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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
PER SHRI KUL BHARAT, JM
Vide common & consolidated order dated 19.7.2018, three appeals
bearing ITA No.454/Ind/2012 (A.Y. 2007-08), ITA No.280/Ind/2014 (A.Y.
2009-10) & ITA No.692/Ind/2013 (A.Y. 2010-11) in case of present assessee
were decided. From the perusal of order, we observed that grounds and
findings thereof in ITA No.280/Ind/2014 (A.Y. 2009-10) & ITA
No.692/Ind/2013 (A.Y. 2010-11) required re-adjudication as some grounds
inadvertently left adjudication. We, therefore, issued Corrigendum dated
10.10.2018 directing that both the above appeals i.e. ITA No.280/Ind/2014
ITA 280 of 2014 and ITA 692 of 2013 2 MP Madhyam (A.Y. 2009-10) & ITA No.692/Ind/2013 (A.Y. 2010-11) be re-fixed for hearing
on 06.11.2018. Accordingly, we heard both the parties on 06.11.2018.
ITA No.280/Ind/2014 (A.Y. 2009-10)
The assessee has raised following grounds of appeal: “1. That on the facts & in the circumstances of the case and in law, The Ld. CIT(A)/AO erred and not justified in his findings that in the case of assessee, the first proviso to section 2(15) are applicable and, therefore, it is not entitled for the benefits u/s. 11 & 12 of the Act. Such findings of the Ld. CIT(A)/AO are wholly wrong, injudicious & unlawful findings be quashed and it be held that the said proviso is not applicable in the case of assessee and therefore, it is fully eligible for the deduction/exemption claimed in the return u/s 11 & 12 of the I.T. Act hence all such claims as made in the return be allowed.
That on the facts & in the circumstances of the case and in law, the learned lower authorities erred and not justified in holding that the assessee is involved in carrying on activities in the nature of trade, commerce or business or nay activity of rendering any service in relation to any trade, commerce or business for a cess or fee or nay other consideration. Such findings of the AO are wholly unjustified and unlawful and, therefore, be quashed and it be held that the activities of the assessee are for charitable purposes within the meaning of section 2(15) and therefore, it is eligible for assessment of income under the provisions of section 11 of the I.T. Act.
That on the facts & in the circumstances of the case and in law, the learned AO erred in law and not justified in their findings that the operating receipts and treating the excess of
ITA 280 of 2014 and ITA 692 of 2013 3 MP Madhyam income over expenditure shown at Rs.12693882 as the business income. Such injudicious and unlawful findings, therefore, be quashed.
That on the facts & in the circumstances of the case and in law, the Ld. AO erred and not justified in not allowing the deduction of Rs.5826598/- u/s 11(1)(a) as an application of income. The said deduction as claimed in the return, therefore, be kindly allowed.
That on the facts & in the circumstances of the case and in law, the Ld. AO erred and not justified in not allowing the deduction of Rs.6867284/- being the cost of assets acquired during the year as an application of income. The said deduction as claimed in the return, therefore, be kindly allowed.
That on the facts and circumstances of the case and in law, the AO erred in not allowed the full credit of TDS at Rs.4152136/-.
That on the facts & in the circumstances of the case and in law, the levy of interest u/s. 220(2) at Rs.60080/- is unlawful and the said levy be kindly cancelled.
Ground Nos.1 to 5 relate to confirmation of disallowance of the
assessee’s claim by the Assessing Officer for deduction u/s 11 holding that
the assessee’s activities were not for ‘charitable purposes’ within the
meaning of Section 2(15) of the I.T. Act.
Facts, in brief, as narrated in the impugned order, are that the
assessee is a society registered on 01.10.1983 under Societies Registration
ITA 280 of 2014 and ITA 692 of 2013 4 MP Madhyam Act. The assessee furnished its return of income on 29.9.2009 declaring nil
income after claiming the benefit of Section 11 of the I.T. Act. The assessee
was registered u/s 12A w.e.f. 29.1.1986. The Assessing Officer noticed the
assessee is engaged in activities of publication of newspaper known as
‘Rozgar Aur Nirman’, production of documentary films, TV reports etc. for
the State Govt. and Public Sector undertakings and also acting as an
advertising agency for various state govt. departments and PSUs. The
objectives of the assessee are as under:
Publication of weekly newspaper under the name of “Rozgar Aur
`Nirnam’.
Complementary publication for the publicity of welfare
activities of M.P. Govt. and its enterprises and production and
distribution of other materials.
Making all the efforts, which are needed, necessary and
complementary for the fulfillment of above mentioned
objectives.
