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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Waseem Ahmed & Shri Soundararajan K
Asst.Year : 2016-2017 Asst.Year : 2018-2019 Sree Narayana Dharma Sabha The Income Tax Officer Kodungallur (Exemption) vs. Thrissur – 680 666. Thrissur. PAN: AABTS4360C. (Appellant) (Respondent) Appellant by: Sri.P.J.Anil Kumar, Advocaate Respondent by: Smt.Girly Albert, Sr.DR Date of Date of Hearing : 25.09.2024 Pronouncement: 08.11.2024 O R D E R
Per Soundararajan K, JM :
This is a bunch of five appeals filed by the assessee challenging the orders of the CIT(A)/NFAC dated 02/03.01.2024 in respect of assessment years 2012-2013, 2013-2014, 2015-2016, 2016-2017 and 2018-2019. Since common issue is raised in these appeals, they were heard together and are being disposed of by this consolidated order, for the sake of convenience and brevity. as the lead appeal for adjudication. The decision that would arrive at in this case is equally applicable to the other appeals as well.
Sree Narayana Dharma Sabha. :Asst.Year 2012-2013 3. The facts of the case are that the assessee is a trust registered under the provisions of the Income-tax Act, 1961, from the year 1962 and the trust is carrying on the charitable activities without any violation as contemplated under the provisions of the Act and also in accordance with the byelaws of the trust. During the assessment year 2012-2013, the assessee filed `Nil’ income after the income was applied for the charitable purposes. Thereafter, the return was processed u/s.143(1) of the Act and the case was selected for complete scrutiny assessment for which various details were called for by the Assessing Officer. The assessee also filed all the details sought for by the A.O. along with documents in support of the same, but inspite of that the A.O. made the assessment by treating the income received through kuri and finance business as business income on the ground that this is against sec.2(15) of the Act i.e. advancement of any other object of general public utility. The A.O. on that basis denied the exemption u/s.11 of the Act. Even though the earlier proceedings for the years were decided in favour of the assessee, the A.O. took a different view and denied the exemption claimed u/s.11 of the Act.
4. As against the said order, the assessee preferred an appeal before the CIT(A) and the ld.CIT(A) also without considering the issue in detail had confirmed the order of the A.O.
5. Being aggrieved with the order of the learned CIT(A), the present appeal has been filed by the assessee before this Tribunal, raising the following grounds:-
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
The learned commissioner of Income Tax (Appeals) NFAC is not justified in upholding the disallowance of the exemption claimed u/s.11 of the Act, on the ground that activities of the appellant is coming under residual entry of sec 2(15) are hit by the provisions of sec 13(8) ws the proviso to section 2(15) of the Act, under the facts and in the circumstances of the appellant's case.
The authorities below failed to consider that the matter is "Res integra" in so far as per the decision of the Jurisdictional High Court in ITA No:36/2020 dated 13.11..2020 of " Bharthashemam Vs Principal Commissioner of Income Tax".
The learned commissioner of Income Tax (Appeals) NFAC has erred in holding that the Kuri& Finance business activity carried on by the appellant would be in the nature of business and therefore, hit by the proviso to section 2(15) of the Act under the facts and in the circumstances of the appellant's case.
The authorities below missed to note that the appellant's main object is relief to poor/medical relief as admitted on earlier assessments and the proviso to sec.2(15) is applicable only to residual entry which is evident from the circular issued by CBDT vide circular no:11/2008 dated 19.12.2008.
6. The learned commissioner of Income Tax (Appeals) erred in holding that the activities of the appellant are carried on for "commercial gains with predominant objective to make profit" on the significant consideration that the appellant is making huge profits out of the financial transactions, without appreciating that the profits was utilized only to fulfill the primary object " relief to poor & medical relief".
The learned commissioner of Income Tax (Appeals) is further not justified in holding that the activities carried on by the appellant would fall within the limb "advancement of any other object of general public utility" and cannot be classified as "relief to poor & medical relief" as claimed by the appellant and therefore, the proviso to section 2(15) of the Act would be squarely attracted to the case of the appellant and hence, the appellant was not entitled to exemption u/s.11 of the Act.
