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Income Tax Appellate Tribunal, DELHI BENCHES: ‘B’, NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU&
PER L.P. SAHU, ACCOUNTANT MEMBER
These two appeals have been filed by the Revenue against orders of Ld. CIT(A)-XXI, New Delhi vide order dt. 11.6.2012 for the A.Y. 2009-10 and vide order dt. 28.2.2014 for A.Y. 2010-11 on the following grounds of appeal.
ITA 4292/Del/2012 AY: 2009-10 1. " Ld. CIT(A) is not justified in holding the assessee in the limb of Education as per sec.2(15) definition whereas the activities of the assessee shows that it is a general public utility doing commercial activity.
2. Ld. CIT(A) is also not justified as the activities of the assessee has attributes of business and trade. As the activities of the assessee are not directly relatable to mainstream of education and are of the nature such as publishing of books, executing projects such as Chattisgarh Education Resource Centre and sale of books under the Bihar reading Improvement programme.
3. Ld. CIT(A) ignored that the assessee has accepted that no separate books of accounts have been maintained an attempt was made to cull out the same from the consolidated accounts. Clearly, this is a violation of section 11 (4) rws 11(4A) also.
4. The impugned order passed by Ld. CIT(A) is perverse both in law & facts.”
ITA 2870/Del/14 A.Y. 2010-11 1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the assessee is not involved in any business or commercial activity and the provisions of s.2(15) of the I.T. Act is not attracted in the case of the assessee.
2. On the facts and circumstances of the case, the Id. CIT(A) has failed to appreciate the facts that assessee society was involved in publishing and selling of text books which are not in the nature of imparting education and as such, the assessee in neither in the field of education, nor in the field of medical relief or relief of the poor and it can be considered after seeing the activities carried out by the assessee as falling within the scope of general public utility as per s.2(15) of the I.T. Act, 1961.
3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the exemption u/s 11 to the assessee, whereas, the assessee is earning huge profits by publishing text books and are selling the same in lieu of consideration as per its objects and nowhere charity can be seen in the whole process. 4. The appellant craves to add, to alter or amend any ground of appeal raised above at the time of hearing.”
Since the issue involved is common in both the appeals, these appeals have been heard together and are disposed of by this consolidated order.
First we take up ITA 4292/Del/2012 for the A.Y. 2009-10. The brief facts of the case are that the assessee filed return of income on 25th September, 2009 declaring ‘nil’ income. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee Society submitted reply which has been called for by the Assessing Officer from time to time, and also submitted copy of Form no.10, Copy of Memorandum of 3 Association, Certificate of registration u/s 12A and notification u/s 80G of the Income Tax Act, 1961 and other documents as required by the A.O. The A.O. observed that the assessee has sold the books to the Bihar Jharkhand govt. of Rs.4.55 crores and sale of Eklavya and other publishers of Rs.35.78 lakhs. The A.O. further observed that : (a) the books sold to the Bihar, Jarkhand govt. is in the nature of general interest books which the government has decided to provide to young school children to encourage the reading habit and none of them are in the nature of text book. Some of the titles selected include nach chali, khel khel me, khilonon ka khajana, matha pachi, pathe hi pathe etc. The total sale of books under this programme in Bihar and Jharkhand of Rs.4.55 crores has yielded a surplus of Rs.1.74 crores after excluding all the related expenses etc.(b) Sale of Eklavya Publishers Rs. 12.74 lakhs; (c ) Educational consultancy receipts Rs.5.62 lakhs. A.O. also made additions under the head ‘income from other sources’. Therefore, in view of the total the A.O. assessed his total income at Rs.2,04,022/-. A.O. did not agree to the submissions made before him that the Society is fulfilling the conditions as defined u/s 2(15) of the Act that the society is engaged in charitable purposes. A.O. after verifying the submissions of the assessee and relying on some case laws made additions as stated above and also recommended for withdrawal of registration u/s 12AA of the Act also.
Aggrieved by these additions made by the A.O. the assessee carried the matter in appeal before the First Appellate Authority.
Ld.D.R. relied on the order of the A.O. and submitted that the assessee is purely engaged in the business of sale of books, substantive part of the revenue of the society is coming from the sale of books and their publications. The Society was not engaged in any charitable activity as defined in S.2(15) of the Act. The assessee society has not supplied any text books to the Bihar and Jarkhand government. It is only story books for the students. It is wholly running in commercial way and the assessee has also not satisfied the conditions laid for maintaining separate books of accounts for the business activity undertaken by the Society. The case laws as relied by the assessee society in his written submissions before the A.O./CIT(A) are distinguishable on facts. Therefore the A.O. has rightly made additions on the facts and circumstances of the case.