The assessee had shown gross receipts of Rs.7,65,69,670/- and revenue
expenditure of Rs.6,38,75,788/- resulting into a surplus of income over
expenditure of Rs.1,26,93,882/-. However, the assessee had claimed the
benefit u/s 11 of the I.T. Act by considering the capital expenditure of
Rs.68,67,284/- as application of funds for charitable purposes. The Assessing
Officer noticed that the assessee was considered as charitable institution on
account of ‘advancement of any other object of General Public Utility’. The
ITA 280 of 2014 and ITA 692 of 2013 5 MP Madhyam Assessing Officer observed that the assessee was engaged in the nature of
trade, commerce and business and also rendering the services in relation to
its business by charging a fee and other consideration for the services
rendered. The assessee had shown operating receipts of Rs.6,89,35,834/- by
sale of newspaper and advertisement in newspaper, sale of books, DTP and
designed work and commission on other advertisement etc. for state govt.
departments and PSUs as well as other receipts of Rs.76,33,836/- in the
form of interest on FDRs, interest on loans etc. From the nature of the
receipts, it was noticed that the assessee was earning income from selling
books and newspaper and from advertisements. The Assessing Officer after considering the amended provisions of Section 2(15) by the Finance Act,
2008 w.e.f. 01.4.2009 held that the assessee’s case falls under first proviso
to Section 2(15) of the I.T. Act and, therefore, the activities of the assessee
of selling newspaper, books and providing other services by charging fees
was undoubtedly a commercial activity which could not be considered for
charitable purposes in view of first proviso to Section 2(15) of the I.T. Act.
The Assessing Officer further noticed that the assessee society had been
generating surplus income from year to year and position of income in the
last four years was as under:
F.Y. Surplus/Income (Rs.) 2008-09 1,26,93,882.15 2007-08 1,28,74,410.75 2006-07 1,05,45,492.00 2005-06 1,01,42,024.52
ITA 280 of 2014 and ITA 692 of 2013 6 MP Madhyam In view of the above facts, the Assessing Officer held that the nature of
activities carried out by the assessee can at best be termed as commercial
in nature. Therefore, the Assessing Officer held that the assessee was not
covered in the definition of charitable purpose within the meaning of
Section 2(15) of the I.T. Act and, therefore, the assessee was not eligible for
deduction u/s 11 of the I.T. Act. Accordingly, the Assessing Officer assessed
the excess of income over expenditure of Rs.1,26,93,882/- as business
income. Aggrieved with the action of the assessee, the assessee preferred
an appeal before this Tribunal.
The ld. CIT(A), after discussing the submissions and material on
record, confirmed the action of the Assessing Officer. The relevant findings
of the order of the ld. CIT(A) are reproduced hereunder:
“In the light of the above discussion, if the provisions of Section 2(15)
as amended by the Finance Act, 2008 and ratio of various decisions are
applied to the facts of the appellant society, it will be clear that the
activities carried out by the appellant society cannot be said to be for
charitable purposes within the meaning of Section 2(15) of the Act. This
fact is evidently clear from the details of operating receipts of
Rs.6,89,35,834/- shown by the appellant during the year under
consideration as under:
Operating Receipts
S.No. Particulars Amount (Rs.) 1 Advertisement (Rozgar Aur Nirman) 23680953 2 Sale of Newpaper (Rozgar Aur Nirman) 15536473
ITA 280 of 2014 and ITA 692 of 2013 7 MP Madhyam 3 Sale of Books: R.K. Laxman Rs.13440 Images of MP Rs. 14175 Corporate Book Rs. 4500 MP Forest Rs. 1440 33555 4 Service charges on advertising 19303750 5 Service charges on printing 4773991 6 Service charges on film 1074082 7 Service charges on project work 4475506 8 Income from DTP & Design 5618 9 Recovery of commercial tax 51906 TOTAL: 68935834
The appellant society is earning income on advertisement as well as sale of news paper “Rozgar Aur Nirman’ published by it similar to a business organization engaged in the business of publishing a newspaper. The appellant also charged 15% service charges on the printing work, advertisement, production of films and other project work undertaken by the appellant for the State Government and Public Sector Undertakings as are normally charged by an assessee engaged in the business as ‘advertising agency’. Thus, the activities of the appellant were in the nature of trade, commerce or business. The appellant was also engaged in the activities of rendering services in relation to trade, commerce, or business for fee, as the appellant had charged 15% commission/service charges for the services rendered by it on the total amount of bill for printing, hoardings, advertisement, films, other projects etc. undertaken by the appellant for state government departments and public undertakings.
