OSWAL BANDHU SAMAJ,,PUNE vs. INCOME-TAX OFFICER,, PUNE

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee arises out of the order dated 17-03-2017 passed by the CIT(A)-10, Pune in relation to the assessment year 2010-11. 2. The only issue raised in the appeal is against the denial of exemption u/s.11 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’). 3. Succinctly, the facts of the case are that the assessee is registered as a Public Charitable Trust under the BPT Act, 1950

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vide order dated 16-09-1970. The return of income was filed

declaring Nil income. The Assessing Officer (AO) observed that

there was excess of Income over Expenditure to the tune of

Rs.1,52,58,353/- (including income from mutual funds and

dividends) that was claimed as exempt by the assessee u/s.11 of

the Act. The AO rejected the assessee’s claim of exemption on

the raison d’etre that it failed to obtain registration u/s.12A of the

Act. Without prejudice to that, the AO also observed that even if

the assessee’s contention of registration was accepted, it did not

fulfill the conditions laid down in section 11 of the Act. He jotted

down the Objects of the assessee-trust, running into 15 in number,

from its Trust-deed and observed that certain objects were of the

nature of ‘advancement of any other object of general public

utility’ as per section 2(15) of the Act. On a perusal of the Income

and expenditure account, the AO observed that the assessee had

shown income of Rs.33.26 lakh from Cultural hall rent; Other

income of Rs.88.34 lakh and Interest from fixed deposits in banks

and others at Rs.1.09 crore. He noticed that the assessee had two

halls which were let out by it from time to time on which rental

income was earned totaling to Rs.1.09 crore. He noted that the

assessee had shown certain receipts of Rs.93.95 lakh towards

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Amenity charges, DG set receipts, Electricity charges received

etc. Invoking the mandate of the first proviso to section 2(15), the

AO held that the assessee-trust was carrying out objects of

general public utility and in view of the fact that it generated

income from letting out of building and cultural hell etc., which

was in the nature of business activity, was hit by the said proviso

and hence ceased to have any ‘Charitable purpose’. He, therefore,

declined the exemption of Rs.1,46,97,602/- u/s.11 of the Act. The

ld. CIT(A) accepted the contention of the assessee having been

registered u/s 12AA of the Act w.e.f. A.Y. 1978-79. He, however,

confirmed the order of the AO on the denial of exemption on

merits as discussed by the AO. Aggrieved thereby, the assessee

has come up in appeal before the Tribunal.

relevant material on record. The aspect of non-registration of the

assessee-trust as noted by the AO got resolved in favour of the

assessee at the hands of the ld. CIT(A), which is not under

challenge before the Tribunal. The denial of exemption by the AO

on merits is based on the fact that the assessee was mainly

pursuing objects of general public utility by getting engaged in

letting out its building and halls and was hence hit by the proviso

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to section 2(15) of the Act. In order to appreciate the facts in

correct perspective, it would be useful to refer to the relevant part

of the provision of section 2(15) of the Act at the material time,

which runs as under: -

"charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity”

the term `charitable purpose’ covers, to the extent it is relevant for

our purpose, (a) relief to the poor, (b) education, (c) medical relief

and (d) advancement of any other object of general public utility.

The proviso, attaching a condition of not carrying on 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, applies only

to advancement of any other object of general public utility, that

is (d) above. In other words, the proviso has no application to (a)

to (c) above. To put it simply, if a charitable trust is providing

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Relief to the poor or Education or providing Medical relief and

for funding such activities, it is carrying on activity in the nature

of trade, commerce or business etc., for which a cess or fees etc.

is charged, the `charitable purpose’ will remain intact and the case

will not be hit by the proviso and ex consequenti, the exemption

will continue. It is only when the (d) category of section 2(15) as

discussed above about advancement of any other object of general

public utility is pursued that the disability enshrined in the proviso

gets magnetized.

have been extracted in para 9 of the assessment order, reading as

under:

“1. to work for the social, educational, physical, cultural & industrial progress of society. 2. to improve interaction & unity amongst various sections of society. 3. to set up organize & manage cultural centres, sanatoriums, dharmashalas, hostels, halls, industrial units, libraries reading rooms, health centres, business centres and other centres of social utility for social, cultural and overall use. 4. to buy, take on lease, rent, accept as gift & through other modes land, property or any movable or immovable assets. 5. to accumulate & earn income by way of donations, gifts, grants, fees, loans & other means. 6. to build & buy halls on rent, accept halls etc as gift or donation for the assessee.

