Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
Per Pramod Kumar, Vice President:
By way of this appeal, the assessee-appellant has challenged correctness of learned CIT(A)’s order dated 10th January 2017, for the assessment year 2013-14, on the following grounds:-
“1. The learned Commissioner of Income tax (Appeal) (for short Id CIT(A)) has erred in points of low and or on facts in holding the activity of the trust as business activity instead of charitable activity by invoking the first proviso to section 2(15) of the Act and has erred in denying the exemption u/s 11 of the Act by invoking section 13(8) of the Act.
In the facts of the case, the activity of the trust be held as charitable and not a business activity and the invocation of first proviso to section 2(15) be held to have been wrongly applied and exemption u/s 11 be held to have been wrongly denied.
The Id CIT(A) has erred in points of law and or on facts in not allowing the deduction of Rs. 7.50 lac in respect of repayment of debt as an amount applied for the objects of the trust. The same be held to be allowable if the exemption u/s 11 is held to be allowable as urged in Ground no. 1 above.”
ITA No. 799/Ahd/2017 Shree Sattar Taluka Sarvamangal Trust Vs. ITO Assessment year: 2013-14 Page 2 of 5
To adjudicate on these grievances, only a few material facts need to be taken note of. The assessee before us is a public charitable trust duly registered under section 12A of the Income-tax Act, 1961. During the course of scrutiny assessment proceedings, the Assessing Officer was of the view that since the assessee is renting out its hall for marriage or other activities, which is not even authorized by objects of trust any way, the assessee has engaged in business activities and disentitled itself for the benefit of section 11. The Assessing Officer was of the view that “the assessee claims to be charging hall rent at subsidised rate. In other words, the trust is making thin profit but whether the profit is thick or thin, it is a profit of a business activity of the trust.” He further noted that the excess of income over expenditure in the last three years clearly showed that the nature of activity is business and that “the assessee is clearly working for making profits and not for any philanthropic purposes.” The Assessing Officer also noted that under an arrangement with Naveen Electric Store, the assessee has received Rs.7.50 lakhs p.a. for exclusive right of decoration contracts to the said party. All these things, according to the Assessing Officer, clearly showed the nature of trust activities being business activities in nature. He thus invoked section 13(8) read with proviso to Section 2(15) and declined the benefit of section 11 to the assessee. The assessee is aggrieved and is in appeal before us.
We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We have noted that, in essence, the basic reason for rejecting the benefits of section 11 is alleged violation of section 2(15) in the working of the assessee institution. Section 2(15) defines charitable purposes, in an inclusive definition, as "relief of the poor, education, medical relief, and the advancement of any other object of general public utility". There is, however, an explanation to this sub-section to the effect 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, 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" though only in a situation in which aggregate receipts on account of such a cess or fees exceed specified monetary threshold limit in a financial year. In plain words, thus, even if an assessee is pursuing an object of general public utility, such an activity will cease to be an activity for charitable purposes, if (a) the activity is in the nature of trade, commerce or business; or (b) the activity of rendering any service in relation to any trade, commerce or business, for a cess or fees or for any other consideration (irrespective of the nature of use or application, or retention, of the income from such activity) when aggregate of such fees or cess exceed Rs. 25 lakhs in a previous year. It is thus clear that so far as charging of fees or any other consideration for rendition of a service is concerned, the fact of rendition of the service vitiate charitable nature of the activity only when the service is rendered to a trade, commerce or business, and, in addition to that factor, the aggregate of such fees etc is concerned exceeds the specified monetary limit. In a situation, however, in which the service is rendered to an entity other than trade, commerce or business, such a rendition of service does not affect charitable nature of the activity. In the present case, the service is not rendered to any trade, commerce or business, and, therefore, second limb of Explanation to Section 2(15) has no application. As regards
ITA No. 799/Ahd/2017 Shree Sattar Taluka Sarvamangal Trust Vs. ITO Assessment year: 2013-14 Page 3 of 5
