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TMI Blog2015 (3) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... d to aerted drinks having no health benefits. It is not the case of the Revenue that the endorsement of healthy nutrition is medically/scientifically incorrect. The assessee as per the mandate of its objects and the methods set out in Clause IV(2); (3)(5) (6); (7) and (16) has endorsed products on the claims of health and nutritional benefit the grievance of the Revenue appears to be misplaced. In the absence of any adverse finding in regard to the activities of the trust we find that the department’s case has no merits. Prime land was made available to the assessee to facilitate its objects of providing space on rent etc. for promotion of trade wherein the assessee apart from selling tickets etc was also providing food & beverage outlets and providing for water, electricity etc in the facts of the present case admittedly financial support is also provided to the assessee trust whose activities have not been assailed to be contrary to the aims and objects and we find that mobilizing resources towards its aims and objects that too within the methods enshrined by the trust deed which are ploughed back by the society towards its aims & objects to our minds does not cause any griev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has erred in holding that no action for withdrawal of registration u/s 12AA has been initiated by DIT(E) because Finance Act, 2012 has introduced a retrospective amendment w.e.f. 01.04.2009 which clearly lay down that such cancellation is in no way mandatory for denial of exemption u/s 11 I2 of the Act. 7. The appellant craves to add, to alter or amend any ground of appeal raised above at the time of hearing . 2. The relevant facts of the case are that the assessee returned a NIL income by way of filing its return on 29.09.2009 which was picked up for scrutiny after issuance of notice u/s 143(2) etc. The AO taking into consideration in para 2 of his order that the main object of the society was to promote and advance medical science and to promote improvement of public health and medical education in India further goes on to observe that the activities of IMA include holding of periodical meetings/conferences of the members and the medical profession in general, to publish and circulate official journals, conduct educational campaigns in India, medical research etc. However on examining the details the AO was of the view that some of the receipts are arising out of comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are arising out of commercial transaction with outsiders who are non-member of the society. In this regard he raised the issue of endorsement money of ₹ 1.87 Crores from the various Corporates. On the basis of the analysis carried out of the agreement, the Assessing Officer concluded that various clauses of the agreement are outright commercial in nature. Thereafter by referring to the proviso to Section 2(15) of the Act he has held that the income of the appellant is hit by this proviso and accordingly the appellant will not be eligible for exemption under Section 11 of the Act. 5. The Assessing Officer has also made a reference to sponsorship income of . ₹ 7.87 Lac and rental income of ₹ 73.15 Lac received from various tenants of the building. It is held that the rental agreement to be commercial and the receipt hit by proviso to Section 2(15) of the Act. 6. On the basis of the above, the Assessing Officer has held that the appellant is not entitled to exemption under Section 11 of the Act and has taxed the income of the appellant. The action of the Assessing Officer is against the facts on record and against the provisions of law as explained hereinafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f only. 3.2. It was further submitted that if a charitable trust or society is engaged in all these three activities which is the case of the assessee society then it is irrelevant whether the nature of the income is from sponsorship, endorsement, rent or otherwise so long as the same is used for the purpose for which the institution has been established. In the case of the assessee it was submitted there is no such adverse finding by the Assessing Officer that it is engaged in any other activity which is not permissible. On going through the assessment order it was submitted it would be seen that all along the allegation of the Assessing Officer is the nature of the income which as explained is not relevant for the purpose of exemption under Section 11 (l)(a). The voluntary contribution, donation or contribution if applied towards charitable purpose cannot be a ground for withholding exemption. It was re-iterated that it is not the nature of the income but it is the application of the income which is the decisive factor for granting exemption under Section 11 (l)(a) of the Act. The Assessing Officer it was pointed has nowhere put any allegation about the application of the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice for a cess or fee or any other consideration also supports the above interpretation. Thus, the correct interpretation of the proviso is that any other object of general public utility should be, it be nature of trade or commerce activity is being carried out for a cess or fee. 3.5. It was reiterated that mobilizing of resources by way of sponsorship fee, rental income endorsement etc has no co-relation with the activities of the trust which has been held to be charitable in nature. Thus to find fault with the source of income cannot be a valid to be a ground for denying necessary relief. The objection to the source it was submitted cannot be the basis as the object clause clearly states that the trust is engaged in the medical relief and advancement of medical science so as to improve all public health. All activities of the trust it was submitted are towards this end and the entire expenditure is being incurred in the cause of medical relief. It was submitted that there is no adverse finding that the trust is engaged in any other activity which is not permissible. The assessee it was submitted has not claimed exemption on the basis that it is making endorsement or getting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) for withdrawal of exemption, no action has been initiated by the DIT(E) against the appellant till date. Furthermore, AO has not been able to demonstrate as to why activity of the appellant has become non-charitable in A.Y.2009- 10 only, when in previous three consecutive scrutiny assessments viz, A.Y.2006-07, 2007-08 2008-09 the findings of the AO is that appellant is doing charitable activities within the meaning of section 2(15) of the IT Act. Though there is amendment in the Act w.e.f A.Y.2009-10, it has been clarified by the CBDT vide circular No. 11/2008 dated 19.12.2008, wherein, it has been emphasized that any activity done in relation of the poor, education medical relief will not be hit by the amendment in general. In that circular it has been clarified that each case would be decided on its on facts and no generalization is possible. So I found that by taking shelter of the- amendment, AO cannot hold that activity done by the appellant trust has become non-charitable because of the amendment in this section. 