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Income Tax Appellate Tribunal, DELHI BENCH:‘F’ NEW DELHI
Before: SHRI N.K. SAINI & SMT. BEENA PILLAI
ORDER PER BEENA PILLAI, JUDICIAL MEMBER:
ITA No. 3637/D/2015 & CO No. 278/D/2015 2 These are cross appeals filed by the Revenue and the assessee arising out of the order passed by the ld. CIT(A)-40(Exemption) dated 24/03/2015 for A.Y. 2010-11 on the following grounds of appeal: Grounds of 1. “On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the assessee society is a charitable organization despite the fact that the assessee society was doing business within the meaning of amended provisions of section 2(15) of the I.T. Act.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing the claim of depreciation of Rs. 1,07,627/- to the assessee ignoring the fact that the assessee had claimed the amount incurred on purchase of fixed assests in earlier years as application of income, on which depreciation is claimed now and further allowance of depreciation will be tantamount to double deduction.
3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing the claim of depreciation of Rs. 1,07,627/- to the assessee ignoring the recent judgement of the jurisdictional High Court in the case of Charanjiv Charitable Trust vs. DIT(E) in ITA No. 321, 322 & 323/2013 dated 18/03/2014 wherein the Hon’ble Court has held that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets.
4. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.”
Grounds of Cross Objection No. 278/D/2015: 1. “On the facts and in the circumstances of the case and in law, the ld. ITO(E) has erred in holding that the assessee Society was doing business within the meaning of amended provisions of section 2(15) of the Income Tax Act in a stereotyped manner based on conjectures and surmises without going through the main objectives, activities to achieve the main objectives, purpose of collection and utilization of fees etc.
2. On the facts and in the circumstances of the case and in law, the ld. ITO(E) has erred in not allowing the claim of depreciation of Rs. 107627/- to the assessee Society. & CO No. 278/D/2015 3
3. The respondent prays for condonation of delay in filing this cross objection for the reason that the ITAT Notice of 31.07.2015 was not received by us and the Grounds of Appeal
of the appellant was received by us only on 15.10.2015.
4. The respondent prays to add or amend any ground of cross objection raised above at the time of hearing.”
At the outset, the ld. AR submits that the cross objection filed by the assessee is not pressed. Accordingly, the cross objection no. 278/D/2015 stands dismissed.
The brief facts of the case are as under: 3.1.The assessee had filed its return of income on 25/02/2011 for the relevant assessment year under consideration declaring nil income. The case was selected for scrutiny and the notices were issued. During the assessment proceedings, the ld.AO recorded that the assessee is a Society not registered u/s 12A of the Act and that it is also not enjoying any benefit u/s 80G(v) nor is notified u/s 10(23C) of the Act. The ld. Assessing Officer, therefore, observed that the assessee is not entitled to the benefit of exemption. The ld. Assessing Officer recorded that the assessee provides help and consultancy and development of the human behavior, human conduct, group behavior and self awareness, etc., to make better human beings and the same is done through professional members through annual program. The assessee receives fees from the participants. 3.2. During the assessment proceedings, the Assessing Officer records that the assessee is pursuing activities which is not in the nature of education, medical, relief to poor and preservation of the environment, the activity of providing management consultancy for corporate houses which are covered under the last limb being the general public utility of section 2(15) of the Act.
ITA No. 3637/D/2015 & CO No. 278/D/2015 4 3.3. The ld. Assessing Officer further records that TDS on the receipts have been deducted u/s 1945 of the Act for the year under consideration. It is noted by the ld. Assessing Officer that all the entities, who have availed the consultancy services are private leading companies and have made payments after deducting TDS. The ld. Assessing Officer rejected all the submissions made by the assessee and held that the assessee is covered by the proviso to amended definition contained in section 2(15) of the Act, and that its activities are not charitable. The Assessing Officer, therefore, computed the total taxable income at Rs. 14,29,172/-.
