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order s dated 20/01/2016 of the CIT(A)-1, Mumbai the assessee has filed the above mentioned two appeals for the same A.Y.The first appeal is against the regular appellate order,whereas the second appeal is about the rectification application filed under section 154 of the Act. We are adjudicating both the appeals together. Assessee-a registered trust,filed its return of income on 27/09/2011,along with the income and expenditure account and other financial statements declaring Deficit of Rs. 27.17 crores. The Assessing Officer (AO)completed the assessment on,10/03/2014,u/s. 143(3)of the Act, determining its income at Rs.4.51 crores. ITA/1975/Mum/2016: 2.Effective Ground of appeal is about not granting deduction in respect of expenses incur - ed by assessee towards various heads i.e. Board of Trustee Account (Rs.1.04 crores), Medical care account(Rs.99.19 lakhs),Music-school-account(Rs.17.69)lakhs and Sabha account (Rs. 78.94 lakhs) and not granting the benefits of provisions of section 11 of the Act. During the assessment proceedings,the AO observed that the objective of the assessee were primarily in the nature of advancement of any other object of general public utility. He issued a notice to the assessee mentioning that majority of the receipts were from renting of auditorium for various programmes,that receipts from auditorium worked out to Rs.87.90 percent of gross receipts, that the hall maintained by the assessee trust i.e. Shanmukhananda Hall (SH)was primarily used for ticketing shows and was given to various event managers, 1975/M/16 & 6858/M/16 Shamukhananda Fine Arts & Sangeetha Sabha that it madecommercial exploitation of the hall for 245 days in the year under consideration, that it was collecting entertainment tax and service tax for the events organised in the hall, that the activities carried out by it did not entail any benefit to the general public, that it was earning huge profit which was primarily commercial in nature. Accordingly he directed the assessee to show cause as to why it should not be concluded that it is not eligible for exemption u/s.11 of the Act. After considering the submission of the assessee,the AO held that the assessee had gross misunderstood the facts of its own case, that the amended provisions of section 2(15) of the Act were of no help to the assessee, that it was mainly engaged in commercial activities with a little charity,that it was trying to give the commercial activity colour of charitable activities. He analysed the objects of the assessee, as per Memorandum of Association dtd 23/12/2007, and held that most of the activities were of commercial nature,that it was having mixed objectives of which some were of charitable nature and others were of commercial nature.He further observed that it was engaged in the activities like giving hall on rent, conducting cultural activity in sabha and running music school and a medical centre, that the main activity was only to give hall on rental basis,that the claim of the assessee that commercial activities were allowable u/s.11(4A) of the Act was not borne out of the facts of the case, that it was trying to justify the commercial activities in the shoes of charitable activities, that as per the provisions of section 11(4A),the commercial activities should be incidental to the main activities of the trust, that in the case under consideration commercial activities were the main object and the charitable purposes were incidental to commercial activities. Finally, he held that main object of assessee-trust was to rent SH for commercial activities,that the major expenses were also related to hall activities,that as per clause 21 of Memorandum of Association (MOA) the trustees had discretionary power to spend on various activities, that it was not entitled to exemption as per the provisions of section 11 of the Act. He referred to case of Yogiraj Charity Trust (103 ITR 777). 3.Regarding the disallowance of depreciation,the AO observed that assessee was claiming the fixed assets as application of receipt in the revenue account, that claiming full amount of assets in revenue account and again claiming depreciation amounted to double deduction. He disallowed the claim made by the assessee.He further observed that even if the assessee was successful in appellate proceedings with regard to claim made u/s. 11 of the Act,the assessee would not be eligible for claiming depreciation.
