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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeals have been filed at the instance of the assessee against the respective orders of the Commissioner of Income Tax (Appeals)-1, Vadodara (‘CIT(A)’ in short), dated 05.04.2017 & 08.12.2016 arising in the assessment orders both dated 23.03.2015 passed by the Assessing Officer (AO) under s. 143(3) and 143(3)
& 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 2 - r.w.s. 147 of the Income Tax Act, 1961 (the Act) concerning AYs. 2012-13 & 2011-12.
2. Both the captioned appeals relates to identical controversy namely eligibility of exemption under s.11 of Income Tax Act. Accordingly, both the matters were heard together and disposed of by this common order.
3. The appeal filed by the assessee was found to be belated by 238 days in preferring the appeal before the Tribunal. The assessee has filed affidavit giving explanation for delay and seeking condonation thereof. The assessee has explained the inadvertent lapse on the part of the tax consultant and thereby the order of the CIT(A) could not be communicated properly. A reading of the consequence of the event is pointed out in the affidavit gives an impression of bonafide lapse. The delay in filing the appeal is thus condoned.
4. For the sake of convenience, the relevant grounds of appeal raised by the assessee in relation to AY 2011-12 in is reproduced hereunder:
“1. The L'd CIT(A)-2 has erred in sustaining / upholding the action of L'd AO to withdraw exemption U/s 11 of the IT Act claimed by the appellant Trust and thereby treating surplus of Rs. 19,86,737/- generated from conducting safety training programme and activities as income from activities in the nature of trade / commerce or business by incorrectly interpreting provisions of Section 2(15) of the Income Tax Act 1961. It is prayed that the exemption U/s 1 1 of Rs. 19,86,737/- be allowed.
2. The L'd CIT(A)-2 has wrongly confirmed disallowance of prior period expenses of Rs. 4,905/-. It is prayed that the disallowance of Rs. 4,905/- be deleted.”
& 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 3 -
5. Ground No.1 concerns eligibility of exemption under s.11 of the Act.
Briefly stated, the assessee is a public charitable trust stated to be registered under the Bombay Public Trust Act, 1950 and is also registered under s.12(A)(a) of the Income Tax Act, 1961. Consequently, the assessee trust is eligible for exemption of its income in terms of Section 11 of the Act. The assessee trust filed its return of income claiming exemption under s.11 of the Act. The return of income so filed was selected for scrutiny in the course of the scrutiny assessment. The AO raised question of eligibility of exemption claimed under s.11 (1) of the Act r.w. provision of Section 2(15) of the Act. The AO eventually held the surplus of Rs.19,86,737/- to be non-charitable in nature and consequently, taxable under the normal provisions of the Act.
7. Aggrieved by the denial of exemption claimed under s.11 of the Act, the assessee trust preferred appeal before the CIT(A) without any success. The relevant operative para of the order of the CIT(A) denying exemption to the assessee is reproduced hereunder:
“4. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. Ground No. 1 pertains to disallowance of exemption claimed u/s, 11 amounting to Rs.19,86,737/-. Undisputedly, the appellant is engaged in the activities of conducting safety training programmes, workshops, seminars, conferences and creating safety awareness among workers/staff/executives working in industries and also for people commuting on roads. Accordingly it was claimed by the appellant that such activities are in the nature of education within the meaning of Section 2(15). To support its contention, the appellant has relied upon two decisions. In the first decision in the case of Sabarmati Gaushala Trust (supra), I find that issue was not relating to educational activities and hence the same is distinguishable on facts. The second decision relied upon by the appellant is of The institute of Chartered Accountants of India (supra), wherein Hon'ble Delhi High Court has very clearly held that activities of institute of Chartered Accountant of India were not in the nature of education as defined in section 2(15) of the Act. Therefore, the ratio laid down in this decision is also of no help to the appellant.