Thus, from the activities of the assessee society, it is evidently clear that the provisions of the first proviso to Section 2(15) are applicable in this case and, hence, the activity of the appellant society cannot be said to be for charitable purposes within the meaning of amended Section of 2(15) of the Act. Here it would be relevant to reproduce the provisions of Section 13(8) of the Act, which reads as under:
ITA 280 of 2014 and ITA 692 of 2013 8 MP Madhyam “(8) Nothing contained in Section 11 or Section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of Section 2 become applicable in the case of such person in the said previous year.” In view of the provisions of Section 13(8), since provisions of first proviso to Section 2(15) are applicable in the case of the appellant, it was not entitled for the benefits of Section 11 & 12 of the Act. Therefore, I am of the considered view that the A.O. had rightly disallowed the appellant’s claim for deduction u/s 11 & 12 of the Act and assessed the income under the head profits and gains of business or profession. Therefore, no interference is warranted in the action of the A.O. on this issue. Hence, these grounds of appeal are dismissed.”
Being aggrieved, the assessee is before us.
Before us, the learned Sr. Counsel for the assessee reiterated the
submissions made before Revenue Authorities and submitted that the
assessee society was constituted by the State Govt. for the benefit of
General Public to provide them information regarding employments,
education institutions and other information of the govt. schemes.
Assessee’s activities have not been changed at all since the date of its
inception and the assessee was fully eligible for exemption u/s 11 & 12 of
the I.T. Act, therefore, the Revenue Authorities are not justified in holding
that the assessee was involved in carrying on the activity in the nature of
ITA 280 of 2014 and ITA 692 of 2013 9 MP Madhyam trade, commerce or business. Ld. Counsel for the assessee drew our
attention to bylaws of the assessee society enclosed at paper book. He
submitted that the objectives of the assessee society are publication of
weekly newspaper namely “ Rozgar Aur Nirman” to supply the material
related to advertisement of public welfare schemes of Government of
Madhya Pradesh and its undertaking and do such all other acts that are
necessary for achievement of the objectives of the society. He submitted
that on the basis of a miniscule part of income, the exemption cannot be
declined. Prior to the introduction of the proviso to section 2(15), there was
no dispute that the assessee was established for charitable purposes and,
therefore, its income was not to be included in the total income and was,
therefore, granted the benefit of exemption. The dominant and main object
of the assessee is for the benefit of General Public to provide them
information regarding employments, education institutions and other
information of the govt. schemes, therefore, profit making is not the driving
force or objective of the assessee and income generated by the assessee
does not find its way into the pockets of any individuals or entities. It is to
be utilized fully for the purposes of the objects of the assessee and 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. The proviso to section 2(15) does not make any distinction
between entities carrying on regular trade, commerce or business or
providing services in relation to any trade, commerce or business on the one
ITA 280 of 2014 and ITA 692 of 2013 10 MP Madhyam hand and genuine charitable organizations on the other. The expression
'charitable purpose' should be construed not in a vacuum, but in the specific
context of dominant object. Section 10 deals with the incomes not included
in total income and section 10(23C)(iv) specifically deals with the income
received by any person on behalf of, inter alia, an institution established for
charitable purposes. Therefore, the meaning of the expression 'charitable
purposes' has to be examined in the context of section 10(23C)(iv). The only
thing that is to be examined is whether the petitioner had been established
for charitable purposes? The fact that it derives income does not, in any
way, detract from the position that it is an institution established for
charitable purposes. It is clear from the facts of the present case that the
driving force is not the desire to earn profits but, the object of promoting
employments/educational institutions/govt. schemes etc. not for itself, but
for the general public. This is a charitable purpose, which has as its motive
the advancement of an object of general public utility to which the
exception carved out in the first proviso to section 2(15) would not apply.
Thus, 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). In support of the
contention, the Ld. senior counsel for the assessee has relied upon the
catena of judgments:
India Trade Promotion Organization vs. Director General of Income Tax (Exemptions) [2015] 53 taxmann.com 404 (Delhi);
ITA 280 of 2014 and ITA 692 of 2013 11 MP Madhyam 2. GS1 India vs. Director General of Income Tax (Exemptions) [2013] 38 taxmann.com 365 (Delhi); 3. National Horticulture Board vs. ACIT [2015] 53 taxmann.com 343 (Delhi Tribunal); 4. Institute for Development & Research in Banking Technology vs. ADIT [2015] 63 taxmann.com 297; and 5. DIT (Exemption) vs. Ahmedabad Management Association [2014] 366 ITR 85 (Guj).
Ld. counsel submitted in the light of the above case laws, the disallowance
of the exemption by the authorities below cannot be sustained and deserves
to be deleted.
On the other hand, ld. Sr. DR relied on the orders of the Revenue
Authorities and submitted that first proviso to Section 2(15) are applicable
in the case of the assessee and as such, it was not entitled for the benefits
of Section 11 & 12 of the Act. Therefore, the A.O./ld. CIT(A) had rightly
disallowed/confirmed the assessee’s claim for deduction u/s 11 & 12 of the
Act and assessed the income under the head profits and gains of business or
profession.
