ACIT(E), NEW DELHI vs. INDIA INTERNATIONAL CENTRE, NEW DELHI

Per Anadee Nath Misshra, AM

(A) This appeal by Revenue is filed against the impugned order of Learned Commissioner of Income Tax (Appeals)- 40 (Exemption), New Delhi, [“Ld. CIT(A)”, for short], dated 08.07.2016 for Assessment Year 2012-13. The grounds of appeal are as under:

“1. Ld. CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact that the activates of the assessee falls within the purview of commercial activities as it had provided benefits only to selected persons and not to public at large. These activities, with any stretch to the

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imagination, cannot be called as charitable activity within the purview of Section 2(15) of the Act. Also, revenue preferred an appeal before Hon’ble High Court against the decision of ITAT in assessee’s favour on the issue, in earlier year.

(B) Assessment Order dated 31.03.2012 was passed by the Assessing Officer (“AO”,

for short) U/s 143(3) of Income Tax Act, 1961 (“I.T. Act”, for short) wherein proviso 1 & 2 to Section 2(15) of I.T. Act read with 3rd proviso to Section 143(3) of I.T. Act was

invoked and exemption U/s 10(23C)(iv) was denied to the assessee. Further, out of

assessee’s claim for depreciation amounting to Rs. 2,74,65,815/- only Rs. 35,44,750/-

was allowed by the AO and the remaining amount of Rs. 2,39,21,065/- was disallowed

on the ground that capital expenditure incurred on acquisition of fixed assets in the

earlier years had been already allowed to the assessee as application of income. The AO

took the view that depreciation was to be allowed only on the value of assets acquired

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during the year under consideration. The assessee filed appeal before Ld. CIT(A)

against the aforesaid Assessment Order. The Ld. CIT(A) followed the order of his

predecessor for Assessment Year 2011-12 and held in his appellate order dated

08.07.2016 that mischief of proviso of Section 2(15) of I.T. Act was not attracted on the

facts on the assessee’s case. The Ld. CIT(A) also based his decision on the order of

Income Tax Appellate Tribunal (“ITAT”, for short) for Assessment Year 2009-10 in

assessee’s own case in appeal vide ITA no. 3124/Del/2014 in which it was held by ITAT

that the assessee was not engaged in any sort of commercial activity and all the

activities were in furtherance of main objects of the assessee’s society, which remained

charitable and further held that authorities below were not justified in deny the

exemption of the assessee society. The Ld. CIT(A) further noticed that the order of the

AO was identical to the order of the AO for Assessment Year 2009-10. The finding of

the Ld. CIT(A) is contained in paragraphs 5 and 6 of aforesaid appellate order dated

08.07.2016. The relevant portion of the order of Ld. CIT(A) is reproduced as under:

“4. The main grievances of appellate is that the Assessing Officer has passed the Order ignoring the established past history of the assessee. Wherein the appellate remains registered u/s 12A of the Income Tax Act as also approved institute u/s 10(23C)(iv) of the Income Tax Act. The appellant has filed the detailed written submissions vide its letter dated 15.06.2016, which for the sake of ready reference are being reproduced as under:-

The facts in brief are that: 1) The assessee society is registered u/s 12A vide registration No. DLI(C)(I-347) 1974-75 since 18.06.1973 an also approved u/s 80G(5)(vi) vide Approval No. DIT(E)/2012- 13/I- 205/426 dated 30.05.2012 valid from AY 2013-14 onwards till it is rescinded. The assessee is notified u/s 10(23C)(iv) of the Income Tax Act 1961 for the Assessment Year 2006-07 and onwards vide Notification No. 13/2007 dated 19.02.2007. There is no dispute on these facts. Copies of certificate u/s 12A, 80G, 10(23C)(iv) of the Act, are enclosed for your ready reference & records.