On the other hand Ld.AR relied on the order of the Ld. CIT(A). He submitted paper books containing 1 to 764 pages, case law paper book containing page nos. 1 to 73 along with written submissions. He reiterated the submissions made before the Ld. CIT(A) and filed circular no.11/2008 dated 19.12.2008 issued by CBDT clarifying the definition of ‘charitable purposes’ u/s 2(15) of the Act, which is reproduced for the sake of convenience. “EXEMPTION UNDER SECTION 11 IN CASE OF ASSESSEE CLAIMING BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANISATIONS CIRCULAR NO. 11/2008, DATED 19-12-2008
Definition of 'Charitable purpose' under section 2(15) of the Income-tax Act, 1961 Section 2(15) of the Income Tax Act, 1961 ('Act') defines "charitable purpose" to include the following:- (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of- (a) any activity in the nature of trade, commerce or business; or (b) 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.
2. The following implications arise from this amendment - 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. 6 2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmer, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that - (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is 'education' or 'medical relief' would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose contained in section 2( 15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.
3.1. There are industry and trade associations who claim exemption from tax u/s l l on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fan under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15). 3.2. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or 8 business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.”
5.1. Ld. A.R. also relied on the following case laws. i. Jaypee Institute of Information Technology Society vs. DGIT(E), (2009) 227 CTR 124 (DHC) dt. 21.8.2009. ii. Gujarat State Co-operative Union vs. CIT (1992) 195 ITR 279 (Guj HC) dated 7.2.1992. (iii) Soorya Education Trust vs. ITO (2012) 22 Taxmann.com 222 (Chennai Tribunal) dt. 31.5.2012. (iv) Delhi Music Society vs. DGIT WP(C) No.4726/2011 (DHC) dt. 16.12.2011. (v) ITO vs. Science Olympaid Foundation (2014) 48 taxmann.com 382 (Delhi Trib.) dt. 16.5.2014.
After hearing both the parties, perusing material available on record, orders of authorities below, case laws cited, we find that the Ld. First Appellate Authority has adjudicated this issue at page no.13 to 16 of the impugned order which is reproduced hereunder for the sake of convenience.
“4.2 I have gone through the findings of the AO in the assessment order and written submission of the Ld.AR as discussed above. In this regard, it is found that AO has relied on the case of Hon'ble 9 Supreme Court in the case of Sole Trustee Lok Shikshan Trust Vs. CIT, 101 ITR 234 (SC) as well as various other case laws. Whereas, Ld.AR of the appellant has relied on the latest judgement of the Hon'ble Delhi High Court in the case of Delhi Music Society Vs. DGIT(E), reported at 65 DTR 337/246 CTR 327. In para 4 of the judgement the Hon'ble Delhi High Court has considered the decision of Sole Trustee Lok Shikshan Trust Vs. CIT (101 ITR 234) of Hon'ble Supreme Court and in para 9 & 12 Hon'ble High Court of Delhi has further discussed the said order of Hon'ble Supreme Court and later on in para 19 of the order, the Hon'ble Delhi High Court has distinguished the order of the Hon'ble Supreme Court by observing as under.- "19 For the above reasons, we are satisfied that the petitioner meets the requirements of an educational institution within the meaning of Section 10(23)(c)(vi) of the act. The prescribed authority, in our view, has not taken into consideration the relevant factors in coming to the conclusion that the petitioner is not entitled to the approval as 'educational institution'. His understanding of the judgment of the Supreme Court in the case of Loka Shikshana Trust Vs.CIT (supra) seems to us to be flawed. It also appears to us that the prescribed authority has not examined and appreciated properly the nature of activities of the petitioner-school and the rules and regulations governing those activities." 4.3 I put my reliance on the judgement of the Hon'ble Delhi High Court in the case of Delhi Music Society as discussed above, and after putting my reliance on the above mentioned order of Hon'ble Delhi High Court, it is found that the activities done by Eklavya Foundation comes under the purview of 'education' because appellant society was founded under the aegis of the Planning Commission with the object' to contribute to change in Government school education system by conducting micro I level experiments and collaborating with governments to implements them on a larger scale. Eklavya Foundation has been working in these objectives for the last 25 years and it is engaged in the areas of 10 curriculum development, improving the education system, providing resource support to state governments 'viz, Kerala, Chattisgarh, Bihar , Publications of educational materials. So these activities are in the nature of education. The finding of the AO that appellant society is not providing education is found to be very myopic view. It may not be doing education directly, but indirectly it is engaged in educating teachers and doing various research work with regard to improve educational curriculum and publishing books and other material in collaboration