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TMI Blog2012 (5) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is a society which was set up on or about 24th June, 2002. Its office was initially located at c/o Maruti Udyog Limited, 11th Floor, Jeevan Prakash, 25 Kasturba Gandhi Marg, New Delhi 110 001. The persons desirous of setting up the society and the initial members of the governing body were Mr. Jagdish Khattar, and six others. It is an undisputed position that Jagdish Khattar was the Managing Director of Maruti Udyog Limited. Rules and regulations of the society have been placed on record. Some of the relevant rules read as under:- "MEMBERSHIP: 4. An individual, partnership firm, company or a body corporate who is associated with Maruti Udog Limited (MUL) as vendor, dealer, transportation, & logistic company, casual supplier or civil contractor or is sub-vender of big vendors of MUL, shall be entitled to apply to become a member of the society. 5. An application for membership shall be made in writing on the application form prescribed by the Governing Board and shall be accompanied by the prescribed admission fee for the membership. ** ** ** 7.(a) The membership fee shall be determined by the Government Board from time to time. For the time being it shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide consultancy in the field of TQM- Deming prize, 6Sigma, NPD, QFD, FMEA< TPM, Kaizen, TS16949 /QS9000 and ISO 9000 and ISO 14000. f. To provide support services in the field of measurement of IQS/ CST for OEMs, vendor auditing for OEMs/big vendors, g. To provide library, standards and research papers and internet centre relating to quality management and related fields. h. To provide support services as benchmarking clearing house and tired party certification services for ISO 9000. i. To establish and/or acquire, maintain and/or support schools. College, Seminary, Study Centres, Universities and other Institutions for imparting and training of students in the field of quality management. j. To establish and support Professorships, Fellowships, Lectureships, Scholarships, and prizes at Schools, Colleges or other education Institutions. k. To establish, maintain and support Hostels and/or Boarding houses and grant of free food and lodging to deserving students upon such terms and for such periods in each case as the Governing Board may think fit. l. To grant endowment at Universities, Resea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety was for the private benefit of the members. Accordingly, the entire income of the assessee was held to be taxable including corpus receipts of Rs. 5.25 crores received in the assessment year 2005-06. In the assessment year 2006-07, an excess of income over expenditure of Rs. 69,16,879/- was held to be taxable in addition to interest on Fixed Deposits of Rs. 43,84,753/-. 7. The assessee succeeded in the first appeal before the CIT (Appeals), who referred to the decision of the Supreme Court in ACIT v. Surat City Gymkhana, [2008] 300 ITR 214 (S.C.). By the impugned orders, the tribunal has affirmed the decision of the first appellate authority. 8. Sections 2(15) (as it existed prior to amendment w.e.f. 1.4.2009), 13(1)(c)(ii) and 13(3) of the Act read as under:- Section 2 Definitions.- In this Act, unless the context otherwise requires,- ** ** ** (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility; Section 13(1)(c)(ii) (1) Nothing contained in section 11 [or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year exceeds [fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; [(cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c) [, (cc)] and (d) has a substantial interest." 9. Section 2(15) of the Act defines "charitable purpose". The last portion thereof includes "advancement of any other object of general public utility". It is accepted position that the respondent claims that it was/is a charitable institution because its activities fall in the last portion or the residuary part of the aforesaid clause. The Supreme Court in Surat City Gymkhana (supra), did not permit and allow the Revenue to challenge the ratio expounded by the Gujarat High Court in Hiralal Bhagwati v. CIT [2000] 246 ITR 188 (Guj.). It has been held in Hiralal Bhagwati's case (supra) that once an institution has been registered under Section 12A/12AA, the Assessing Officer cannot go into and reexamine whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd intention behind incorporation of the said provision. The provision postulates and states that charity for self or closely related/associated persons as defined in Section 13(3) is an anathema and not acceptable. Income and the property of the charitable institution should be used for charitable activities which benefit third persons and should not directly or indirectly benefit the persons covered under Section 13(3). 12. Section 13(3) of the Act, as noticed, consists of several sub- paras. These clauses refer to the author or founder of the trust/institution; in case of HUF any member of the family; trustee or the manager, any person who has made substantial contribution as stipulated; or any relative of the said persons or any concern in which any of the said persons have substantial interests. Reading of sub-clauses again indicates the broad and expansive coverage which the Legislature wanted to give to Section 13(3). The obvious intention is to prevent abuse and misuse of the provisions. However, care and caution must be taken not to expand the scope beyond the legislative intent. We should not be understood to mean and imply that income or property of the institution cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arity operates and uses its income/ property for the benefit of its members, it violates Section 13(1)(c)(ii) and has to be denied the privilege bestowed. A word of caution, we are not concerned, and are not examining the question "business held under trust", the income of which subserves charity. We are answering and examining the actual utilization and deployment of income/property, i.e., the end use and not generation of income for the end use. 14. This brings us to the factual position in the present case and the findings recorded by the tribunal, keeping in mind the aforesaid exposition with reference to Section 13(1)(c)(ii) and Section 13(3) of the Act. In the order dated 2nd September, 2009 of the tribunal for the assessment year 2005-06, the entire discussion is limited to two paragraphs and they read as under: "3. Having heard the arguments of the ld. DR supporting the grounds of appeal raised, we do not find any merit therein. The ld. CIT(A) found as undisputed facts that registration u/s 12A of the I.T. Act, as granted to the assessee, was followed for the period under consideration; that during this period, a certificate u/s 80G of the Act had also been granted to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic and cannot be categorized as a reasoned and speaking order which is mandated and required to be passed by the final fact finding authority. 17. We may, in this regard refer to some observations and findings recorded by the Assessing Officer in the two assessment orders including the reply given by the assessee and "donor members" in the assessment proceedings. In the two orders, the Assessing Officer had made a specific reference to clause 4 of the Rules which postulates and prescribes conditions for becoming a member of the society, which has been quoted above. It was noticed that the assessee had received corpus donation of Rs. 5.25 crores from 30 parties in the assessment year 2005-06. They were the vendors or the original equipment suppliers of Maruti Udyog Ltd. Though clauses (a) and (c) to (d) may not be attracted, but clause (b) to Section 13(3) would be attracted in case the contributions made upto the end of the previous year exceed Rs. 50,000/-. Accordingly, clause (e) to Section 13(3) would apply. 18. Notices were issued to the said vendors/suppliers and in an identical worded reply, they had stated as under:- "(1) "Maruti Centre for Excellence, a society re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, in its reply in the form of notes on activities, has averred that the Center encourages the vendors to attain and implement world class best practices. 22. The orders of the Assessing Officer, though somewhat confusing and unclear, with reference to the aforesaid assertions states that the training given by the respondent institution was for the benefit of the Maruti Udyog Limited or the vendors or suppliers connected with the Maruti Udyog Limited. Training facilities were not available to general public at large and was not for the benefit of the public at large. He observed that the membership was only open to the parties associated to the Maruti Udyog Limited and not to others and the activities undertaken by the assessee were for the benefit of the members. 23. Clause 13(3) of the Act quoted above, states that a person whose total contribution upto the end of the relevant previous year exceeds Rs. 50,000/-, is covered and must not be the beneficiary of any benefit, directly or indirectly. This is the restriction/requirement of Section 13(1)(c)(ii). Thus all the vendors or suppliers of the Maruti Udyog Limited who had paid contribution of more than Rs. 50,000/- have to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom non-members. Further and importantly, Section 13(1)(c) (ii) will get attracted if the benefit was confined primarily and predominantly to the persons mentioned in Section 13(3) (b) and (e) and incidentally some benefit had percolated and flowed to the public/third persons. 26. During the course of hearing, learned counsel for the assessee had drawn our attention to paragraph 8 of the order passed by the CIT (Appeals) for the assessment year 2005-06, in which he had recorded as under:- "8. On examination of the Balance Sheet and Income & Expenditure Account at pages 6 and 7 of the paper Book , I do not find that any income or asset or property of the Society has been used or applied during the year for the benefit of the Settlor or for that matter the Maruti Udyog Ltd. (MUL). The income of the Society is mainly from interest on Fixed Deposits and Bonds, data processing charges received, consultancy fee, training programme fee, and incentive received. None of these items could be said to be used for the benefit of the Settlor. The assets in the Balance Sheet of the assessee are fixed assets, investments in RBI bonds, fixed deposits with Bank, current assets, loans and advances. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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