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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI SUDHANSHU SRIVASTAVA
per him the activities of the assessee are commercial in nature and hence not eligible for registration u/s12AA of the Act. On a cursory look at the objects Akhil Bhartiya Grameen Vikas Sanstha Page 8 of 13 of the assessee, it is seen that the assessee is engaged in improving economy of the rural people through aforestation and reforestation. All other objects are ancillary and incidental to the said main objects. A plain reading of the definition of charitable purpose as provided u/s 2(15) of the Income Tax Act, 1961 would make it clear that the restriction imposed under the proviso to the said section applies only to the last limb i.e advancement of any other object of general public utility. There is no express provision u/s 2(15) of the Act which restricts an institution from undertaking any commercial activity if it comes under other limb of charitable purposes. Only requirement is that the assessee must not have profit motive and the income generated from commercial activity is utilised for achieving the charitable object. Even assuming that the assessee’s objects / activities come under advancement of any other object of general public utility, the proviso to section 2(15) will not automatically disqualify the assessee from being considered as a society established for charitable purposes only because it has receipts in the form of grants, training fee , etc. What has to be seen is whether the primary or the dominant purpose or object of the assessee is to carry out object of general public utility or any other activity with a profit motive. If for achieving its primary or dominant object of education or even advancement of any other object of public utility, the assesee society has earned some income from fee etc., it cannot be said that the assessee has carried on a business activity with a profit motive. Charitable activities also require operational/running expenses as well as capital expense for being able to sustain itself and continue in the long run. There is no such statutory mandate that a charitable institution falling under the residuary clause should be wholly, substantially or in part be funded by voluntary contributions only. The Hon’ble Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers’ Association (1980) 121 ITR 1 (SC) has held as under (page 25):
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 sub serve 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 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. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realization but would also reflect unsound principle of management 6.3 In our opinion, the aforesaid principle laid down by the Hon'ble Apex court still holds good even after the introduction of proviso to section 2(15) by the Finance Act, 2008 with effect from April 1, 2009. The words "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" was considered and interpreted by the Hon’ble Delhi High Court in the case of Institute of Chartered Accountants Of India v. DGIT (Exemptions) 347 ITR 99 (Delhi), as under (page 123):
"Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term ‘'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognised business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. The test as prescribed in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 SC and CST v. Sai Akhil Bhartiya Grameen Vikas Sanstha Page 11 of 13
Publication Fund [2002] 258 ITR 70 SC ; [2002] 126 STC 288 SC can be applied. The six indicia stipulated in Customs and Excise Commissioners v. Lord Fisher [1981] S. T. C. 238 are also relevant. Each case, therefore, has to be examined on its own facts,"
6.4 Thus, the principle of law which emerges from the judicial pronounce- ments is that if the predominant object of a trust or institution is charitable and in the process of achieving that object some activity of commercial nature generating income is carried out, which again is utilised for the advancement of its charitable objects, it cannot be inferred that the trust or institution is not established for charitable purposes. Moreover, the issue of applicability of the proviso to section 2(15) has to be examined at the stage of assessment while adjudicating the assessee’s claim of exemption u/s 11 of the Income Tax Act, 1961 and hence it is not germane at the time of considering the issue of granting registration u/s 12AA. This is so because though the first proviso to sec. 2(15) of the Act excludes any activity of the nature of trade, commerce or business from being considered to be a charitable purpose but, the second proviso to section 2(15) restricts the application of first proviso only to such trusts and institutions having receipts from commercial activity exceeding a prescribed limit in a particular previous year. Therefore, the application of the proviso to section 2(15) has to be looked into in every assessment year. In our considered view, the first proviso to section 2(15) will have no role to play in the matter of granting registration and the role of the Ld. DIT (E) is restricted to him being satisfied that the objects are genuine and charitable. In absence of any such finding by the Ld. DIT (E) in this instant appeal, we hold that the benefit of grant of registration has been denied to the assessee without any cogent reason and hence while allowing the assessee’s appeal we direct the Ld. DIT (E) to grant registration to the assessee u/s 12AA of the Act.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 11.08.2016