We have considered the rival submissions of both the parties and gone
through the material available on the file. We find that the Hon'ble Delhi
High Court in the case of India Trade Promotion Organization vs. DGIT(E) [2015] 53 taxmann.com 404 (Del) has held as under:
“54. It would be pertinent to reiterate that 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
ITA 280 of 2014 and ITA 692 of 2013 12 MP Madhyam 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 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. With respect, we do not agree with the views of the Kerala and Andhra Pradesh High Courts. 55. It would be appropriate to also examine the observations of another Division Bench of this court in G.S.1's case (supra). While considering Circular No.11 of 2008 issued by the CBDT, to which a reference has been made earlier in this judgment, the Division Bench held that it was evident from the said circular that the new proviso to Section 2(15) of the said Act was "applicable to assesses, who are engaged in commercial activities, i.e., carrying on business, trade or commerce, in the garb of 'public utilities' to avoid tax liability as it was noticed that the object 'general public utility' was sometimes used as a mask or device to hide the true purpose, which was 'trade, commerce or business'." From this, it is evident that the introduction of the proviso to Section 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008. 56. In G.S. 1's case (supra) it was contended by the revenue that GS1 (India) had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from third parties in India. This was sought to be equated to royalty payments. It was also contended that GS1 (India) had huge surpluses of receipts over expenditure and that payments were made to GS1 (Belgium). According to the revenue, all this entailed that GS1 (India) was engaged in 'business, trade or commerce'. The petitioner herein refuted this. In this backdrop, this court asked the question - can it be said that the petitioner is engaged in activities which constitute business, commerce or trade ? While answering the said question, the court held as under:— '21. … As observed above, legal terms, "trade", "commerce" or "business" in Section 2(15), mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce.' The court further held:— "22. Business activity has an important pervading element of self- interest, though fair dealing should and can be present, whilst charity or
ITA 280 of 2014 and ITA 692 of 2013 13 MP Madhyam charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business?" 57. Ultimately, in the context of the factual matrix of that case, this court held that "charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of the business aptitude nor indicative of the profit oriented intent". The court further observed:— "Thus the contention of the revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of "profit motive" and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible." The court also held:— "27. As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause – general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act."
ITA 280 of 2014 and ITA 692 of 2013 14 MP Madhyam 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 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. 59. Thus, while we uphold the Constitutional validity of the proviso to Section 2(15) of the said Act, it has to be read down in the manner indicated by us. As a consequence, the impugned order dated 23.01.2013 is set aside and a mandamus is issued to the respondent to grant approval to the petitioner under Section 10(23C)(iv) of the said Act within six weeks from the date of this judgment. The writ petition stands allowed as above. The parties are left to bear their own costs.” We find that Hon’ble Delhi High Court in the case of GS1 India vs. DGIT (E) [2013] 38 taxmann.com 365 (Del) has held has under:
“20. In the present case, ―the businessǁ is not held in trust and neither is ―the businessǁ feeding the charity. The very ―act or activity of charityǁ as claimed by the petitioner is regarded by the revenue as nothing but business, trade or commerce. Money received, of course is used and utilized for the charitable activities. Four reasons are elucidated and propound in the impugned order to state that the petitioner is engaged in business, trade or commerce and aforesaid encapsulated in the impugned order. Petitioner has acquired intellectual property rights, receives fee from third parties, which is nothing but payment of royalty, there is huge
ITA 280 of 2014 and ITA 692 of 2013 15 MP Madhyam surplus of receipts over expenditure (refer table reproduced in paragraph 7 above) and payment is made by the petitioner to GS1 Global Services, Belgium.
Can it be said that the petitioner is engaged in activities which constitute business, commerce or trade? As observed above, legal terms ―trade, commerce, or businessǁ in Section 2(15), means activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce.
Business activity has an important pervading element of self- interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self- preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self- gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business?
The petitioner charges an initial registration fee of Rs.20,000/- plus annual fee of Rs.4,000/-, enhanced to Rs.5,000/- from financial year 2006-07 onwards from third parties, who become subscribing members and are entitled to use the coding system, GS1. Revenue acknowledges that the petitioner enjoys monopoly and has exclusive rights to issue global bar coding system GS1 in India. However the petitioner is not dealing or treating the prized rights as a right, which is to be exploited commercially to earn or generate profits. A coding system of this nature if marketed on commercial lines with profit motive would amount to business but when the underlying and propelling motive is not to earn profits or commercially exploit the rights but ―general public goodǁ i.e. to promote and make GS1 coding system available to Indian traders, manufacturers, government etc, it will fail the test of business and meets the touchstone of charity. The petitioner is not directly or indirectly subjecting their activity to market mechanism/ dynamics (i.e. demand and supply), rather it is motivated and prompted to serve the beneficiaries. This is not a case of commercial exploitation of intellectual property rights to earn profits but rather a case where a token fee has been fixed and payable by the user of the global identification system.
