Health Personnel for better patient care.

iv) To organize Continuing Medical Education Programmes. Transfer of Technology, workshops and periodical conferences and other activities for the doctors to improve the quality of their work at work environment, or to cause such organizations by various professional bodies. gage er is

6.1 During the assessment year under consideration, the assessee was carrying on

charitable activities and also letting out hall on regular basis to the public and the

assessee’s gross receipts of Rs.78,55,580/- was reflected in its income and

expenditure account along with other receipts. As given in the facts of the case, the

Assessing Officer observed that the assessee was carrying on the activity of letting

I.T.A. Nos. 327&507/Coch/2019 out hall to the public which was in the nature of trade, commerce and business and

thus, hit by the second proviso to section 2(15) of the Act. Thus, he denied

exemption u/s. 11 of the I.T. Act. The contention of the assessee is that letting out

the hall to the public during the idle period is incidental to the dominant object of

the assessee. The assessee submitted that the hall was mainly used for conducting

its own meetings, programmes and seminars of doctors for 149 days and during the

idle time, the hall was let out to the public for 102 days out of the total 250 days of

programmed held therein.

6.2 We have examined the claim of the assessee for exemption under section 11 of

the Act in the light of the proviso to section 2(15) of the Act. Sec. 2(15) of the Act,

which defines the expression "Charitable purpose" for the purpose of amendment

by the Finance Act, 2008 with effect from 01-04-2009. The expression charitable

purpose, prior to the aforesaid amendment read as follows:-

'(15) "Charitable purpose" includes relief to the poor, education, medical relief and the advancement of any other object of general public utility.

The definition after the amendment reads as follows:_ '"Charitable purpose" includes relief to the poor, education, medical relief. (preservation of environment (including watersheds, of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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 cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity”.

I.T.A. Nos. 327&507/Coch/2019 6.3 Thus, It can be seen from the proviso to Sec.2(15) which came into effect

from 01-04-2009 that advancement of any other object of general public utility shall

not be a charitable purpose, if it involves the carrying on of any activity in the

nature of trade, commerce or business. According to the AO, the assessee was

carrying on activity of letting out the hall and therefore, the proviso to Sec.2(15) of

the Act would apply to the case of the assessee. The purpose for which the

assessee exists is for the ‘advancement of any other object of general public utility’.

Therefore, the question that we need to be answered is as to whether the proviso

to Sec.2(15) of the Act would be applicable to the case of the assessee.

6.4 We shall now understand the approach to be adopted in coming to the

conclusion as to whether the proviso to Sec.2(15) of the Act will be applicable to the

Assessee in the light of the decision of the Hon’ble Delhi High Court in the case of

India Trade Promotion Organization Vs. DGIT(Exemption) and others 371 ITR 333

(Delhi). The High Court had laid down the following very important principles as to

how the proviso to Sec.2(15) of the Act has to be interpreted:-

(i) The proviso to Sec.2(15) of the Act introduced by virtue of the Finance Act, 2008 with effect from 01.04.2009 has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service ―in relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess‘ or fee‘ or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant for the purposes of construing the activities as charitable or not.

I.T.A. Nos. 327&507/Coch/2019 (ii) If an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important.

iii) The meaning of the expression "charitable purposes" has to be examined in the context of “income”, because, it is only when there is income the question of not including that income in the total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income would not make it any less a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption would have to be determined having regard to the objects of the institution and its importance throughout India or throughout any State or States.

(iv) Merely, because an institution derives income out of activities which may be commercial, that does, in any way, affect the nature of the Institution as a charitable institution if it otherwise qualifies for such a character.

(v) Merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. If the driving force is not the desire to earn profits but to do charity, the exception carved out in the first proviso to Section 2(15) of the said Act would not apply.

(vi) If a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). Courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above.

(vii) Section 2(15) is only a definition clause. Section 2 begins with the words, ―in this Act, unless the context otherwise requires. The expression "charitable purpose" appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression "charitable purpose", as defined in Section 2(15) of the said Act, is read in the context of Section 10(23C)(iv) of the 13

I.T.A. Nos. 327&507/Coch/2019 said Act, we would have to give up the strict and literal interpretation sought to be given to the expression "charitable purpose" by the revenue.

(viii) The expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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 cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'.”

On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes.

It can be seen from the bye-laws of the assessee that the dominant and prime objective of the assessee is not profit making. Prior to the introduction of the proviso to Section 2(15) of the Act, there was no dispute that the assessee was established for charitable purposes.

6.5 The assessee collected a sum of Rs.78,55,580/- for letting out hall to public.

During the idle time, when the hall is not required for the assessee itself, it was let

out by the assessee on rental basis. Surplus income generated by this activity are

used for carrying on the main objects of the assessee. Thus, in our opinion, by

letting out the hall on rental basis, it cannot be said that the assessee is existing for

profit or for conducting trade, commerce or business. In our opinion, the facts

brought on record would clearly show that the assessee is not driven by the desire

to earn profits by letting out halls but to do charity through advancement of object

I.T.A. Nos. 327&507/Coch/2019 of general public utility. This was substantiated by the actual income received on

operations of the assessee and the expenditure incurred and as such it cannot be

said that the assessee institution is carrying on any activity in the nature of trade,

commerce or business. It can be seen from the bye-laws of the assessee that the

dominant and prime objective of the assessee is not profit making. Prior to the

introduction of the proviso to Section 2(15) of the Act, there was no dispute that the

assessee was established for charitable purposes. Thus, the proviso to Sec.2(15) of

the Act is not applicable to the case of the assessee. We therefore hold that the

assessee is entitled to the benefit of Sec.11 of the Act. The AO has not disputed the

conditions necessary for allowing exemption u/s.11 of the Act, except the

applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the

said proviso is not applicable to the case of the assessee, we hold that the assessee

cannot be denied exemption u/s. 11 of the I.T. Act and rental income cannot be

taxed separately. Thus, this ground of appeal of the Revenue is dismissed. The

appeal of the Revenue in ITA No.327/Coch/2019 is dismissed.

