DDIT (E), DELHI vs. PETROTECH, NEW DELHI

Revenue by : Sh. FR Meena, Sr. DR Assessee by: Sh Ajay Vohra, Sr. Adv Sh. Rohit Garg, Adv Sh. VK Sabharwal, Adv Date of Hearing 05/04/2017 Date of pronouncement 11/04/2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the revenue against the order of the ld CIT(A)-XXI, New Delhi dated 15.10.2012 for the Assessment Year 2009-10. The revenue has raised the following grounds of appeal:- 2. “1. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in upholding that the activities of the assessee are charitable in nature and covered under „education‟ of Section 2(15) of the Income Tax ACT, 1961, and not under advancement of „any other object of general public utility.‟

2. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in giving direction to the AO to allow exemption u/s 11 and 12 of the Income Tax Act, 1961.”

3. The brief facts of the case is that the assessee is a trust registered u/s 12A of the Income Tax Act vide order dated 02.08.2000 and also registered u/s 80G of the Income Tax Act. It is a non-profit organization registered as a society under the Societies Registration Act 1860 on 08.06.1999 with the main object of providing platform for the officers of Oil industry, DDIT ( Exemption) VPetrotech educationist, students, and technologist for educating them in areas of petroleum such as exploration, drilling, production etc. It organizes various seminars on these topics. For the impugned year, it filed its return of income on 30.9.2009 declaring nil income along with audited report. The ld Assessing Officer has held that the assessee’s activities are falling under the category of ‘advancement of any other object of general public utility and is carrying on the business because the activities of the trust are capable of generating profit. Therefore, the ld Assessing Officer denied the assessee the applicability of provision of section 11 and 12 of the Act and determined total income of the assessee at Rs. 82200268/- vide order dated 23.12.2012 u/s 143(3) of the Act. the assessee aggrieved with the order of the ld Assessing Officer preferred an appeal before the ld CIT(A), who held that the assessee is carrying on educational activities and therefore is eligible for exemption u/s 11 and 12 of the Income Tax Act. The Revenue aggrieved with the order of the ld CIT (A), has preferred appeal before us.

DDIT ( Exemption) VPetrotech In furtherance of its objects, the assessee-society organises international and national seminars/conferences. All the objects are pursued by the assessee on a no profit no loss basis, i.e., without any commercial motive.

 The assessee was granted approval/registration under section 12Aand 80G of the Income Tax Act, 1961 („the Act‟) by theCIT vide order dated 02.10.2010 and 16.01.2009, respectively which are applicable for the year under consideration ( refer pages 28-29 of paperbook).  On the basis of the aforesaid, the assessee filed for the year under consideration,the return declaring Nilincome after claiming exemption under sections 11/12 of the Act.  The assessing officer, however, completed assessment under section 143(3) denying exemption under section 11holding that the activities carried out by the assessee-society is in the nature of „advancement of general public utility‟ covered under the last limb of „charitable purpose‟ as defined under section 2(15) of the Act;since the assessee-society had charged fees for its activities resulting in surplus, first proviso to the said section, was attached.  Feeling aggrieved, the appellant filed appeal before the CIT(Appeals), who allowed the appeal holding that the activities of the assessee-society were in the nature of „education‟ and not falling within the last limb, viz; „advancement of general public utility‟.

 Hence, the present appeal has been filed by the Revenue before the Hon‟ble Tribunal. SUBMISSIONS Section 2(15) of the Act defines “charitable purpose” 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: ………..”

In the case of the assessee, the predominant object, as stated above, is to:  Provides a forum for national and international experts in Hydrocarbon Industry for exchange of views and sharing of knowledge, expertise and experience.  Hold regular national/international conferences and seminars in India and abroad for regular exchange of information and latest developments in Petroleum Industry.

DDIT ( Exemption) VPetrotech Update and explore areas of growth in the fields of exploration, drilling, production and processing, refining, pipeline, transportation, petrochemicals, natural gas, LNG, research & development etc. It will kindly be appreciated that under section 2(15) of the Act, “education”, per se, is regarded as one of the charitable activities. The expression „education‟ has not been defined under the Act but has attainder acceptable connotation in the ligh of decided judicial precedents discussed hereunder:

The Supreme Court in the case of Sole Trustee, LokeShiksha Trust v. CIT: 101 ITR 234held that for an activity to be regarded as education, the same must: a) involve systematic instruction, schooling or training; b) develop the knowledge, skill, mind and character of students Following the aforesaid decision, the Delhi High Court in the case of Delhi Music Society vs. DGIT: 246 CTR 327/ 204 Taxman 231 (Del) held that since the assessee society was teaching and promoting all forms of music and dance - western, Indian or any other and was run like any school or educational institution in a systemic manner with regular classes, the same therefore, met the requirement of an educational institution within meaning of section 10(23C)(vi) of the Act.