Aggrieved by the order passed by the ld. Assessing Officer the assessee preferred an appeal before the ld. CIT(A). 4.1. Before the ld. CIT(A) the assessee submitted as under: “4.2 The assessee had been enjoying the exemption u/s 11(1) but the same was denied by the Assessing Officer during the A.Y. 1986-87, 1987-88, 1988-89 and the order of the Assessing Officer was confirmed by the ld. CIT(A) but the appeal of the assessee was allowed by the Hon’ble Tribunal in the common order dated 20/09/1991 in & 6129/Del/1989 and 1690/Del/1990 and the assessee was treated as a charitable institution vide para 5 of the order.” 4.2. The ld. CIT(A) on the basis of the submissions and the paper book filed by the assessee held as under: “4.6 I have considered the order of the Assessing Officer and the submissions of the assessee and I find considerable merit in the submissions of the assessee that the mischief of Proviso of section 2(15) is not applicable as the assessee is not involved in any trade, commerce or business and the case of the assessee is also covered by the orders of the Hon’ble Tribunal as referred above. 4.7 Recently the Hon’ble Delhi High Court in the case of India Trade Promotion Organization vs. ITA No. 3637/D/2015 & CO No. 278/D/2015 5 DGIT(E), 53 Taxmann.com 404 (Del.) 2015 (order dated 22/01/2015) has upheld the constitution validity of the proviso of section 2(15) which was under challenge being discriminatory in view of the Article 14 (Equality before law) of the Constitution of India but the Hon’ble High Court has read down the strict and literal interpretation of the proviso of section 2(15) and has held that mere receipt of fee or charge cannot be said that the assessee is involved in any trade, commerce or business and has accordingly the relief to the ITPO case vide para 58 and 59 of the order.”
Aggrieved by the order of the ld. CIT(A) the Revenue is in appeal before us. 5.1. Before us the ld. AR submitted that the assessee is also registered under the Societies Registration Act, 1860 on 07/01/1972 and is also registered u/s 12AA of the Act on 07/06/1978 by the CIT- III, Gujarat. He further submitted that, the assessee has received huge payments from private companies which has not been disputed by the Revenue. The ledger accounts of the assessee during the relevant period showed certain receipts. The fees charged is high because the events conducted by the assessee are all national event, and had to be conducted at suitable locations with a comfortable place of work and stay. The ld. AR submitted that there is no proper motive behind the activities conducted by the assessee and the Revenue generated there from. The ld. AR submitted that in spite of the Tribunal orders in the assessee’s own case for earlier years being 1986-87, 1987-88 & 1988-89, the ld. Assessing Officer has taken a contrary view. 5.2. The ld.AR submitted that this Tribunal in the orders passed for these assessment years have restored the benefit of section 11 under the I.T. Act to the assessee (copy of the orders annexed in the PB at & CO No. 278/D/2015 6 page 18 to 26). The relevant paragraphs from the order of this Tribunal are reproduced herein below: “We have carefully considered the rival submissions as also the facts on record. The assessee Society is registered under the Societies Registration Act, 1980 and is recognized as a charitable institution by the Charity Commissioner as well as the Commissioner of Income Tax. The main activities of the Society are to conduct research and training programmes in the field of Applied Behavioural Science. The assessee is charging fees for the training imparted and the bulk of the expenses is incurred on meeting the hotel charges where boarding and lodging arrangements for the participants and the faculty members are made. No honorarium or remuneration is paid to the faculty members for the lectures delivered by them. Clause 5 of the Memorandum of the assessee Society which is very relevant is reproduced below:
1. 1. The Society is not organized for profit, and all its income and property shall be applied solely towards furtherance of the Society’s aims and objectives.
2. No dividend/Bonus or other form of profit sharing shall be paid to the Members.
3. The money belonging to the Society shall be deposited in a Scheduled Bank or invested in securities or long term deposits etc.