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2) The assessee is an institution, which came into existence by way of creation of a trust vide trust deed dated 23.05.1961. The assessee, as per its Memorandum of Associations (MOA) Rules & Regulations (R&R), is engaged in cultural and intellectual activities. During the year under consideration, it has continued to conduct seminars, talks, discussions and cultural activities as in the past Rule 3 of the MOA of the assessee comprises of its objects. The salient objects of the assessee are as under:-

(i) to promote understanding and amity between the different communities of the world by undertaking or promoting the study-of their past and present cultures, by disseminating or exchanging knowledge thereof, and by providing such other facilities as would lead to their universal appreciation; (ii) to undertake, organize and facilitate study courses, conferences, seminars, lectures and research in matters relating to different cultural patterns of the world; (iii) to undertake, facilitate and provide for the publication of news-letters, research papers and books and of a journal for the exposition of cultural patterns and values prevailing in different parts of the world; (iv) to establish and maintain libraries and information services to facilitate the study of world cultures and spreading information in regard thereto; (v) to constitute or cause to be constituted regional centers at convenient places in India to promote the objectives of the Society. (vi) to cooperate with approval institutions and interested bodies for the purposes of helping the cause of understanding amongst people of different cultures; (vii) to organize and maintain as far as possible on no-profit no-loss basis, limited residential accommodation, with cultural and educational amenities, for the members of the society coming to participate in the activities of the Society and other bodies with cognate objectives, as well as non-members specially invited to participate in the activities of the Society. (viii) to invite as and when feasible, cultural leaders, scholars, scientists and creative artists, who may or may not be members of the Society, to take advantage of the facilities offered by the Society There is no dispute on this issue as well.

3) Rules & Regulations (R&R) of the assessee mainly deal with the qualifications for becoming members of the assessee types of membership, privileges of members, subscription etc. As per Rule 4(A), there are Corporate Foundation Members/Corporate Members, which are Universities, National Laboratories, and National Academies etc. As per the assessee while its cultural and intellectual activities are open to general public, hostel and restaurant facilities are limited to its members and their guest only. 4) Although, as many as 7 grounds have been raised in the appeal filed before your honour, but in essence the main ground that arises for consideration before your honour is - as to whether the AO was correct in denying exemption u/s.10(23C)(iv) of the I.T. Act or as was claimed by the assessee on the principle of mutuality on the ground that the activities of the assessee Centre are hit by the first proviso to section 2(15) read with third proviso to section 143(3) of the I.T. Act.

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5) The main contention of the AO was that in Form 10BB filed by the assessee, it had disclosed only part of the amount as covered u/s. 10(23C)(iv) of the I.T. Act and that for the balance income or expenses disclosed in the income and expenditure account or the return filed by the assessee, there is no mention and the assessee is silent about the same. Such observations, it is respectfully submitted are factually incorrect. We are filing herewith a detailed paper book, which include a copy of income and expenditure a/c, copy of ITR filed as also the other relevant documents, from where it would be clear that assessee is not silent about the balance income or expenses as per income and expenditure a/c, but the same has been claimed as not forming part of total income on the principle of mutuality. 6) In fact, it will not be out of place to mention that the basis of making claim was identical as had been done in earlier years; and there was neither any change in the facts or in the objects or in the form of making claims with respect to the activities of the Centre as compared to the earlier years. We would like to enclose herewith copy of assessment order passed by the AO pertaining to assessment year 2010-11 and A.Y. 2009-10, from where it would be categorically known that successor AOs have categorically observed and approved these activities, as having been covered under the various provisions of the Income-tax Act and also principles of mutuality and assessments have been framed at the declared Nil assessable income. It is a different matter that the DIT (E) for the first time in assessment year 2009-10 and subsequently in assessment year 2010-11 has set-aside these orders u/s.263 of the I.T. Act and the orders of the DIT(E) have been challenged in the ITAT. We are pleased to inform you that the Hon’ble ITAT has set aside the findings given by the Deputy Commissioner of Income Tax u/s 263 and have categorically held that the predominant activities of the Centre was not to earn income but to provide facilities for disseminating or exchanging knowledge as per the object of the Society. The relevant observations and findings given by the Hon’ble ITAT in Paras 6.12 and 6.13 are as under: 6.12 The predominant activities of the Centre was not to earn income but to provide facilities for disseminating or exchanging knowledge as per the object of the society. There is no gainsaying that without creating a proper platform the primary object of dissemination and exchanging of knowledge could not be achieved. Therefore, merely because incidental income was earned by assessee society for achieving its dominant object from providing hostel and catering activities, it cannot be said that the assessee was doing trade or business as contemplated under proviso to section 2(15). The Centre had to necessarily charge for the hostel, catering and use of such facilities from members/participants since it had to recover cost and at the same time have enough funds to carry out the charitable activities. We are reminded at this juncture of an old saying - “Everything comes at a price”. It is incomprehensible that an institution which is carrying out charitable objects will provide the essential facilities free of charge. It is not the allegation of Id. DIT(E) that the main object of assessee, in any manner, did not fulfill the criteria of charitable activity. On the contrary she herself has observed that the first category does fulfill the charitable purpose/criteria and it is only the second category i.e. giving of hostel, catering etc. that the assessee’s activities are caught within the mischief of second proviso to section 2(15). It is also not the case of Id. DIT(E) that there was no free access to the general public for programmes such as dance, music, seminars etc. In its reply the assessee had also pointed out that there were number of occasions when the centre did

