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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 ..... elevant and which are to be examined - Partly decided in favor of Revenue. - IT Appeal NO. 1335 of 2010 - - - Dated:- 21-5-2012 - SANJIV KHANNA AND R.V. EASWAR, JJ. JUDGMENT Sanjiv Khanna, J. Director of Income Tax (Exemptions) has filed these two appeals against Maruti Center for Excellence (assessee/respondent, for short). In ITA No. 1335/2010, which relates to assessment year 2005-06, order dated 2nd September, 2009, passed by the Income Tax Appellate Tribunal (tribunal, for short) has been challenged. In ITA No. 50/2011, order dated 12th May, 2010 which relates to the assessment year 2006-07, passed by the tribunal has been challenged. As the issue and question involved in the above two appeals are identical and similar, they are being disposed of by this common order. We heard the learned counsel for the parties on the following substantial question of law framed on 3rd May, 2012:- "Whether the Income Tax Appellate Tribunal was right in holding that the assessee is a charitable institution and has not violated the Section 13(1)(c)(ii) read with 13(3) of the Income Tax Act, 1961?" 2. The assessee is a society which was set up on or about 24th June, 2002. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be elected members. ** ** ** MANAGING COMMITTEE 22. The Governing Board shall have powers to constitute a managing committee to provide it necessary guidance and supervision in important matters of the centre. The Managing Committee shall comprise of the following five members: 1. CEO 2. Four Governing Board members two each representing MUL and elected members." 3. The aims and objects for which the society was established are stated in the Memorandum and Articles of Association and read as under:- " a. To propagate amongst organizations up- gradation in terms of quality, cost and technology orientation through training, consultancy and other supportive services. b . To help organizations to reach world class levels of performance and to gain word vide respect for professional competency in the field of quality management. c. To help organizations thorough training, consultancy and supportive services to achieve total Quality Management (TOM), TPM, ISO 9000/QS9000/TS16949, ISO14000. d. To organize short term and certification training courses in the fields of quality management. e. To provide consult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present to past members. No member of the society shall have any personal claim on any moveable or immovable properties of the society or make any profit whatsoever by virtue of its membership." 5. The admitted position is that the respondent society was granted registration under Section 12AA of the Income Tax Act (Act, for short), by the Director of Income Tax (Exemptions). We have been informed at the Bar that this exemption was cancelled by an order passed by the Director of Income Tax (Exemption) but the said order has been set aside by the tribunal with a direction of remit. This decision proceeds on the position that the registration granted under Section 12AA of the Act has not been revoked. 6. The Assessing Officer in the two assessment years has held that the assessee was not performing charitable activities as defined under Section 2(15) of the Act and the purpose of the formation of the society appeared to be for mutual benefit of Maruti Udyog Limited and members of the respondent. It has been held that the society had violated Section 13(1)(c)(ii) read with Section 13(3) of the Act as the society was for the private benefit of the members. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; [Explanation.-For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 [other than sub-clause (ii) of clause (a) thereof] of the Finance Act, 1972.] Section 13(3)(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :- ( a ) the author of the trust or the founder of the institution; ( b ) any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. the application of income and use of property of the institution, during the assessment years in question. The activities undertaken and performed should be charitable and should not violate the specific stipulations mentioned in the Act. Incorporated in Sections 11, 12 and 13, are various provisions/stipulations regarding the actual working and functioning of an institution, which claims that its object and purpose is charitable. Violation of these provisions, have their own consequences and effect. 11. Section 13(1)(c)(ii) is a provision in the Act which deals with actual functioning and activities undertaken during the assessment year in question. The said Section has to be read along with Section 13(3). Section 13(1)(c)(ii) states that no part of the income or any property of the institution should be used or applied directly or indirectly for the benefit of any person referred to in sub-section (3). The words "directly or indirectly" are important and reflect the intention of the Legislature that income or property should not be even indirectly used for benefit of a member. The word 'indirectly' used in Section 13(3)(c)(ii) shows the expansive and comprehensive scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word "benefit" need not be restricted to direct material benefit, but is of wide significance comprehending whatever would be beneficial in any respect, materially or otherwise. Benefit can be pecuniary or non pecuniary. This would be the correct legislative intent. 13. Under Section 13(1)(c)(ii) of the Act, the purpose of the society must be to benefit the public or sub-serve the object of general public. Thus, where the dominant motive of the application of income or property is to help the members of a society, and remotely and indirectly to benefit the public, it cannot be said that the institution meets the requirements of the said Section. Again, where the primary purpose is to benefit the private interests of persons under Section 13(3), provisions of Section 13(1)(c)(ii) are attracted. Thus, the general purpose or object as stated in the Memorandum may be a beneficial one, but it would violate Section 13(1)(c)(ii) read with Section 13(3), where the benefit is primarily confined to the members of the institution itself or employees of a particular firm or company covered under the ambit of 13(3), however large the number of beneficiaries may be. Where the institution/ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the assessee, remain patent on record. No material to the contrary has come on the file. As such, the ld. CIT(A) cannot be said to have committee any error in passing the impugned order. The findings of the ld. CIT(A) are therefore upheld and the grounds raised by the Department are rejected." 15. For the assessment year 2006-07, there is no discussion about the factual matrix and the tribunal has recorded that adhering to principle of stare decisis, there was no justification to interfere with the well reasoned order passed by the first appellate authority. 16. The order of the tribunal in the assessment year 2005-06 is devoid of reasoning and does not refer to factual matrix and details which have to be examined and considered while deciding the question whether or not Section 13(1)(c)(ii) read with Section 13(3) is violated. The facts, figures mentioned in the income expenditure account and the activities undertaken etc. have not been mentioned or specifically examined. What was and whether any benefit or advantage was enjoyed by the person mentioned in Section 13(3) has not been adverted to and considered. General observations have been made. The order of the tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruti Udyog Ltd. shall be made an export oriented unit for supplying cars in other parts of the world. Working in that direction, it has been felt that suppliers of Maruti have to be upgraded to world class levels in terms of quality, cost and technology orientation through consultancy training and other support services. To achieve these objectives the idea to launch "Maruti Center for Excellence" was conceived. The vision of this center is to become an Indian Equivalent of JUSE, helping organizations reach world class levels of performance and gain worldwide respect for professional competency in the field of Quality Management. This 'CENTER" encourages vendors to attain and implement world class best practices like TOM, TPM, Lean manufacturing. Six Sigma Business Excellence programmers etc. under the guidance of foreign consultants. The "Center" provides external support to implementation teaching of foreign consultants at the operating level." (emphasis supplied) 21. In the reply given by the vendors/suppliers they have stated that money was paid to provide them with quality upgradation, productivity improvement etc. They have stated this was the purpose for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose/activities is proved and there was no violation of Section 13(1)(c)(ii). 25. This to our mind may be relevant to determine and decide whether an institution was carrying on charitable activities and whether or not it is violating Section 13(1)(c)(ii) of the Act but this alone is not the only or sole requirement to determine and decide the question/aspect of benefit. What the said Section postulates and requires is no benefit directly or indirectly must accrue to a person mentioned in Section 13(3) of the Act by application of income or use of property of the charitable institution. Thus, charging the same fee may be relevant but may not determinative for deciding whether or not direct or indirect benefit in the form of use of property or income of the institution, by a member has taken place during the relevant previous year. The issue/question is much broader and requires deeper scrutiny and verification. In the present case, it will require examination of the expenditure incurred on the training and whether this was a "benefit" to the persons mentioned in Section 13(3). For example, in case training was subsidized, then it can be said and argued that benefit was given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppliers of MUL, apart from other auto companies. The direct benefit is to the people i.e. employees of these concerns who may also, incidentally, change their jobs. Therefore, education and training is to the public at large facilitated by auto ancillaries and imparted by the appellant Society it was claimed. 11. I have considered appellant's submission. I find that this issue does not arise from the order of the AO. Hence, I dismiss ground No. 6 of the appellant as infructuous." Thus, the findings/observations of the CIT (Appeal) are not conclusive and are ambiguous. 28. We note that CIT(Appeal), in the order for the assessment year 2006-07, has not recorded any independent findings but merely recorded that the issue was decided by the tribunal in the earlier assessment year and he was bound by the said decision. 29. In view of the aforesaid position, we answer the aforesaid question of law in negative with the order of remit. Question of law is partly decided in favour of the appellant Revenue. The tribunal will examine the factual matrix and position in the light of legal position mentioned above. Before applying the ratio/law, they shall first examine and record ..... X X X X Extracts X X X X X X X X Extracts X X X X
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