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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’: NEW DELHI
Before: SH. I.C. SUDHIR & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal filed by the assessee is directed against the order dated 28.02.2013 of the CIT (Appeals)-XXI for the assessment year 2009-10.
2 The assessee has taken the following grounds of appeal: “1. That the learned commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming the order of assessment and has further erred in upholding the denial of exemption claimed under section 11&12 of the I.T Act. 2 That the learned CIT (A) has not been appreciate that the registration granted to the Society under section 12A has not been withdrawn and as such it is a fact accompli that its objects are charitable, as held by Apex Court in 300 ITR 214.
3. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the assessee society is a charitable institution and is existing for charitable purpose within the meaning of section 2(15) of the I.T. Act.
4. That the finding of the Commissioner of Income Tax (Appeals) that the assessee is engaged in commercial activity is perverse. In fact, such a finding has been reached on a mere fact that in respect of such receipts which was for providing educational activities, the payees had deducted the tax at source and despite the fact that the activities so conducted by the assessee were not in the nature of commercial activity. The CIT (A) has overlooked that merely because the payees deducted the tax cannot be regarded as any basis, since the assessee is only engaged in providing training, arranging capacity building programmes, vocational studies and imparting education etc.
5. That the learned Commissioner of Income Tax (Appeals) has failed to comprehend that, there is neither any basis nor there is any material, on the basis whereof, any such finding could be arrived.
6. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the interest of Rs. 1,36,03,945/-had been earned on the surplus funds of the Society, which surplus funds had been invested in accordance with the provisions of section 11(5) of the I.T. Act and was thus the trust property not liable to be included in the total income. The reliance of the judgment of Apex Court in the case of Banglore Club is entirely misconceived which had no application.
That the findings of the learned CIT(A) that the assessee has generated surplus of Rs. 1.09 Crores as well as earned interest is factually incorrect, since Rs. 1.09 crores only was the excess (which included the interest of Rs. 1,36,03,945/- and it was after meeting the expenditure incurred there remained excess of Rs. 1,09,00,000/-) 8. That the learned Commissioner of Income Tax (Appeals) has further erred in sustaining the interest levied and rejecting the various grounds of appeal
raised before him summarily. It is therefore prayed that the order of CIT (A) and that of the learned ITO (E) Trust Ward II, Delhi be set aside and it be held that the demand raised o Rs. 46,13,065/- was unsustainable both on law and on facts.”
3. Grounds No. 1 to 5 of the Grounds of Appeal raised by the appellant challenge the denial of exemption claimed under section 11 and 12 of the Act.
4 The brief facts of the case are that appellant is a society, which came into existence in the year 1982 under the Societies Registration Act, 1860. It was granted registration u/s 12A of the Income-tax Act, 1961 ( In short ‘the Act’) vide an order dated 3.9.1983 and has also been granted exemption under section 80G of the Act.
4.1 During the assessment proceedings, the Assessing Officer noted that the appellant society had declared receipts on account of research and training grants of Rs. 15.91 crores, contributions of Rs. 4.18 crores and other income of Rs. 1.36 crores. The Assessing Officer thus formed an opinion that such receipts are of commercial nature and the appellant was therefore, directed to justify the receipts in light of the amended provision of section 2(15) of the Act. The assessee in its response dated 13.12.2011 contended that since the activities of the society are educational activities therefore, the amended provisions of section 2(15) of the Act are inapplicable. The Assessing Officer has noted that during the instant year, the appellant has shown receipts of Rs. 20.65 lacs from educational activities out of total receipts of Rs. 21.46 crores. He further held that meaning of education under section 2(15) of the Act is basically imparting of training and developing the knowledge, skill, mind and character of students by normal schoolings. He also made a reference to the judgment in the case of ICAI vs. DDIT (Delhi) to hold that the merely because one part of the activities of the assessee is an educational institute, it does not mean that the appellant is an educational institute or is predominantly or exclusively engaged in the activity of education. He further held that most of the income of the assessee is from short term projects and recovery of professional services on which, TDS was also deducted which are clearly of commercial in nature. He also noted that during the year, the assessee has also shown surplus of Rs. 1,09,99,469/- which also established the profit motive behind the activities carried out by the appellant society. He also held that nomenclature of the transaction is not relevant and all what is relevant is that assessee is providing certain services and charges which is clearly of commercial in nature. Thereafter, after referring to various case laws, he concluded that the activities of the appellant society are commercial in nature and also not in consonance with the aims and objects contained in memorandum of association of the appellant society. Consequently, he concluded that the assessee society does not fall within the scope of charitable purpose defined in section 2(15) of the Act and therefore, benefit of section 11 and 12 of the Act was not allowed to the appellant in the instant year.