8. The learned commissioner of Income Tax (Appeals) is also not justified in holding that alternatively the provisions of the section 3 Sree Narayana Dharma Sabha. 11(4) of the Act were attracted to the case of the appellant and hence, the appellant was not entitled to exemption u/s.11 of the Act for violation of the provisions of section 11(4) of the Act, without appreciating that the main objects of the appellant related to providing relief to poor/ medical relief by providing low rated interest loans to members/ayurvedic treatment thus these activities carried on by the appellant cannot be termed to be business activities to invoke provisions of section11(4) of the Act under the facts and in the circumstances of the appellant's case.
9. The learned commissioner of Income Tax (Appeals) ought not to have rejected the plea of the appellant that the activities of the appellant were examined and admitted in course of earlier assessments framed including appellate tribunal and hence, a different view ought not to have been taken in violation of the principles of consistency on the ground that theregistration u/s.12A of the Act was obtained prior to the insertion of the proviso to section2(15) of the Act, vide which the benefit of exemption to trusts carrying on activities for the " advancement of any other object of general public utility" was taken away, without appreciating that the benefit of exemption u/s.11 of the Act was made available to the appellant even after the insertion of the proviso to section 2(15) of the Act, and thus the stand adopted by the authorities below by considering the appellant under residual entry of sec.2(15) goes against the principles of consistency under the facts and in the circumstances of the appellant's case.
10. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered.”
At the time of hearing, the learned AR brought to our notice that the issue is “res integra” as per the decision of the jurisdictional High Court in dated 13.11.2020 in the case of Bharthasheman v. Pr.CIT. The assessee also enclosed the financial statement of the assessee to show that the income received through kuri and finance business were utilized solely for the purpose of charitable activities as mentioned in the byelaws of the trust. The learned AR also produced the copy of the byelaws and argued that apart from the main object of the assessee, the byelaws also contain “(g) Provide loans to the members and other registered institutions on the fair interest rate by executing proper documents. (h) Conduct simple deposit schemes for enhancing the finance of the Sabha. (i) Do all other things for the development of the Sabha and betterment of its members subject to the decisions of the General body.. (j) Secure loans from the Khadi and village industries Board and other government department and utilize the loans for the betterment of Sabha and members subject to the guidelines.”
7. The learned AR also filed a copy of the assessment order dated 06.09.2022 in respect of the assessment year 2020-2021 wherein the department had accepted the claim of the assessee. The learned AR also relied on the judgment of the Delhi High Court reported in 447 ITR 99 in the case of PCIT v. Servants of People Society and the judgment of the Hon’ble Supreme Court reported in 247 ITR 785 in the case of ACIT v. Thanthi Trust, in support of his arguments that the income earned through kuri and finance business should not be treated as business income when the entire income was spent on the charitable activities. The learned AR also relied on the order of the Bangalore Tribunal reported in 2023 (9 TMI 256) in the case of Navodaya Gramin Vikas Charitable Trust v. DCIT and prayed to allow the appeal of the assessee.
On the other hand, the learned Departmental Representative relied on the provisions of sec.2(15) of the Act and contended that the
We heard the arguments of both the sides and perused the material available on record. On going through the byelaws furnished by the assessee, it is observed that the assessee trust is having somany objects which are classifiable as relief to poor and medical relief in which one of the object is about the kuri and finance business in order to enhance the finance of the trust. We have also perused the financial statement filed by the assessee and in nowhere it is mentioned that the income earned through kuri and finance business is utilized for the welfare of the trustees and infactthe amounts were spent towards achieving the objects mentioned in the byelaws of the trust. Further, by way of conducting kuri and finance business, the assessee is receiving a small amount and that amounts were utilized by the assessee for conducting various charitable activities. We find that the assessee is not doing the kuri and finance business solely for the purpose of earning income like various other corporate entities doing. In order to do various charitable activities, the assessee is also doing small kuri and finance business and rightly spent the amount to achieve the objects mentioned in the byelaws. Further, the A.O. as well as the ld.CIT(A) has misconstrued the provisions of sec.2(15) of the Act and denied the exemption claimed u/s.11 of the Act.