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not charge institutions for holding their programmes such as lectures, discussions or seminars etc. Admittedly there is no funding from government or any other outside bodies to sustain activities of promotion of cultural and intellectual activities and, therefore, the assessee had to be totally self supporting and self financing and for this purpose, in order to achieve its main objective, it had to charge and earn receipts from members so that the activities could be carried out. Admittedly, the assessee is disseminating knowledge to general public on subjects ranging from art, dance, urban development means etc. through conferences, lectures etc. It was further pointed out before AO that even while charging the members, there was no commercial motive in fixing the rates. The rates were nowhere near the commercial rates and were generally fixed to recover the cost and cost of activities to run the centre. These activities could not be treated in the nature of trade or commerce. 6.13 As regards hostel accommodation, there were number of rooms and guidelines for hiring of the accommodation and also there were restrictions. It was also pointed out that, as could be seen from the list of programmes, the assessee conducted very large number of programmes during the year which covered discussions, music, dances, exhibitions and also certain special programmes such as festivals during the course of the year. These programmes were published through the newspapers and website. Further e-mails were sent to members as well as non- members. Periodical articles also appeared in the various newspapers highlighting some of the special programmes conducted by the centre.

We are enclosing herewith a copy of Order of Hon’ble ITAT for your honour’s perusal and record from where it would be noted of the allegations as were made b y the CIT at the first place while ordering an action u/s 263 of the Income Tax Act and the similar objections made by the AO in the Assessment Order before your honour have been duly met and set aside by the Hon’ble ITAT. The issues involved are thus fully covered in favour of assessee and relief is prayed on this basis only. The observations of the AO that it is only during the course of assessment proceedings that the assessee submitted about rest of income having been excluded on the principle of mutuality, it is respectfully submitted, is factually incorrect. It would also be evident when examined Form No.10 under rule 17 duly filed with the AO having jurisdiction over the case wherein while exercising the option u/s 11(2), a detailed note has been given, as note no.2, as under: - “2. The Centre claims that Admission Fee, Subscription, Income from Hostel rooms, Food and beverages sale being from members of the Centre, the same are exempt from tax under principles of mutuality-and therefore income and expenses in respect thereof have not been included in the above.” 7) Therefore, the allegation made in the assessment order that such information came to be known during the course of assessment proceedings only has to be rejected as incorrect looking to the past assessment orders for earlier years as well as Form 10 being a declaration u/s. 11(2) of the I.T. Act filed with the AO before filing of the return. Thus, the whole basis of making assessment is on mis-appreciation of correct facts; and therefore, the

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final conclusion drawn based on such incorrect observation is claimed as equally incorrect. 8) The other main contention of the AO is regarding applicability of the first and second provisos to section 2(15) of the I.T. Act, which have been inserted on the statute book w.e.f. 1.4.2008. It is respectfully submitted that various authorities have time and again reiterated that so long as the dominant objects of a society remains of charitable nature and any incidental activities for a fee to further the main objects do not fall in the category of carrying out any trade, commerce or business. Some of the judgments are given in the next few paragraphs & are relied upon. 9) The assessee Institution admittedly is engaged in cultural activities and during the year under consideration, it has continued to conduct seminars, talks, discussions and cultural activities as in the past. The Institution has been held to be engaged in pursuing the objects of general public utility falling within the meaning of charitable purpose continuously for over four decades. 10) The Finance Minister during the course of discussion on the introduction of first proviso to section 2(15) inserted retrospectively w.e.f. 1st April 2009 by the Finance Bill 2010 had given assurance on the floor of the House that organizations engaged genuinely in advancement of objects of general public utility will not, in any way, be effected by the proposed amendment. The Finance Minister further went on to explain that ordinarily Chamber of Commerce and similar organizations rendering services to the members will not be effected by the amendment and their activities would continue to be regarded as advancement of any other object of general public utility. In consonance with such assurance by the Finance Minister on the floor of the House, the CBDT issued a Circular No. 2008 dated December 19, 2008 to the effect that only where the assessee is engaged in any activity in the nature of trade, commerce or business or render any services in relation to trade, commerce or business would not be entitled to claim its object as charitable. It is only organizations who are admittedly engaged in regular trading in the guise of charitable activity will henceforth not be eligible to claim exemption u/s.2(15). There is no dispute that predominant activity of the assessee to engage in cultural and intellectual activities and the provision of facilities to the members and their guests was also is a secondary activity in pursuance of the main activity. Vide its Memorandum and Articles, the assessee Institution is prohibited in engaging in any activity in the nature of trade, commerce or business for profit. The Delhi High Court recently in the case of Institute of Chartered Accountants of India vs. Director General of Income-tax (Exemption) [2013] 358 ITR 91, has held that the purpose of first proviso to section 2(15) is not to exclude entities which are essentially for charitable purpose, but are conducting some activities for a consideration or fee, but to exclude organizations, which are carrying out regular business from the scope of charitable purposes. The jurisdictional Court went on to hold that registration u/s,10(23C) could not be denied as the functions performed by the Institution were the ginnery of public work and not for private gain or profit. Also see - • GSI India vs. Director General of India (Exemption) [2013] 262 CTR 585 (Del.); • Bureau of Indian Standards vs. DGIT (E) [2013] 358 ITR 78 (Del.); Director of Income-tax (E) v. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj.)