4.2 On appeal, the CIT(A) upheld the denial of exemption by holding as under: “3.1 To verify the claim of the appellant, I have gone through the Schedule 9 of the Balance Sheet, as per which there is Research & Training grants amounting to Rs.15,91,42.039/- which has been received from (12) organizations. These details are available at page No. 822 of the Paper Book. Further details are available as per Schedule 10 of the Balance Sheet which is contribution of Rs.4,18,69,272/- which is available at pave No. 82 of the Paper Book and other income is available at Schedule 11 of the Balance Sheet which is available at pager No. 824 of the Paper Book. The other income constitutes two items i.e. interest Rs.1,36,03,945/- and profit on sale of fixed assets Rs.23,609/-. Thus, total amount of ,other income is Rs.1,3627,555/-. In this regard AO has discussed the nature of commercial activities by observing at page no. 6 of the order wherein, AO has given full details as per which assessee has made transaction with different parties on which TDS has been deducted. The details are as under:-
"Details available on record by way of TDS certificate in respect of following parties also confirm the fact that assessee is engaged in engaged in commercial transactions:- S. Name of the Party Nature of Amount No. Transaction/Section Under which tax is deducted.
Unnati 194J 70,000 2. The Leprossy Mission Trust of 194J Payment of fees to 3,66,080 India professional 3. ---do--- ---do--- 2,74,560 4. Regional Director, Professional fee 3,17,775 Commonwealth Youth Programme, Asia Centre, Chandigarh 5. Poverty and Human Fee for Tech/ 14,10,760 Development Monitorying professional Services Agency 6. GTZ Gab Consultant 1,79,400 7. National Institute of Urban 194 4,96,800 Affairs Besides this it is further observed that earning interest on fixed deposit has been held as income by the Hon'ble Supreme Court in the case of Bangalore Club vs. CIT, wherein, Hon'ble Supreme Court has upheld the judgment of Hon'ble Karnataka High Court, 4 by observing that, "amount of interest earned by the assessee from the banks will not fall within the ambit of mutuality principle and will therefore, be eligible to income tax in the hands of the assessee (order dated 14.1.13 )". So, this is a latest judgment of Hon'ble Supreme Court on the similar issues. 3.2 In the instant case appellant has earned interest of Rs.1,36,03,945/- which cannot be exempt from tax in view of the decision of Hon'ble Supreme Court as discussed above. Furthermore, it is found that activities of the appellant are not falling under the first three limbs of section 2(15) of the IT Act which are, relief to the poor, education, and medical relief and it is very clear that activities are in the nature of advancement of general public utility which is the last limb. Now only question is to be decided whether activities are in the nature of trade, commerce or business or not. For the same AO has very categorically discussed the instances in the body of order by mentioning the name of the parties who had deducted TDS on various services offered by the appellant. Further appellant has also generated surplus of Rs.1.09 crores as well as earned interest income on the fixed deposit which has been held as taxable by Hon'ble Supreme Court in the case of Bangalore Club. So, after considering the facts of the case in totality, in my opinion, grounds No. 1 to ground No. 2.8 of the appeal deserve to be dismissed.” 4.3 Before us, the learned counsel for the appellant society has submitted that the authorities have erroneously held that the appellant is not a charitable institution under 2(15) of the Act. It was contended that claim of the appellant has been accepted under section 10(22) of the Act and also under section 11 and 12 of the Act. He specifically highlighted that the orders for assessment year 2004-05 to 2008-09 have been framed under section 143(3) of the Act allowing the claim under section 11 and 12 of the Act. It was thus submitted that since the activities of the appellant are in the nature of education which has been accepted in the preceding and succeeding years, the amended proviso to section 2(15) of the Act has no application. It was further submitted that the purpose and objects for which the appellant society has been created is to promote research, training and education for people’s participation in developmental processes nationally and internationally. It was contended that in pursuance to the aforesaid objects, the appellant society conducts educational courses on themes like participatory research, participatory monitoring, gender equality, panchayati raj institution etc. It was also submitted that the appellant society has started a joint course in association with IGNOU on Diploma and Masters in Participatory Development. The memorandum of understanding dated 8.9.2008 between the appellant and IGNOU was highlighted, a copy of which is placed at pages 59 to 67 of Paper Book. Reliance was placed on the following judicial pronouncements to contend that carrying out research falls within the ambit of “education” under section 2(15) of the Act: (a) 321 ITR 73 (Delhi) ICAI Accounting Research Foundation vs. DGIT (E) (b) ITO (E) vs. Society for Essential Health Action Trust (ITA No. 4329/Del/2012 for AY 2009-10 dated 21.2.2014) (c) 305 ITR 257 National Safety Council (Bombay) (d) 74 TTJ 523 Indian Institute of Bankers vs. DDIT (Exemptions)