Conducting of kuri and finance business itself came up for consideration before the Jurisdictional High Court in the case of Sree Narayana Dharma Sabha. Bharthashemam, cited supra, in which the Hon’ble High Court of Kerala had framed the following question of law:- “Whether the Tribunal was correct in having denied exemption to the income generated by the assessee, who is registered under Section 12A of the Income Tax Act, 1961 [‘Act’ for brevity], from the business of Chitty/Kuri which was fully utilized for the purpose of ‘medical relief’ , which is the main object of the assessee-Trust, falling under the definition of ‘charitable purpose’? 11. After considering the issue in detail, the division bench of the Hon’ble High Court of Kerala had allowed the appeal filed by the assessee by answering the question of law in the negative. Therefore, this issue was covered by the judgment of the jurisdictional High Court and we do not know how the learned CIT(A) had not applied the said judgment to the facts and circumstances of this case.
In the Delhi High Court judgment cited by the ld.AR, the question came up for hearing before the Hon’ble Delhi High Court was whether the income generated by running a printing press and publishing newspaper and used for the charitable purposes would be a mischief of proviso to sec.2(15) of the Act, it was held that the assessee being a charitable trust in nature, as the profit made by the assessee is being ploughed back for charitable purposes, it is eligible for deduction.
13. Similarly, the ITAT Cochin Bench in the order dated 08.03.2023 reported in 2023 (3) TMI 975 in the case of Malanadu Farmers Society Vs CIT(E) had held that the trust earned income from the sale of milk, milk cream etc. and the entire income earned through the said sales were utilized for the purpose of carrying out the charitable activities and hence they would come under the first 7 Sree Narayana Dharma Sabha. three limbs of sec.2(15) of the Act, and therefore, they are eligible for deduction u/s.11 of the Act. We have also perused the Circular issued by the CBDT in Circular No.11/2008 dated 19.12.2008 in which the clarification with regard to the exemption claimed u/s.11 by the charitable institutions as well as mutual organizations were spelt out in which the Board had clarified that, when there is a charitable activity enumerated in the first three limbs of sec.2(15) of the Act, it will amounts to charitable purpose even if it incidentally involves carrying on of commercial activities. In the present case, as already stated, the byelaw is very clear and therefore the kuri and finance activity carried on by the assessee incidentally in order to fulfill the objects mentioned in the byelaws, could not be treated as business income and on that basis denial should not be made u/s.11 of the Act.
We have also perused the order of the Bangalore Bench of the Tribunal, cited supra, in which the facts are that the assessee was running various activities like animator activities, donations, health insurance premiums, santhwana, training, uniform, SHG formation, sahayadhana, insurance premium and scholarship for students in rural areas to make the poor ladies aware of the scheme and to encourage their participation as the principle objects of the trust, for which the trust incurred some expenditure. In this case, the assessee is running micro financing activities which is nothing but a money lending activity, and therefore, the department disallowed the claim of deduction u/s.11 of the Act, but the Tribunal had considered the issue in detail and gave a finding that the proviso to sec.2(15) of the Act shall not be applicable to the present facts of the case and 8 Sree Narayana Dharma Sabha. held that the authorities are not justified in holding that the assessee is not engaged any charitable activities.
As seen from the above said judgments and the orders, the jurisdictional High Court had already considered kuri and finance business carried out by the trust and held that the trust is eligible for deduction u/s.11 of the Act since they are doing charitable activities out of the incomes received through kuri and finance business. Similarly, in the order of the ITAT Bangalore Bench, the money lending business carried out by the trust in order to do the various charitable activities would not be a reason for denying the deduction u/s.11 of the Act. In such circumstances and based on the above judgments and orders, cited supra, we are of the view that the assessee is also entitled for exemption u/s.11 of the Act in respect of the incomes earned from the kuri and finance business. Further, all along the department had accepted the claim of the assessee and granted exemption but only for the above mentioned assessment years a different view has been taken which in our opinion is not correct. It is also brought on record that the department for the assessment year 2020-2021 had accepted the claim of the assessee by an order dated 06.09.2022. In such circumstances, we are inclined to set aside the orders of the A.O. as well as the CIT(A) and allow the appeals filed by the assessee.
Before parting, we would like to mention that the facts of other appeals, i.e., to 154/Coch/2024 are mutatis mutandis similar to that of as discussed hereinabove by us. Therefore, the decision reported therein by us is equally applicable to ITA Nos.151 to 154/Coch/2024 as well. 9
In the result, the appeals filed by the assessee are allowed.
Order pronounced on this 08th day of November, 2024.