the question, whether the activity is in the nature of trade, commerce or business or not, on the ground that the assessee is charging a fee from the users, we find that the nominal fees for the usage is barely enough to meet even the costs of running this establishment and taking into account the cost of funds deployed in the project, and the fact that such a nominal fees is charged from the users of the hall, in our humble understanding, cannot change the fundamental character of this charitable activity. In any case, one of the fundamental flaws in computation of profit on hiring out of hall is that the cost of funds employed in the project is ignored altogether and only revenue expenses are taken into account. That is not the right way of looking at the profitability of a capital intensive project like building community hall etc. The mere fact that the revenue realized on allowing the use of hall are more than revenue expenses incurred would not mean that the hall is rented out on commercial basis. We have also noted the stand of the authorities below that there is a violation of the trust objectives inasmuch as while clause 1(g) of the objects permit planning to “build, run and manage such infrastructure facilities like party plot, drama theatre, sports complex for indoor and outdoor ports”, and thus “a plain reading of the above said objects show that facilities like hall, party plots for indoor and outdoor sports are only for indoor and outdoor sports only are for charitable purposes” and as the renting out of hall is for purposes other than indoor and outdoor sports, such a plea is only to be noted and rejected. The words indoor and outdoor sports are relevant only for sports complex and not for all other categories of infrastructure projects such as party plots and drama theatre, which are only illustrative in nature anyway. The view of the Assessing Officer is too pedantic, and infact blatantly incorrect as well, to meet any judicial approval. Having perused the scale of fees charged for use of hall for besana, marriages and birthdays, we are satisfied that the scale is too modest to be on commercial basis. There is nothing on record whatsoever to suggest that this organization is set up on any commercial basis.
It is only elementary that the mere fact that a fees is received from the registrants, by itself, cannot convert a charitable activity into a commercial activity. This position is recognized by the statue itself in second limb of Explanation to Section 2(15), a specific reference made is to the receipt of such fees from trade, commerce and business, and a further monetary limit is set out even on aggregate of fees even from trade, commerce or business. If receiving a fees simplicitor could be reason enough to hold that an activity can only be charitable activity, there could not have been any justification for such riders in the statute itself. The activity of the assessee trust is an activity of general public utility, and, therefore, covered by the definition of 'charitable purposes' under section 2(15). The true test for deciding whether an activity is business activity is (i) whether the said activity undertaken with a profit motive, or (ii) whether the said activity has continued on sound and recognized business principles, and pursued with reasonable continuity. Clearly, therefore, in a situation in which an activity is not undertaken with a profit motive or on sound and recognized business principles, such an activity cannot be considered to be a business activity. We may, in this regard, usefully refer to the following observations made by Hon'ble Delhi High Court in the case of the Institute of Chartered Accountants of India v. DGIT (Exemption) [2012] 347 ITR 99/[2011] 202 Taxman 1/13 taxmann.com 175. "Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is
ITA No. 799/Ahd/2017 Shree Sattar Taluka Sarvamangal Trust Vs. ITO Assessment year: 2013-14 Page 4 of 5
intended for the purpose of interpreting and applying the first proviso to s. 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business." 6 There has to be, therefore, something more than mere charging a fee by an institution which can demonstrate that activity undertaken is in the nature of business, and the onus of demonstrating that fact is on the revenue authorities. The reason for this onus is simple; nobody can be expected to prove a negative, as was held by Hon'ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 and the assessee cannot, therefore, be asked to prove that the assessee is not carrying on an activity with business motive. A perusal of the impugned order, however, indicates that the only reason for which the assessee is held to be pursuing business activity is charging of fees and there is no other legally sustainable finding to support that conclusion. In view of these facts, as also bearing in mind, we are of the considered view that the learned CIT(A) was indeed in error in upholding the action of the Assessing Officer in declining the benefits of Section 11, by invoking the provisions of Section 13(8) read with proviso to Section 2(15). We vacate this action of the authorities below and hold that the assessee is entitled to the benefit of Section 11. The assessee gets the relief accordingly.
In the result, the appeal is allowed in the terms indicated above. Pronounced in the open court today on the 24th June, 2019
Sd/- Sd/-
Ms. Madhumita Roy Pramod Kumar (Judicial Member) (Vice President) Ahmedabad, the 24th day of June, 2019 **bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad