DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS)-1(1), MUMBAI vs. INDIAN INSTITUTE FOR HUMAN SETTLEMENTS, MUMBAI

We have heard Ld. AR and Ld. DR and examined the record. It is argued on behalf of assessee that the income earned and sought to be exempted u/s 11 of the Act has been earned by the assessee from the activities which are incidental to the main object of the assessee. It is further argued that the assessee has been granted registration u/s 12AA of the Act which is valid and subsisting, therefore the Ld. AO has no locus standi to probe into the approved objects of the institution and all the activities carried out by the assessee are charitable in nature. The Ld. AR further stated that the Ld. CIT(E) has rightly granted the relief to the assessee because the case of assessee and the judgment of Ld. CIT(E) is supported by the judgment of Hon’ble Bombay High Court in the case of DIT(E) v. Gemological Institute of India (2019) 105 taxmann.com 170 (Bom). Ld. AR further submitted that the reliance by the revnue on the judgment of Hon’ble Apex Court in the case of CIT vs. Ahmadabad Urban Development Authority (AUDA) (2022) 143 taxmann.com 278 Indian Institute for Human Settlements (SC) is misplaced as the ratio of the AUDA case does not pertains to the power of the AO with respect to a matter /activities of a charitable institution having a valid and subsisting registration u/s 12A of the Act. Para 6 to 10 of the written submissions of assessee in that regard are relevant and extracted below:- “6. At the outset, the Respondent Assessee submits that the Supreme Court decision in AUDA (supra) has no bearing on the present appeal. This is so because the question which the Hon'ble Supreme Court was posed to decide was not relating to the assessing officer's domain to re-examine the approved objects of the trust. The precise question of law before the Hon'ble Supreme Court in the case of AUDA (supra) as stated in para 4 of the said decision reads as under: "4. In these batch of appeals and special leave petitions, the primary question which falls for consideration is the correct interpretation of the proviso to Section 2(15) of the IT Act introduced by amendment w.e.f. 1-4- 2009...." 7. As could be observed from the above question of law, the Hon'ble Supreme Court was called upon to decide only the scope of proviso to s. 2(15) of the Act and not as to whether or not the assessing officer can get into the approved objects of the trust during the assessment proceedings despite there being a valid and subsisting s. 12AA registration. 8. Further, in AUDA (supra), there is no whisper, much less any reference, to the earlier decision of the Hon'ble Supreme Court in Surat City Gymkhana (supra) wherein it has been held that a valid and subsisting registration u/s. 12A is a fait accompli and the same puts fetters on the Indian Institute for Human Settlements powers of the assessing officer. Therefore, ratio of Surat City Gymkhana (supra) is intact as of date and has not been disturbed by the decision in AUDA (supra). 9. As laid down by the Hon'ble Supreme Court in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC), a judgment of the Court must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court and that the decision of the Court takes its colour from the questions involved in the case in which it is rendered. 10. In view of the foregoing, in Respondent Assessee's most humble view, decision of the Hon'ble Supreme Court in AUDA (supra) has no role to play while deciding the present appeal.” 7. It is therefore argued that the impugned order is based on legally sound reasoning and correct appreciation of provision of the Act and therefore the appeal of the revenue lacks merits and is liable to be dismissed. 8. Ld. DR on the other hand submitted that order passed by Ld. AO was legally justified and Ld. CIT(E) has failed to appreciate facts correctly and has not considered the law laid down by the Hon’ble Apex Court in the case of AUDA (supra). The extracts of page 5 of the written submission of the Ld. DR are relevant and reproduced as under:- “The nature of activities undertaken by the Assessee as described during the course of Appellate proceedings are as follows: Indian Institute for Human Settlements Income from Consultancy Services Rs.1,10,20,985/-: Consultancy Charges have been received from various parties which are Government entities, NGOs, Town Planning and Development authorities and the United Nations etc. which are connected with urban planning environment and development, disaster management, transport development policy, each contributing in the field of human settlements and well-being and not engaged in any business activity nor having any profit motive. The Appellant places reliance on the audited financial statements wherein the Directors Report section, the detailed nature of activities conducted by the Appellant has been described. (Refer Page No. 58 to 64 of FPB). Some of the programme's / activities undertaken by the Appellant are 8-month Programme for Working Professionals in Urban Development, Urban Practitioner's Programme, IIHS Practice Programme, helped UNDP develop its Indian poverty strategy (2012-2017), various research programme's, etc. Although the aforesaid charges have been termed and reflected as income from consultancy services, it would be appreciated that effectively the Appellant was imparting/sharing expertise and knowledge collected by way of unified effort and research in