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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, J.M. This appeal is preferred by the department against the order dated 24.02.2015 passed by the Ld. CIT (Appeals)-40, New Delhi for assessment year 2010-11.
The brief facts of the case are that the assessee society is registered under the Society’s Registration Act, 1860 and is also registered u/s 12A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") vide order dated 31.08.1999. Admittedly, the objects of the society include promotion of golf in India, fostering and maintaining a high standard of amateur golf in India, conducting the Amateur Golf Championship of India and other golf championships and promoting and arranging golf matches and competitions in India and abroad.
2.1 The return of income was filed at Nil and the case was selected for scrutiny subsequently. During the course of assessment proceedings, the Assessing Officer observed that the assessee had received sponsorship fees of Rs. 1,70,69,931/- during the year and, accordingly, he was of the opinion that the assessee was generating income by way of receiving sponsorships. The Assessing Officer required the assessee to show cause as to why the assessee was carrying out business activities although it was a charitable society. It was the submission of the assessee before the Assessing Officer that it was not engaged in any business and that the sponsorships were received in furtherance of its activities for organizing golf tournaments and for promotion of the sport of golf in India.
However, the Assessing Officer was of the opinion that the assessee society was carrying out an object of general public utility and, was, therefore, required to avoid any activity which was in the nature of business, trade or commerce. The Assessing Officer was also of the view that this attracted the application of first proviso to section 2(15) of the Income Tax Act, 1961 and, therefore, commercial receipts would not be entitled to get the benefit of exemption in respect of such income. The Assessing Officer proceeded to tax the surplus generated for the year amounting to Rs. 39,08,961/- at the maximum marginal rate after denying the benefit of exemption u/s 11/12 of the Act.
2.2 Aggrieved, the assessee approached the Ld. First Appellate Authority who allowed the assessee’s appeal and directed the Assessing Officer to allow exemption u/s 11(1) of the Act to the assessee. Now, the department has approached the ITAT and has challenged this action of the Ld. CIT (A).
None was present on behalf of the assessee when the appeal was called out for hearing nor was any adjournment application received on behalf of the assessee/respondent. However, looking into the facts of the case, we are proceeding to decide the appeal on merits ex parte qua the assessee/respondent.
The Ld. Sr. DR read out extensively from the assessment order and argued that as per the new definition of charity in section 2(15) of the Act, charitable societies with the object of general public utility cannot carry out any activity which is in the nature of trade, commerce or business or is rendering any service in relation to any trade, commerce or business. The Ld. Sr. DR submitted that the activity of the assessee in taking sponsorship has the characteristic of business and since the assessee’s case falls under the last limb of section 2(15) i.e. the advancement of object of any other general public utility, it is hit by proviso to section 2(15) of the Act. Ld. Sr. DR also submitted that the Ld. CIT (A) had erred in directing that the assessee should be granted the benefit u/s 11(1) of the Act.
We have heard the Ld. Sr. DR and have also perused the order of the Ld. CIT (A). Ld. CIT(A) while allowing relief to the assessee has followed the ratio of the judgment of the Hon’ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT(E) reported in 53 Taxmann.com 404 (Del) wherein vide judgment dated 22.01.2015, the Hon’ble Delhi High Court while upholding the constitutional validity of proviso to section 2(15) has laid down the strict and literal interpretation of the proviso to section 2(15) and has held that mere receipt of fee or charge will not mean that the assessee is involved in any trade, commerce or business. In the case of India Trade Promotion Organisation, the Ld. DGIT (E) had passed an order stating that though the assessee was engaged in “the advancement of any other object of general public utility”, as per s. 2(15) of the Act, its object could not be regarded as “charitable purposes” due to the new proviso to s. 2(15) and further that it was not eligible for exemption u/s 10(23C)(iv). It was held by the Ld. DGIT (E) that as the assessee had huge surpluses in banks, it had given its space for rent during Trade Fairs and Exhibitions, it had received income by way of sale of tickets and income from food and beverage outlets in Pragati Maidan, etc, the assessee was rendering service to a large number of traders and industrialists in relation to trade, commerce and business and was, therefore, hit by the expanded list of activities contained in the proviso to Section 2(15). It was further observed By the Ld. DGIT (E) that the service of allotting space and other amenities like water, electricity and security, etc. to the traders to conduct their exhibitions fell within the ambit of any activity of rendering any service in relation to trade, commerce or business. The assessee filed a writ petition before the Hon’ble Delhi High Court claiming that the First Proviso to section 2(15), as amended by the Finance Act, 2008, was arbitrary and unreasonable and violative of Article 14 of the Constitution of India. The Hon’ble Delhi High Court held in the favour of the assessee. The relevant observations of the Hon’ble High Court are as under:
(i) It is apparent that merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It is also important to note as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation – both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object of general public utility to which the exception carved out in the first proviso to Section 2(15) of the said Act would not apply;
(ii) If a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). It is well- settled that the courts should always endeavour to uphold the Constitutional validity of a provision, and in doing so, the provision in question may have to be read down;
(iii) Section 2(15) is only a definition clause. The expression “charitable purpose” appearing in Section 2 (15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression “Charitable Purpose”, as defined in Section 2(15) of the Act, is read in the context of Section 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression “charitable purpose” by the revenue.
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 7 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.
Thus, while we uphold the Constitutional validity of the proviso to Section 2(15) of the said Act, it has to be read down in the manner indicated by us.”
5.1 We find that the Ld. CIT (A) has decided the issue in favour of the assessee by relying on the ratio laid down by the Hon’ble Jurisdictional High Court. We further note that even during the course of proceedings before us and even on being specifically asked by the Bench, the Ld. Sr. DR could not point out any other judgment to the contrary in this regard. It is undisputed that the activities of the assessee society have not been doubted by the tax authorities and they continue to be regarded as charitable in nature. Accordingly, following the ratio of the judgment of the Hon’ble Delhi High Court as aforesaid which has also been applied by the Ld. CIT (A), we find no reason to interfere with the findings of the Ld. CIT (A) in this regard and we dismiss the grounds raised by the department.
In the result, the appeal of the department stands dismissed.
Order pronounced in the Open Court on 4th July, 2018.