4. All financial investments shall be with the approval of the ISABS Board.
5. The accounts of the Society shall be audited at least once in a year by the auditors appointed by the Annual General Body. It will, thus, be seen that the dominant purpose and intention of the Society is not to earn any profit and the excess of income over expenditure is merely incidental to the carrying out that dominant and primary purpose. Applying the ratio of the Supreme Court decision in the case of Surat Art Silk Cloth Manufacturing Association (supra) we hold that the purpose of the Society was charitable in nature. The surplus of funds was meant only to be applied to such charitable purposes and there was no personal gain or profit motive of the Society in conducting the & CO No. 278/D/2015 7 training programmes. In fact, the Society fulfilled its aims and objectives only by conducting various programmes and seminars for which it legitimately charged fees from the participants. Section 11(4A) is applicable only if the income is derived from profits and gains of business. A business is conducted with a profit motive and not for altruistic purposes. The very aim of the assessee Society is not to make any profit, but to apply its income and property solely towards furtherance of the assessee’s aims and objectives. The assessee has no premises of its own. With a view to conducting the work shop, the training programmes, seminars etc. in a congenial atmosphere and in good environment, the assessee Society had to make arrangements for its participants and the faculty members at hotels. It is also noteworthy that the faculty members were not paid any honorarium or remuneration for the services rendered by them. It has also been submitted before us that neither the members of the society nor any office bearers of the society were benefitted or enriched by the activities of the assessee. Taking the entire facts and circumstances of the case into consideration, we hold that the purpose of the assessee is charitable as defined in section 2(15) of the Act and that the provisions of section 11(4A) not attracted in this case inasmuch as the assessee is not carrying on any business for profits. The assessee is, therefore, entitled to exemption u/s 11 in respect of the excess income over expenditure in the years under consideration.” 5.3. On the contrary, the ld. DR had relied upon the order of the ld. Assessing Officer.
We observe that the ld.AO has applied the proviso to sec.2(15) of the Act, by holding that the assessee is involved in an activity related to trade, commerce or business. Merely because fees are received by the assessee from the participants, it cannot be held that assessee is involved in any trade, commerce or business, as held by the jurisdictional High Court, in the case of Indian Trade Promotion Organisation Vs. DGITE, reported in 53 Taxmann.com 404(Delhi).
ITA No. 3637/D/2015 & CO No. 278/D/2015 8 The Hon’ble Court has held that, 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 nature of trade, commerce or business, then it would not be entitled to claim its object to be a charitable purpose’. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. 6.1. This Tribunal in the order dated20.09.1991 for the preceding years being 1986-87 to 1988-89, have recorded a clear finding in respect of the activities and functioning of the assessee. In pare 5 of the said order this Tribunal has recorded that the assessee being a society is also registered with the Charity Commissioner. Clause 5 of the Memorandum of Association the society,(placed at page 150-157). To avoid repetition, the clauses are not reproduced herein. It is amply clear that, the society has not been organized for profit, and all its income and property shall be applied solely towards furtherance of the societies aims and objectives. It is thus been observed that the dominant purpose of the assesse is not to earn ay profit and the excess income is merely incidental to the carrying out its activities. The surplus funds is meant only to be applied to such charitable purposes and there is no personal gain, or profit motive of the assessee in conducting various programmes and seminars for which it legitimately charged fees from the participants. 6.3. It is also noteworthy that the faculty members were not paid any honorarium or remuneration for the services rendered by them. It is further pertinent to note that the assessee have been consistently & CO No. 278/D/2015 9 filing its returns with the exemption division and the assessment has always been concluded by the assessing officer in exemption.
Taking the entire facts and circumstances into consideration, we hold that the purpose of the assessee is charitable as defined in sec.2(15) of the Act and the proviso to sec.2(15) is not attracted in this case in as much as the assessee is not carrying on any business for profits. We, therefore do not find any infirmity with the order of the ld.CIT(A) in granting the exemption u/s.11 to the assessee. Respectfully following the decisions of this Tribunal for A.Ys. 1986- 87, 1987-88 & 1988-89, we dismiss the grounds of the Revenue.