& 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 4 -
4.1. The Assessing Officer has disallowed the claim of exemption made u/s. 11 by holding that the activities of the appellant were not in the nature of education as defined in section 2(15) of the Act. The Assessing Officer has mainly relied upon the decision of Hon'ble Supreme Court in the case of Sole Trustee, Lok Shikshna Trust Vs. CIT (1975) 101 ITR 234. I have also gone through the decision of Hon'ble Supreme Court and find that the education as mentioned 2(15) connotes the process of training and developing the knowledge skill, mind and character of students by normal schooling. Undisputedly, the appellant was not engaged in the activity of normal schooling education. This decision of Hon'ble Supreme Court has been relied upon by various judicial authorities and a few of such decisions are as under:-
(i) New Elim Charitable & Educational Trust Vs. CIT (2013) 40 taxmann.com 373 (Cochin-Trib.) - Relying upon the decision of Hon'ble Supreme Court in the case of Sole Trustee, Lok Shikshna Trust Vs. CIT (1975) 101 ITR 234, it is held that all modes of acquiring knowledge cannot be considered to be educational activity. Only "education" acquired in the course of normal schooling has to be considered as "education" within the meaning of section 2(15).
(ii) Information Systems Audit & Control Association Vs. Dy. CIT (Exemption) (2016) 157 ITD 815 (Chennai) – The assessee was conducting review and-cours.es for helping aspiring members in preparing for CISA & CISMA certification conducted by parent body. For this purpose, it was conducting meeting/conferences for sharing knowledge and experience on methodologies, emerging concepts and skill updation. It was held that such activity does not fall within the meaning of "education" as given in section 2(15); but will fall in the category of advancement of any other object of general public utility involving trade, commerce or business and hence not entitled to exemption u/s. 11.
(iii) Impressario Education Trust Vs. CIT (2014) 47 taxmann.com 259 (Cochin-Trib.) - In this case, the assessee was conducting classes of event management which were not recognized by Government bodies and as a consequence it did not result in conferment of any degree or diploma and hence it was held that the assessee's activity did not fall within the meaning of "education" as given in section 2(15} and thus claim of registration u/s. 12AA was to be rejected.
Therefore, In view of the above facts and legal position, it emerges that the appellant was not engaged in any activity of normal education within the meaning of section 2(15) since it was only providing some short of training through workshop/seminar etc.
& 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 5 - without conferment of any Degree or Diploma through Government Recognized Authorities. In fact, the activities of the appellant fall in the category of advancing of any other object of general public utility involving trade, commerce or business and hence the income earned from such activity was not entitled to exemption u/s.
11. Accordingly, the action of the Assessing Officer in rejecting the claim of appellant u/s. 11 is sustained and addition made is confirmed. Thus, appellant fails in respect of Ground No. 1.”
Further aggrieved, the assessee preferred appeal before the Tribunal.
The learned senior counsel for the assessee at the outset referred to the objects of the assessee and submitted that as per memorandum of association of the Trust, key objects of the trust are conducting safety training programmes, training seminars, work shop, conferences etc. for personnel working in Industries (Industrial safety), for people commuting on roads (road safety) and for the persons working at homes (home safety) etc.
9.1 Having regards to the objects, the learned senior counsel made two fold submissions; firstly, objects of the trust are ‘educational’ in nature and therefore squarely covered by the main provision of Section 2(15) of the Act and therefore, the activity is to be regarded to be ‘for charitable purpose’ without any further encumbrance. Secondly and without prejudice, the objects of the assessee would fall in the category of ‘advancement of any other object of general public utility’ but without any commercial motive and therefore, the proviso to Section 2(15) of the Act has no applicability in the facts of the case.