1975/M/16 & 6858/M/16 Shamukhananda Fine Arts & Sangeetha Sabha 4.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions.It also relied upon several case laws. After considering the available material,the FAA held that the assessee had claimed that it was engaged in educational activity for which number of music conferences including International conferences were organised, that during the appellate proceedings no details of conferences/International conferences were filed,that it had claimed that the exposition of fine arts by talented and renowned artists would spread awareness of knowledge and culture among the members of community at large. He referred to the case of Sole Trustees, Loka Shikshana Trust (101ITR234); Bihar Institute of Mining and Mine Surveying (208ITR608); and observed that while deciding the issue application of proviso to section 2(15) had to be considered,that the proviso was brought on statute w.e.f. AY 2009-10,that the 88% receipts of the assessee were from rental income,that the income pattern proved that education was merely a byproduct,that it had earned profit during the year and that rental income was more than 87% of total receipt, that the main activity of assessee was to let out its property and not to spread knowledge.The FAA held that cases relied upon the assessee were distinguishable on facts.He further observed that the assessee had claimed that giving the hall on rent was not the object of the assessee and that proviso to section 2(15)was not applicable, that the object of the assessee were mixed,that some of the objects were of commercial nature, that main activity was letting out of hall for commercial activities,that the board of trustees had discretionary power to spend trust fund on various activities,that the proviso to section 2(15) was squarely applicable to the facts of the case under consideration,that the assessee was engaged in regular business of letting out its property, that the assessee was hit by proviso to section 2(15), that the assessee had claimed that giving the hall on rent was going on since long and that the department had allowed benefit of section 11 in the earlier years,that principles of res-judicata would not apply to legal issues. With regard to provisions of section 11(4A) of the Act,the FAA observed that the assessee was engaged in commercial activities, that the charitable activities were incidental to commercial activities, that the proviso to section 2(15)would over ride the provisions of section 11(4A) of the Act. 4.1.With regard to claim of depreciation, the FAA held that exemption u/s. 11 had been denied to the assessee,that no deduction for depreciation was available to it. Finally, the FAA dismissed the appeal filed by the assessee. 3 1975/M/16 & 6858/M/16 Shamukhananda Fine Arts & Sangeetha Sabha 5.During the course of hearing before us, the Authorised Representative(AR) stated that the registration granted by the department u/s. 12A was not revoked, that the assessee was carrying out charitable activities,that the Tribunal had also held that it was carrying out charitable acivities.He referred to the objects of the trust as per the Trust deed.He stated that Sangeet Vidyalaya was training students in fine arts(Pg-15 and 16 of the PB),that the assessee was charging token money from the patients.Referring to pg no.50-56 he stated that the assessee has excess expenditure of Rs.14.45 lakhs, Rs.7.35 lakhs, Rs.4.93 lakhs and Rs.10.42 lakhs under the various heads of medical expenses,that the expenses were in the nature of permanent day to day expenditure,that the rent received from the hall was used for subsidis- ing the medical and education expenses,that the pre-dominant purpose was to provide education and medical help, that the provisio to section 2(15) of the Act was not applicable to such activities,that the assessee was not in commercial activities,that till 12A certificate was in operation the AO was not entitled to declare the object of the trust as non charitable.He referred to the order of the Hon'ble Bombay High Court in its own case of IA No. 214 of 2012 and the order of the Tribunal dtd.09.09.2011(ITA/1849/2011).For the rental receipt he relied upon case of Madras Stock Exchange Ltd.(105 ITR 546) and Woman’s India Trust(379 ITR 506).For Rule of consistency,he referred to the case of Shree Ram Memorial Foundation (158 ITR 3) and Excel Industries Ltd.(358 ITR 295).Cases of Thyaga Brahma Gana Sabha (188 ITR 160),Delhi Music Society(357 ITR 265) Jeevan Vidya Mission (ITA/770/ Mum/ 2014,dtd.30.09.2014)were relied upon to argue that music was part of educational activity. The cases of Lala Lajpatrai Memorial Trust(IT Appeal No.2307 of 2013 dtd.13.04.2016), India Trade Promotion Organisation(371 ITR 333) and Army Welfare Placement Organisa - tion(ITA/2996/Del/2011 dtd.22.01.15) was referred to stating that provisio to section 2(15) was not applicable. The Departmental Represnetative(DR)heavily relied upon the order of the FAA and stated that the assessee was deeply involved in commercial activities, that education was incidental to letting out the hall, that proviso to section 2(15) of the Act was applicable.
6.We have heard the rival submissions and perused the material before us.We find that as per the predominant objects of the assessee,as per the memorandum of association(Pg. A1-A25 of the PB)are to impart education in music,dance,drama,culture and other fine arts,to provide medical relief,health services and yoga to general public,to establish medical centres/ hospitals for providing medical services(Claus 3),that DIT(E),Mumbai had withdrawn the 1975/M/16 & 6858/M/16 Shamukhananda Fine Arts & Sangeetha Sabha registration granted to it,that the Tribunal reversed the order of the DIT,that the Hon’ble Bombay High Court confirmed the order of the Tribunal.In our opinion,during the continua - tion of registration,it is not permissible to the departmental authorities to challenge the charitable nature of the objects of a Trust.We would like to refer to the case of Ahmedabad Urban Development Authority(335 ITR 575)wherein the Hon’ble Gujarat High Court has held as under: “Section 12AA of the Income-tax Act, 1961, lays down the procedure for registration in relation to the conditions for applicability of sections 11 and 12 as provided in section 12A . Therefore, once the procedure is complete as pro-vided in sub-section (1) of section 12AA and a certificate is issued granting registration to the trust or institution the certificate is a document evidencing satisfaction about : (i) the genuineness of the activities of the trust or institution, and (ii) about the objects of the trust or institution. Section 12A stipulates that the provisions of sections 11 and 12 shall not apply in relation to income of a trust or an institution unless the conditions stipulated therein are fulfilled. Thus, granting of registration under section 12AA denotes that the conditions laid down in section 12A stand fulfilled. The effect of such a certi-ficate of registration under section 12AA , therefore, cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution is not fulfilling the conditions for applicability of sections 11 and 12 .” We find that the main objection of the departmental authorities was that the SH was rented out most of the time and that it was a commercial activity.In our opinion, act of letting out of hall cannot be and should not be considered in isolation.Eligibility or otherwise of benefit u/s. 11 of the Act cannot depend solely on one factor.What has to be seen is as to whether the trust is incurring the expenditure for the objects and purposes for which it was established. We find that the issue of letting out of a hall by a charitable institute was deliberated upon by the Hon’ble Madras High Court in the case of Madras Stock Exchange Ltd(supra) and Women’s India Trust (supra).We would like to reproduce the relevant portion of the judg - ment of the Hon’ble Bombay High Court in the case of Women’s India Trust and it reads as under: “The assessee-trust formed to carry out the object of education and development of natural talents of people having special skills, more particularly women. It trained them to earn while learning. It educated them in the field of catering, stitching, toy making, etc. While giving them training, it used material bought from the open market. This was essential for carrying out the assessee’s object. In the process, some finished product such as pickles, jam, etc., were produced and which the assessee sold through shops, exhibitions and personal contacts. The motive of the assessee was not the generation of profit but to provide training to needy women in order to equip or train them in these fields and make them self-confident and self- reliant. There was nursing training, which was also being managed and administered by the assessee. The details of income and expenditure showed that the assessee had received donations of Rs. 36,88,634 and nursing school fees of Rs. 4,46,088. The assessee pointed out that this nursing training provided at the centre of the assessee at Panvel was free of cost. The charge was levied for the mess but accommodation and other facilities were free of cost and apart from community development programmes, which were undertaken to educate rural women, they were taught various skills and made aware of how to live honourably. The Tribunal found that this was not an activity which would fall within the proviso to section 1975/M/16 & 6858/M/16 Shamukhananda Fine Arts & Sangeetha Sabha 2(15) . The Tribunal referred to two letters addressed by the trustees of the assessee-trust clarifying that in the past, such activities had been found to be incidental to the objects of the trust. Secondly, the donation received during the year had been utilised in the assessment year 2009-10 for achieving the object of the trust. However, the bank interest received was continued and, then, there was a deficit. It was in these circumstances that the argument was canvassed that the fees collected for training women were only to meet the cost of expenses for providing them food items. Their accommodation and other facilities were free of cost. The Tribunal found that the trust may be set up for advancement of any other object of general public utility but that would not cease to be charitable purposes because the activities in which the trust was involved could not be termed as carrying on of trade, commerce or business, that the activity undertaken did not partake of the character of trade, commerce or business nor of rendering of any service in relation thereto but was only to teach or impart skills and to instill confidence that the produced goods or articles were sold. To that extent also deficit had occurred. The Tribunal took a view that occasional sales or the trust’s own fund generation were for furthering the objects but not indicative of trade, commerce or business. The proviso did not apply. …… considering the fact that the trust had been set up and was functional for the past several decades and it had not deviated or departed from any of its stated objects and purpose, utilisation of the income, if at all generated, did not indicate the carrying on of any trade, commerce or business. The Tribunal’s view was to be upheld. It was a possible view and could not be termed perverse. The view was taken on an overall consideration and bearing in mind the functions and activities of the trust. In such circumstances, it was not vitiated by any error of law apparent on the face of the record.” 