Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
per Income & Expenditure Account was therefore taxed u/s, 13(8) of the
I.T Act. No benefit of Section 11 & 12 of the I.T Act was allowed to the
assessee. Further, it is seen that the assessee has transferred interest
income from its Income & Expenditure Account to Schedule 'B' of the
Balance Sheet and thus not shown the said interest in its Income &
Expenditure Account. Accordingly, an amount of Rs. 2,98,932/- was
added to the income. A perusal of the Balance sheet of the assessee also
revealed that the assessee had taken Rs. 77,36,734/- directly to Balance
Sheet as corpus under Agriculture Promotional Practice (Schedule C).
Since, the assessee was not allowed the benefits of Section 11 & 12 of
the I.T Act, Rs. 77,36, 734/- treated as corpus of the assessee was also
added to the income and assessed the income of the assessee at Rs.
3,42,30,880/- vide order dated 31.3.2014 passed u/s. 143(3) of the I.T.
Act, 1961.
Aggrieved by the assessment order dated 31.03.2014, the assessee
filed an appeal before Ld. CIT(A) who vide his impugned order dated
19/7/2016 has confirmed the additions made by the AO and also
confirmed the action of the AO with regard to denial of exemption under
section 11 and 12 of the I.T. Act, 1961.
Against the order of the Ld. CIT(A), the Assessee is in appeal before
the Tribunal.
At the time of hearing, Ld. Counsel of the Assessee stated that
recently exactly on similar grounds the ITAT has allowed the appeal
of the Assessee for the preceding assessment year i.e. 2010-11 in
assessee’s own case in ITA No. 1325/Del/2015 vide order dated
27.3.2017 and filed the copy thereof. Further, he draw our
attention towards para no. 7 to 8 at page no. 8 to 23 of the
Tribunal’s order dated 27.3.2017, as aforesaid and requested to
respectfully follow the aforesaid order of the Tribunal and allow the
appeal of the assessee.
On the other hand, Ld. DR relied upon the orders of the
authorities below and stated that the AO as well as Ld. CIT(A) has
passed a well reasoned order, which does not need any interference
on our part and accordingly, requested to dismiss the appeal of the
Assessee.
We have heard both the parties and perused the records,
especially the orders of the revenue authorities as well as order of 6
the Tribunal’s dated 27.3.2017 passed in assessee’s own case in
ITA No. 1325/Del/2015 relevant for the preceding assessment year
i.e. 2010-11. After perusing the aforesaid documents/records, we
find force in the contention raised by the Ld. Counsel of the
Assessee that the issues involved in the present appeals are similar
and identical to assessee’s own case for the preceding assessment
year 2010-11, hence, the issues involved in the present appeals
are squarely covered by the Tribunal’s order dated 27.3,2017, as
aforesaid, passed in ITA No. 1325/Del/2015 (AY 2010-11) in
assessee’s own case. For the sake of convenience, we are
reproducing hereunder the relevant para no. 7 to 8 mentioned at
page no. 8 to 23 of the aforesaid Tribunal’s order dated 27.3.2017.
“7. We have heard the rival submissions and perused the relevant records. We find that the assessee was denied the benefit under section 11 and 12 of the Act solely for the reason of amendment in section 2(15) of the Act. It was noted that neither the AO nor the CIT(A) have pointed out any particular object which is violated by the assessee in the relevant A.Y. It is further not pointed out as to under which clause of section 13, the assessee would fall so as to invite denial of exemption under section 11 and 12 of the Act. It is pertinent to note that the assessee has been granted certificated
under section 12A on 22.06.1994 and has been receiving the said exemptions since then. The registration of the assessee has not been cancelled under section 12AA (3) of the Act.