respective field to educate the constituents in furtherance of their ultimate objective of implementing the same for common good of the society. It can be seen from the above activities that Assessee provided consultancy services to the specified institution not engaged in business activity nor having any profit motive but that does not establish the charitable character of the Assessee. For example, a lawyer rendering services exclusively to charitable organizations does not make their activities charitable. Similarly, the Assessee's consultancy services are commercial in nature, regardless of the clients served. Moreover, the Assessee's financial statements reveal minimal expenditure, with substantial receipts carried Indian Institute for Human Settlements forward as surplus, indicating a clear profit motive. If the Assessee intended to operate as a charitable institution, it would not have charged such high fees for its services. The Assessee has not brought on record any justification with tangible back-ups as to how its own activities were non-charitable in character. It is also seen from the P&L presented during the course of Appellate proceedings that the Assessee has not carried out any activity of charitable nature but has only earned the above receipts besides income from other sources. 4. With reference to the above fact pattern, the Revenue place its reliance on the decision of the Hon'ble SC in the case of Ahmedabad Urban Development Authority (2022) 143 taxmann.com 278 (SC), wherein under almost identical fact pattern, the Hon'ble SC held that "fee, cess, or consideration" received for commercial activities indicates a profit motive and, therefore, falls outside the ambit of charitable purposes and is hit by the proviso to section 2(15) resulting in denial of exemption under section 11 of the Act. The Revenue also places its reliance on the decision of the Hon'ble Chennai Tribunal in the case of FRP Institute v. ITO (Exemptions) [(2017) 88 taxmann.com 835 (Chennai - Trib.)], wherein the Hon'ble Tribunal denied exemption to a professional organization conducting paid workshops, observing that such activities were inherently commercial.” 9. It is therefore argued by Ld. DR that the impugned order be set aside and the order of the AO be restored. 10. We have considered these submissions and also examined the record. To proceed further, we deem it necessary to examine the relevant observation of the AO which are extracted below:- Indian Institute for Human Settlements “4. The assessee has claimed exemption u/s.11 of the IT. Act, which has been examined. It is seen that though the assessee is claimed to be an educational institution, no such courses have been conducted during the year and the only receipts are in the nature of consultancy charges, seminar fees, sponsorship which are in the nature of services provided to trade and commerce In view of the same the assessee was required to explain as to why the provisions of Section 2(15) are not attracted and exemption claimed u/s. 11 be consequently denied 5 The assessee has in reply vide letter dated 21.12.2015 stated that the main objectives is as an educational institution and accordingly the proviso to Section 2(15) is not applicable. It has also been stated that the services is not rendered to trade or commerce. The assessee has also relied on Circular No.11/2008 of CBDT and the following decisions 1. CIT vs. Sri Thyaga Brahma Gana Sabha [1991]-188 ITR 160 (Mad) 2. Gujarat State Co-operative Union vs. CIT [195 ITR 279] (Guj.) 3 Dharmadeepti vs. ČIT [1978]-114 ITR 454 (Chennai) 4 Soorya Educational Trust vs. ITO [2012]-22 taxmann.com 222. However, the assessee's contention is not acceptable as the pre-dominent objective has to be determined on the basis of activity conducted and not merely on the basis of Article of Association and Memorandum of Understanding. In the case of the assessee there is no educational activity conducted and the receipts are mainly in the nature of general public utility. Accordingly, the circular of CBDT and the case laws cited is not applicable to the facts of the case of the assessee. It is however seen that the expenditure on account of employees and other expenses are substantially higher than Indian Institute for Human Settlements the receipts for the year and the assessee has claimed deficit of Rs. 3.70 crores for the year.” 11. We have also noticed as to how the ld. CIT(E) has dealt with the above observation of AO in the impugned order which becomes clear from the decision part of the impugned order in para 6 to 6.6 which are extracted below:- “6. In this case, the AO found that the activities of the appellant did not constitute “education” as contemplated in section 2(15) which defines „charitable purpose‟, as the appellant was not offering any formal course of study. Rather the income of the appellant consisted of consultancy charges, seminar fees and sponsorship. The AO held that the appellant was engaged in “any other activity of general public importance”. Since the appellant was not engaged in charitable activity, the AO denied exemption u/s 11. However, since the expenses as per income and expenditure account exceeded the gross income, the AO assessed total income as NIL. 6.1 The appellant has argued that the since the appellant is approved u/s 12AA by the Commissioner of Income Tax and since the registration has not been cancelled, denying exemption u/s 11 is wrong and that the order is abinitio invalid. 