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11) The main contention of the AO is that activities of providing accommodation and catering facilities to members constitutes trade, commerce or business. However, the activities of providing accommodation and catering facilities to the members are on noprofit no-loss basis, which is one of the objectives of the Institution. As per auditors’ report in the prescribed form, these activities are based on principle of mutuality which is based on the principle no person can make profit out of himself. There is no dispute that these activities did not amount to carrying any trade with a profit motive. There is no taint of commerciality in these activities. There is also no dispute that all participants are contributories to the common funds and it is not necessary that all the contributories must be participants in its management. See CIT vs. Royal Western India Turf Club Ltd., 24 12) ITR 551 (SC). There is no case that the assessee is deriving any profit from the non- members or is engaged in activities of providing accommodation or catering facilities to the non-members or the Centre is carrying any commercial activity. In any case, all these allegations have been rejected by the Hon’ble ITAT in the Order for the Assessment Year 2009-10, a copy of which is being filed before your honour’s ready reference and record and therefore Assessing Officer’s contentions on this issue have already been rendered groundless, it is respectfully submitted. 13) The Centre has been approved as a Fund or Institution established for charitable purposes by the Govt, of India, Ministry of Finance, Central Board of Direct Taxes, vide notification dated 19th January 2007. The validity of the Government notification/approval granting exemption to the Centre cannot be challenged by the Revenue Officers, only the Govt, of India can restrict this notification that too upon certain condition, it is respectfully submitted. The Centre as having been established for charitable purposes, as regards the objectives of the Fund or the Institution and its importance throughout India or throughout any State or States and the Fund or the Institution is admittedly not engaged in any commercial activity, as held by the AO in the assessment order itself that the Centre is engaged in cultural, educational and intellectual activities and has conducted during the year under consideration Seminars, Talks, Discussions and Cultural activities. 14) The activity of providing accommodation, food and beverages to the members was also covered by the principle of mutuality. Even otherwise, the income is exempt u/s.l0(23C)(iv) of the I.T. Act.. 15) These observations, it is respectfully submitted, are not legally tenable in view of the judgments of the Supreme Court in the following cases: - “In Aditanars Educational Institution’s case, 224 ITR 310, the Apex Court while dealing with the factum of exemption has held thus: - “The language of section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes, since the object is not one to

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make profit. The decisive or acid test is whether, on an overall view of the matter, the object is to make profit. In American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86 (SC), their Lordships have laid down the principle on following terms: - “In Addl. CIT v. Surat Art Silk Cloth Manufacturers Association reported in [1980] 121 ITR 1 (SC), it has been held by this court that the test of predominant object of the activity is to be seen whether it exists solely for education and not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity. That, it is not possible to carry on educational activity in such a wav that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult to practical realization but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with object of making profit or not it is duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established.” In St. Lawrence Educational Society (Regd.) v. CIT (2011) 197 Taxman 504/9 taxmann.com 233 (Delhi) “Merely because educational institutions run by assessee-society were generating surplus year after year, it could not be a ground to say that said educational institutions existed for purpose of profit and not for purpose of education [Assessment year 2009-10]”