7.1 To decide the issue in dispute, we can gainfully refer here the objects of the assessee company, which read as under:-
i. To unite all firms, companies, corporation, associations and Individuals engaged in the Fertilisers Industry in India with a view to promoting the consideration and discussion of all questions affecting the trade of Fertilisers and the interest of sound agriculture and for the improvement of the economics development of the Fertiliser and Agriculture Industries. ii. To institute, prosecute, develop and carry on all kinds of scientific and economic research in or in connection with process for the preparation and use of Fertiliser for the purpose of increasing soil fertility and crop production and in the interest of agriculture. iii. To carry out all kinds Scientific and economic investigations and other experiments for the purposes aforesaid and for improving for commercial purpose the manufacture, use and sale of such fertilizers for use in connection therewith. iv. To study and promote the application of science and scientific and economic methods to 8
the manufacture of fertilizers and their utilization in the fields either alone or in conjunction with preparation with other materials. v. To study and introduce Fertilizer Industries in India schemes of standardization in commercial practices in manufacture and to improve same and extend use of fertilizers. vi. To construct develop and use scientific, chemical and agricultural experimental and other laboratories, plant and machinery and workshops and to employ all kinds of scientists, economists, chemists, agriculturists, engineers, mechanics, technical and other experts in connection therewith. vii. To make known to members and others upon such terms as the association may determine the results thereof all research discoveries, patents, and investigations made in connection with the above objects and to render services in connection therewith to the members and others and to charge thereof or not, as the association may in any case determine.
7.2 We further find that Section 2(15) of Income Tax Act, 1961 read as under:- “charitable purpose" includes relief of the poor, education, [yoga,] 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, unless— (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]”
7.3 We further note that the Hon’ble Delhi High Court in the case of India Trade Promotion Organization Vs. Director General of Income Tax (Exemptions) & Others, W.P. (C) No. 1872/2013 dated 22.01.2015, was pleased to hold as under:- “46……The only thing that we have to examine is - whether the petitioner had been established for charitable purposes? The fact that it derives income does not, in any way, detract from the position that it is an institution 10
established for charitable purposes. Therefore, in our view, merely because the petitioner derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds, does not, in any way, affect the nature of the petitioner as a charitable institution if it otherwise qualifies for such a character.
In ICAI(II) (supra), while considering whether the activities of ICAI fell within the proviso to Section 2(15) as introduced with effect from 01.04.2009, this court, after considering the Supreme Court decision in the case of Commissioner of Sales Tax v. Sai Publication Fund: (2002) 258 ITR 70(SC) held:- "Thus, if the dominant activity of the assessee was not business, then any incidental or ancillary activity would also not fall within the definition of business." 51. This court also observed in ICAI(II) (supra) that:- “64. … It is not necessary that a person should give something for free or at a concessional rate to qualify as being established for a charitable purpose. If the object and purpose of the institution is charitable, the fact that the institution collects certain charges, does not alter the character of the institution.” This court in ICAI (II) (supra) held:- 11
“67. 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 carries 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 organizations which are carrying on regular business from the scope of “charitable purpose”. The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under:- ‘……. “Charitable purpose” includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under “charitable 12
purpose”. Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.‘ The expressions “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 expressions “ business”, “trade” or “commerce”.”
With regard to the Surat Art Silk case (supra), this court, in ICAI (II) (supra) observed as under:- “69. In the case of Addl. Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association: [1980] 121 ITR 1 (SC), the Supreme Court held as under:- “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 any out the charitable purpose and not to earn profit, it would not lose its character of a charitable 13
purpose merely be cause some profit arises from the activity.‘ 70. Although in that case the statutory provisions being considered by the Supreme Court were different and the utilisation of income earned is, now, not a relevant consideration in view of the express words of the first proviso to section 2(15) of the Act, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not. In the present case, there is little doubt that the objects of the activities of the petitioner are entirely for charitable purposes.” ….53. From the said decision, 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 that we must examine 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 14
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. We say so, because, 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, as pointed out above, in Arun Kumar (supra).
It would be pertinent to reiterate that Section 2(15) is only a definition clause. Section 2 begins with the words, “in this Act, unless the context otherwise requires”. 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 said 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. With respect, we do not agree with the views of the Kerala and Andhra Pradesh High Courts…..
Ultimately, in the context of the factual matrix of that case, this court held that "charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of the business aptitude nor indicative of the profit oriented intent". The court further observed:- “Thus the contention of the revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of “profit motive” and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.” The court also held:- “27. As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially selfsustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable 16
and fall under the residuary clause – general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act.” 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 17
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.” 7.4 We further note that the Tribunal in similar facts in the case of ADIT Vs. Indian Medical Association, ITA No. 4291/Del/2012 dated 20.02.2015 held as under:- “43. From this, it is clear that prior to the introduction of the proviso to Section 2(15) of the said Act, there was no dispute that the 18
petitioner was established for charitable purposes and, therefore, its income was not to be included in the total income and was, therefore, granted the benefit of exemption. We have already noted above, while discussing the facts of the case that the income received by the petitioner is from the letting out of space, sale of publications, sale of tickets and leasing out food and beverages outlets in Pragati Maidan. The dominant and main object of the petitioner is to organise trade fairs/exhibitions in order to promote trade, commerce and business not only within India, but internationally. This is done through the organization of trade fairs, including the annual international Trade Fair and other exhibitions. It is for this purpose that the space is let out to various entities during the said fairs and exhibitions. All these activities, including the sale of tickets and sale of publications are an inherent part of the main object of the petitioner. It is clear from the facts of the case that profit making is not the driving force or objective of the petitioner. It is registered under Section2 5 of the Companies Act, 1956, which specifically applies to entities which intend to apply their profits, if any, or other income in promoting their objects and prohibits, the payment of any dividend to its members. This makes it clear that nay income generated by the petitioner does not find its way into the pockets of any individuals or 19
entities. It is to be utilized fully for the purposes of the objects of the petitioner.
To be clear, if an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. We have seen that by virtue of Section 25 of the Act, the petitioner is enjoined to plough back its income in furtherance of its object and the declaration of dividends is prohibited. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But we feel that in deciding whether any activity is in the nature of trade commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important."
7.2.16 ……..In the absence of any adverse finding in regard to the activities of the trust we find that the department's case has no merits. In the course of hearing it was submitted by the Ld. Sr. DR on query that
the registration till date has not been withdrawn. The date of the assessment order the record shows is 08.11.2011. The Ld. Sr. DR has also canvassed that the mere fact that the assessee has received financial support from the Ministry of Health and Family Welfare which fact it has been submitted does not mean that it is performing a charitable activity. On considering the judicial precedent cited we find that the Hon'ble High Court took into consideration in the facts of the ITPO that prime land was made available to the assessee to facilitate its objects of providing space on rent etc. for promotion of trade wherein the assessee apart from selling tickets etc was also providing food & beverage outlets and providing for water, electricity etc in the facts of the present case admittedly financial support is also provided to the assessee trust whose activities have not been assailed to be contrary to the aims and objects and we find that mobilizing resources towards its aims and objects that too within the methods enshrined by the trust deed which are ploughed back by the society towards its aims & objects to our minds does not cause any grievance to the Revenue. It goes without saying that financial support from the Ministry of Health and Family Welfare to the assessee necessarily would be based on 21
the functions performed by the said trust and would necessarily be monitored at each and every step and stage with adequate checks and balances and would not be allowed to be frittered away carelessly. Accordingly considering the judicial precedent cited and the arguments of the parties before the Bench and the peculiar facts and circumstances of the case which we have brought out in great detail in the earlier part of this order, we hold that the departmental grounds have no merit and deserve to be dismissed.