It will kindly be appreciated that in the present context, when the sources of imparting/ obtaining “education” have grown tremendously with technological advancement, it would be totally improper to restrict the scope of “education” merely to text book learning by normal schooling. Reference may kindly be made to some of the highlighted activities carried out by the assessee till date which clearly demonstrates that the same is in the nature of „education‟:

 The Petrotech conference focuses on the Indian Hydrocarbon industry in the context of global trends and provides a major platform for presentations and technical papers by experts as well as in-depth discussion and debate on the emerging challenges and opportunities.

 The assessee-society publishes the quarterly JOP („the Journal of Petrotech‟) setting out the latest developments in the Hydrocarbon-petroleum industry.

DDIT ( Exemption) VPetrotech The assessee-society has instituted a “Petrotech Chair Professor of Petroleum Technology” at the Indian Institute of Technology, New Delhi to:  Facilitate teaching and research environment friendly technologies in hydrocarbon sector.  Promote pursuit of excellence in education and research (including advising and continuing education) in hydrocarbon technologies.  Facilitate conduct of programmes to prepare students at Graduate and Post-Graduate levels in Petroleum Technology Area; and  Act as liaison between academia and hydrocarbon industry.

 The assessee-society opened „Petrotech Chapters‟ at various universities/institutes wherein faculty/students will get a good forum to organise regular events/meets for better learning in the field of Petroleum Engineering.

 The assessee-society has entered into a MoU with University of Alberta, Canada under which, besides faculty exchange, Petrotech has so far organised four successful Industry Educational tours for the benefit of Indian Oil & Gas Industry. The tours provided an opportunity to the participants to update themselves on technologies of the future pertaining to the hydrocarbon sector.

 Granting of Doctorate fellowship to deserving academia for pursuing research, leading to award of Ph.D and facilitating closer link between the industry and academia.

It is, thus, respectfully submitted that the activities carried by the assessee-society are clearly in the nature of “education”.

Without prejudice to the aforesaid, it is submitted that in case the assessee society is held not to be engaged in education but carrying on activities falling in the last limb of section 2(15) of the Act, viz, advancement of any other object of general public utility, then, too, the order of the CIT(A) needs to be upheld. The Respondent assessee seeks to support the order of the CIT(A) in terms of rule 27 of the Income tax (Appellate Tribunal) Rules, 1963, on the following grounds:

The proviso inserted in section 2(15) of the Act by the Finance Act, 2008, with effect from 01.04.2009, reads as under: “…………

DDIT ( Exemption) VPetrotech 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; …………..…………..” (emphasis supplied)

It ispertinent to mention that proviso to section 2(15) of the Act applies only to trusts/ institution falling in the last limb of the definition of „charitable purpose‟. It would, thus, kindly be appreciated that the aforesaid proviso does not apply to a trust/ institution engaged in the charitable object of providing relief to the poor, imparting education and providing medical relief, as also clarified by CBDT vide Circular No. 11 dated 19th December, 2008 reported in 221 CTR (St) 1.

Thefirst proviso to section 2(15) of the Act (reproduced supra), does not automatically apply to every assessee whose charitable activities fall in the last limb of „charitable purpose‟. It is respectfully submitted what needs to be seen/ examined is whether any of the activity of the assessee falls within the mischief of the proviso or not, as a consequence of which, the assessee may cease to be regarded as a charitable institution.

The aforesaid proviso provides that if any of the objects of the assessee involve carrying on of any activity in the nature of trade, commerce or business for cess or fee or any other consideration, then, irrespective of the nature of use or application of income, the assessee shall not be regarded as existing for charitable purpose. Similarly, if any of the objects of an assessee involve carrying on of activity of rendering service in relation to trade, commerce or business for consideration then, too, the assessee shall cease to be regarded as carrying on any activity for charitable purpose. It would, thus, be appreciated that the proviso to section 2(15) of the Act applies to trust/ institution falling in the last limb of the definition of „charitable purpose‟ if they carry on commercial activities in the nature of business, trade or commerce.

Construing the expression „business‟, the Hon‟ble Supreme Court in the case of Distributers Baroda P. Ltd.(83 ITR 377) has held that „business‟ refers to real, substantial, organized course of activity for earning profits as „profit motive‟ is essential requisite for conducting business.