16) Recently, the Hon’ble Supreme Court has reiterated these principles in the case of Queen Education Society vs. CIT, TS-119-SC-2015. Therefore, the understanding of the AO on this aspect is totally erroneous and not as per provisions of law. (a) The Hon’ble Supreme Court in the aforesaid judgment in para 8 while relying upon its earlier judgment in the case of CIT vs. Surat Art Silk Cloth Manufacturers’ Association, 121 ITR page 1, on the interpretation of the definition of ‘charitable purpose’ u/s.2(15), has held as under: -

"17. The next question that arises is as to what is the meaning of the expression "activity for profit". Every trust or institution must have a purpose for which it is established and every purpose must for its accomplishment involve the carrying on of an activity. The activity must, however, be for profit in order to attract the exclusionary clause and the question therefore is when can an activity be said to be one, for profit? The answer to the question obviously depends on the correct connotation of

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the preposition "for". This preposition has many shades of meaning but when used with the active participle of a verb it means "for the purpose of and connotes the end with reference to which something is done. It is not therefore enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit. Profit-making must be the end to which the activity must be directed or in other words, the predominant object of the activity must be making a profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit making motive: the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak,J.) in Dharmadeepti v. CIT [(1978) 3 sec 499 : 1978 sec (Tax) 193] must be '"essentially charitable in nature" andit must not be a cover for carrying on an activity which has profit making as its predominant object. This interpretation of the exclusionary clause in Section 2 clause (15) derives considerable support from the speech made by the Finance Minister while introducing that provision. The Finance Minister explained the reason for introducing this exclusionary clause in the following words: "The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns

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which, while ostensibly serving a public purpose, get fully paid for the benefit provided by them namely, the newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on of any activity for profit' should be added to the definition." It is obvious that the exclusionary clause was added with a view to overcoming the decision of the Privy Council in the Tribune case [AIR 1939 PC 208 : In Re the Trustees of the Tribune, (1939) 7 ITR 415] where it was held that the object of supplying the community with an organ of educated public opinion by publication of a newspaper was an object of general public utility and hence charitable in character, even though the activity of publication of the newspaper was carried on commercial lines with the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had profit making as its predominant object, but even so it was held by the Judicial Committee that since the purpose served was an object of general public utility, it was a charitable purpose. It is clear from the speech of the Finance Minister that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of "charitable purpose". The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The

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exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg, J., when he said in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] that "if the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity". The learned Judge also added that the restrictive condition "that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object" (emphasis supplied). We wholly endorse these observations. (b) The Hon’ble Supreme Court while explaining the provisions of section 2(15), has in this judgment the occasion to the extent of giving an example in its judgment in order to clarify as to what would constitute ‘charitable purpose’ u/s.2(15) of the I.T. Act, as under:- “The application of this test may be illustrated by taking a simple example. Suppose the Gandhi Peace Foundation which has been established for propagation of Gandhian thought and philosophy, which would admittedly be an object of general public utility, undertakes publication of a monthly journal for the purpose of carrying out this charitable object and charges a small price which is more than the cost of the publication and leaves a little profit, would it deprive the Gandhi Peace Foundation of its charitable character? The pricing of the monthly journal would undoubtedly be made in such a manner that it leaves some profit for the Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have the effect of polluting the charitable character of the purpose, because the predominant object of the activity of publication of the monthly journal would be to carry out the charitable purpose by propagating Gandhian thought and philosophy and not to make profit or in other words, profit making would not be the driving force behind this activity. But it is possible that in a given case the degree or extent of profit making may be of such a nature as to reasonably lead to the