9.2 To buttress his arguments on facts that the assessee trust is engaged in educational activities contemplated under s.2(15) of the Act, the learned senior counsel placed on record various magazines and booklets published by the assessee trust from time to time viz; & 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 6 - Handbook on First Aid; Do’s & Don’ts of Industrial Activities; Our Health; Monthly Magazine published by the Trust ‘Suraksha’. The learned senior counsel asserted that the contents of the booklets and magazines as well as training programmes for the employees, workers and public at large in factories, on roads, in homes and in farms would show that the assessee trust was engaged to devise and propagate effective method of safety protections. The learned senior counsel submitted that the objects of the trust are self explanatory and the assessee has been granted registration under s.12A of the Act having regard to the charitable objects which are essentially educational activities on safety measures. The learned AR referred to the decision of the Hon’ble Gujarat High court in the case of Director of Income- tax (Exemption) vs. Ahmedabad Management Association [2014] 366 ITR 85 (Guj.) for the proposition that expression ‘education’ for the purposes of Section 2(15) of the Act should not be construed in a narrow or pedantic manner. The learned senior counsel submitted that educational activity does not mean and confine to only theoretical teaching in classrooms, in schools & colleges but also include activities which provide education and create awareness about social science among people all around and accordingly the activities of the trust are purely educational in nature. The learned counsel accordingly submitted that act of assessee being educational, the assessee falls within the sweep of definition of ‘charitable purposes’ under s.2(15) of the Act which is inclusive in nature.
9.3 The learned senior counsel thereafter referred to the decision of Hon’ble Gujarat High Court in case of Ahmedabad Urban Development Authority vs. ACIT(Exemption) [2017] 396 ITR 323 (Guj.) and Director of Income-tax (Exemption) vs. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj.) for the proposition that even if objects of the trust were to be regarded as ‘advancement of object of general public utility’, the proviso to Section 2(15) of the Act would & 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 7 - come into play only where the commercial spirit is the primary aim or object of the trust. The learned senior counsel submitted that the overriding aim and object of the trust is not to generate profits, but the activities are being carried out as part of the charitable object. The profit making by the assessee is mere incidental or a by-product in the process of carrying on of such charitable object. The learned senior counsel also submitted that no motive towards trade, commerce or business should be inferred in the instant case as the assessee is not engaged in sale or purchase of any commodity but is carrying on safety training programmes, seminars, conferences, workshops on safety awareness. For carrying such educational programmes fees are required to be charged for meeting the expenses incurred as conducting such programmes cannot be possibly free. It was thereafter asserted that what is relevant is the utilization of trust funds for determination of true motive. The assessee trust has utilized the funds for acquiring capital assets, for meeting expenses for pursuing objects of the trust etc. and did not divert the surplus funds for any personal use or for any individual benefit. Elaborating further, the learned senior counsel submitted that the Government of Gujarat also recognized the activity of the trust and has provided grants on regular basis. The managing committee of various safety training activities comprises of Government nominees too. Under these circumstances, the learned senior counsel submitted that seen from any angle, there was no justification on the part of the Revenue to deny exemption claimed on surplus received from such charitable activities carried out by the trust.
The learned DR for the Revenue relied upon the orders of the lower authorities. The learned DR pointed out that the AO has successfully established that activities of the assessee as mentioned as for earning hefty profits and activities are clearly in the nature of trade, commerce or business and therefore would fall within the & 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 8 - exclusion provided by the proviso of Section 2(15) of the Act. The learned DR thus submitted that object being commercial exploitation of services rendered, there is no justifiable reason to interfere.
We have carefully considered the rival submissions and perused the orders of the lower authorities. The controversy placed before us is whether the assessee trust is entitled to exemption under s.11 of the Act on surplus arising from carrying on of activities in the nature of safety training programme etc. It is the case of the assessee that the trust is a public charitable trust and registered under Bombay Public Trust Act, 1950 as well as under s.12(A)(a) of the Act. The objects of the trust are claimed to be educational in nature and hence, exempt under s.11 of the Act.
11.1 The main thrust being on the objects of trust, will be apposite to reproduce the stated objects of the trust:
“The objects of the Gujarat Safety Council is in general to promote the message of safety and to engage itself in safety activities as mentioned below within Gujarat State.