Following the above decision, the Special Bench of the Tribunal, in the case of BJP vs. DCIT: 258 ITR 1 (Del.) (AT), has held that an activity to be treated as „business‟ should

DDIT ( Exemption) VPetrotech have a semblance of trade, an attribute of commercial activity and an expectation to earn income over a reasonable period. The Tribunal further held that the expressions „trade‟ and „commerce‟ are narrower in scope than the expression „business‟. The expressions „trade‟ or „commerce‟ signify economic/commercial activity with motive of earning profit.

The term “trade” has not been defined in the Act. Some of the dictionary meanings of „trade‟ are as under: - As per Webster's New Twentieth Century Dictionary, (Second edition), is, amongst others, "A means of earning one's living, occupation or work". - In Black's Law Dictionary "trade" has been defined to mean a business which a person has learnt or he carried on for procuring subsistence or profit; occupation or employment, etc. - In Halsbury‟s Laws of England, third edition vol. 38 p. 8, the word `trade‟ is defined as (a) exchange of goods for goods or goods for money, (b) any business carried on with a view to profit, whether manual or mercantile, as distinguished from learned art or professions and from agriculture (Secretary, Madras Gymkhana Club Employees‟ Union v. Management of Gymkhana Club, AIR 1968 SC 554, 562; State of Punjab v. Bajaj Electricals Ltd., AIR 1968 SC 739, 741).

The term “commerce” has also not been defined in the Act. According to Webster‟s Third New International Dictionary, the term “commercial” means of, in or relating to commerce. The term ''commerce" means "the exchange or buying and selling of commodities especially on a large scale and involving transportation from place to place". According to Chamber's Twentieth Century Dictionary, "Commerce" means "interchange of merchandise on a large scale between nations or individuals; extended trade or traffic".

While applying the above definitions, the Delhi High Court in the case of Ram Swaroop vs. JankiDass Jai Kumar (AIR 1976 Del 219), observed that „commercial‟ means “pertaining to commerce; mercantile”, thus, commerce involves essentially an exchange of buying and selling of commodities. If a person buys goods with a view to selling them at a profit, it is an ordinary case of trade and if the transactions are on large scale they are called as commerce: Gannon Dunkerley& Co v. State of Madras (1954) 5 STC 216 (Mad.).

On perusal of the aforesaid, it would be noticed that the three words, viz. „trade‟, „commerce‟ and „business‟, connote and indicate a series of organized activities primarily undertaken on commercial lines for profit motive.

DDIT ( Exemption) VPetrotech Reliance, in this regard, is placed on the following decisions:

 ICAI v. DGIT( E): 358 ITR 91(Del. HC)  PHD Chambers of Commerce & Industry v. DIT(E): 357 ITR 296 (Del. HC)  Hamdard Laboratories India vs. DGIT: 216 Taxman 201 (Del. HC)  India trade Promotion Organization vs. DGIT(E): 371 ITR 333 (Del. HC)  GS1 India vs. DGIT(Exemptions): 262 CTR 585 (Del. HC))  Bureau of Indian Standards vs. DGIT(Exemptions): 27 taxmann.com 127 (Del. HC)  DIT v. Ahmedabad Management Association: 366 ITR 85 (Guj. HC)  DivyaYogMandir Trust vs. JCIT: 153 ITD 368 (Del.)  Mehrangarh Museum Trust vs. ACIT: 67 SOT 1 (Jodh.)  Water and Land Management Training and Research Institute vs. DGIT(E): 40 ITR(T) 559 (Hyd.)  Hoshiarpur Improvement Trust vs. ITO: 173 TTJ 273(Asr.)

Reference may also be made to the following decisions wherein it has been held that proviso to section 2(15) of the Act does not debar a charitable trust/institution from charging fees for an activity carried out in pursuance to the objects of the trust/institution

 Mudra Foundation for Communications Research & Education vs. CCIT: 287 CTR 135 (Guj.)  Society For Participatory Research in Asia vs. ITO(E): 159 ITD 887 (Del.)- --approved by Delhi High Court .  Praxis Institute of Participatory Practices vs. DGIT(E): 154 ITD 10 (Del.)  DDIT(E) vs. All India Football Federation: 43 ITR(T) 656 (Del.)  Amul Research & Development Association vs. ITO: 160 ITD 454 (Ahd.)  Quality Circle Forum of India vs. DCIT(E): 76 taxmann.com 2013 (Hyd.)  Institute for Development and Research in Banking Technology (IDRBT) vs. ADIT(E): 42 ITR(T) 219 (Hyd.)  ADIT(E) vs. JeevanVidya Mission: 155 ITD 1150 (Mum.)  DDIT(E) vs. Council For Leather Exports: 41 ITR(T) 697 (Chen.)  Lions Club of Anna Nagar Charitable Trust vs. DDIT(E): 40 ITR(T) 746 (Chen.) Further, in the following cases, it has been specifically held that activity of organising conferences, seminars etc. against payment of fees will not hit by above proviso to section 2(15) of the Act:

DDIT ( Exemption) VPetrotech Society of Indian Automobile Manufacturers vs. ITO(E): 159 ITD 659 (Del.)  India International Centre vs. ADIT(E): 154 ITD 220 (Del.)  ITO vs. Indian Leather Products Association: 156 ITD 393 (Kol.) It is respectfully submitted that the legal position that emerges from the aforesaid decisions is that where a charitable trust/ institution undertakes/ carries on commercial activities in the nature of business, trade or commerce with a view to make profit, then such trust/ institution would not be regarded as `charitable‟, irrespective of the fact that profit is redeployed into the activities. If, however, the trust/ institution does not undertake/ carry on commercial activities, then the trust/ institution would continue to be regarded as charitable and the character of the trust/ institution would not be affected merely because some profit results from the activities or fees/ remuneration is charged for rendering any service.

Applying the aforesaid legal position to facts of the assessee-society‟s case, it is the respectfully submitted that none of the objectives and/ or the activities is commercial in nature so as to fall within the mischief of proviso to section 2(15) of the Act, inasmuch asthe mandate of the assessee is to work as a non-profit society for the objects specified in the MOA. This is patently clear from the following clauses of the MOA of the assessee:

4.5.8 All the incomes, earning, immovable and/or movable properties of the Society shall be solely utilised and applied towards the promotion of the objects only as set forth in this Memorandum of Association ……. 4.5.10 The Society will not be distributing any profit/surplus earned in the normal course of functioning of the Society, and any profit/surpluses shall be solely used for furtherance of its objectives In view of the aforesaid, it is respectfully submitted that the activities of the assessee are not at all covered by the mischief of proviso to section 2(15) of the Act.

Even though the CIT(A) has not dealt with the submission of the assessee regarding non- applicability of proviso to section 2(15) of the Act, even in a situation where the activities of the assessee falls in the last limb of section 2(15) of the Act, viz, advancement of any other object of general public utility, the Respondent assessee can support the order of the CIT(A) on grounds not decided by the CIT(A). [Refer : B.R. Bamsi v. CIT (1972) 83 ITR 223 (Bom.)]

DDIT ( Exemption) VPetrotech In the end, he vehemently submitted that the assessee is carrying on the activities of the education and Ld. CIT appeal has correctly decided so granted the exemption to the assessee under section 11 and 12 of the income tax act. 6. We have carefully considered the rival contentions. The LD CIT (A) has dealt with this issue as under :-

Determination 3. I have gone through the written submission of Id. AR of the appellant and finding of the AO in the assessment order and after verifying all the materials available on the record, ground-wise issues are decided hereunder:- 4. Grounds No.1 to 8:- That on going through the facts of this case and from the examination of the records produced which were also submitted and available with the Assessing Officer in the course of Assessment proceedings. It is found that the activities of the Society were not in the nature of advancement of any other object of general public utility, and not involve in carrying on any activity in the nature of trade commerce or business, as this Society is wholly engaged in the academic field and providing education being a non-profit^ non-commercial organization as of providing a platform for the in the field of petroleum technology and related areas viz. exploration, drilling, production, refining, petro-chemicals, research and development and health, safety and environment, the said Society organizes international and national seminars / conferences on the said topics pertaining to Hydro Carbon Industry for the Oil Industry and academia on no profits no losses basis and as covered under the provisions of law contained u/s 2(15) of the Income Tax Act, 1961, because of providing education in the field of Oil Industry in order to explore areas of growth in the field of Petroleum Technology and related areas viz. exploration, drilling, production, refining, petro-chemicals, research and development and health safety and environment, to provide them latest techniques and technology by way of organizing National and International Seminars / Conferences as and when needed, therefore, is having the character of charitable activities only, and as such covered under the 2nd limb of Section 2(15) of the Act, which is education though it has been mentioned as 1st lirnb in submissions of appellant but it makes no difference as it has been emphasized by the Circular No. 11/2008 dated 19.12.2008 that amendment in section 2(15) does not apply to first three limbs, which are; i) relief of the poor (ii) education and (iii) medical relief. It applies only to last limb which is advancement of ^ any other object of general public utility. In the above said Circular it has been emphasized as under:-

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.

DDIT ( Exemption) VPetrotech 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 farmers, 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(23) 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. Similar entities whose object ix '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.