4.4 Furthermore, it was contended that the receipts of the society have been applied towards the objects of the appellant society and the surplus has been carried forward to be applied to attain the objects of the society in the subsequent years. It was contended that no portion of the surplus has been utilized for any personal gain or benefit of the members of the society in any manner whatsoever. It was thus contended that mere fact that there was a surplus could not be a basis to conclude that activities of the society were in the nature of trade, commerce or business or any activities rendered in connection with service or business for any other consideration. It was submitted that the receipt of the society is by way of aids and grants which grants had been made by government and N.G.O’s and were made in order to enable the assessee to carry out the educational activities and therefore, the appellant cannot be held to be engaged in surplus activities. Reference was made to the judgment of the Hon’ble High Court of Delhi in the case of PHD Chamber of Commerce & Industry v. DIT(E) 357 ITR 296. It was submitted that contributions on account of short term project is only of Rs. 92.12 lacs as against grants in aid of Rs. 15.91 crores and therefore, is not relevant in any manner. The appellant also submitted 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 was contended that predominant activity of the institution was not business, trade or commerce and neither institution given primarily to earn profits or to do charge through advancement of objects of the activities and in any case general public utility which could not be made a basis to deny exemption under section 11 an 12 of the Act. Reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of India Trade Promotion Organization v. DGIT(E) 371 ITR 333.
4.5 Having regard to the above, it was prayed that it be held that the appellant is a charitable institution and the exemption claimed under section 11 and 12 of the Act be allowed.
4.6 On the other hand, the learned DR supported the order of the Assessing Officer and CIT(A) and highlighted that neither the activities of the appellant are in the nature of education and now the appellant otherwise is entitled to claim of education. It was submitted that the activities of the appellant society are purely commercial in nature and therefore, the denial of claim was in order.
5 We have considered the rival submissions, perused the material on record and orders of the authorities below. Section 2(15) of the Act is amended by the Finance Act, 2009 reads as under: "2. Definitions.-In this Act, unless the context otherwise requires— (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; Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;" 5.1 Charitable purpose as indicated above is an inclusive definition and includes relief of the poor, education, medical relief, advancement of any other object of general public utility and "preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. As regards, the proviso inserted by Circular No. 11 of 2008 dated 19.12.2008 provides as under: “1. Section 2(15) of the Income-tax Act, 1961 (‘Act’) defines “charitable purpose” to include the following :— i) Relief of the poor ii) Education iii) Medical relief, and iv) The advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of ‘charitable purpose’. Therefore, section 2(15) was amended videFinance Act, 2008 by adding a proviso which states that the ‘advancement of any other object of general public utility’ shall not be a charitable purpose if it involves the carrying on of— (a) any activity in the nature of trade, commerce or business; or (b) 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.
The following implications arise from this amendment. 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. 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(23C) 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. Similarly, entities whose object is ‘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.
The newly inserted proviso to section 2(15) will apply only to entities whose purpose is ‘advancement of any other object of general public utility’ i.e., the fourth limb of the definition of ‘charitable purpose’ contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.” 5.2 Thus the amended provision of section 2(15) of the Act will have no application viz-a-viz the clauses other than object of general public utility. The Hon’ble Court further in the case of Indian Trade Promotion Organization v. DGIT(E) 371 ITR 333 (Del) on examination of the proviso, has held that the proviso has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service "in relation to" any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. However, it was noted specifically that the proviso applies to only the last part of the clause of section 2(15) of the Act i.e. of any other advancement of any other object of general public utility. The Hon’ble Court has also held 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 has been held that what is important is to examine as to what is the dominant activity of the institution. 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. In the aforesaid judgment, it has been held as under: "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 self-sustaining in long- term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable 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."
5.3 In fact, in an earlier judgment dated 26.09.2013 , in the case of civil writ petition No. 7797/2009 between M/s GS1 India and Director General of Inccome- tax, the assessee had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from third parties in India. The Hon’ble Delhi Court held on such facts as under: "22. Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business?" 5.4 It was further held as under: “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.” 5.5 In the said judgment, it was concluded as under: “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 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'.” 5.6 Having regard to the facts of the case, we are of the opinion that the appellant society has engaged in education which has been accepted in the preceding assessment years consistently by the Revenue in assessments framed under section 143(3) of the Act.
6 Coming to the facts of the case, it is stated that objectives of the society under the Memorandum of Association are as under: i. To explore, develop, refine and promote the concept and practice of Participatory Research; ii. To strengthen and advance the Participatory Research Network; iii. To promote research, training, action and education for people’s participation in developmental process nationally and internationally; iv. To catalyze, advocate and support use of Participatory Research in various developmental projects and programs in different countries of Asia and elsewhere; v. To use participatory methodologies to promote and enhance democratic governance in society; vi. To collaborate and maintain links with other networks and institutions for fulfilling objectives of PRIA; vii. To disseminate information through all media-print, oral or electronic; viii. To establish and maintain libraries, documentation and resource centers; ix. To develop and distribute learning, public education and advocacy materials in print, audio-visual and software modes and to create facilities for the acquisition, production, storage and dissemination of the same; x. To organize seminars, workshops, conferences, exchange visits, study tours etc. on all subjects of interest in the context hereof for the time being; xi. To promote continuing and liberating education of adults in particularly the under privileged and disempowered citizens of different societies; xii. To sponsor and support training programs on participatory research and its related aspects; xiii. To publish books, papers, monographs and other educational material for furtherance of the objectives of PRIA; xiv. To conduct projects on Participatory Research and related subjects both on its own and on behalf of others; xv. To support, fund and collaborate with similar projects being conducted by like-minded institutions; xvi. To promote new organizations in furtherance of the objectives hereof; xvii. To offer fellowships, scholarships, prizes, stipends, grants etc. in furtherance of the objects of PRIA; xviii. To issue appeals, proposals and applications for money and funds in furtherance of the said objects and to accept gifts, grants, donations and subscriptions of cash and securities and of any property, movable or immovable; xix. To invest and otherwise deal with funds and moneys of PRIA to optimize the same, including creation of Corpus Fund; and to vary, alter or to transpose such investments from time to time in accordance with laws of the land; xx. To purchase or otherwise acquire or take on lease or hire temporarily or permanently, any movable or immovable property necessary or convenient for furtherance of the objects of PRIA; xxi. To sell, mortgage, lease, exchange and otherwise transfer or dispose of or deal with all or any property, movable or immovable, of PRIA for the furtherance of the objects of PRIA; xxii. To construct, maintain, alter, improve or develop any buildings or works necessary of convenient for the objects of PRIA; xxiii. To create administrative, academic and other positions needed to run PRIA and to make appointments accordingly; xxiv. To borrow or raise funds on mortgage, promissory notes or other securities founded or based upon all or any of the properties of PRIA or without any securities; xxv. To make rules and bye-laws for conduct of the affairs of PRIA and add to, amend, vary or rescined them from time to time; xxvi. To do, or cause to get done, all such other lawful things as are conducive or incidental to the attainment of the objects of PRIA; xxvii. To utilize all income of PRIA towards promotion of aims and objectives of PRIA only. 6.1 We note that pursuant to the above objects, the appellant society in the instant year, has declared income of Rs. 21,46,38,866/-, the break-up of the aforesaid income is as under: a) Research and training grants - Rs. 15,91,42,039/- b) Contribution – Rs. 4,18,69,272/- c) Other income – Rs. 1,36,27,555/- 6.2 According to the learned Assessing Officer, since in the instant year, there was surplus of Rs. 1.09 crores, the same clearly shows the profit motive behind the activities carried out by the appellant society. It has been held that receipts of the appellant society are contractual in nature on account of deduction of TDS. Further, it has been also held that since the receipts from educational activities is only Rs. 20.65 lacs out of total receipts of Rs. 21.46 crores declared during the year, therefore activities of the appellant cannot be considered to be education. The learned counsel for the assessee however has assailed the above conclusion by pointing out that consistently that the revenue itself has accepted that the appellant is engaged in education.