ITA 280 of 2014 and ITA 692 of 2013 16 MP Madhyam 24. The petitioner does not cater to the lowest or marginalized section of the society, but Government, public sector and private sector manufacturers and traders. No fee is charged from users and beneficiaries like stockiest, whole sellers, government department etc. while a nominal fee is only paid by the manufacturer or marketing agencies i.e. the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming. Any one from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related i.e. dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GS1 identification on all their products. Non levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent.
Having applied the test mentioned above, including the criteria for determining whether the fee is commensurate and is being charged on commercial or business principles, we find that the petitioner fulfills the charitable activity test. It is apparent to us that Revenue has taken a contradictory stand as they have submitted and accepted that the petitioner carries on charitable activity under the residuary head ―general public utilityǁ but simultaneously regards the said activity as business. Thus the contention of the Revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of ―profit motiveǁ and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.
Table relied on by the respondent and mentioned in paragraph 7 above tells a partial story. Only direct expenses incurred have been set off from the fee earned from registration and renewal. The activity of the petitioner involves promotion, propagation and spreading awareness and knowledge about global coding identification system GS1. The entire expenditure of the petitioner has to be taken into consideration and cannot be ignored. There are stipulations in Sections 11, 13 etc. of the Act to prevent misuse of or siphoning of funds, bar/prohibit gains to related persons, stipulations of time limits for use of funds, which are effective checks and curtail and deny benefit in cases of abuse. There is no such allegation or contention of the Revenue in the present case.
As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner
ITA 280 of 2014 and ITA 692 of 2013 17 MP Madhyam has to be substantially self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause ―general public utilityǁ. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act.
Petitioner has indicated that they have recently purchased office space in HUDCO Complex, Bhikaji Cama Place and they have acquired plot at Noida. They require accumulated funds for running branch offices at Chennai and Mumbai. Office at Chennai is already operational and operations at Mumbai are contemplated shortly for which proposals are under consideration. Accumulation of money/funds over a period of 2-3 years may not be relevant in determining the nature and character of activity and whether the same should be treated as indicative of profit motive i.e. desire or intention to carry on business or commerce. In MCD vs. Children Book Trust's (1992) 3 SCC 390 a decision relating to property tax, the Supreme Court held that both qualitative and quantitative tests should be satisfied in view of specific language of Section 115(4)(a) of Delhi Municipal Corporation Act 1957. Nevertheless it negated and rejected the argument that data for one year should be taken into consideration. It was observed that data for block period for five years may and should be taken into consideration. It was held as under:
―It cannot be gainsaid that the municipal general tax is an annual tax. Therefore, normally speaking, the liability for taxation must be determined with reference to each year. In other words, the society claiming exemption will have to show that it fulfils the conditions for exemption each year. If it shows, for example, that for its support it has to depend on, either wholly or in part, voluntary contributions, in that particular year, it may be exempt. But where in that year, for its support, it need not depend on voluntary contributions at all or again if the society produces surplus income and excludes the dependence on voluntary contributions, it may cease to be exempt. Of course, the word ―supportǁ will have to mean sustenance or maintenance. Only to get over this difficulty that the qualitative test is pressed into service. We would consider the reasonable way of giving effect to the exemption, will be to take each case and assess for a period of five years and find out whether the society or body depends on voluntary contributions. Of course, at the end of each five-year period the assessing authority could review the position.ǁ
Under the provisions of the Act, a charitable institution/ organization is to utilize specific percentage of their funds/income within the
ITA 280 of 2014 and ITA 692 of 2013 18 MP Madhyam assessment year in question and carry forward is allowed subject to strict stipulations. There is no allegation or statement in the impugned order dated 17th November, 2008 that the petitioner has violated the said condition or requirements of the statute. No doubt that the petitioner has to make payment of part of fees collected to GS1 Global services, Belgium but this is natural as GS1 system is global and worldwide system. Petitioner has pointed out that during past years they have been receiving amounts from Government of India for furtherance of their objectives. A fact which is not denied and disputed. The petitioner is not only concerned with enrollment of members who are entitled to GS1 identification system but involved in promoting and spreading awareness about GS1 identification system and making it available to Indians for a small fee. Petitioner has to organize training camps, workshops and seminars all over India and as well as for Government departments/bodies and help them adopt the system. They have to publish material highlighting advantages of GS1 identification and how this can benefit the manufacturers and traders.