To devise effective method of safety protection and propagate them among employees, workers and public at large in factories, on roads, in homes and in farms.
To organise safety programmes, lectures, conferences and other activities.
To conduct educational campaigns, to arouse public opinion and interest of the employers and workers.
To enlist the co-operation of public and private organizations interested in the promotion of Safety.
To suggest improvements in the Central and State laws to prevent accidents.
6. To organize local Safety Centres in the State of Gujarat and to provide them organizational help and materials to promote the objects of the Safety.
& 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 9 -
To do all such work in the field of Safety.”
11.2 Section 2(15) of the Act which defines the term ‘charitable purpose’ was substituted vide Finance Act, 2008 w.e.f. 2009-10 to provide that advancement of object of general public utility shall not be a ‘charitable purpose’, if it involves carrying on of any activity in the nature of trade, commerce or business. This amendment has given rise to the present litigation. It is the case of the assessee that in order to carry on the charitable object, it is necessary to charge certain fee or consideration for the services rendered and such an act of trust cannot give colour of trade, commerce or business to the solemn objects carried out just for the reason that fee or charges are being recovered.
11.3 The courts have stated that if the activities are being carried on as part of charitable object, it cannot be said to be in the nature of trade, commerce or business. The Hon’ble Supreme Court in the case of Queen’s Educational Society vs. CIT [2015] 372 ITR 699 (SC) has held that a surplus arising from activities would not necessarily mean that institution is being carried on ‘for profit’. The Hon’ble Gujarat High Court in the case of DIT(Exemption) vs. Gujarat Cricket Association Tax Appeal No. 123 of 2014 judgment dated 27.09.2019 inter alia observed that the profits, if any, ploughed back into the very activities of promotion and development of sport of Cricket and therefore, the assessee cannot be termed to be carrying out commercial activities in the nature of trade, commerce or business. Drawing parallel in the instant case as the income of the trust are being stated to be ploughed back for the furtherance of objects of the trust, such activities would not portray the character of commercial nature. Therefore, applying the principles, the activities of the trust cannot be deemed to be a commercial venture. Thus, in our considered view, the activities of the assessee cannot be excluded from the ambit of definition of Section 2(15) of the Act where the registration of the & 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 10 - assessee is in force. The assessee, in our view, would be entitled to deduction under s.11 of the Act on surplus as claimed.
11.4 Viewed from a different angle, multifaceted activities in the form of handbook/literature published together with stated activities like holding conferences on industrial safety programmes, public talks, seminars, workshops etc. on ongoing basis to inculcate safety measures would also be bracketed in the league of ‘educational activities’ when tested in the light of the decision of the Hon’ble Gujarat High court in the case of Ahmedabad Management Association (supra). The Hon’ble Gujarat High Court took note of the changing times and ever widening of horizon of knowledge, rapid changes in the method of teaching for constituting the word ‘education’ used under s.2(15) of the Act. Thus, on a fair reading of the activities carried out, the assessee, in our view, would be entitled for exemption under s.11 of the Act without any demur.
In the result, Ground No.1 of the assessee’s appeal is allowed.
Ground No.2 concerning prior period expenses as dismissed in the absence of any explanation furnished to support the grievance and to negate the findings of lower authorities.
In the result, appeal filed by the assessee for AY 2011-12 is partly allowed.
The solitary issue concerns denial of deduction under s.11 of the Act. In parity with the view expressed in AY 2011-12, we find merit in the appeal of the assessee for eligibility of claim of deduction of surplus arising from objects carried out by the assessee. We thus & 712/Ahd/17 (Gujarat Safety Council vs. ITO) A.Ys. 2012-13 & 2011-12 - 11 - reverse the action of the AO and direct him to allow the relief on surplus as claimed under s.11 of the Act.
In the result, appeal of the assesse in AY 2012-13 is allowed.
In the combined result, concerning AY 2011-12 is partly allowed, whereas, is allowed.
This Order pronounced in Open Court on 29/11/2019
Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 29/11/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।