6.3 We find that in the year 1984-85, in the case of the appellant society in the claim of the appellant under section 10(22) of the Act was denied and the matter travelled to the Tribunal. On appeal by the Revenue, claim of exemption stood accepted by Tribunal. The Tribunal in an order dated 30.7.1987 has held as under: “4. After taking into consideration of the rival submissions and looking to the facts to and going through sec.10(22) as per which any income of society or other educational institutions existing solely for educational purposes and not for purposes of profit will not form part of the total income. We are unable to interfere in the finding of the AAC. The assessee society has been pursuing some activities as in the past which comprised of educational workshop and training programme for field worker who are engaged in rural and urban development areas in India. It was in order to support the above educational programme that the society had conducted special workshop and printing and learning material about the theme. We are in agreement with the learned Appellate asstt. Commissioner that the books published for purely educational purpose, the income from the same deserves to be exempt u/s. 10(22). Action of the AAC is, therefore confirmed and in the result, the revenue’s appeal is dismissed.” 6.4 Moreover, we also notice that the Assessing Officer in the order for assessment year 1994-95 under section 143(3) of the Act has held as under: “There is no change in the aims, objects and activities of the society. The society is engaged in educational activities like training for adult education, training of trainers, educational programmes for rural and urban field level workers, training programme on occupational healthy related activities etc. etc. The activities of the society are covered u/s 10(22) of the Act and, therefore, its income is assessed at Rs. Nil.” 6.5 From the aforesaid, it is apparent that the activities of the appellant have been accepted to be within the scope of education under section 2(15) of the Act and also under section 10(22) of the Act. In such circumstances, the conclusion of the Assessing Officer to hold that the activities of the assessee are not in the nature of education only on the pretext that income from education is confined to Distance Learning course fee of Rs. 20.65 lacs out of total receipts of Rs. 21.45 crores is incorrect. On the contrary, we notice that the activities of the appellant are in the nature of participatory research. In the order of assessment of the appellant for assessment year 1983-84, it has been observed that the participatory research is a new development of the last decade and was arisen out of the experience of grassroots educational efforts in the Third World Countries. It has been Participatory Research can be utilized depend upon the needs of the poor and deprived. It has been noted that it has worked on the problems of forest, land, rural development, drinking water, primary health care, women’s income generating efforts, occupational and environmental health etc. The appellant has also emphasized that it work with the community organizers, adult educator, health care workers, social workers etc. in training them to use participatory research methodology in their work. The appellant produces own educational materials for use in educational programmes and for wider dissemination.
6.6 Similar view has also been expressed in the case of Praxis Institute of Participatory Practices v. DIT(E) 154 ITD 10 (Del) wherein it has been held as under: “Having gone through the activities of the assessee made available at page Nos. 101, 113, 130, 141, 151, 156 etc. of the paper book filed on behalf of the assessee about the activities of the assessee, we find that for Care India, the task involves on the part of the assessee is planning and conducting capacity building program for state lead and implementing partners, field visits and facilitation of reflection process of the organization development etc. mainly in respect of HIV and Sex Workers. At page Nos. 8 & 9 of the annual report relevant activities and photograph study for community mobilization have been provided. For the Leprosy Mission Trust India (TLM) the role of the assessee is to focus its approach to work with people and communities effected leprosy and disability and to address poverty and industries through enhanced quality people centered intervention. One of the points to be ensured by the assessee is the key area, where capacity is lacking at the field level and also to make field visits to projects where needed. The assessee was to visit selected project locations in Delhi to explore alternative to the existing structure and system. Field work will be organized to sensitized the usages of the participatory approaches, requirement of paradiagram shift from technical to community centric approaches. Semi- structured interviews will be held with the Leprosy Effected, Disability, Socially Excluded People to know about their aspirational and attitudinal behavior which they are looking for. The assessee will also hold discussion with officials of leprosy mission. Page No. 10/A of the annual reports contains the relevant activities and page 19C contains photograph depicting the plans. For the Plan International ( a child rights organization working to elevate child poverty) the objective is to understand the CC based microplanning through classrooms and field based training evolves a process and identity mythology for a participatory needs assessment to develop line centered community level microplan and field work etc., page Nos. 18/19A of the annual report contains the relevant activities and photographs depicting therein online high and micro level planning for UNICEF, the task of the assessee involve fixing understanding the living condition of the tribal people and dynamics of their social exclusion (page No. 16 of the annual report contains the relevant activities and photographs depicting the immersional lending program). For international labour office (ILO), the task of the assessee is to carry out rapid assessment on the vulnerability of workers to Tamilnadu by organizing separate works job/consultation meetings with employer, NGOs and government etc. Also to find out specific issues of women workers such as Child Care including sexual harassment/violence etc. Page No. 12 of the annual report contains the relevant activities and photographs depicting the living and working condition of workers.