Maintenance of Books of Accounts
The statement and submission of the respondents that the petitioner was not maintaining separate books of account for commercial activity and, therefore, denied registration/ notification, has to be rejected as fallacious and devoid of any merit. Similar allegation is often made in cases of charitable organization/ association without taking into account the activity undertaken by the assessee and the primary objective and purpose i.e. the activity and charity activity are one and the same. The charitable activity undertaken and performed by the petitioner relates to promotion, dissemination of knowledge and issue of unique identification amongst third parties etc. The ‗business' activity undertaken by the petitioner is integral to the charity/charitable activities. As noted above, the petitioner is not carrying on any independent, separate or incidental activity, which can be classified as business to feed and promote charitable activities. The act or activity of the petitioner being one, thus a single set of books of account is maintained, as what is treated and regarded by the Revenue as the ‗business' is nothing but intrinsically connected with acts for attainment of the objects and goals of the petitioner. We fail to understand when the petitioner is maintaining the books of accounts with regard to their receipts/income as well as the expenses incurred for their entire activity then how it can be held that separate books of accounts have not been maintained for ‗business' activities. The ―businessǁ activities are intrinsically woven into and part of the charitable activity undertaken. The ―businessǁ activity is not feeding charitable activities. In any case, when we hold that the petitioner is not carrying on any business, trade or commerce, question of requirement of separate books of accounts for the business, trade or commerce is redundant.
Other aspects
ITA 280 of 2014 and ITA 692 of 2013 19 MP Madhyam 31. There is another challenge to the registration, which has neither been adverted to in the impugned order nor raised by the respondent during arguments. First proviso to Section 2(15) of the Act equally bars rendering of any service in relation to any trade, commerce or business when it generates receipts for an amount exceeding the figure mentioned in second proviso. The stipulation broadens and widens the negative stipulation [see The Institute of Chartered Accountants of India case (supra)].The petitioner is providing services to persons engaged in trade, commerce or business who are the beneficiaries. Question is whether the legislative intent is to exclude from definition of charitable purpose any activity which has the aim and object of providing services to trade, commerce or business. The matter is not free from doubt but there are good reasons to hold that the bar or probation is not with reference to activity of the beneficiary but the activity of the assessee under the residuary clause. The intent is to exclude an assessee who carries on business, trade or commerce to feed the charitable activities under the last limb. Application of income earned from business is no longer relevant and cannot help an assessee. Circular No.11 of 2008 is to the said effect and does not promote contrary interpretation. The said circular clearly stipulates that the object of ―general public utilityǁ should not be a mask or a device to hide the true purpose, which is trade, commerce or business or rendering any service in relation to trade, commerce or business. Director General (Exemption) has not interpreted the first proviso in this manner in this case. Even in the case of Bureau of Indian Standards (supra) no such contention was raised. 7th proviso to Section 10(23C) of the Act supports our interpretation and the legislature has not omitted or suitably amended the said proviso to support the contrary interpretation. Even otherwise, the beneficiaries of GS1 system are not confined or restricted to persons from trade, commerce or business. The beneficiaries are present everywhere and the advantages are permeating and universal and would include consumers, government, beneficiaries of PDS etc.
The second proviso, which refers to the aggregate value of receipt of activities of Rs.10 lacs (now enhanced Rs.25 lacs vide Finance Act 2011 with effect from 1.4.2012) or less in a previous year, cannot be invoked in the present case because the said provision will apply only if the institution covered by the last/residuary clause is involved or carrying on activity of rendering any service in relation to trade, commerce or business. Contention of the respondent, if accepted, would deny charitable status to a faintly moderate size institution under the last/residuary limb, when it charges even a token or insignificant amount from the beneficiaries, who gain significantly from the altruism and benevolence. A small charitable organization that receives token fee of more than Rs.80,000/- a month or now Rs.2,00,000/- per month approximately, would disqualify and lose their charitable status. The object of the proviso is to draw a distinction between charitable institutions covered by last limb which conduct business or otherwise business activities are undertaken by them to feed charity. The proviso applies when business was/is conducted and the quantum of receipts
ITA 280 of 2014 and ITA 692 of 2013 20 MP Madhyam exceeds the specified sum. The proviso does not seek to disqualify charitable organization covered by the last limb, when a token fee is collected from the beneficiaries in the course of activity which is not a business but clearly charity for which they are established and they undertake. 33. On the basis of reasoning given in the impugned order, we do not think that the petitioner can be denied benefit of registration/notification under Section 10(23C)(iv). 34. In view of the aforesaid discussion, we allow the present writ petition and issue writ of certiorari quashing the order dated 17 th November, 2008 and mandamus is issued directing the respondents to grant approval under Section 10(23C)(iv) of the Act and the same shall be issued within six weeks from the date copy of this order is received. The writ petition stands disposed of. There will be no orders as to cost.”
