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TMI Blog2015 (2) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... v/s income from house property - Held that:- Since already held that the appellant society is eligible for exemption u/s 11 and 12 of the Act, the necessary corollary is that treatment of heads of income become irrelevant. The Hon'ble Supreme Court in CIT Vs. Programme for community organization (2000 (11) TMI 4 - SUPREME Court) while approving the Kerala High Court decision reported in (1996 (10) TMI 41 - KERALA High Court) as to the manner of computation of charitable institution held that income has to be computed on commercial basis and not head-wise on statutory basis. (refer CBDT Circular No.5P, dated 19.06.1998). Depreciation claim by the appellant society on capital assets - Held that:- As relying on case of Vishwa Jagriti Mission [2012 (4) TMI 289 - DELHI HIGH COURT ] claim of depreciation on fixed assets utilized for the charitable purposes has to be allowed while arriving at the income available for application to charitable and religious purposes, since the income of the society should be computed on the basis of commercial principles. Judgment of the Supreme Court in Escorts Limited Vs. Union of India (1992 (10) TMI 1 - SUPREME Court)holding that depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he poor. So, finding of the AO remains conclusive, wherein, he has demonstrated that assessee is hit by the amended provisions of section 2(15) of the IT Act w.e.f assessment year 2009-10. There is force in the finding of the AO that appellant trust is consistently making profit from year to year and has generated surplus e.g. for this year surplus has been generated to the tune of ₹ 18,83,528/- and for assessment year 2008-09 it was to the tune of ₹ 26,22,922/-. So, in my considered opinion, action of AO is justified, wherein, he has held that activities of the appellant trust are squarely hit by amendment in section 2(15) of the IT Act effective from assessment year 2009-10. In view of the above discussion, grounds No.1 2 of the appellant are dismissed. 4. Before us, it was contended that the appellant-society was established in the year 1993 under the Societies Registration Act, 1860 as a non-profit organization. It was submitted that a plot of land was allotted by DDA in the year 2001 for constructing a Dharamshala at 11, Service Centre, Opp. DDA Chilla Sports Complex, Vasundhara Enclave, Delhi-96 (Near Dharamshila Cancer Hospital), on the recommendation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational cost only. During the relevant previous year total recovery of ₹ 1.29 lacs was made against direct cost of ₹ 1.28 lacs incurred on fuel and repairs. The said services were also provided towards attainment of its objectives only by the appellant and the same cannot be understood as the services rendered in relation to carrying on of any trade, commerce or business. The ld AR submitted to the remark in respect of the AO's averment 'ideally charity should be done free of cost'', that in the case of the assessee even if it wanted to recover some cost from the customers it should not have resulted into a profit of 19.25% of its total income (i.e., surplus of ₹ 18,83,528/- on total income of ₹ 97,80,123/-). According to the AR the said surplus of 19.25% worked out by the AO above is misleading and it does not reflect the true picture since it includes rents received for the portions let-out to banks, and does not reflect the true position of surplus/deficit actually derived from running of Dharamshala. According to the ld AR, in fact, there was a meagre surplus of ₹ 64,967/- in Assessment Year 2008-09 while there was a deficit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessee ineligible to claim exemption u/s 11 and 12 of the Act. The Hon'ble Gurjarat High Court in the case of DIT Vs. Sabarmati Ashram Gaushala Trust reported in 25 ITR 701 held as under:- 5. Term Charitable Trust is defined in section 2(15) of the Act which includes the relief to 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 advancement of any other object of general public utility. Proviso to Section 2(15) and further proviso whereof inserted by Finance Act, 2010 w.ef. 1st April 2009 read, thus- 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2008 dated 19th December 2008 explaining the amendment as under:- 3. 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 any 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. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business- particularly if generating surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. 7. Applying the above ratio, we hold that the assessee society is a charitable society, which is not engaged in any business, trade or commerce so as to disentitle the claim of exemption u/s 11 and 12 of the Act. Surplus alone cannot be a ground to conclude that activities are commercial in nature. In the instant case it is undisputed that the activities are charitable in nature, but solely on the ground of surplus, such activities have been held to be of commercial in nature. We already have found that there was no surplu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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