For Pellastakaa Laspset-Radda Banen(save the children, contract Finland), the assessee was entrusted to undertake the study on qualitative base line in eight village of southern Rajasthan for formulating an educational model for promoting and protecting the rights of children of indigenous community through a right based approach in the area of root causes of violation of rights of children, nature and impact of such violation etc.
We find that during the year, the assessee undertook 25 such projects, the details of which were submitted before the authorities below but the Learned CIT(Appeals) or the Assessing Officer did not determine the nature of the activities for the very purpose of the objects. The Assessing Officer was of the view that the assessee involves in carrying on the activities in the nature of rendering services in relation to trade, commerce or business as assessee is providing consultancy, workshop, training program, conducting research on behalf of other agencies. Thus, we find that the above view of the Assessing Officer was based upon the fact that assessee is providing consultancy, workshop and training program etc. We are of the view that the activities of the assessee can in no way be covered in trade, commerce etc. as it is not charging any fee from the beneficiaries who are poor communities. It is also worth noting that the NGOs who have engaged the assessee are itself charitable institutions like WHO, UNICEF etc. and they ensure that the grant etc. given to the assessee are fully utilized only for the purpose of charitable activities and not for any business. The assessee did not have any receipt in excess of expenditure during the year. The books of account clearly show that no amount of current receipt or out of unutilized receipt of the past has been treated as profit in the sense it would be treated, had it been a business and that no amount has ever been given to any member of the board of the society or any member of the assessee society except the reimbursement of expenses incurred in connection with the board's meeting. It is also not the case of the department that any part of profit or gain shown as receipt over expenditure has been transferred to any member of the society. Thus, the activity of the assessee society is certainly not for making profit and it is certainly not in the nature of any trade, business or commerce, so as to be headed by the first proviso to sec. 2(15) of the Act even if it is treated as advancement of any general public utility. Similar are the facts in the case of Society for Essential Health Action & Training (supra). In that case also, the assessee had received an amount of Rs. 42 lacs from SAS for research conducting on implementation of various medicine related to children invocation. This research was part of the research activities which were to be carried out by SAS, but SAS could not carry out. This research was carried out by the assessee society in pursuance of a written arrangement with SAS. As per the arrangement/agreement, the assessee provided techno-medical research support and compilation of DATA in a project called "ROTA VIROS" . In consideration thereafter, SAS agreed to pay the assessee a lump sum amount of Rs. 50 lacs. It was termed as service fee. The Assessing Officer construed the above said agreement to be a commercial agreement. The services provided by the assessee to SAS were taken as being of commercial nature. The Assessing Officer held that the proviso to sec. 2(15) of the Act is applicable to "any other object of general public utility and not to charitable organization engaged in providing either relief to the poor or medical relief or education and that since the activities of the assessee did not fall under either relief to the poor or medical relief or education, it could be safely presumed that they fall under the category of general public utility", that for such activities, the assessee was receiving contractual income, irrespective of whether it resulted in profit or loss and that as such, the assessee had violation of the provisions of section 2(15) of the Act, that since the assessee did not fall within the scope "charitable purpose", as defined in sec. 2(15) of the Act, the benefit of sec. 11/12 of the Act was being disallowed to the assessee for the year under consideration. The Assessing Officer also sent a proposal for withdrawal of registration to the assessee under sec. 12AA of the Act to the DIT(E), separately. The grievance of the revenue before the ITAT was that the Learned CIT(Appeals) has erroneously held the activities of the assessee society to be falling under "advancement of any other object of general public utility" as defined therein. The ITAT held that the aims and objects of the assessee society, as per its Memorandum of Association includes medical research and informal education and communication activities of health and nutritional issue for urban slum and rural communities. The ITAT thus held that the activities in question is undisputedly the activity of research i.e. Techno Medical Research Support for research and compilation of DATA on account of "ROTA VIRUS" to SAS. Therefore, the activity carried on by the assessee cannot be said to be beyond its main aims and objects. It also remains irrefutable that the assessee society continues to enjoy registration under sec. 12A of the Act, as a charitable trust, confirming that the charitable purposes for which the assessee society was established remains unchanged. The activities of assessee during the year was in pursuance of such purposes thereafter following the ratio laid down by the Co- ordinate Bench of the ITAT in the case of Harnam Singh Harbans Kaur v. DIT (Exemption) [2012] 49 SOT 387/17 taxmann.com 103, Delhi, the ITAT upheld the action of the Learned CIT(Appeals). As per the cited decisions, charitable institution registered under sec. 12A of the Act and carrying the activities in the nature of charity, cannot be held to be engaged in the activity of advancement of any other object of general public utility.