5. Aggrieved by this the Revenue is in appeal before the Tribunal. The Ld. Sr. DR, B.R.R.Kumar addressing the grounds raised submitted that the effective g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are not necessarily for charitable purposes only. Thus simply because financial support is provided by the Government or its Ministry it was submitted it cannot be said to be for a charitable activity only. 6. Ld. AR on the other hand inviting attention to the order dated 22.01.2015 in WP(C) 1872/2013 in the case of India Trade Promotion Organization vs Direction General on Income Tax (Exemption) Others (copy filed) submitted that considering an identical claim of the assessee the Hon ble High Court had an occasion to consider the requirements to section 2(15) of the Act in detail wherein the Hon ble High Court was seized of a proposal for withdrawal of the exemption against which the assessee had come in writ proceedings before the Court. The assessee in the facts of that case it was submitted was engaged in the promotion of Trade and other such related activities in India which were claimed to be within the ambit of the expression with the advancement of any other object of general public utility as appearing in section 2(15) of the Act. The Revenue in the facts of that case proposed to deny exemption on the ground that the assessee had received income from sale of ticke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary in the first instance is to establish that the income is received on behalf of a fund or institution established for charitable purposes . The first thing that needs to be satisfied, therefore, is that the institution must be established for 'charitable purposes'. Charitable purpose is defined in Section 2(15) as indicated above. It is an inclusive definition and includes relief of the poor, education, medical relief, advancement of any other object of general public utility and preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest . Insofar as the present case is concerned, we are concerned only with the advancement of any other object of general public utility, which has been regarded as a residuary object. Rule 2C specifies the prescribed authority as the Chief Commissioner or the Director General to whom an application is to be furnished under Section 10(23C)(iv) or (v) by a fund, trust or institution. The form of application has been specified as Form NO.56. Once such an application is made, the prescribed authority [in this case, the Director General of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 01.04.2009, the petitioner would have beer] recognized as a charity and would have been recognized as an institution established for the charitable purpose of advancement of an object of general public utility. The difficulty that has arisen for the petitioner is because of the introduction of the proviso to Section 2(15). The said proviso has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service in relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration. irrespective of the nature or use or application or retention of the income from such activities. In other words. if. by virtue of a 'cess' or 'fee' or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant for the purposes of construing the activities as charitable or not. 45. To be clear, if an act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established / proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business, principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 49. In Bureau of Indian Standards (supra), this court, while considering whether the activities of the Bureau of Indian Standards (supra) in granting licences and trading certificates and charging of fee amounted to carrying on business, trade or commerce, held as under: 73,. In these circumstances, rendering any service in relation to trade, commerce or business cannot, in the opinion of the Court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose . The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under: Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under charitable purpose . Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected. The expressions business , trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable any incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndefinite import, in taxing statutes it is used in the sense of an occupation. or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive. and not for sport or pleasure. (Underlining added) 72. There is nothing on record to indicate the assertion of the petitioner that its activities are not fuelled by profit motive is incorrect. Absence of profit motive, though not conclusive, does indicate that the petitioner is not carrying on any business 53. From the said decision, it is apparent that merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008. 56. In G.S. 1 (supra) it was contended by the revenue that GS1 (India) had acquired intellectual property rights from GS 1 (Belgium) and thereafter received registration fees from third parties in India. This was sought to be equated to royalty payments. It was also contended that GS1 (India) had huge surpluses of receipts over expenditure and that payments were made to GS1 (Belgium). According to the revenue, all this entailed that GS 1 (India) was engaged in 'business, trade or commerce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of profit motive and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible. The court also held:- 27. As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause - general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Bye Laws of the assessee s society registered under the Societies Act XXI of 1868. Referring to page 53 it was submitted that the objects have been enshrined therein. It was also his submission that in the facts of the present case also the entire proceeds are ploughed back into the activities of the assessee s trust which has been held to be charitable. 7. We have heard the rival submissions and perused the material available on record. It would be first appropriate to set out the relevant provision namely section 2(15) of the Act which we are required to take into consideration. The same is reproduced hereunder:- 2(15) charitable purpose includes relief of 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 the advancement of any other object of general public utility: 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 relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f public health and sanitation by cooperating, whenever necessary, with different public bodies working within the same object. 8. Organise medical corps for providing medical relief during epidemics and in times of emergency. 9. Consider and express its views on all questions and the laws of India or proposed legislation affecting public health, the medical profession and medical education and initiate or watch over or take such steps and adopt such measures from time to time regarding the same as may be deemed expedient or necessary. 10. Purchase, take lease of or otherwise acquire, hold, manage, let, sell, exchange, mortgage or otherwise dispose of movable or immovable property of every description and all rights or privileges necessary or convenient for the purpose of the Association and in particular any land, building, furniture, household or other effects, utensils, books, newspapers, periodicals, instruments, fittings, appliances, apparatus, conveyance and accommodation as and when deemed necessary or desirable in the interest of the Association, sell, demise let, hire out, mortgage, transfer or otherwise dispose of the same. 11. Erect, maintain, improve or alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the trust we find that the department s case has no merits. In the course of hearing it was submitted by the Ld. Sr. DR on query that the registration till date has not been withdrawn. The date of the assessment order the record shows is 08.11.2011. The Ld. Sr. DR has also canvassed that the mere fact that the assessee has received financial support from the Ministry of Health and Family Welfare which fact it has been submitted does not mean that it is performing a charitable activity. On considering the judicial precedent cited we find that the Hon ble High Court took into consideration in the facts of the ITPO that prime land was made available to the assessee to facilitate its objects of providing space on rent etc. for promotion of trade wherein the assessee apart from selling tickets etc was also providing food beverage outlets and providing for water, electricity etc in the facts of the present case admittedly financial support is also provided to the assessee trust whose activities have not been assailed to be contrary to the aims and objects and we find that mobilizing resources towards its aims and objects that too within the methods enshrined by the trust deed whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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