6.1.We also find that the assessee had suffered loss in the various activities,carried out by it, to the tune of Rs.32 lakhs(app.)except for eye care department and interest on investment (Pg.50,52, 56-57 of the PB).A perusal of Pg.s 82-84 reveal that expenditure incurred by it during the year under appeal pertained to overall administration and activities. In other words the said expenditure would have to be incurred even if the SH was not let out.SH was rented out when it was not required by the assessee for its own purpose. Here,one important factor to be remembered is that the it could continue to carry out various charitable activities and could achieve the objects at concessional rates due to income received by it from letting out of SH. 6.2.It is also a fact that the departmental authorities have,in the past,admitted that activities carried out by it were of charitable nature.No new fact has been brought on record to prove that during the year some different incidents had taken place as compared to the earlier year to change the nature of the activities.The letting out of SH,during the period when it was not required by the trust,was not considered a commercial activity in the earlier years.It is true that principles of res judicata are not applicable to the income tax proceedings.But,at the same time it is also true that principles of consistency have to be followed while deciding the tax matters.In the case of International tractors Ltd.,the Hon’ble Delhi High Court(397 ITR 696)has held that deductions allowed in the earlier assessment years should not be withdrawn unless the circumstances have changed. The Hon’ble Allahabad High Court in the matter of Zazsons export Ltd.(397 ITR 400) has held as under:
1975/M/16 & 6858/M/16 Shamukhananda Fine Arts & Sangeetha Sabha In order to maintain consistency, a view, which had been accepted in an earlier order ought not to be disturbed unless there was any material to justify the Department to take a different view of the matter.” While deciding the appeal,the Hon’ble Court had taken note of the proceedings of the earlier AY.s.As the rule of consistency has not followed without bringing distinguishing features of the year under appeal,as compared to the facts of the earlier years,so,in our opinion the order of the FAA cannot be endorsed on this count. 6.3.We also find that one of the object of the assessee was to impart training in music and that training of music has been considered education by the Hon’ble Court.In that regard we would like to rely upon the cases of Delhi Music Society(supra)Jeevan Vidya Mission(supra) and hold that imparting training of music was an educational activity. 6.4.Finally,we would like to address the argument of the FAA about applicability of proviso to section 2(15)of the Act.We find that the AO as well as the FAA has empasised the fact that the provisions of the proviso to the section 2(15)the assessee was not entitled to claim the benefit of section 11 of the Act.We would like to reproduce the proviso and it reads as under: (15) “charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility : Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.” If we consider the various activities carried out by the assessee,as evident from the various pages of the PB,it is clear that it was incurring expenditure in the fields of education and medical relief.Therefore,in our opinion,the assessee cannot be denied the benefit of section 11.Here, we would like to refer to the case of Ahmedabad Urban Development Authority (396 ITR 323)of the Hon’ble Gujarat High Court wherein the court has held as under: “The introduction of the proviso to section 2(15) of the Income-tax Act, 1961, by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It is not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The expressions trade, commerce and business as occurring in the first proviso to section 2(15) must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organised manner. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purposes but are conducting some activities for a consideration or a fee. 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 1975/M/16 & 6858/M/16 Shamukhananda Fine Arts & Sangeetha Sabha 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.” Considering the above,we hold that the assessee is running music school and providing medical services and it is utilising SH for augmenting its funds.In these circumstances in our opinion, it cannot be held that the it is carrying out business activities and the charitable activities are by product,as alleged by the departmental authorities.What has to seen in such cases is a holistic view of the things and not a narrower view.We would like to refer to the matter of Institute of Chartered Accountants of India(358 ITR 91),wherein the Hon’ble Delhi High Court has held as under: “A plain reading of section 2(15) of the Income-tax Act, 1961, indicates that the expression “charitable purpose” has been divided into six categories, namely, (i) relief to poor, (ii) education, (iii) medical relief, (iv) preservation of environment including watersheds (forest and wildlife), (v) preservation of monuments and places or objects of artistic or historical importance, and (vi) advancement of any other object of general public utility. The first proviso to section 2(15) of the Act carves out an exception which excludes advancement of any other object of general public utility from the scope of charitable purpose to the extent that it involves carrying on any activity in the nature of trade, commerce, or business or any activity of rendering certain services in relation to any trade, commerce, or business, for a cess or fee or any other consideration is irrespective of the nature of the use or obligation, or retention of the income from such activity.The expressions “trade”, “commerce” and “business”, as occurring in the first proviso to section 2(15) of the Act, must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carried on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organisations which are carrying on regular business from the scope of “charitable purpose”. The expression “business”, “trade” or “commerce” as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable any incidental activity for furtherance of the object would not fall within the expression “business”, “trade” or “commerce”. In light of the above discussion,we decide the first ground of appeal in favour of the assessee. As we have allowed first ground of appeal,so,we hold that Gs.AO 2.4 and 5 have become infructuous.Hence we are not adjudicating them. 7.Ground no. 3 is about not grating deprecation to the assessee.Representatives of both the sides agreed that the Tribunal had decided the identical issue in favour of the assessee while deciding the appeal for the AY.2009-10.(supra).Respectfully,following the same we allow GOA
3. ITA/6858/Mum/2016: The assessee has filed the above appeal as the rectification application was rejected by the FAA. As we have allowed the main appeal so the said appeal would not survive.