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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM: This appeal filed by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-I, Mumbai [in short CIT(A)], in appeal No. CIT(A)-I/E-2(4)/135/2015-16, dated 03.11.2016. The Assessment was framed by the Income Tax Officer(E), Ward-2(4) Mumbai (in short ITO/ AO) for the A.Y. 2012-13 vide order dated 2 20.03.2015, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) upholding the action of AO in denying the exemption under section 11 of the Act. For this assessee has raised the following five grounds: - “1. The learned Commissioner (Appeals) erred in upholding the action of the assessing officer in denying the exemption u/s 11 of the Income tax Act, 1961 to your appellant trust on the ground that it is engaged in business activities within the meaning of the first proviso to section 2(15).
The learned Commissioner (Appeals) failed to appreciate that the appellant trust's activities for propagation of music fall within the ambit of 'education'. as included in definition of charitable purpose under section 2(15).
3. The learned Commissioner (Appeals) failed to appreciate that the classes and concerts conducted were for propagation of music and promotion of musical talent, and not to earn business income.
The learned Commissioner (Appeals) erred in ignoring the appellant's contention and the supporting statements filed establishing the fact that expenses on the concert were far in 3 excess of the receipts, and that a surplus was generated from investments and not from concerts or sales of Programme tickets.
The learned Commissioner (Appeals) was wrong in stating that the details of music classes, details/ number of students, details/ number of faculty employed, their educational qualification, frequency of classes and duration etc. were called for and, in spite of that were not filed.”
Briefly stated facts are that the assessee Mehli Mehta Music Foundation is a trust registered as a charitable organization with DDIT (Exemption), Mumbai under section 12A of the Act vide registration No TR32095 dated 16.08.1986. This trust is also registered with the Charity Commissioner, Mumbai vide registration No C-16116. The assessee trust is formed with object to propagate music and promotion of musical talent. The objected of Trust has been defined in the trust deed and the relevant reads as under: - To foster, encourage and develop music in all its aspects including on the stage, screen, radio, television and in all its varieties; To educate the public in the utility of music from a sociological, cultural and educational point of view; 4 Maintenance and support of schools, educational institutions and persons interested in music; Advancement of learning in all its branches especially research work in connection with music; Giving scholarships or travelling fellowships in assisting students to study abroad; Advancement of any other object of general public utility not involving the carrying on any activity for profit.
4. The assessee filed its return of income for the relevant AY 2012-13 on 29.09.2012 along with income and expenditure account, balance sheet and audit report in form No. 10B after claiming exemption under section 11 of the Act and declaring total income at nil. The AO during the course of assessment proceedings observed from the activities of the assessee that the assessee is primarily in the nature of advancement of any object of general public utility and therefore, he computed the income as normal business income. The AO also noted that during the year under consideration though the foundation with the object of imparting education of music is indirectly connected with the motive of earning profit on sale of programmes and conducting concerts. The assessee during the year under consideration has incurred loss of Rs. 24,67,866/- on all the concerts organized. But the income and expenditure reflected that the assessee has earned surplus during the year amounting to Rs. 62,21,003/-. Therefore, he held that the object of trust is that of 5 advancement in other object of general public utility with profit motive. Therefore, he denied exemption under section 11 and accordingly, tax entire income of the assessee as business income as under: - Business Income Interest 98,29,250 Donation 5,03,21 Fees from Students 73,24,986 Concert Receipts 8,31,440 Income from other sources 14,39,482 Income from other sources 64,53,868 2,63,82,237 263,82,237 Less Expenses Incurred Expenditure in respect of 22,90,240 properties Establishment expenses 14,62,085 Legal fees 286,712 Miscellaneous Expenses 172,353 Depreciation on movable 6,31,395 properties Expenses for educational 54,66,955 purposes Concert Expenses 33,97,626 1,37,07,366 Taxable Income 1,26,74,870 5. Aggrieved, assessee came in appeal before CIT(A). The CIT(A) also confirmed the action of the AO by observing in Para 5.2 as under: - “5.2 I have considered the facts and circumstances of the case, gone through the assessment order of the AO and the submissions of the appellant and a discussed the case with the AR of the appellant. The contentions and submissions of the appellant are being discussed and decided here in under:
6 i. The appellant contended that it is running music on regular basis which is in the nature of normal schooling or class room education. However, despite opportunities allowed vide note-sheet dated 26.08.2016, 21.09.016, 14.10.2016 and 02.11.2016 the appellant failed to substantiate its claim that the activities were in the nature normal schooling or class room education since no details of classes, details/ numbers of students, details/ number of the faculty employed, their educational qualifications, frequency of classes and duration etc., could be produced. Hence for want of these facts, this claim of the appellant is not verifiable. ii. The appellant stated that it has conducted various music concerts during the year by local artists. No details about such event like participants, artists etc, have been produced except the expenditure incurred. Further, on perusal of accounts it is noted that the assessee has received Rs. 5,75,000/- out of this programme 7 which shows that there was a change made from the participants. Similarly, there is a receipt from the sale proceeds of programme which further shows that it is rendering services against a charge from the participants which is sufficient to invoke provisions to section 2(15). Thus its claim of these activities being charitable in nature is not supported by the any documentary evidences. iii. ……… iv. The appellant submitted that it is charging only a token fee and has no profit motive. In this regard it is mentioned that as per proviso to section 2(15) the AO is not required to prove the profit motive. As mentioned above, it is earning profit by sale of programme and conducting concerts from which it has been earned surplus. v. Appellant has relied upon CBDT Circular No. 14/2015 dated 17th Aug, 2015. However on perusal it is noticed that the same relates to the provisions of section 10(23C) and 8 hence does not apply to the facts of the appellant’s case where the assessing officer has invoked proviso to section 2(15). In fact in this circular itself in paragraph 2.1 it is mentioned that “in fact, provisions of section 11 and 10(23C) are two parallel reigms and operate independently in their respective realms……..Thus, it is clear that the clarification issued with reference to section 10(23C) cannot be imported with discussing the applicability of proviso to section 2(15). Contention of the appellant is therefore not acceptable. vi. In view of the facts and the legal position as discussed above, I have no reason to deviate from the findings of the AO contained in the assessment order.”
Aggrieved assessee came in appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. The learned Counsel for the assessee, SR. Advocate, Shri S.E. Dastur argued that the assessee falls under the category of educational trust and hence, claimed exemption under section 11 of the Act on the ground of being 9 registered charitable trust. He stated that the trust is conducting various music classes for students on regular basis for last seven years in a structured manner. The training being in the nature of normal schooling or class room education is within the object of imparting education of music and activity of the trusts. Thus, falls within the term of education as specified in section 2(15) of the Act. He explained from the activities of the trust that it is conducting of various music classes. The trust is conducting various music classes like Cello Class, Choir Class, Discover Music Class, Double Bass class, Group theory class, Guitar classes, Music Therapy class, Piano classes for toddlers, violin classes etc. for students on regular basis for last several years, in a structured manner, and said classes are being taken by experienced faculty on pre-determined days at fixed hours in a classroom. This training is certainly in the nature of normal schooling or classroom education on a part specific technical subject. Thus to be appreciated that the object of the Assessee Trust is of imparting education of music.
During the year, the Foundation has conducted various music concerts for promoting western classical music. The motive behind such concerts is to promote musical knowledge and the appreciation among the students as well as among the interest public with all form of Music. The said concerts/ recitals are performed by local artist as well as visiting Artists which in turn bring awareness of outside talent which helps improves the talent and mind & character within, and it also encourages and gives opportunity to few of the students to perform with them. As regards charging of Fees is concerned for the said concerts it may be noted 10 that the fees charged for such concerts were only to meet administrative expenses and was not with an idea/ intent to run as a business. During the year the Foundation has incurred Loss of Rs. 24,67,866/- on all the concerts organized during the year. The Annexure showing Fees changed and expense incurred on respective is enclosed by assessee in its paper book. Thus it is evident that such concerts are not with the motive of earning or making of any profits.
In view of this it was explained that even the Fees charged from Students by the Foundation does not cover the cost of imparting the music education. The administrative cost of running is for more than the fees collected. The chart evidencing the same is also enclosed in assessee’s paper book. Thus, the activity is undertaken with the primary object of dissemination of music education to train and prepare the ones interested in Music education to train and prepare the object of dissemination of public education to train and prepare the ones interested in music, and where no profit motive pervades.
He drew our attention to the objects of the trust, which are noted above. He also explained that the foundation extends music education to schools for under privileged children. Among them are 500 children from Municipal Schools. The foundation also gives free training to children and young adults at the Happy Home and School for the Blind. MMMF’s teachers also conduct gratuitous training programmes at NGO Schools. During the year the foundation worked with Muktangan, an NGO that runs seven municipal schools. The foundation conducted a teacher training programme 11 for 60 weeks @ 2 hours a week for singing through which hundreds of underprivileged children get access to music. The foundation organizes Master Classes and Workshops with eminent musicians and artists who come to perform in Mumbai. These workshops are open to all music students and teachers in the city, and are free of cost. Over the last few years, the foundation has invited international musicians from the US, UK, Israel, Spain, German and Japan to be in-residence for periods ranging from one month to one year. Visiting teachers bring with them new teaching methods and perspectives. These have greatly benefitted the students and teachers at the foundation as well as external students and teachers.