with various State Government as well as with NCERT which is a well known and reputed Organization in the field of education and it is Publishing books for various standards from Class 1 to 12. I have gone through the paper book submitted during the course of appellate proceedings, wherein, audit report has been discussed and share of publications for last 5 years has been discussed as under:- Year Income from sale of Total income for Per Eklavya Publications the year – Rs. Cent & TLM – Rs. 2003-04 13,07,140.00 1,92,58,904.61 6.79 2004-05 13,61,667.00 1,67,40,430.54 8.13 2005-06 18,92,459.55 2,24,85,994.53 8.42 2006-07 16,45,056.95 2,07,43,863.60 7.93 2007-08 41,56,633.10 3,37,94,659.71 12.30 From the above chart it can be gathered that publishing is an exceptional incident and not a normal feature and in the concluding para of the reply submitted vide letter dated 27.4.2012 it has been concluded as under: Of course, Eklavya books carry a price tag, not distributed as freebies but distributed through a mechanism which has it is own rationale. The development and distribution are subsidized through donations and grants so that the unprivileged children have access to books. The argument in Para 'b' that Eklavya sells books for generating surplus is not true. Eklavya's publication programme has relied on grants. It is quite clear that book 11 development costs can't be recovered. However direct costs of paper and printing and part of distribution costs could be recovered, despite this we could attempt to keep our publications low priced so that it has as wide a reach as possible. Using a thumb rule principle of three items the direct costs of paper and printing does not provide a margin as understood by the AO. It provides the possibility of recovering a part of the distribution costs. It needs to be emphasized that our books are accessed by groups and this happens slowly over time. We often have to carry large stocks since it takes two to three years for these books to be disseminated. It is our social purpose to make available a large collection of low priced books for various educations groups. Thus, adverse observations of Ld.AO are misplaced and it is prayed that the relief prayed for may please be granted." 4.4 From the above reply it is crystal clear that Eklavya Foundation is engaged in social cause without any profit motive. So allegation of the AO that it is not an educational institution and it is carrying out business activities and it is not maintaining separate books of account. All the three allegations are misconceived . In fact it is found that appellant is not doing any business activity so there is no need to maintain separate books of account and in my consideration opinion the appellant deserves relief on this account. Ground no.2 to 6 are allowed.”
Keeping in view the perfect finding given by the Ld. First Appellate Authority on the issue involved in the appeal filed by the department, we are of the considered view that the Ld. First Appellate Authority has rightly concluded that Eklavya Foundation is engaged in social cause without any profit motive and A.O. alleged that it is not an educational institution and is carrying out business activities and it is not maintaining separate books of accounts, all these allegations are misconceived notions 12 of the A.O. After going through the impugned order we find that the Ld. First Appellate Authority has rightly allowed the appeal of the assessee, after taking into consideration the impugned order, case laws cited, paper book filed. We find no infirmity in the impugned order which accepted the contentions of the assessee that Eklavya Society is engaged in charitable purpose as defined u/s 2(15) of the Act.
After going through the rules and regulations of Eklavya Foundation it appears that the society is purely engaged for charitable purpose and the society is also granted registration u/s 12A of the Act vide order no.1696 of DIT(E) dt. 15.12.1984 and notified u/s 80G(5) of the Act dt. 27th August,2007. We extract the utilisation of Society’s Income and Properties towards Aims and Objects as per the Memorandum of Association(provided at page no.93 of assessee’s paper book. “V. Utilisation of Society’s Income and Properties towards Aims and Objects:- All the incomes, earnings, movable and/or immovable properties of the Society shall be solely utilised and applied towards the promotion of its aims and objects only as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividends, bonus, profit or in any manner whatsoever to the present or past members of the society or to any person or persons making claims through any one or more of the present or the past members. No member of the society shall have any personal claim on any movable and/or immovable property of the society or make any profit, whatsoever, by virtue of his/her membership.”
8.1. A perusal of the above Clause clearly shows that the society is solely engaged in charitable activities and is not running with any profit motive.
8.2. In the totality of the facts and circumstances of the case the appeal of the Revenue is dismissed.
Since we have dismissed revenue’s appeal for A.Y. 2009-10, and the issue involved for A.Y. 2010-11 being the same, therefore, following our finding vide para 8.2 above, we dismiss revenue’s appeal for the A.Y. 2010-11 also.
In the result both the revenues appeals for the Assessment year 2009-10 and A.Y. 2010-11 are dismissed.