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object at Sl.No.10 pertains to Education, falling in the category

(b) as discussed above. The object at Sl.No.11 is of category (a)

discussed above, namely, Relief to the poor. Objects at Sl.Nos.1,

2,3,4,8 and 13 are in the nature of category (d), being,

advancement of any other object of general public utility. The

other so-called objects in the trust-deed, such as, given at

Sl.No.4, namely, to buy, take on lease, rent, accept as gift &

through other modes land, property or any movable or immovable

assets; or at Sl.No.5 of earning income by way of donations, gifts,

grants, fees, loans and other means; or at Sl.No.6 to build & buy

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halls on rent, accept halls etc.; or at Sl.No.7 of letting out on rent

or lease etc., are not truly in the nature of objects of the trust but

activities for financing the objects of the category (a) to (d).

Which of the objects of a trust are actually pursued during the

year can be deduced by examining the expenses incurred and

having an eye on the Expenditure side of the Income &

Expenditure of the trust.

providing Medical help, Relief to the poor and Education only

and no other object was pursued. He attempted to fortify his view

by showing that major items of expenses in the assessee’s Income

& Expenditure account were for Medical help of Rs.50.54 lakh;

Education help of Rs.62.25 lakh; Relief to the poor covered under

the head ‘Education and Charity expenses’ of Rs.3.46 lakh. In

order to examine the true nature of such activities recorded as

such by the assessee, the ld. AR was directed to place on record

necessary evidence to show as to how the assessee was extending

Medical help, Relief to the poor and Education. The relevant

material has been placed on record.

help. The assessee spent Rs.62.25 lakh on education help to the

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deserving sections of the society. The break-up of such an

amount has been given at pages 26 to 44 of the paper book. All

the payments have been made to the eligible students for pursuing

post-school education. The payments have been made through

banking channel only directly in the accounts of the students. To

demonstrate the way in which such an activity was taken up, the

ld. AR explained the modus operandi with the help of one of the

cases for the year under consideration. He invited our attention

towards the payment of Rs.10,000/- made to Ms. Darshna Rasik

Chordia on 31-07-2009 through HDFC S.B. Account vide Cheque

No.336111 against the entry appearing at page 27 of the Paper

book. He took us through page 264 of the paper book, which is a

copy of the application filed by Ms. Darshna Rasik Chordia

addressed to the assessee requesting for the grant of scholarship,

containing all the relevant details of her performance in previous

classes and the need of scholarship for MCS (computer science)

course. There is further elaboration of annual income of her

father at Rs.60,000/- and request for scholarship of Rs.20,000/- in

such application. This application is duly signed by Principal of

the Educational institution where she wanted to pursue her MCS

(computer science). It is accompanied by her mark-sheet in the

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earlier class of BCS. This application is counter-signed by father

of Ms. Darshna Rasik Chordia, again stating his annual family

income of Rs.60,000/- along with the nature of his

service/profession. On receipt of such application and after its

examination by the assessee, an interview was held vide

interview-call dated 25-07-2009, whose copy has been given at

page 263 of the paper book, notifying the date of interview to

candidate on 31-07-2009 at its premises. Her request was for

scholarship of Rs.20,000 against fees paid by her amounting to

Rs.30,072/- as per page 269 of the paper book. After considering

the necessary documents and finding her to be an eligible

candidate, the assessee-trust sanctioned scholarship of Rs.10,000/-

and deposited the same in her bank account by means of cheque.

Similar is the position regarding all other cases of extending

education help. In all these cases, the deserving students applied

for scholarship; their cases were examined by the assessee; such

applications were duly signed by the Principal of the concerned

educational institution and parent of the student; all of them were

called for interview and after finding the case to be genuine, a

scholarship in the shape of lump sum amount of Rs.10,000/- or

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Rs.15,000/-, Rs.5,000/- was given by means of cheque in favour

of the concerned student.

Rs.50.54 lakh. The medical help was extended to the deserving

patients on the basis of either recommendation by concerned

hospital or on the application given by patient or his family

members, showing the disease from which the patient was

suffering; the estimated amount of expenditure on medical

treatment; family income etc. Item-wise details of such expenses

are given at page 45 onwards of the paper book, giving the date

on which the amount was paid, cheque number and the amount of

medical help. After evaluating the necessary details, the assessee-

trust extended help by means of a lump sum payment of

Rs.3,000/- or Rs.5,000/- or Rs.7,000/- or Rs.10,000/- or

Rs.15,000/- or Rs.19,000/- or the maximum of Rs.20,000/-.

These amounts have been directly deposited in the bank account

of the concerned hospital through banking channel.