Further, learned Counsel for the assessee also relied on the ratio laid
down in the cases of DIT (E) vs. Ahmedabad Management Association [2014]
366 ITR 85 (Guj H.C.); National Horticulture Board vs. ACIT [2015] 53
taxmann.com 343 (Delhi Trib.) and Institute for Development & Research in
banking Technology vs. ADIT(E-1) [2015] 63 taxmann.com 297 (Hyderabad
Tribunal.).
We have given our thoughtful consideration to the facts of the present
case and the case-laws relied upon by the parties. We find that assessee’s
activities have not been changed at all since the date of its inception and
the assessee was fully eligible for exemption u/s 11 & 12 of the I.T. Act. The
assessee society was constituted by the State Govt. for the benefit of
General Public to provide them information regarding employments,
education institutions and other information of the govt. schemes. The
ITA 280 of 2014 and ITA 692 of 2013 21 MP Madhyam objectives of the assessee society are publication of weekly newspaper
namely “Rozgar Aur Nirman” to supply the material related to
advertisement of public welfare schemes of Government of Madhya Pradesh
and its undertaking and do such all other acts that are necessary for
achievement of the objectives of the society. Therefore, the Revenue
Authorities are not justified in holding that the assessee was involved in
carrying on the activity in the nature of trade, commerce or business. We
find that prior to the introduction of the proviso to section 2(15), there was
no dispute that the assessee was established for charitable purposes. The
main object of the assessee is for the benefit of General Public to provide
them information regarding employments, education institutions and other
information of the govt. schemes, therefore, we find force in the contention
of the assessee that profit making is not the driving force or objective of the
assessee and income generated by the assessee does not find its way into
the pockets of any individuals or entities. It is to be utilized fully for the
purposes of the objects of the assessee. Further, the expression 'charitable
purpose' should be construed not in a vacuum, but in the specific context of
section 10(23C)(iv), which specifically deals with the income received by any
person on behalf of, inter alia, an institution established for charitable
purposes. Therefore, the meaning of the expression 'charitable purposes' has
to be examined in the context of section 10(23C)(iv). We are of the view
that since the object of promoting employments/educational
institutions/govt. schemes for the general public is a charitable purpose, the
ITA 280 of 2014 and ITA 692 of 2013 22 MP Madhyam 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) as also held in the above
judicial pronouncements. On consideration of these facts in the light of the
aforesaid judgments, we are of the view that the authorities below are not
justified in disallowing the entire exemption. We, therefore, direct the
Assessing Officer to delete the disallowances. Thus, ground nos. 1 to 5 are
allowed.
Apropos ground No.6, the Ld. counsel for the assessee submitted that
Ld. CIT(A) has not adjudicated this ground, therefore, we deem it proper
that the issue be restored to the AO to verify the claim of the assessee in
respect of credit of TDS. In case the TDS has been deducted and paid in
accordance with law the AO would grant the credit. This ground of the
assessee’s appeal is allowed for statistical purposes.
Ground No.7 is against levy of interest u/s 220(2) at Rs.60080/-. The Ld.
counsel for the assessee submitted that authorities below were not justified
in charging u/s 220(2) of the Act.
The Ld. DR opposed the submissions of the assessee.
We have heard the rival contentions and perused material available on
record. The Ld. CIT(A) has rejected the ground by observing as under:
“I may be noted that interest chargeable u/s 220(2) of the I.T. Act is compensatory and mandatory in nature. The issue regarding charging of interest u/s 220(2) is not appealable. Therefore, this ground is rejected.”