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inference that the real object of the activity is profit making and not serving the charitable purpose. If, for example, in the illustration given by us, it is found that the publication of the monthly journal is carried on wholly on commercial lines and the pricing of the monthly journal is made on the same basis on which it would be made by a commercial organisation leaving a large margin of profit, it might be difficult to resist the inference that the activity of publication of the journal is carried on for profit and the purpose is non-charitable. We may take by way of illustration another example given by Krishna Iyer, J., in t h e Indian Chamber o f Commerce cast [(1976) 1 sec 324 : 1976 sec (Tax) 41 : (1975) 101 ITR 796] where a blood bank collects blood on payment and supplies blood for a higher price on commercial basis. Undoubtedly, in such a case, the blood bank would be serving an object of general public utility but since it advances the charitable object by sale of blood as an activity carried on with the object of making profit, it would be difficult to call its purpose charitable. Ordinarily there should be no difficulty in determining whether the predominant object of an activity is advancement of a charitable purpose or profit making. But cases are bound to arise in practice which may be on the borderline and in such cases the solution of the problem whether the purpose is charitable or not may involve much refinement and present read difficulty.” (c) Again, the Hon’ble Supreme Court issued a world of caution as to what would constitute charitable objects and what is the difference between carrying on a trade, commerce or business. It has been clarified that if there are no restrictions on making of profit, the court would be well justified in assuming that the Trust involved in carrying on of activity of profit. However, if there are express restrictions on the making of profit, then the court would not be justified in drawing any such inference merely because the activity results in profits. (d) Further, the Hon’ble Supreme court in its latest judgement relying upon the judgement in the case of Aidtanar Educational Institution vs. Additional Commissioner of Income-tax, 224 ITR 310, has reiterated its earlier principles as to how in a practical way the activities of a charitable association can also result into some surplus and that by itself does not mean that the organization is existing for the purpose of making profit, as observed in para 9 as under: - "The High Court has made an observation that any income which has a direct relation or incidental to the running of the institution as such would qualify for exemption. We may state that the language of Section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for the purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity."

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17) Even after insertion of proviso to section 2(15) of the I.T. Act, various courts have held that merely charging a fee for some of the activities, which may result in surplus does not ipso-facto means that the activities of the Society are commercial in nature. The trade or commerce in the normal course is different than what is required u/s. 2(15) of the I.T. Act. Following judgments are relevant for this proposition - (i) ICAI vs. DGIT(Exemptions), 347 ITR 99 (Del); (ii) DIT(Exemptions) vs. C.A. Study Circle, 347 ITR 321 (Mad.); (iii) Tolani Education Society vs. DIT(Exemptions), (2013) 259 CTR (Bom.) 26 (iv) Bureau of Indian Standards v. DGIT (Exemption), 358 ITR 78 (Del.); (v) ICAI v. DGIT (Exemptions), 358 ITR 91 (Del.) (vi) DIT (Exemption) v. Sabarmati Ashram, 362 ITR 539 (Guj.) (vii) Council for the Indian School Certificate Examinations v. DGIT, 2014- TIOL- 855-HC-DEL-IT 18) From the Balance Sheet being filed before your honour, it would be seen that the gross receipts of the assessee society for the year ended 31st March, 2012 is Rs.3,603.68 lakhs which includes interest and dividend income of Rs. 604.01 lakhs. As against this, the total expenditure is Rs.3,300.09 lakhs. The overall surplus, as also stated by the AO is Rs.303.59 lakhs. Therefore, no activity whatsoever of the Society can be said or alleged to be generating any surplus. The surplus, if any, has resulted only because of interest income being earned by the Society on the accumulated funds of earlier years. Therefore, the allegation of the DIT (E) in the order u/s. 143(3) that assessee Society is generating surplus by carrying out commercial activities has to be dismissed, as factually incorrect and based on conjectures and surmises. 19) It is further submitted that it is predominant purposes which really matter in the case of the Society. So long as the predominant purpose or objective of the Society is not to earn profit, the same is liable to be treated as charitable as has been held in the case of PHD Chamber of Commerce & Industry v. DIT (Delhi)357 ITR 296 (Del.).

20) Recent judgment of Hon’ble Delhi High Court in the case of India Trade Promotion Organization v. D.G. of Income Tax (Exemptions) and others is directly on this issue and in fact makes the order of Ld. DIT (Exemption) as of no consequence. The Hon’ble Delhi High Court while upholding the constitutional validity of the first proviso to Section 2(15) introduced w.e.f. 01.04.2009 has held that even after insertion of first proviso to Section 2(15), what is required to be seen is that it is the dominant and main object that is predominant. So long as profit making is not the driving force and objective of the assessee, then merely charging some fee for some of the activities does 21) not put it in-the category of non-charitable entity in respect of the objects falling in the- category of “advancement of any other object of general public utility21 A copy of this judgement dated 22.01.2015 is enclosed: 20r5-TIOL-227-HC-De!hi-IT.