`Charity expenses’ has been given at page 242 onwards of the

paper book. To explain, one of the items is the expenditure of

Rs.35,475/- incurred on purchase of certain items, like, Sugar,

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Gud, Atta, Dal etc., in different quantities amounting to

Rs.35,475/- by means of invoice from one M/s. Vinod Trading

Company. The items so purchased were distributed to the persons

in deserving sections of the society, whose names and signatures

have also been obtained that have been placed at page 246

onwards of the paper book. Payment of Rs.35,475/- was made to

M/s. Vinod Trading Company by means of Cheque No.493938/-

dt. 15-10-2009. Similar is the position regarding other amounts

spent by the assessee on charity, which is in the nature of relief to

the poor.

assessee, it is more than clear that the assessee was genuinely

pursuing activities in the nature of Medical help to the patients,

Education expenses of the deserving students and Relief to the

poor.

given under (d) above, hit by the proviso to section 2(15), were

pursued by the assessee, we proceeded to examine the Income and

Expenditure Account of the assssee. Total of the Expenditure

side for the year ending 31-03-2010 on page 2 of the Paper book

in Income and Expenditure Account is Rs.1.92 crore.

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Expenditure on Medical help of Rs.50.54 lakh; Education help of

Rs.62.25 lakh; and Relief to the poor covered under the head

‘Education and Charity expenses of Rs.3.46 lakh, totals up to

Rs.1.16 crore. There is no dispute that the assessee let out its

Cultural halls and Building from time to time for earning revenue

so as to fund its charitable objects. Income from such revenue-

generating activities has been recognized on the Income side of

the Income and Expenditure account. In addition to Cultural hall

receipts and Building rent, the assessee expressly recovered

Amenity charges of Rs.20.93 lakh; Furniture and municipal taxes

of Rs.56.87 lakh; Municipal receipts of Rs.11,164/-; and DG set

receipts of Rs.6.74 lakh. These recoveries were made from the

persons taking Cultural Hall and Building on rent basis. As

against these specific recoveries, the assessee paid Municipal

taxes of Rs.23.26 lakh; Repairs and maintenance of Rs.4.77 lakh;

Security staff expenses of Rs.8.18 lakh; Washing and cleaning

charges of Rs.4.98 lakh; Electricity charges of Rs.5.26 lakh; DG

set expenses of Rs.6.37 lakh etc. Such expenses are mostly in the

nature of the amounts spent by the assessee against which specific

recoveries were obtained from the users of the Building and

Cultural halls. Thus, these costs are identifiable with the receipts

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and included in the income side of Income and Expenditure

Account. Total of such costs, which have no connection with the

activities for advancement of any other object of general public

utility, comes to Rs.52.82 lakh. If this amount is added to

expenditure incurred on Medical help; Education; and Food/relief

to the poor, the total comes to Rs.169.03 lakh, as against total

expenses booked on the Expenditure side at Rs.192 lakh.

Remaining expenses are of usual running of the trust, such as,

Depreciation amounting to Rs.7.78 lakh; Salaries of Rs.4.19 lakh;

and other Administrative expenses, such as, Printing and

stationery; Audit fee; Professional charges, Postage etc., leaving

hardly any amount for pursuing ‘advancement of any other object

of general public utility’.

assessee has the objects of ‘advancement of any other object of

general public utility’ in its trust-deed, but none of such objects

was actually pursued during the year under consideration.

Whereas the objects and activities of the trust are germane at the

time of grant of registration u/s 12AA of the Act, what becomes

relevant for consideration at the time of assessment is to see

which of the objects, having charitable purpose, were actually

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carried out so as to decide the question of exemption. The above

discussion makes it graphically clear that the assessee actually

pursued only the objects as classified in categories (a) to (c). viz.,

Medical Relief to the poor patients, Education to the deserving

students and Relief to the needy sections of the society and hence

shied away from taking up any of the objects in category (d), viz.,

advancement of any other object of general public utility. Once

this is the position, it becomes explicitly clear that the proviso to

section 2(15), which attracts only when objects of the category (d)

above are pursued, did not trigger in the instant case. The sequitur

is that the assessee is entitled to exemption. It is pertinent to

mention that the AO did not dispute the fulfillment of any other

requirements for claiming exemption u/s 11 of the Act. We,

therefore, hold that the assessee is entitled to exemption. The

impugned order is, therefore, set-aside.

Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 07th March, 2022 Satish

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आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A)-10, Pune 4. The CIT (Exemptions), Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 5. DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 03-03-2022 Sr.PS 2. Draft placed before author 07-03-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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