In the result, the appeal of the Revenue is dismissed.” 7.5 We further note that the Hon’ble Supreme Court in the case of CIT Vs. Andhra Chamber of Commerce, 55 ITR 722 has observed as under:- “10. The principal objects of the assessee are to promote and protect trade, commerce and industries and to aid, stimulate and promote the development of trade, commerce and industries in India or any part thereof. By the achievement of these objects, it is not intended to serve merely the interests of the members of the assessee. Advancement or promotion of trade, commerce and industry leading to economic prosperity ensures for the benefit of the entire community. That prosperity would be shared also by those who engage
in trade, commerce and industry but on that account the purpose is not rendered any the less an object of general public utility. It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry. …..
In the promotion of trade, commerce and industries of India the public is vitally interested and if by the activities of the assessee that object is achieved, it would be within the meaning of Section 4(3)(i) of the Act an advancement of an object of general public utility. In enacting the last paragraph of Section 4(3) the legislature has used language of great amplitude. “Charitable purpose” includes not only relief of the poor, education and medical relief alone, but advancement of other objects of general public utility as well. The clause is intended to serve as a special definition of the expression “charitable purpose” for the Act: it is again inclusive and not exhaustive or exclusive. Even if the object or purpose may not be regarded as charitable in its popular signification as not tending to give relief to the poor or for advancement of education or medical relief, it would still be included in the expression “charitable purpose” if it 23
advances an object of general public utility. The expression “object of general public utility” however is not restricted to objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or Province. It is sufficient if the intention to the benefit a section of the public as distinguished from specified individuals. Observations to the contrary made by Beaumont, C.J., in CIT v. Grain Merchants' Association of Bombay [ 6 ITR 427] that “an object of general public utility means an object of public utility which is available to the general public as distinct from any section of the public” and that objects of an association “to benefit works of public utility confined to a section of the public i.e. those interested in commerce” are not objects of general public utility, do not correctly interpret the expression “objects of general public utility”. The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature: where there is no common quality uniting the potential beneficiaries into a class, it may not be regarded as valid.” 24
7.6 We further find considerable cogency in the assessee’s counsel submissions that the judgment relied upon by the AO of the Hon’ble Andhra Pradesh High Court in the case of Andhra Pradesh State Seed Certification Agency dated 29.12.2012 cannot be relied upon as the Hon’ble Jurisdictional High Court in ITPO Case (Supra) disagreed with the view taken in the aforesaid judgment.
7.7 We also agree with the submissions
made by the Ld. Counsel of the assessee
that mere charging of fee from members or
non-members for rendering services like
training, conducting seminars would not ipso
facto lead to denial of exemption. The
dominant object of the assessee remains
charitable and the aforesaid activities are
only incidental to the main activity of the
assessee. Also , the activities of the
assessee are benefiting the public at large
at submitted by the Ld. Counsel for the
assessee. Furthermore, it is not the case of
the department that any change in objects
had taken place in the relevant year so as to
take the assessee outside the ambit of
section 2(15). The effect of the amendment
has been discussed elaborately by the
Hon’ble Delhi High Court in ITPO Case
(supra) as well as the judgment of Apex
Court in Andhra Pradesh Chamber of
Commerce(supra) and the test of dominant
object has not been altered even after the
said amendment. We therefore hold that the
denial of exemption under section 11 and 12
in the case of the assessee is not in
accordance with law and accordingly the
additions made by the AO and confirmed by
the CIT(A) are deleted.
In the result, the appeal of the Assessee is allowed..” 8. After perusing the aforesaid findings of the Tribunal in the
assessee’s own case for the assessment year 2010-11, we of the
firm opinion that the issues involved in the present appeals are
squarely covered in favour of the assessee, therefore, respectfully
follow the precedent, as aforesaid, we hold that denial of exemption
under section 11 & 12 of the I.T. Act, 1961 in the case of assessee
is not accordance with law and accordingly, the additions made by
the AO and confirmed by the Ld. CIT(A) are hereby deleted.
In the result, the appeal of the Assessee is allowed.
Order pronounced in the Open Court on 09/05/2017.
Sd/- Sd/-
[PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 09/05/2017
“SRBHATNAGAR”