Similar view has been expressed by the Hyderabad Bench of the ITAT in the case of GVK EMRI (UP)(supra). Similar are facts in the case of assessee as most of the NGOs related to WHO/UNO etc. do not have any experience of connecting/collecting the poor and needy people like destitute orphans, sex workers, drug addicts in which assessee society has gained experience over a period of time and has capacity to collect these particulars classes of people and motivate them to get out of it. Besides, there is no change in the activity of the assessee which all along has been covered under the first three limbs of charitable activities laid down under sec. 2(15) of the Act as in the assessment years for 2006-07, 207-08 and 2008-09 in the assessment framed under sec. 143(3), the activities of the assessee trust have been treated as charitable in nature and within the meaning of sec. 2(15) of the Act. As discussed above, the activities of the assessee firstly cannot be treated as advancement of any other object of general public utility nor it can be said that the activity of the assessee involves the carrying 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. Respectfully following the above referred decisions on identical issues on almost similar facts as of the present assessee before us, we hold that the activities as discussed hereinabove of the present assessee cannot be held to be engaged in the activity of advancement of any other object of general public utility. The activities carried on by the assessee cannot be said to be beyond its main aims and objects and it is also an undisputed fact that the assessee society continued to enjoy registration under sec. 12A of the Act as a charitable trust and that the charitable purpose for which the assessee society was established remained unchanged. Under the circumstances, we while setting aside the first appellate order as well as order of the learned DIT(E) direct the Assessing Officer to allow the assessee the claimed exemption under sec. 11(12) of the Act and the ld. DIT(E) is directed to allow the application of the assessee for continuance of the approval granted under sec. 80G(5)(vi) of the Income-tax Act, 1961. The grounds of the appeals are thus allowed in favour of the assessee.”
6.7 Also Hon’ble Delhi High Court in the case of CIT v. Praxis Institute of Participatory Practices dated 23.9.2015 approving the above judgment has held as under: “3 The question that arose is whether the activities of the Assessee would fall within the scope of ‘general public utility’ under Section 2(15) of the Act and whether the Assessee is therefore entitled to exemption under Sections 11 and 12 of the Act? 4 The ITAT has returned a factual finding, after analyzing the documents on record, that the activities of the Assessee can in no way be termed as trade and commerce etc. as it is not charging any fee from the beneficiaries who belong to the poor communities. The ITAT also noted that the NGOs like the WHO, UNICEF etc. which have engaged the Assessee are themselves charitable instructions. They ensure that the grants given to the Assessee are utilized for the purpose of charitable activities and not for any business. The consultants’ fees were also paid out of such grants. Further, the Revenue was not able to show that any part of the profit or gains has been transferred to any member of the Assessee society.” As regards the basis of surplus, the Hon’ble Apex Court in the case of Queen’s 7 Educational Society v. CIT 372 ITR 699 has referred to the judgment in the case of American Hotel & Lodging Association, Educational Institute v. CBDT 301 ITR 86 (SC) and noted as under: “11. Thus, the law common to Section 10(23C)(iiiad) and (vi) may be summed up as foll0ws: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it meaks a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied – the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on “for profit”. No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will ont be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.” 7.1 The Hon’ble Court in the aforesaid judgment affirmed the judgment of the Punjab & Haryana High Court n the case of Pinegrove International Charitable Trust v. UOI 327 ITR 73 wherein it was held that merely because profits have resulted from the activities of imparting education, it would not result in change of character of the education that it was solely for educational purpose.
8 Thus, respectfully following the aforesaid judgments, we hold that the invocation of proviso to section 2(15) of the Act to deny claim of exemption under section 11 and 12 of the Act is not justified. Accordingly, grounds of appeal are allowed.
In the result, the appeal filed by the assessee is allowed. The decision is pronounced in the open court on 27th May, 2016.