(a) The Hon’ble Delhi High Court in the aforesaid judgement after carefully analyzing the definition of‘charitable objects’ u/s.2(15) read with its first proviso introduced by Finance Act, 2008 w.e.f. 1.4.2009 as also the definition of ‘trade, commerce and business’ as has

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been laid down by various courts including the Apex Court has in the final analysis held as under: - “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 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.” (b) Therefore, when the latest thinking of the courts on the first proviso u/s.2(15) of the I.T. Act is seen, it would be noted that the courts are holding that the first proviso cannot take away the charitable character of an Institution so long as the dominant object and the prime motive is to carry on charitable activity and there is no profit motive involved in charging some fee for the services rendered by it.

(c) When these judgments are seen with reference to assessee trust, then it is respectfully submitted that whole of the receipts of the assessee trust are liable to be treated as exempt and not includable in the total income irrespective of the fact whether they have been claimed as exempt u/s,10(23C)(iv) or on the principles of mutuality. So long as the trust remains notified u/s.10(23C)(iv) as a charitable society, whole of its income from whatever activities has to be treated as exempt, as having been arisen out of charitable objects and not driven by the profit motive. We have already clarified in our submissions above that, in any case, none of the activities of the assessee trust are resulting in any profit or are driven by profit motive and the surplus, if any, during the year arises mainly out of interest income, which has been earned from the past accumulations as per provisions of law. (d) Another fact that needs to be clarified is that prior to introduction of first proviso, the assessee has always been regarded and treated as a charitable organization and the problem appears to have arisen only because of introduction of first proviso to section

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2(15), as were the facts in the case of India Trade Promotion Organization and the Hon’ble Delhi High Court has interpreted the first proviso to section 2(15) to convey that it is a dominant object, which really matter and merely charging fee for some activities does not ipso facto lead to a conclusion that the organization is existing for the purpose of making profits. 22) The following facts are undisputed: - Registration of the assessee u/s 12A(a) of the Income Tax Act since 18th June, 1973. a) b) Continuous grant of approval u/s 80G(5)(vi) of the Income Tax for the last many years. Still valid. c) Continuous registration of assessee as a notified institution u/s 10(23C)(iv) of the Income Tax Act for the last many years. Still valid. d) Examination of the nature of activities^ of the assessee- with reference to recent amendments u/s. 2(15) of the I.T. Act. e) Examination of books of accounts of the assessee. f) All past assessments are completed allowing exemption u/s. 11, 12 and 10(23C)(iv) of the I.T. Act. Although assessments for two assessment years i.e. A.Y. 2009-10 and AY 2010-11 have now been set-aside u/s.263 of the I.T. Act. As already clarified, the action of the DCIT u/s 263 for the Assessment Year 2009-10 has already been set aside by the Hon’ble ITAT and it has been categorically held that the Centre remains a charitable institution and is eligible for the benefits u/s 11, 12 and 10(23C)(iv) of the Income Tax Act. Therefore, the issue and all the facts involved in this appeal are identical with identical observations/allegations of the Assessing Officer are fully covered in favour of the assessee from all corners of the case. There is no scope of making different interpretation of the provisions of section 11, 12 and 20(23C)(iv), 2(15) of the Income Tax Act, it is respectfully submitted.

• The assessee institution has been in existence for more than 5 decades now and it is continuously been assessed for many years and in all the years the facts have been examined in detail and assessee has been allowed exemption u/s 11 and 12 of the Income Tax Act. There is neither any change in law or in the facts or in the objectives of the assessee or in the activities of the trust to take a different view of the matter as has been done by the Director of Income Tax (Exemption). The rule of consistency strictly is in favour of the assessee as per the following judgments:

(i) Dy. Director of Income Tax Vs. Shanti Devi Progressive Educations Society [2012] 340 ITR 320 (Delhi). (ii) Excel Industries SC-2013-TIOL-52-SC-IT The principle of mutuality is very much applicable on the facts of the assessee’s case and the same has also-been accepted in the previous years in assessee’s own case. 23) Another important aspect that needs to be highlighted is that while obtaining the approval u/s 10(23C)(iv) of the I.T. Act, the Hon’ble CBDT had raised various issues including the issue of providing catering services etc. The assessee had filed letters dated 18th September 2006 and again 12th December 2006 and had explained the assessee’s stand