As regards to the rule of consistency, the learned Counsel for the assessee stated that even in scrutiny assessment for AY 2009- 10 and 2010-11 exemption under section 11 of the Act was examined and allowed while framing the assessment under section 143(3) of the Act. For the sake of consistency also, he argued that in this year, when there is no change in facts a different view cannot be taken. He also brought to our notice that all though the assessment is reopened for AY 2009-10 and assessment proceedings are under process but this cannot be the reason for taking a different view. The learned Counsel for the assessee also drew our attention to the fee structure and the details is given in the following chart: - 12 Amount (Rs.) Amount (Rs.) Fees from students 7,324,986 Concert receipts Sale of tickets 256,440 Sponsorship 575,000 Other sources 131,886 Profit on sale of mutual fund 1,307,596 Total 95,95,908 Expenses 13,707,366 Deficit (4111,458) Add: Donations 503,211 Interest 62,21,003 11. From the above chart, he stated that the income and expenditure of Rs. 62,21,003/- includes interest income of Rs. 98,29,850/- and donation of Rs. 5,03,211/-. Further, he argued that thus, if the receipt on account of interest and donation excluded, there is huge deficit of Rs. 41,11,458/- which contradicts the view that the motive of the foundation is making profit. He narrated that the foundation conducting various music classes on regular basis in a structure manner in a class room style with the object of imparting education of music. But if charged from students for the same, do not cover the cost of importing music education and administrative cost and far more than fee collected which are as under:-
Particulars Year ended 31.03.2012 Fees received 7,324,986 Less Administration expenses 7,828,881 Less Depreciation on Immovable 1,849,464 Property Less Depreciation 631,396 Deficit 2,984, 755 12. He also narrated the fact that the foundation organizes concert to promote musical night and the appreciation among the students as well as the interested public with all forms of music and for this 13 there is a sale of ticket sponsorship and expenses incurred on programmes details are as under:-
Sale of Tickets 256,440 Sale of tickets of Various Programmers 98,320 Sponsorship Received 575,000 Expenses incurred on programmers 3,397,626 Net 2,467,866 13. He stated that even corporate donation of Rs. 64,53,568/- was treated by the AO as business income in its computation of income. The learned Counsel for the assessee mainly argued that once the assessee is set up for the purpose of donation, the exemption under section 11 of the Act cannot be denied and this view is supported by the decision of Hon’ble Delhi High Court in the case of Delhi Music Society vs. Director General of Income-tax (2013) 357 ITR 265 (Delhi) and Bombay High Court in the case of Director of Income-tax vs. National Safety Council (2008) 305 ITR 257 (Bombay).
On the other hand, the learned Sr. DR stated that the case laws relied on by the learned Counsel for the assessee are on its own facts and facts in present case do not support the facts cited in the decision of Hon’ble Delhi High Court in the case of Delhi Music Society and Hon’ble Bombay High Court in the case of National safety counsel. The learned Sr. DR also stated that the Tribunals in for AY 2011-12 is given on its own facts, wherein complete facts were discussed whereas in the present case, such facts are not at all brought on record.
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the assessee’s trust is a trust for the propagation of music and promotion of musical 14 talent. The assessee’s trust is conducting various music classes for the students on regular basis for last several years. According to us, training being in the nature of normal schooling or class room education is within the object of importing education of music. According to us, the activities of the trust thus falls within the term of education as specified in section 2(15) of the Act. Therefore, now we will consider the decision of Delhi High Court in the case of Delhi Music Society, wherein Hon’ble Delhi High court has considered this issue in Para 8 which read as under: - “8. The object clause of the memorandum of association of the petitioner says that the objects of the school are to teach western, classical music, to promote musical knowledge and the appreciation among the students as well as among the interested public by means of workshops, lectures/demonstrations, recitals etc., to acquire and maintain instruments for teaching purposes, to create and update a world class library of music literature both audio and video to add more class rooms and other required facilities for the purpose of musical education and to construct and maintain concert hall/auditorium for the school. Clause (vi) of the memorandum of association declares that the petitioner is not a society for profit and the income and property of the society shall be applied solely towards the promotion of the objectives of the society and no portion thereof shall be paid, directly or indirectly, as dividend 15 or bonus or any other manner to any member of the society or its officer or servant or any other person. It is true that the petitioner is not affiliated to any university in India and is not recognized by any statutory body having anything to do with education. It is also a fact that the petitioner does not have a syllabus of its own and it awards grade certificates to the students depending upon their proficiency as declared by the Trinity College, London and the Associated Board of Royal School of Music, London on the basis of the examinations conducted by them. The question before us is whether the reasons given by the prescribed authority are germane to the question as to whether the petitioner is an educational institution within the meaning of Section 10(23C)(vi).”