6.2 The Hon. Supreme Court in Surat City Gymkhana [2008] 170 Taxman 612 (SC) held that that registration under section 12A was a fait accompli to hold the Assessing Officer back from further probe into the objects of the trust. In this case the Supreme Court endorsed the findings of Hiralal Bhagwati Vs. CIT [2000] 246 ITR 188 (Gujarat). The High Court held as under: Indian Institute for Human Settlements Once the registration under section 12A(a) was granted, the grant of benefit could not be denied. The ITO was not justified in refusing the benefits which would otherwise accrue under the registration. If there was no registration, as contemplated under section 12A(a) read with rule 17A, the revenue would have been justified in making a submission that the benefit could not be granted, but where the application for registration was submitted and the registration had been granted, the benefit could not be denied on the ground that the scheme was not for the benefit of the public at large. 6.3 Following on the logic of the Supreme Court‟s order in Surat City Gymkhana in the case of Ahmedabad Urban Development Authority v. Dy. Director of Income Tax (Exemption) [2011] 335 ITR 575(Guj.- HC) the Gujarat High Court held that if the 12A registration was not withdrawn on the date of the assessment order then the income of the assessee was exempt in entirety. The AO could not have travelled beyond the certificate of registration granted under section 12AA. The effect of such a certificate of registration under section 12AA, therefore, cannot be ignored or wished away by the AO by adopting a stand that the trust or institution is not fulfilling conditions for applicability of sections 11 and 12. 6.4 In the case of Deputy Director of Income-tax (Exemption), Ernakulam v. Kuttukaran Foundation [2012] 19 taxmann.com 331 (Cochin - Trib.) it was held that once registration is granted under section 12A by Commissioner, Assessing Officer, as a subordinate officer to Commissioner, cannot cancel registration; it is for Commissioner only to cancel registration, provided conditions under section 12AA(3) are satisfied. The ITAT took this position despite finding that the appellant was not engaged in “education” as contemplated in section 2(15). Indian Institute for Human Settlements 6.5 The ratio of the decisions is that The Commissioner is the statutory authority to grant registration under section 12AA. The Commissioner after satisfying himself about the objects of the trust and genuineness of its activities, passes an order within six months registering the trust. He may also refuse to register the trust if he is not satisfied, after giving a reasonable opportunity of being heard to the trust. Once the 12AA registration is granted there is no power with the AO to ignore such registration. 6.6 In the light of the foregoing discussion, I concur with the appellant the AO was wrong in denying exemption u/s 11 when the appellant is approved u/s 12AA. Since the AO exceeded his authority in denying exemption u/s 11, I am not going into merit of whether the appellant is engaged in “education” as contemplated in section 2(15). 12. We now proceed to examine if the impugned order challenged in this appeal suffers from any perversity or illegality based on wrong interpretation of facts and law by Ld. CIT(E) which may warrant interference by this Tribunal. To proceed further, we deem it necessary to know the main objects of the assessee’s company as find mentioned in Article-1 of the Memorandum of Association:- “1. The name of the Company is INDIAN INSTITUTE FOR HUMAN SETTLEMENTS ("the Company") II. The registered office of the Company will be situated in the State of "Karnataka. III. The objects for which the Company is established are: Indian Institute for Human Settlements [A] The Main Objects of the Company to be pursued by the Company on its incorporation are: (1) To Promote the development and dissemination of knowledge, understanding, information and skills in all matters connected with the establishment, operation and transformation of human settlements, including engaging in providing education and training and undertaking research, consultancy and advocacy, and taking any action in furtherance of these purposes. No object of the Company shall be carried out without permission of competent authorities whomsoever and no objects of the Company shall be carried out on commercial basis. [B] Objects incidental or ancillary to the attainment of the main object:- Knowledge Development & Dissemination (1) To establish branches or to establish any deemed universities, companies, bodies corporate, associations, societies or constituents at places in or outside India for the furtherance of its objects. (2) To assemble the best practitioners and academics from a variety of disciplines, including the disciplines relating to: i planning, design and engineering of human settlements; ii. economics; iii. the natural, earth, life and ecological, behavioral and social sciences; iv. management, governance and law; and v. any other branches of knowledge that may be relevant; Indian Institute for Human Settlements and to bring their minds to bear on the understanding and teaching of both problems and solutions related to human societies and settlements in India and abroad, with an emphasis on integrated, inter-disciplinary and trans- disciplinary approaches. *The Registered Office of the company is shifted from the state of Maharashtra ie, within the juri iction of the