ITA No. 507/Coch/2019: Revenue Appeal: A.Y. 2010-11

I.T.A. Nos. 327&507/Coch/2019 3. The CIT(A) erred in holding that the amount received from members towards building fund was to be treated as ‘Corpus Fund’ in the absence of specific direction from the donors that the amount is towards ‘Corpus Fund’.

voluntary contribution said to be from various members towards building fund. The

assessee treated the same as corpus fund of the assessee institution which was

accepted by the Assessing Officer in the assessment passed u/s. 143(3) of the I.T.

Act. However, later it was re-opened u/s. 143(3) r.w.s 147 of the I.T. Act to

consider the voluntary contribution received by the assessee as income from other

sources. The Assessing Officer rejected the claim of the assessee since there was no

specific direction given to the donors that it is towards corpus fund. The Assessing

Officer treated the amount of Rs.9,94,82,230/- as not corpus fund and added back

to the total income of the assessee in the re-assessment proceedings.

the assessee. The contributions received towards “Building Fund” amounting to

Rs.9,94,82,230/- was from members and list of the same was given to the

Assessing Officer during reassessment proceedings. The assessee contended that

Indian Medical Association Cochin Branch is an Association formed by doctors as

members, applying the Principal of Mutuality, Contributions from Members cannot

be brought to tax. The assessee also contended that this contribution was

specifically for the Building Fund and hence, it is in the nature of capital.

According to the CIT(A), the amount was received from Member Doctors towards 16

I.T.A. Nos. 327&507/Coch/2019 building fund and obviously it needs to be treated as Corpus fund. On the Principal

of Mutuality, since the amount had come from the members only, it cannot be

treated as income of the assessee in view of the decision of the Supreme court in

the case of Chelmsford Club vs. CIT 243 ITR 80. In view of the above, addition of

Rs.9,94,82,230/- was deleted.

order of the CIT(A).

Admittedly, in this case, the assessee had collected an amount of Rs.9,94,82,230/-

towards construction of building which was treated as corpus fund. Contrary to

the claim of the assessee, the Assessing Officer treated it as the income of the

assessee and inter alia, rejected the claim of exemption u/s. 11 of the Act in view

of the assessee letting out the hall to the public in the re-opened assessment. The

assessee collected the donation from various members and the assessee has

furnished the list of donors before the lower authorities. The only dispute is that

the assessee had treated the amount of Rs.9,94,82,230/- as income from other

sources, being voluntary contribution received from the members in its original

return of income. The Assessing Officer omitted to consider the income of the

assessee in the original assessment dated 30/03/2013. In the course of re-

assessment proceedings, the assessee took the plea that the donation was

collected towards building fund which is to be treated as corpus fund. According

I.T.A. Nos. 327&507/Coch/2019 to the Assessing Officer, changing of stand by the assessee cannot be accepted

since the assessee tried to derive benefit out of the omission of the Assessing

Officer while passing the assessment order u/s. 143(3) of the Act dated

30/03/2013. The assessee had also not filed its revised return in response to the

notice issued u/s.148 of the I.T. Act. In our opinion, the donations received from

various donors towards construction of building would always take the character of

the corpus fund as the amount was used for specific purpose and accordingly,

would be exempt u/s. 11(1)(d) of the I.T. Act. Even otherwise, the said donation

receipts are only capital in nature towards construction of building on which

fact there is no dispute. The Assessing Officer rejected the claim of the assessee

only for the reason that the said claim was made by the assessee in the re-

assessment proceedings without filing revised return. As held by the Supreme

Court in the case of Goetze (India) Ltd. vs. CIT 284 ITR 323 wherein the Supreme

Court dismissed the appeal, making it clear that the decision was restricted to the

power of assessing authority to entertain a claim of deduction otherwise than by a

revised return and did not impinge on the power of Appellate Tribunal u/s. 254 of

the I.T. Act. Being so, we hold that a receipt which is capital in nature cannot

change its character merely for want of revised return by the Assessing Officer. It

is not the case of the Assessing Officer that donations received by the assessee

were meant for general purpose of the charitable objects of the assessee, in which

event, donations received thereon would take the character of revenue receipts

requiring to be credited in the income and expenditure account for utilization

towards charitable objects thereon. In other words, even if it is credited to P&L

I.T.A. Nos. 327&507/Coch/2019 account, treating it as general donations, then the assessee is entitled to

exemption u/s. 11 of the I.T. Act as it is received and applied for achieving the

objects of the assessee. In the present case, there is no dispute that the assessee

used the income towards construction of building and hence, the claim of the

assessee cannot be denied u/s. 11 of the I.T. Act by treating it as income of the

assessee. We hold that the contributions received by the assessee cannot be

brought to tax in the assessment. Thus, this ground of appeal of the Revenue is

dismissed. The appeal of the Revenue in ITA No. 507/Coch/2019 is dismissed.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 27th November, 2019 GJ Copy to: 1. M/s. Indian Medical Association Cochin Branch, IMA House, Near Jawaharlal Nehru Stadium, Kaloor, Kochi-682 017. 2. The Deputy Commissioner of Income-tax (Exemptions), Kochi. 3. The Commissioner of Income-tax(Appeals)-II, Kochi. 4. The Commissioner of Income-tax (Exemptions), Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin

I.T.A. Nos. 327&507/Coch/2019