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TMI Blog2011 (4) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... ral public utility" as described in section 2(15) as it existed prior to assessment year 2009-10, but its claim even for assessment year 2008-09 is premature as it did not start its charitable activity in that year - it is held that for assessment year 2008-09 and for subsequent years in which the assessee does not carry out charitable activity, the assessee has been rightly refused to get benefit of registration as charitable institution - The only activity which has been carried out is for the purpose of generating income, which is not a charitable activity in itself - Decided against the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... e permissible limit of 15%. In this manner, the return of income has been filed at nil. The assessee being a society, for the purpose of seeking registration under section 12A of the Act and for the purpose of seeking approval under section 80G filed two applications with DIT (E) on 14th February, 2008 in Form Nos. 10A and 10G of the Act. Learned DIT (E) required the assessee to file certain documents which are listed at page 1 at Sl. Nos. (i) to (vi). In response, the assessee filed the details and from examination of income and expenditure account, it was noticed by learned DIT (E) that the assessee is engaged in the commercial activity, hence, he issued a show-cause notice dated 21st April, 2008 to the assessee to require it to explain as to how those activities are charitable in nature within the meaning of section 2(15) of the Act. Replies were filed dated 13th May, 2008 and 9th June, 2008 which have been stated to be considered by learned DIT (E). The assessee also has filed a note on the charitable activity in which it was mentioned that the assessee is engaged in the activity of providing help to the exporters. It is providing assistance regarding better and cost effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 24th July, 2008. Aggrieved, the assessee has filed two separate appeals agitating therein the action of the DIT (E) in refusing the grant of registration under section 12A and rejecting the request of the assessee for grant of exemption under section 80G. 5. Learned AR of the assessee has filed before us synopsis of his submissions/arguments. According to those arguments, the assessee-society is registered under Societies Registration Act. Its aims and objects are duly recorded in the Memorandum of Association. Those objects are charitable in nature. All the details and documents called for by the DIT (E) were duly produced. The order of DIT (E) is a non- speaking one so as it relates to non-grant of deduction under section 80G(5) as the assessee has fulfilled all the criteria and the grant of exemption could not be denied to the assessee. According to learned AR, for considering the claim of the assessee under section 80G, the assessee was required to fulfil the following seven conditions which have been fulfilled by the assessee:- 1. Any income not liable for inclusion in total income under section 11, 12, 10 (23AA)/(23C) : NA 2. Transfer/application of incomes/ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included promotion of the products and skill of its members/participants, or/has to exist and compete in the business and economic environment (which is/might be commercial or profit oriented) and, therefore, it has to incur cost at rates which are being paid by one and all, has not carried out activities for business/profit purpose and these are with non-profit motive and, therefore, it has to charge the revenue at commensurate rates as market forces are out of bound and control of the assessee-society. He submitted that profit/gain/surplus is a numerical result of revenue-income and expenditure for earning former which can either be positive or negative and it is not necessary that the assessee will all alone earns income out of it. He submitted that though for financial year 2007-08 a gain of Rs. 33.56 lakhs has been earned but in subsequent years i.e., for financial years 2008-09 and 2009-10 it has incurred loss of Rs. 42.63 lakhs and 50,000 approximately. He submitted that profit and gains, if any occurs to assessee, was only to be utilized for the purpose of promotion of the aims and object of the assessee-society. He also relied upon the following decisions to claim that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80G is prior to that year. Therefore, at least for assessment year 2008-09 the claim of the assessee could not be rejected. 10. We have carefully considered the rival submissions in the light of the material placed before us. Copy of brief note of activities filed by the assessee before the DIT (E) is placed at page 57 of the paper book the text of which is as under:- "Brief note on the activities of the Society. Society for the Small & Medium Exporters is promoted with the nation cause of promotion of exports of Indian Handicrafts to other parts of the world. It, not only, promotes the Indian culture in the world, at the same time, it helps us providing job to thousands of persons, pioneer in their traditional art but have limited market locally. Moreover they do not get the adequate margin on their products. The members of the society, who are mainly exporters, organize the market and people engaged in these activities provide material and tools, get the items produced, with the help of basic machines to accelerate the production, so that these small artist or labour earn adequate income for their work. In turn, nation earns lot of foreign exchange for the value of mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 2008 in which 230 exporters had participated. Copy of audited accounts for the said year are filed at pages 1 to 10 of the paper book. The receipts in the income and expenditure account, apart from TDS collected and service tax collected are following amounts:- INCOME AMOUNT Rs. By Advertisement Charges Recd. 140,000 By Fair Charges Recd. 22,234,562 By Rent Recd. 76,027 By Subscription & Membership 136,000 Fee Recd. 13. Against those consolidated receipts of Rs. 2,25,86,589, the assessee has incurred Rs. 1,92,30,362.70 on account of various expenses relating to exhibition and it include depreciation of Rs. 72,243.85 and excess of income over expenditure amounting to Rs. 33,56,226 has been carried to the balance sheet under the head 'current liability.' None of the items shown in the expenditure relate to the application of income by the assessee on the aims and objects stated in the Memorandum of Association. The receipts as well as the expenditure are relating only to the activity relating to organizing the exhibition. Thus, during the financial year 2007-08, the assessee has not incurred any expenditure on its object stated in the Memorandum of Association. Rathe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 12A, shall - (a) all for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he - (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,and a copy of such order shall be sent to the applicant: Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard." 15. The reading of above section will reveal that the concerned authority while examining the claim of the assessee under section 12A is empowered to call for such documents or information from the applicant which he thinks necessary to satisfy himself about the genuineness of activities of the institution and he is also empowered to make inquiries in that regard and it is only after such satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o implies that carrying on of commercial activity incidental to attainment of object is a separate activity for which the assessee is required to maintain separate books of account. The assessee does not maintain separate books of account of the institution to show the application of income for attainment of its objective and of the business carried on by it which it claims to be incidental to the attainment of objectives. In other words, even if the assessee claims that it has organized exhibition as a commercial activity for attainment of objectives of the society, even then it is necessary for it to show that in advancement of its objectives it has incurred certain expenditures on the objects stated in the Memorandum of Association. In fact, the assessee has not carried out any charitable activity in the year under consideration. The entire amount received by it cannot be considered as income as the income is only the surplus of the total receipts minus expenditure incurred to earn the total receipt. The entire receipts cannot be considered as income and expenditure incurred to earn those receipts cannot be considered as application of income for the purpose of attaining the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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