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and the activities being undertaken by the assessee. Only on being satisfied that the dominant object is not to carry on trade, commerce or business of catering services, the assessee was notified u/s. 10(23C)(iv) of the I.T. Act. We are enclosing herewith copies of correspondence being letter dated 21st July 2006 and 27th November 2006 issued by the CBDT as also the assessee’s compliance vide letter dated 18th September 2006 and 12th December 2006, which would clearly establish that approval has been granted by the CBDT on being fully satisfied that the activities of the assessee being undertaken are in consonance with the objects of the assessee centre. Therefore, the allegations/ observations being made now in the assessment order are not different than those which were made even by the CBDT, but however, no adverse inference was drawn by the CBDT while notifying the assessee as an Institute eligible for benefit u/s. 10(23C)(iv) of the I.T. Act. On this count also, the AO’s observations in the present assessment order are not proper; and in any case, cannot lead to an inference that assessee’s main object is to carry on any trade, commerce or business, it is respectfully submitted. Therefore, when the facts of the assessee are compared with various judicial pronouncements as have been referred to in these submissions, it would lead to an inevitable conclusion that the action of the AO in holding that assessee is carrying out trade, commerce or business are erroneous and the same are prayed to be quashed and it may please be held that assessee remains a charitable institution. The first and second provisos to section 2(15) do not effect the status of the assessee of a charitable institution, it is respectfully submitted.

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the appellant case. The Hon’ble ITAT has categorically held in its Order in Para 6.12 and 6.13 that the assessee was not engaged in any sort of commercial activities and all the activities of hostel accommodation, providing of food, beverages etc. were in furtherance of main objects of the society, which remain charitable and therefore the authorities below were not justified in denying the exemption to the society. Therefore, the Order passed by the AO is held to be non-maintainable on facts and law and AO is directed to allow the exemption u/s 11 and 10(23C)(iv) of the Income Tax Act ' with all the consequential benefits.”

(B.1) The present appeal has been filed by Revenue in Income Tax Appellate

Tribunal (“ITAT”, for short) against the aforesaid impugned order dated 08.07.2016 of

Ld. CIT(A). During the appellate proceedings in ITAT, a Paper Book containing

following particulars was filed from assessee’s side:

(C) At the time of hearing before us, the learned Counsel for Assessee submitted

that all the issues in the present appeal are squarely covered in favour of the assessee

by the orders of ITAT / Hon’ble High Court in assessee’s own case, in identical facts and

circumstances; copies whereof were filed from assessee’s side in the aforesaid Paper

Book. [we have already referred to these orders in the foregoing paragraph (B.1) of

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this order] From Revenue’s side, the learned Departmental Representative (“Ld. DR”,

for short) agreed with the Ld. Counsel for the assessee that all the issues in the present

appeal are squarely covered in favour of the assessee by the aforesaid order of ITAT/

Hon’ble High Court in assessee’s own case, in identical facts and circumstances. He

also did not bring out any distinguishing facts and circumstances to our attention for

this year in comparison to the years for which the aforesaid orders have been passed in

favour of the assessee.

(C.1) We have heard both sides. We have perused the materials on record. We

have considered the judicial precedents referred to in the records, or brought to our

attention at the time of hearing. Both sides are in agreement that all the disputed

issues in this appeal are covered in favour of the assessee by orders of ITAT / Hon’ble

High Court, in assessee’s own case, in identical facts and circumstances. On perusal of

grounds 1 and 2 in this appeal, we further find that there is already an admission from

Revenue’s side that ITAT has decided these issues in favour of the assessee in earlier

year (though Revenue has preferred appeal in Hon’ble High Court). We are further

aware that the issue raised in third ground of present appeal is covered in favour of the

assessee by order of Hon’ble Supreme Court in the cases of CIT vs. Rajasthan &

Gujarati Charitable Foundation Poona [2018] 89 taxmann.com 127 (SC) / 402 ITR 441

(SC) and by order of Hon’ble Delhi High Court in the case of DIT (Exemption) vs.

Indraprastha Cancer Society 229 Taxman 93 (Del); and further, by order dated

02.07.2018 in ITA No.– 2555/Del/2015 of Co-ordinate Bench of ITAT, Delhi in the case

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of Indraprastha Cancer Society, for Assessment Year 2010-11. In view of the

foregoing, and respectfully following the aforesaid precedents, we decide the disputed

issues raised in this appeal in favour of the assessee; and dismiss all the grounds of

appeal in this appeal filed by Revenue.

(D) In the result, this appeal of Revenue is dismissed.

Order pronounced in the Open Court on 13/9/2019

Sd/- Sd/- (AMIT SHUKLA) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 13/9/2019 (Pooja)