ITA 280 of 2014 and ITA 692 of 2013 23 MP Madhyam
We do not see any infirmity in the finding of Ld. CIT(A). As per section 246A(1) following orders are appealable before him: (a) an order 77[passed by a Joint Commissioner under clause (ii) of sub- section (3) of section 115VP or an order] against the assessee where the assessee denies his liability to be assessed under this Act or an intimation under sub-section (1) or sub-section (1B) of 78[section 143 or sub-section (1) of section 200A, where the assessee or the deductor objects] to the making of adjustments, or any order of assessment under sub-section (3) of section 143 79[[except an order passed in pursuance of directions of the Dispute Resolution Panel 80[***] 81[or an order referred to in sub-section (12) of section 144BA]]] or section 144, to the income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; [(aa) an order of assessment under sub-section (3) of section 115WE or section 115WF, where the assessee, being an employer objects to the value of fringe benefits assessed; (ab) an order of assessment or reassessment under section 115WG;] (b) an order of assessment, reassessment or recomputation under section 147 83[[except an order passed in pursuance of directions of the Dispute Resolution Panel 84[***] 85[or an order referred to in sub- section (12) of section 144BA]]] or section 150; [(ba) an order of assessment or reassessment under section 153A 87[[except an order passed in pursuance of directions of the Dispute Resolution Panel]] 88[***] 89[or an order referred to in sub- section (12) of section 144BA];] [(bb) an order of assessment or reassessment under sub-section (3) of section 92CD;] (c) an order made under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections 91[***] 92[except an order referred to in sub-section (12) of section 144BA];
In view of the above provision, we are in agreement with the finding of the Ld. CIT(A) that order u/s 220(2) is not appealable before the Ld. CIT(A). This ground of the assessee’s appeal is dismissed. 14. In result, the appeal of the assessee is partly allowed.
ITA 280 of 2014 and ITA 692 of 2013 24 MP Madhyam 15. Now we take up the assessee’s appeal in ITA No.692/Ind/2013 for
A.Y. 2010-11. The assessee has raised following grounds of appeal:
“1. That on the facts & in the circumstances of the case and in law, The Ld. CIT(A)/AO erred and not justified in his findings that in the case of assessee, the first proviso to section 2(15) are applicable and, therefore, it is not entitled for the benefits u/s. 11 & 12 of the Act. Such findings of the Ld. CIT(A)/AO are wholly wrong, injudicious & unlawful findings be quashed and it be held that the said proviso is not applicable in the case of assessee and therefore, it is fully eligible for the deduction/exemption claimed in the return u/s 11 & 12 of the I.T. Act hence all such claims as made in the return be allowed.
That on the facts & in the circumstances of the case and in law, the learned lower authorities erred and not justified in holding that the assessee is involved in carrying on activities in the nature of trade, commerce or business or nay activity of rendering any service in relation to any trade, commerce or business for a cess or fee or nay other consideration. Such findings of the AO are wholly unjustified and unlawful and, therefore, be quashed and it be held that the activities of the assessee are for charitable purposes within the meaning of section 2(15) and therefore, it is eligible for assessment of income under the provisions of section 11 of the I.T. Act.
That on the facts & in the circumstances of the case and in law, the learned AO erred in law and not justified in their findings that the operating receipts and treating the excess of income over expenditure shown at Rs.3307877 as the business income. Such injudicious and unlawful findings, therefore, be quashed. 4. That on the facts & in the circumstances of the case and in law, the Ld. AO erred and not justified in not allowing the deduction of Rs.4942380/- as an application of income. The said deduction as claimed in the return, therefore, be kindly allowed.
That on the facts and circumstances of the case and in law, the credit of TDS at Rs.3604217/- be allowed in full and the AO is not justified in allowing the credit only at Rs.1858159/-
That on the facts & in the circumstances of the case and in law, the levy of interest u/s 234D at Rs.112545. The said levy be cancelled.”
ITA 280 of 2014 and ITA 692 of 2013 25 MP Madhyam 16. Grounds Nos. 1 to 4 are same as in ITANo.280/Ind/2014 (A.Y. 2009-10).
Both representatives of the parties have adopted the same arguments. For
the same reasoning, these ground of the assessee’s appeal are allowed.
Ground No.5 with regard to TDS is same as in ITANo.280/Ind/2014. Both
the representatives of the parties have adopted the same arguments. We
have decided the similar issue as under:
“ Apropos ground No.6, the Ld. counsel for the assessee submitted that Ld. CIT(A) has not adjudicated this ground, therefore, we deem it proper that the issue be restored to the AO to verify the claim of the assessee in respect of credit of TDS. In case the TDS has been deducted and paid in accordance with law the AO would grant the credit. This ground of the assessee’s appeal is allowed for statistical purposes.”
For the same reasoning, this ground of the assessee’s appeal is
allowed for statistical purposes only.
Ground No.6 with regard to charging of interest u/s 234D is
consequential in nature and, therefore, same does not need any separate
adjudication.
In the result, both the appeals of the assessee i.e.
ITANo.280/Ind/2014 & ITANo.692/Ind/2013 are partly allowed.
The contents of our earlier order dated 19.7.2018 relating to other appeal
would form part and parcel of this order as well. The contents are not
repeated herein to avoid repetition and for the sake of brevity.
ITA 280 of 2014 and ITA 692 of 2013 26 MP Madhyam
Sd/- Sd/- ( MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 03.1.2019
!vyas! Copy to: Appellant/Respondent/Pr.CIT(A)/Pr.CIT/DR, Indore